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Mallinckrodt Anti-Competitive Acts and High Prices Securities Class Action

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Bottle of HP Acthar Gel

Are revenues sustainable when a pharmaceutical company increases the price of a drug 85,000%? The complaint for this securities class action claims that they are not if the company is relying on anti-competitive behavior and on Medicare and Medicaid to make they payments. Mallinckrodt PLC’s statements concealing anti-competitive acts and downplaying its reliance on government entities for purchases of its very expensive drug, the complaint says, were violations of the Securities Exchange Act of 1934.

The class for this action is all persons who bought Mallinckrodt’s publicly-traded securities on a domestic exchange between November 25, 2014 and January 18, 2017.

Mallinckrodt is a public limited company that makes specialty pharmaceuticals, including generic drugs and imaging agents.

In its acquisition of Questcor Pharmaceuticals, Inc., Mallinckrodt acquired HP Acthar Gel, an injectable medicine made from pigs’ pituitary glands that is the only FDA-approved ACTH drug in the US. It is approved for treatment of nineteen different conditions.

Previously, Questcor had acquired the US rights to sell a synthetic ACTH drug, Synacthen Depot. The complaint claims the reason for the acquisition was to maintain a monopoly on US ACTH treatments. According to the complaint, Questcor and Mallinckrodt repeatedly raised the price of Acthar until it had increased by 85,000%, from $40 per vial to $34,000.

Also, while the company’s 2014 Form 10-K admitted that “federal and state governments may continue to enact measures in the future aimed at containing or reducing payment levels for prescription pharmaceuticals” they paid for, the company did not reveal the extent to which it was relying on Medicare and Medicaid to pay for Acthar. In fact, the company’s CEO, Mark Trudeau, claimed that the two programs accounted for 25% of all the company’s revenues and that the proportion of revenues for Acthar was only “a little higher than that.”

In November 2016, Citron published a report claiming that figures from the Centers for Medicare and Medicaid Services showed that the two programs combined had paid for over 61% of the company’s sales of Acthar. The company’s stock price fell, by over 18%.

Later that month, Trudeau admitted that Acthar brought in “a significantly greater proportion of our operating income than one third.” This precipitated another 9% decline.

On January 18, 2017, the Federal Trade Commission (FTC) announced that the company had agreed to pay $100 million for its anti-competitive behavior. As part of the deal, the company also agreed to license Synacthen to a competitor. The news of the settlement and the loss of the company’s monopoly caused another stock price decline. 

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