The Short Report Hurting Mallinckrodt’s Stock (NYSE:MNK)
Mallinckrodt (NYSE:MNK) is a specialty pharmaceutical company that develops pharmaceutical, biopharmaceutical and nuclear imaging agents. On Wednesday the stock fell by more than 8 percent after Citron Research issued a scathing short report on the company.
Citron Research is dedicated towards identifying fraud and terminal business models. When Citron Research releases a report on a company a regulatory intervention is likely to follow as the research team led by Andrew Left has amassed a terrific track record of identifying fraud and wrongdoing.
Needless to say Citron’s report is not conclusive evidence that the company is or is not engaged in any sort of illegal activity and investors are always encouraged to perform their proper due diligence, including seeking out the other side of the story.
With that said, Citron alleges that Mallinckrodt’s CEO Mark Trudeau is engaged in securities fraud and this was made apparent following the recently released Medicare drug-spending dashboard.
In late 2015 Medicare launched an online drug spending dashboard and the results have been made public for the first time ever this week.
To understand the alleged fraud, it is important to go back to October 5, 2015 when Trudeau was asked by an analyst in a conference call to explain the company’s reliance on Medicare for revenues for Acthar.
Trudeau said during the conference call, “the combined proportion of our business that goes through Medicare and Medicaid combined it’s about a quarter of our business, roughly. Acthar is maybe a little bit higher than that.”
According to Citron’s research, the actual figure is 61 percent.
“At the time, Trudeau must have calculated the investing public would never know the damning truth, but only two months later in response to public outrage, this information was on its way to being revealed to the public,” Citron stated.
Moreover, insurance companies had become increasingly skeptical over the company’s therapy so the company “protected its revenue stream by pushing more and more of the bill onto Medicare/Medicaid.” In fact, over the past two years the company’s billings to Medicare and Medicaid rose from $346 million to $648 million because private payers “opened their eyes.”
As if this isn’t enough, Citron noted that the company’s Acthar Gel is actually the most expensive drug per use in all of Medicare even with the lack of any clinical data.
Finally, to put Mallinckrodt’s alleged wrongdoings into perspective, the EpiPen controversy cost Medicare $87.9 million in 2014 compared to over $400 million for Acthar. The only difference being that it is undisputed that the EpiPen actually works.
Maltlinckrodt, Pharma, Pharmaceutical, biopharma, nuclear imaging, Citron Research, Fraud Terminal, Models, MediCare, EpiPen, Controversy,