Will a Sucampo Acquisition Get Mallinckrodt Back on Track?

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Mallinckrodt PLC (NYSE: MNK) has seen its shares rise on news that it was acquiring Sucampo Pharmaceuticals Inc. (NASDAQ: SCMP) for roughly $840 million. What matters here is that Mallinckrodt had lost half of its value in 2017. The move is being viewed a way to diversify its portfolio after scrutiny has hurt opioid sales.

Mallinckrodt will pay a price of $18 per Sucampo share. Interestingly enough, this is only a 6% premium to the prior closing price. Still, Sucampo shares were at $11 in November and had risen handily into this deal. If you include Sucampo’s existing debt, the value of the merger would be closer to $1.2 billion.

Mallinckrodt has a market cap of $2.24 billion.

Sucampo’s Amitiza is a drug that treats constipation-related disorders. The drug is approved for use in adults by the U.S. Food and Drug Administration, and regulators are reviewing and evaluating a potential approval for pediatric use. Roughly 40 million patients in the United States suffer from some form of chronic constipation.

There are also two more developmental treatments. One targets a hereditary and neurodegenerative disease and another treatment is targeting potentially malignant polyps.

According to Mallinckrodt, the deal could add at least 30 cents to earnings per share in 2018 and at least 60 cents in 2019. That assumes a closure in the first quarter of 2018.

Mark Trudeau, chief executive officer and president of Mallinckrodt, said:

Mallinckrodt’s acquisition of Sucampo is the latest milestone towards our vision of becoming an innovation-driven specialty pharmaceutical growth company focused on improving outcomes for patients with severe and critical conditions. The acquisition brings near-term net sales and earnings accretion through AMITIZA and bolsters our pipeline in rare diseases with VTS-270 and CPP-1X/sulindac. We look forward to adding the Sucampo portfolio and welcoming members of its team to Mallinckrodt.

Peter Greenleaf, board chair and chief executive of Sucampo, said of the deal:

This transaction is a testament to the hard work and dedication of Sucampo’s employees. Together we have made extraordinary progress in our mission to provide options for patients affected by diseases with few or no current treatment options, and to their caregivers and physicians. We believe that this transaction with Mallinckrodt represents significant value for shareholders. With the addition of its significant resources and expertise, we believe Mallinckrodt is a natural partner to accelerate the development of our rare disease assets in NPC and FAP, and to continue to provide AMITIZA for patients suffering from constipation-related disorders.

Analysts expect Mallinckrodt to generate annual sales of $3.2 billion in 2017 (down almost 6% from last year) and annual sales of $3.12 billion in 2018. The same consensus estimates for Sucampo are $253 million in total sales in 2017 (up 9.9% from 2016) and $253 million in 2018.

Mallinckrodt shares were last seen trading up 4% at $24.25 on Tuesday, in a 52-week range of $19.00 to $55.32. The Thomson Reuters consensus analyst price target ahead of this news was $31.06.