Mallinckrodt PLC (NYSE: MNK), a maker of specialty and generic drugs, reportedly has hired advisors to help the company decided whether to file for bankruptcy protection ahead of a federal District Court trial scheduled to begin on October 21 in Ohio. The company and other drugmakers are being sued by two Cleveland-area counties that claim the firms downplayed the risks associated with opioid painkillers and overstated the drug’s benefits. The companies also are charged with failing to control the distribution of the drugs, and that such failure was a leading cause of the nation’s opioid crisis.
All told, Mallinckrodt faces more than 2,300 lawsuits related to its opioid business, and the company borrowed the last $95 million remaining in its revolving credit facility on August 28. The company’s outstanding debt now stands at around $5 billion.
According to unnamed sources cited by Bloomberg News, Mallinckrodt has hired the Latham & Watkins law firm and turn-around specialists AlixPartners to advise the company on how to proceed. While a restructuring is possible, a bankruptcy filing is more likely.
The company has about $500 million in cash on hand, according to Bloomberg’s report, and no further borrowing capacity. Mallinckrodt’s liability for its role in the opioid crisis is likely to exceed its resources. In the Cleveland case alone, competitors Endo Pharmaceuticals PLC (NASDAQ: ENDP) and Allergan PLC (NYSE: AGN) have settled for $11 million and $5 million, respectively.
Multiply $5 million by 2,300 lawsuits and the total comes to $11.5 billion, the amount that Purdue Pharmaceuticals is reportedly offering to settle all claims against it for its role in the opioid crisis. Mallinckrodt’s liability may not equal Purdue’s, but it won’t amount to a total that Mallinckrodt can afford to pay.
Mallinckrodt’s stock traded down about 43% in Thursday’s premarket to $1.49, after closing at $2.59 on Wednesday. The current 52-week range is $2.26 to $34.11, and the 12-month price target on the stock is $9.00.