Suit Alleges Drug Impurity, Price Fixing as Mallinckrodt Shares Tumble

Amid news of a whistleblower lawsuit, Mallinckrodt Pharmaceuticals (MNK:NYSE) shares dropped 9.51% yesterday. Filed on Tuesday and outlined by Business Insider the following day, the suit alleges that the company continued raising the price of their top-seller Acthar without knowing what was in it.

Acthar is an anti-inflammatory medicine used to treat infant spasms, multiple sclerosis and a number of other conditions. Mallinckrodt acquired the rights to the drug with its 2014 purchase of Questcor. But according to Rasvinder Dhaliwal, former associate director at Mallinckrodt, the company doesn’t exactly know what makes the drug work.

Unknown ingredients

The suit details an October 10, 2014 call between Dhaliwal and Mallinckrodt Director of Health Economics and Outcomes Field Liaisons John Niewoehner. During the conversation, Niewoehner conceded to Dhaliwal that Acthar was being misrepresented to the public. It is not, he said, simply highly purified ACTH 1-39, a 39 amino acid-peptide hormone also known as corticotropin.

"So, it's not only ACTH 1-39, there's these other small ACTH 1-14, ACTH 1-17, ACTH 1-9, all these other smaller fragments of ACTH which we believe helps give Acthar its potency and physiological effects," the suit quotes Niewoehner as telling Dhaliwal. "For your own knowledge, there's other s--- in the vial."

The company responded to the allegations saying it "vehemently disagrees" and plans to "vigorously defend itself."

Dhaliwal joined Mallinckrodt in 2014 and was eventually pushed out in 2018.

Controversial pricing

The course of Acthar treatment currently runs $38,892. As such, the drug has been one of Medicare’s largest pharmacy-related expenses. In 2015 alone the drug cost the government $500 million.

In the suit, Dhaliwal claims the pricing was inflated through an elaborate scheme perpetrated by Mallinckrodt and Accredo Pharmacy, a mail order pharmacy owned by Express Scripts. She claimed that Accredo found ways for patients to get around paying their co-pays, which is illegal for Medicare recipients. She also claimed to have received complaints that Accredo was stealing client data from other pharmacies.

This is not the first time Acthar has been in the spotlight for price increases. Although the drug had been on the market for more than 60 years by the time Questcor acquired it, FiercePharma notes the full course of therapy reached $23,000 in 2007, up from $1,650.

Express Scripts is named in the suit but is not a defendant. A spokeswoman for the company disputed the pricing claim, saying the price for the medication is determined by the manufacturer, not Accredo or Express Scripts.

Stock declines

Valued at $15.36 at 10:00 am on Wednesday before the news about the lawsuit broke, the MNK stock dipped as low as $13.69 the following day, recovering slightly to $13.90 by the closing bell.

Last year, Acthar generated $1.2 billion for Mallinckrodt. In Q4 2017 alone, the drug accounted for over 37 percent of the company's sales of $792.3 million.

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