Mallinckrodt Faces Second Bankruptcy as Opioid Debt Reduction Deal Unfolds
Drug manufacturer Mallinckrodt (MNK.A) has announced its intention to file for a second bankruptcy in the near future. This decision follows the company’s agreement to reduce its debt by approximately $1.9 billion through a debt reduction deal. As part of this agreement, the company’s existing equity shares would be canceled, leading to its creditors taking ownership of the company. It’s worth noting that Mallinckrodt had previously filed for bankruptcy in 2020.
The value of Mallinckrodt’s shares has already experienced a significant decline of about 92% throughout the current year. The announcement of the new debt reduction deal and the restructuring agreement with creditors and an opioid victims trust led to a further 18.4% drop in the company’s share price, with shares trading at 48 cents during early trading.
To address its obligations to the opioid victims trust, Mallinckrodt will make a final payment of $250 million in addition to the $450 million it has already paid. This new agreement will result in opioid creditors receiving $1 billion less than the previously agreed-upon $1.7 billion settlement from Mallinckrodt’s 2022 exit from its initial bankruptcy.
The necessity for this new agreement and bankruptcy arises from Mallinckrodt’s failure to fulfill a $200 million payment to the opioid trust that was due in June. This situation prompted the company to initiate negotiations with its stakeholders.
Siggi Olafsson, the president and chief executive officer of Mallinckrodt, highlighted that this agreement and bankruptcy process would enable the company to realign its balance sheet with its current business strategy. The company expects that the level of support from its creditors will allow it to complete its second bankruptcy by the end of 2023.
Mallinckrodt, based in Ireland, holds a significant position as one of the major manufacturers of opioids. Additionally, the company produces both generic and branded drugs, including Acthar Gel, which is used in the treatment of conditions like multiple sclerosis and infantile spasms.
Prior to its initial bankruptcy filing in 2020, Mallinckrodt was involved in more than 3,000 lawsuits that alleged the company had engaged in deceptive and misleading marketing practices to drive the sales of highly addictive opioid drugs. As part of the broader landscape of legal actions related to the U.S. opioid crisis, drug manufacturers, distributors, and pharmacy chains have collectively agreed to pay over $50 billion in settlements.
