Mallinckrodt to Acquire Questcor - Analyst Blog

Shares of Questcor Pharmaceuticals, Inc. QCOR were up 18.7% after Dublin-based specialty pharmaceutical company Mallinckrodt plc MNK announced that it has entered into a definitive agreement to acquire the former for $5.6 billion.

Mallinckrodt expects to complete the transaction in the third quarter of 2014. As per the terms of the agreement, shareholders of Questcor will receive $30.00 per share in cash and 0.897 Mallinckrodt shares for each share of Questcor common stock.  The total consideration comes to $86.10 per Questcor share.

Post-merger, Mallinckrodt shareholders will own approximately 50.5% while former Questcor shareholders will own approximately 49.5% of the combined company's stock.

The transaction is expected to be immediately accretive to Mallinckrodt's bottom line in fiscal 2014 and significantly accretive in fiscal 2015.

Our Take

The news of the acquisition does not surprise us. We remind investors that shares of Questcor soared in mid-January 2014 as the company hinted at mulling various options to augment growth: business development, acquisitions, in-licensing, partnering and going private.

Questcor's lead drug, Acthar, is approved for as many as nineteen indications. Key indications among these include – nephrotic syndrome, multiple sclerosis MS relapse, infantile spasms, and rheumatology indications.

Acthar generated sales of $761.3 million in 2013, up 49.6%. We note that Questcor also acquired the development and commercialization rights of Synacthen from Novartis NVS in Jun 2013. Synacthen is approved in multiple ex-U.S. countries for certain autoimmune and inflammatory conditions.

Hence, the acquisition will further diversify Mallinckrodt's portfolio of specialty brands, which includes Exalgo, Gablofen, Pennsaid 2%, Xartemis XR and recently acquired Ofirmev.

We remind investors that Mallinckrodt acquired erstwhile Cadence Pharmaceuticals in Mar 2014 for approximately $1.3 billion, thereby adding Ofirmev to its portfolio. Ofirmev is indicated to manage pain with adjunctive opioid analgesics as well as for the reduction of fever.

The year 2014 is critical for Mallinckrodt with its key pain product Exalgo losing exclusivity. The company expects Exalgo sales to decrease in fiscal 2014.

Hence, we believe that the acquisition will be a strategic fit for Mallinckrodt. Sales of Acthar have been robust and will boost Mallinckrodt's top line besides providing an opportunity to diversify in other markets.

Both Mallinckrodt and Questcor Pharmaceuticals currently carry a Zacks Rank #1 (Strong Buy). Right now, Salix Pharmaceuticals SLXP also looks attractive with a comparable Zacks Rank #1.