Deutsche Bank Defends Mallinckrodt Amid Acthar Drug Debate

Shares of Mallinckrodt PLC MNK have lost more than 16 percent this week, mostly on the back of a feud with Citron Research.

It all started with a tweet from Citron Research that read, “$MNK exposed by Medicare. CEO LYING to Wall Street. Acthar has become most expensive drug per treatment for Medicare. Big problems ahead.” The tweet was followed by a report titled “Mallinckrodt CEO FRAUD exposed by the new Medicare Drug Dashboard” and an appearance of Andrew Left on Bloomberg.

On Thursday, Deutsche Bank analysts Gregg Gilbert and Greg Fraser issued a report defending the company, reiterating a Buy rating and $78 price target on the stock.

Citron’s report suggests the company “misled investors as recently released data on Medicare and Medicaid spending shows that CMS spent $649mn on Acthar in 2015, which equates to 61% of MNK’s reported sales for Acthar."

Investors should note that the data published by the CMS “does not reflect rebates or other price concessions, making a comparison with reported sales problematic (i.e., net sales related to Medicare and Medicaid was likely less than 61% of reported sales)."

The analysts also spoke with Mallinckrodt, which said it had already described the exposure of Acthar to Medicare as more elevated than the overall corporate average in the past.

President and CEO Mark Trudeau had said, “So with regard to your question on Medicare exposure to Acthar, a couple of things. One, if we look at our overall business, the combined proportion of our business that goes through Medicare and Medicaid combined, it's about a quarter of our business roughly. Acthar is maybe a little higher than that, but in general, our business is about a quarter.”

While Deutsche Bank analysts still await more specifics from the company, they don't think management was deliberately trying to mislead investors. So, while they don't dismiss this and other potential risks, they decided to maintain their rating and price target on the stock, and see an interesting entry point in this dip.