Mallinckrodt Rips Higher After Company Confirms $1.6B Opioid Litigation Settlement

Mallinckrodt PLC MNK shares are ripping higher Tuesday after the company announced a global opioid settlement agreement that limits its payout to $1.6 billion and it aslo reported better-than-expected fourth-quarter results.

Opioid Settlement Clinched, Generics Business To File For Chapter 11

Mallinckrodt said it, along with generic-focused subsidiaries, has reached an agreement in principle on a settlement agreement that would resolve all opioid-related claims against the entities. The agreement has been reached with a court-appointed Plaintiffs' executive committee representing the interests of thousands of plaintiffs in the opioid multi-district litigation and is supported by a broad-based group of 47 states and U.S. Territory Attorney General.

The implementation of the settlement agreement is contingent on the company's generic businesses emerging from a Chapter 11 bankruptcy that has been planned, and is also subject to court approval and other conditions.

Mallinckrodt shares tumbled as much as 30% Monday after The Wall Street Journal first reported of the proposed plan.

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The agreement provides for the plaintiffs receiving $1.6 billion over eight years: $300 million on the generics business emerging from completed Chapter 11 case, $200 million on the first and second anniversaries of emergence and $150 million on each of the third to eight anniversaries of emergence.

Upon emergence, Mallinckrodt said it will continue to evaluate strategic options for the generics business.

Mallinckrodt and its specialty branded business are not part of the Chapter 11 filing.

Earnings Trump Estimates

Separately, Mallinckrodt reported fourth-quarter net sales of $804.9 million and a diluted loss of $13.76 per share, with the loss stemming from expense associated with the global opioid settlement agreement partially offset by a $377.4 million gain on debt extinguishment.

On an adjusted basis, the company reported EPS of $2.40 compared to $2.18 in the fourth quarter of 2018. Analysts, on average, estimated EPS of $2.05 on revenues of $772.52 million.

"Our hospital products had an exceptional fourth quarter, as we anticipated, and the Specialty Generics segment finished the year strong, marking its fourth consecutive quarter of growth. Acthar® Gel performed largely in line with our expectations given a challenging payer environment," said Mallinckrodt CEO Mark Trudeau.

MNK Price Action

Mallinckrodt's stock was jumping 36% to $5.54 per share at time of publication.

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