Mallinckrodt looking at a second bankruptcy filing

Mallinckrodt is facing the prospect of a second bankruptcy filing in the space of three years, as it struggles to get its business back on track and meet the requirement of a settlement to resolve claims it helped to fuel the opioid crisis in the US.

The new Chapter 11 would allow the Ireland-domiciled company to pay $1 billion less into a trust agreed in its first bankruptcy deal – initially valued at $1.7 billion – used to support people whose lives have been affected by opioid use.

The new plan would reduce the debt burden on Mallinckrodt by around $1.9 billion, said the company, helping it to free up cash flow and "better position the company for long-term success."

Mallinckrodt has already paid $250 million to the trust and would commit to another $450 million payment under the plan, which the company says has been tentatively supported by "first and second lien debtholders", as well as the trust itself. As part of the plan, the company's existing ordinary shares will be eliminated.

While there were hopes that the original 2020 bankruptcy would allow Mallinckrodt to put the opioid liability behind it and move on, the company has since suffered a series of other, unrelated setbacks - including lower-than-expected sales of its main product Acthar Gel (repository corticotropin injection) for multiple chronic inflammatory or autoimmune conditions.

It also faced a delay in getting another pipeline drug onto the market, terlipressin for hepatorenal syndrome (HRS), but finally bagged FDA approval for the drug as Terlivaz, and was forced to pay $260 million last year to settle allegations of Medicare rebate fraud and payment of illegal kickbacks.

In its recent second-quarter update, the company reported net sales of $475 million and a net loss of nearly $748 million, with cash on hand sitting at $481 million; although, since then, its position improved to around $550 million thanks to the settlement of outstanding accounts. On the plus side, Terlivaz made a contribution of just over $3 million in the quarter, with sales predicted to reach $200 million to $300 million at peak.

"After several months of constructive discussions, we are pleased to have reached this agreement with our key stakeholders, which will enable Mallinckrodt to better align our balance sheet with our current business plan," stated Siggi Olafsson, Mallinckrodt's chief executive.

He said that the drugmaker acknowledges "the important role of the trust in helping to address the US opioid crisis", adding that it has "remained committed to ensuring that we achieved a meaningful resolution for the trust through this process."

Shares in the company were down almost 21% after the announcement.