Mallinckrodt’s suffers record plunge after report bankruptcy is being considered $MNK

Company declines to comment on Bloomberg report it hired restructuring advisers ahead of federal opioid trials.

Shares of Mallinckrodt PLC suffered a record plunge to a record low close Thursday, after a report that the specialty drug company had hired restructuring advisers and was considering bankruptcy ahead of federal opioid trials.

The stock MNK, +3.77%  tumbled 38.6% to close at $1.59, enough to pace all of the NYSE’s decliners. Trading volume was over 29.2 million shares, compared with the full-day average of about 6.2 million shares, according to FactSet data.

The percentage decline was the biggest since Mallinckrodt went public in June 2013, worse than the previous record drop of 35.5% on Nov. 7, 2017. The stock also closed at its third record low in the past four sessions.

Bloomberg reported late Wednesday, citing people with knowledge of the matter, that Mallinckrodt had hired law firm Latham & Watkins LLP and turnaround firm AlixPartners LLP as advisers, as the company explored options ahead a federal opioid trial next month, including a potential bankruptcy filing.

A company spokesperson told MarketWatch that the company “declines to comment.”

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Mallinckrodt disclosed last month that since 2017, “multiple U.S. states, counties, other governmental persons or entities and private plaintiffs” have filed lawsuits against the company, relating to the company’s alleged sales, marketing, distribution, reimbursement, prescribing, dispensing and other practices with respect to prescription opioid medications.

As of Aug. 6, the company said it was “aware of” over 2,400 cases filed, with certain of the lawsuits filed as putative class actions.

Analyst Gary Nachman at BMO Capital downgraded Mallinckrodt’s stock to market perform, saying an already challenging situation appears to have taken a turn for the worse.

“While there had been lingering uncertainties with [Mallinckrodt’s] overall opioid exposure and considerable pressures with key franchise Acthar, we had previously thought it would ultimately be able to navigate through those and that the equity was undervalued,” Nachman wrote in a note to clients. “However, with the rapidly mounting pressures related to the opioid litigation, we can no longer rule out the possibility of bankruptcy.”

JPMorgan’s Chris Schott said he sees the company in a “very difficult” financial position, as about $700 million worth of debt is set to mature in April 2020, and with another potential $600 million cash call over the next several months related to Medicaid dispute.

“And with the company’s significant opioid exposure complicating any refinancing discussions, we see few attractive options available to the company,” Schott wrote in a research note.

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The stock’s record plunge comes a little over a week after Johnson & JohnsonJNJ, -0.22%  was ordered by a Cleveland County judge to pay $572 million for its role in worsening the opioid crisis in Oklahoma. While that was seen as a win for J&J by some Wall Street analysts — J&J’s stock rose 1.4% after the ruling — it also rattled Mallinckrodt investors, as the company’s stock tumbled 16% on Aug. 27.

Mallinckrodt had $241.1 million in cash and cash equivalents, as of June 28, 2019.

Mallinckrodt’s stock has lost more than 95% of its value over the past 12 months, while the SPDR S&P Pharmaceuticals exchange-traded fund XPH, +0.65%  has dropped 28% and S&P 500 index SPX, +1.30%  has gained 3.4%.

Meanwhile, shares of Endo International Inc. ENDP, +0.85%  slumped 3.3%, and have plummeted about 86% over the past year. The drugmaker had disclosed in August that it was aware of about 2,600 opioid-related cases filed against the company.