Wall Street’s most hated drugmaker is getting annihilated after a bizarre conference call

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Markets Insider

    Mallinckrodt Pharmaceuticals missed its Q3 revenue on lower sales of its controversial blockbuster drug, Acthar. Wall Street didn’t like the sales miss. It liked even less that the company had little explanation for the miss on its conference call, and blamed lower sales on an unfulfilled prescription problem.

Hows this for an excuse for a lousy earnings report. Doctors are prescribing our blockbuster drug like crazy, but people just aren’t filling prescriptions. The drug in question is called Acthar, and Mallinckrodt (and its previous owners) have turned it into a billion dollar a year product by jacking up its price to above $36,000. This happened even though it’s so old that it predates the FDA approval process we have in place today. Thanks to the fact that those prescriptions are going unfilled, Mallinckrodt’s third-quarter revenue came in below analysts expectations. The stock fell more than 19%. Mallinckrodt didn’t have a good explanation for why this was happening, only to say that it was “an issue more widely impacting some companies in the branded pharmaceutical industry.” In fact, over and over again, on a head-scratcher of a conference call – executives kept pointing to “the market environment for specialty pharmaceuticals.” HP Acthar chart price

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Business Insider

Or, what they may very well mean is that insurance companies and others who have to pay for drugs – and have been stuck with the tab for these obscure medicines that once cost $40 a vial and now cost nearly $40,000 – are wising up. Acthar, which makes up around 40%* of Mallinckrodt’s revenue, has been the subject of intense scrutiny on Wall Street and in the medical community.

Wall Street started in on the company first, initially pointing out that its too-close relationship with Acthar distributor, Express Scripts, may be contributing to its exorbitant price. This publication noted that despite the fact that Acthar should mostly be used to treat infantile spasms, a huge chunk of its revenue came from Medicare, a government program for the elderly because it’s also marketed as a treatment for multiple sclerosis.

It’s on this front that the medical community has raised its concerns. A study published by JAMA Internal Medicine concluded that Acthar is no more effective than steroid alternatives that are tens of thousands of dollars cheaper per treatment.

Back to Mallinckrodt’s call. Analyst after analyst asked about Acthar (“Sorry to stay on Acthar here,” said one), and all executives could say was that they had identified the sales channels that were leaving prescriptions unfulfilled and are working to correct the problem.

It’s just, at the moment, it’s still unclear exactly how the problem came to exist at all. *This post has been updated to reflect that Achtar accounts for 40% of revenue, not 60%.