Mallinckrodt Pharmaceuticals lands Questcor for $5.6 Billion

DUBLIN, Ireland and ANAHEIM, Calif.—Mallinckrodt plc, a global specialty pharmaceuticals company, and Questcor Pharmaceuticals, Inc., a high-growth biopharmaceutical company, today announced that they have entered into a definitive merger agreement under which Mallinckrodt will acquire Questcor in a transaction valued at approximately $5.6 billion. The transaction was unanimously approved by the boards of directors of both companies. Subject to customary closing conditions, the transaction is expected to be completed in the third calendar quarter of 2014.

 

Under the terms of the transaction, Questcor shareholders will receive $30.00 per share in cash and 0.897 Mallinckrodt shares for each share of Questcor common stock they own, for a total approximate consideration of $86.10 per Questcor share. Following completion of the merger, Mallinckrodt shareholders will own approximately 50.5 percent and former Questcor shareholders will own approximately 49.5 percent of the combined company's stock. Based on the closing price of Mallinckrodt and Questcor on April 4, 2014, the total per share consideration represents a premium of approximately 27 percent per share over Questcor's stock price, and a premium of approximately 33 percent over Questcor's trailing 20-trading-day volume-weighted average price.

 

With the transaction, Mallinckrodt is expected to be an increasingly diversified, high-growth specialty pharmaceuticals company with significantly increased scale, revenues, profitability and cash flow, creating a strong platform to deliver sustainable growth and substantial value for shareholders of both companies. The transaction is expected to be immediately accretive to Mallinckrodt's fiscal year 2014 adjusted diluted earnings per share and is expected to be significantly accretive in fiscal year 2015.

 

Questcor's high-growth H.P. Acthar^® Gel is expected to be a strong complement to Mallinckrodt's broadening growth portfolio of leading specialty pharmaceutical brands, Acthar generated net sales for Questcor of $761.3 million in calendar 2013, up 49.6 percent from calendar 2012.

 

Acthar is approved by the U.S. Food and Drug Administration for 19 indications, many of which are associated with the treatment of autoimmune and inflammatory conditions. Acthar comprises substantially all of Questcor's net sales and is primarily prescribed for the treatment of multiple sclerosis relapses in adults, proteinuria associated with nephrotic syndrome, certain rheumatology-related conditions, and infantile spasms. Questcor commercial operations will function as a separate business unit within Mallinckrodt's Specialty Pharmaceuticals segment.

 

Mark Trudeau, president and CEO of Mallinckrodt, said in a statement, "We believe this transaction will provide a strong and sustainable platform for future revenue and earnings growth, and provide exceptional value for shareholders of both Mallinckrodt and Questcor. It will substantially increase the scale, diversification, cash flow and profitability of our business, while expanding and enhancing the breadth and depth of our specialty pharmaceutical platform. With Questcor, combined with our recently completed acquisition of Cadence Pharmaceuticals, the new Mallinckrodt will have a significant, established presence with prescribers, payers and hospitals. We will also have an increasingly diversified specialty pharmaceuticals portfolio, which will include novel therapeutics for pain management, as well as central nervous system, renal, rheumatologic and other autoimmune and inflammatory disorders.

 

"After significant due diligence, we have concluded that Questcor is another ideal strategic fit with Mallinckrodt," Trudeau continued. "Questcor's expertise and proprietary manufacturing know-how has allowed the company to provide patients with a unique product that addresses some of the most complex and challenging therapeutic areas within specialty medicine. Acthar is increasingly being employed by specialty physicians in the treatment of a range of serious, difficult-to-treat autoimmune and inflammatory conditions, where patients often have exhausted other good therapeutic options. With the exceptional talent and expertise Questcor brings, combined with the financial strength, portfolio breadth and geographic reach of the combined company, we believe we are now well on our way to becoming a leader in the development and commercialization of specialty therapeutics around the world."

 

Don M. Bailey, president and CEO of Questcor, said, "This transaction will create substantial value for our shareholders, employees, customers and patients. The cash and equity structure of the merger will allow our shareholders to realize significant and immediate value, and with approximately 49.5 percent ownership of the combined company our shareholders will also be able to participate in the growth and value creation that we believe the combined company is poised to deliver.

 

"Like Questcor, Mallinckrodt has significant experience and expertise in managing medicines in highly regulated, complex markets," Bailey continued. "I strongly believe Mallinckrodt is the right partner to support the continued growth of Acthar in the highly specialized markets that we serve. The increased cash flow and scale of operations of a combined Questcor/Mallinckrodt organization will provide an even stronger platform to support the expansion of Acthar into new therapeutic areas. Questcor commercial operations will function as a separate business unit within Mallinckrodt, and given the complementary nature of our businesses and product portfolios we expect this to be a seamless transaction. We look forward to becoming an important part of this exciting new company."

 

The combined company's earnings profile will be enhanced from sustainable cost and tax synergies beginning in fiscal year 2014. The tax synergies derive from Mallinckrodt's Irish domicile and the future capital structure of the combined company. Mallinckrodt expects to use the strong free cash flow generated by the new entity to reduce outstanding debt and Mallinckrodt's net debt-to-EBITDA leverage ratio in fiscal year 2014, and to achieve further reductions over the course of fiscal year 2015.

 

Consistent with Mallinckrodt's stated strategy to become a top quartile specialty pharmaceutical company, Mallinckrodt expects that approximately 70 percent of the pro forma fiscal year 2014 revenues of the combined company will come from branded and specialty generic pharmaceutical products as well as active pharmaceutical ingredients, which also leverage Mallinckrodt's core competency managing controlled substances. Questcor's Acthar, will add significant breadth and depth to Mallinckrodt's growing portfolio of specialty brands, which includes EXALGO, Gablofen^®, recently launched PENNSAID^® 2% and XARTEMIS XR, and just acquired OFIRMEV, an IV form of acetaminophen on formulary in more than 2,350 hospitals across the U.S.

 

Also, in June 2013, Questcor acquired rights from Novartis Pharma AG and Novartis AG to develop and commercialize Synacthen and Synacthen Depot in the U.S. and certain other countries. Questcor is currently in the early stages of evaluating Synacthen in several potential indications being considered for possible U.S. clinical development.

In reporting its full-year calendar 2013 results on February 25, 2014, Questcor reported that net sales grew 57 percent to $799 million, and that adjusted net income grew 61 percent  to $337 million. Acthar has already demonstrated impressive revenue growth over the past few years, and future growth is expected to continue to be driven by current on-label indications, and possibly future indications as well.

 

The combined company will be led by Mallinckrodt CEO Mark Trudeau. It is expected that, following closing of the transaction, Mallinckrodt's board of directors will be increased to twelve members, with the addition of three directors from Questcor. The three directors will include Mr. Bailey and two current, independent directors of Questcor: Angus C. Russell and Virgil D.Thompson. Melvin D. Booth, the current chairman of Mallinckrodt's board of directors, will continue in that role after the transaction is completed.

 

Upon closing, Questcor commercial operations will function as a separate business unit within Mallinckrodt's Specialty Pharmaceuticals segment reporting directly to Mr. Trudeau. Mallinckrodt expects to add Questcor executives to Mallinckrodt's leadership team; these individual appointments will be announced at a later date. Mallinckrodt will continue to be domiciled in Ireland with its principal executive office in Dublin.

 

The transaction is subject to the approval of the shareholders of both companies, as well as Hart-Scott-Rodino clearance in the U.S.

 

Mallinckrodt's financial advisor for the transaction is Barclays, and its legal advisors are Wachtell, Lipton, Rosen & Katz and Arthur Cox in Ireland.

 

Questcor Pharmaceuticals' financial advisor for the transaction is Centerview Partners and its legal advisors are Latham & Watkins LLP and Matheson in Ireland.

 

Mallinckrodt develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents. The company's core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities. The company's Specialty Pharmaceuticals segment includes branded and specialty generic drugs and active pharmaceutical ingredients, and the Global Medical Imaging segment includes contrast media and nuclear imaging agents. Mallinckrodt has approximately 5,500 employees worldwide and a commercial presence in roughly 70 countries. The company's fiscal 2013 revenue totaled $2.2 billion.

 

Questcor Pharmaceuticals, Inc. is a biopharmaceutical company focused on the treatment of patients with serious, difficult-to-treat autoimmune and inflammatory disorders. Questcor also provides specialty contract manufacturing services to the global pharmaceutical industry through its wholly-owned subsidiary, BioVectra Inc.