Mallinckrodt to pay $100 mn to settle 'price-gouging' charges

Drugmaker Mallinckrodt PLC has agreed to pay $100 million to settle Federal Trade Commission and state charges that the company and its Questcor division violated antitrust laws after Questcor purchased rights to a drug that "threatened its monopoly in the US market" for its own drugs, the FTC said.

The FTC's complaint claims that while benefiting from its monopoly in ultra-pricey Achthar drugs, which are used to treat spasms in infants and as a drug of last resort in other serious conditions, Questcor illegally acquired the US rights to develop a competing drug, Synacthen Depot, from Novartis in 2014.

"The acquisition stifled competition by preventing any other company from using the Synacthen assets to develop a synthetic ACTH drug, preserving Questcor's monopoly and allowing it to maintain extremely high prices for Acthar," the FTC said.

The FTC says that Questcor Pharmaceuticals, which Mallinckrodt bought in 2014, illegally raised the price of its best-selling drug Acthar by 85,000 per cent and bought the rights to a cheaper competing drug to keep it out of the US market.

After that purchase, "Questcor took advantage of its monopoly to repeatedly raise the price of Acthar, from $40 per vial in 2001 to more than $34,000 per vial today - an 85,000 per cent increase," said FTC chairwoman Edith Ramirez. According to the FTC's complaint, an Acthar treatment for infantile spasms can cost more than $100,000.

"We charge that, to maintain its monopoly pricing, it acquired the rights to its greatest competitive threat, a synthetic version of Acthar, to forestall future competition. This is precisely the kind of conduct the antitrust laws prohibit," Ramirez said.

The FTC said that, "In addition to the $100 million monetary payment, the proposed stipulated court order requires that Questcor grant a license to develop Synacthen Depot to treat infantile spasms and nephrotic syndrome to a licensee approved by the commission."

Under terms of the deal, the states of Alaska, Maryland, New York, Texas and Washington will split $10 million from the settlement, and an additional $2 million in attorneys' fees and costs.

After trading hours, Mallinckrodt issued a statement that said, "We are pleased to confirm that we have entered into a settlement agreement with the FTC staff to fully resolve this matter, subject to approval by the Commission. We will comment further at the appropriate time."

The stock plunged after The New York Post reported Wednesday that the FTC "is preparing to file charges" against the company.

The Post's report noted that the FTC has been investigating Mallinckrodt's Questcor Pharmaceuticals unit since a 2014 lawsuit filed by notorious pharmaceutical executive Martin Shkreli, then CEO of drugmaker Retrophin.

Retrophin's suit claimed Questcor violated federal antitrust laws by purchasing Synacthen from Novartis for $135 million after Retrophin bid $16 million for the drug. Retrophin claimed Questcor's purchase was illegal because it was allegedly done to shut down a drug that could compete with Achthar.

Retrophin settled its case against Questcor in 2015 after Questcor paid Retrophin $15.5 million.

Shkreli gained public notoriety in 2015 after he raised the price of the antiparasitic drug Daraprim to $750 per dose after the company he then was leading, Turing Pharmaceuticals, acquired the medication. Daraprim had been selling for just $13.50 per pill (See: Turing vows to cut Daraprim drug price after furore over 5,000% hike).

Shkreli, 33, later was charged with securities fraud by federal prosecutors, who claim he looted Retrophin's assets to pay off investors he had allegedly swindled while earlier running hedge funds. He has denied any wrongdoing (Price-gouging pharma firm's Martin Shkreli arrested for securities fraud).

Meaningless fine?
According to a Bloomberg report, the fine is basically meaningless, amounting to about a third of Acthar's quarterly sales. Licensing the cheaper drug, Synacthen, won't have any effects for a while. Marathon will have to run trials on it. And in a conference call Thursday morning, Mallinckrodt said it expects getting Synacthen to market in the US to challenge Acthar will be "exceptionally difficult, if not impossible".

That claim, says the Bloomberg reporter, seems a little rich, as Questcor considered Synacthen threatening enough to outbid at least three other companies for it in 2013. And even if it isn't game-changing, the settlement highlights the risk of Mallinckrodt's dependence on Acthar.

Acthar accounted for 37 per cent of Mallinckrodt's revenue in its most recently reported quarter. Many of the company's specialty peers rely far less on one drug. Its second-largest product, Inomax, accounted for 14.3 per cent of revenue.

Adding to the concern, Mallinckrodt's branded-drug business, of which Acthar is the largest component, has become the company's biggest growth driver as its generics unit faces tough price competition.

The settlement is not the only troubling thing about Acthar, says Bloomberg. The FDA green-lit the drug in the 1950s, and it's approved for 19 different uses. But there is limited evidence of its effectiveness in treating most of those conditions, beyond infantile and multiple sclerosis spasms, because it was approved before detailed testing was the norm. In 2015 the drug failed a trial in lupus, one of those grandfathered indications. That doesn't exactly bode well for Mallinckrodt's efforts to expand its use.

Those concerns, the drug's age, and its price make it vulnerable to competition in general, even if Mallinckrodt is right that Synacthen is not a threat. If the company is wrong, then the downside risk is even greater.