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Why Mallinckrodt Stock Is Jumping Today

What happened

Shares of Mallinckrodt (NYSE: MNK) are jumping today, up 11.8% as of 11:20 a.m. EST. The big gain reflects continued momentum after the drugmaker's CEO, Mark Trudeau, stated on Monday at the J.P. Morgan Healthcare Conference that Mallinckrodt could pay off its debt coming due in 2020 with cash. He also expressed optimism about resolving a dispute with the federal government related to pricing for the company's Acthar gel.

So what

Mallinckrodt's shares have risen more than 60% this week, with investors appearing to believe that the company's worst days are behind it. Trudeau's comments at the J.P. Morgan conference poured fuel on the fire for a couple of reasons.

Image source: Getty Images.

First, Mallinckrodt is loaded down with debt. The drugmaker had over $5 billion in long-term debt on its balance sheet as of late September. Trudeau's comments that Mallinckrodt is in a position to pay off over $600 million in notes maturing this year is encouraging.

Second, anything that hints at a resolution to the skirmish with the U.S. government over Acthar pricing is good news. Mallinckrodt filed a lawsuit in May 2019 against the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) over how Acthar is priced in the Medicaid program. Acthar generated close to $1 billion in sales in 2019, with a significant amount of that total stemming from Medicaid.

Now what

It won't be long before investors know whether Mallinckrodt pays off its debt maturing in 2020 with cash or takes another route. However, the time frame for learning if Trudeau was right to be optimistic about a settlement with HHS and CMS could be longer.

In the meantime, Mallinckrodt remains one of the most volatile healthcare stocks on the market despite its recent nice gains. There's a possibility that the stock could fall as quickly as it's risen if the company hits any bumps in the road.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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