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Why Mallinckrodt Stock Is Dropping Today

By Keith Speights – Aug 6, 2019 at 4:19PM

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The drugmaker's decision to suspend efforts to spin off its specialty generics business appears to be rattling investors.

What happened

Shares of Mallinckrodt (MNK) were dropping by 11.2% as of 1:43 p.m. EDT on Tuesday. The big decline came after the drugmaker reported its second-quarter results before the market opened and announced that it was suspending its effort to spin off its specialty generics business.

So what

Mallinckrodt actually had some good news with its Q2 results. The company announced better-than-expected revenue of $823.3 million. It achieved year-over-year adjusted earnings growth of 17%. Mallinckrodt beat Wall Street earnings estimates to boot.

Businessman looking at red line chart trending downward.

Image source: Getty Images.

However, the news about holding off on the spin-off of the specialty generics business overshadowed Mallinckrodt's generally positive Q2 results. The company stated that its change in plans was due to "current market conditions and developments, including increasing uncertainties created by the opioid litigation."

If there's one thing that investors don't like, it's increasing uncertainties for a stock. Mallinckrodt and several other drugmakers continue to face multiple lawsuits related to their sale and marketing of opioid drugs. Last month, Mallinckrodt reeled from the release of emails exchanged between one of its sales managers and an executive with a generic drug distributor that showed indifference to the ongoing opioid epidemic in the U.S.

Now what

Mallinckrodt hasn't thrown in the towel on spinning off its specialty generics business. The company said that it "continues to actively consider a range of options intended to lead to the ultimate separation of the specialty generics business, consistent with its previously stated strategy."

For now, though, it's clear that there aren't any buyers willing to pay anywhere close to what Mallinckrodt wants. With the opioid litigation serving as a dark cloud over the company's head, investors will probably want to stay on the sidelines with the stock until the matter is resolved.

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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