What happened

Shares of Mallinckrodt (NYSE:MNK) dropped as much as 17.3% today on multiple news items. The company reported that an appeals court has ruled that patents covering INOmax, the company's inhaled nitric oxide product, were not infringed upon by competing drug Noxivent from Praxair. That wasn't all.

On Monday, news broke that a judge in Oklahoma had ordered Johnson & Johnson to pay $572 million for its role in the opioid crisis in the state. That wasn't quite the $17 billion that state prosecutors had sought, but it was more than the $270 million paid by Purdue Pharma and the $85 million paid by Teva Pharmaceuticals earlier this year.

Mallinckrodt is also listed in lawsuits stemming from the opioid crisis in states across the country. Investors are transitioning from optimism to pessimism about how the company will fare in court. As of 3:38 p.m. EDT, the stock had settled to a 14.7% loss.

Multiple declining lines and arrows on a chalkboard.

Image source: Getty Images.

So what

Investors are right to be a least a little worried about encroaching competition for INOmax, which generated $291 million in net sales, or 18% of Mallinckrodt's total revenue, in the first half of 2019. It doesn't help that the company's lead drug brand, Acthar Gel, has seen sales decline 9% in the last year. 

Falling drug sales is an unwelcome trend in any environment, but doubly so given the uncertainty surrounding the pending opioid litigation. That uncertainty forced Mallinckrodt to suspend plans to spin off its specialty pharmaceutical division, which is responsible for 76% of revenue in the first half of 2019, earlier this month.

Now what

Few things can sabotage a business as quickly as uncertainty -- and Mallinckrodt has multiple sources of it. Case in point: Its shares have fallen 90% in the last year. Until more is known about the specific financial responsibility the company will bear in the opioid crisis, investors can expect plenty of volatility.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.