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Mallinckrodt Shares Up 60% as It Announces Sale of Unit

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Shares of Mallinckrodt Plc are trading more than 60% higher today on news that the company is selling its CDMO subsidiary BioVectra Inc. to H.I.G. Capital for $250 million.

Global biopharmaceutical company Mallinckrodt Plc (MNK:NYSE) announced today that it has entered into a definitive agreement to sell its wholly owned subsidiary BioVectra Inc. to an affiliate of H.I.G. Capital, a leading global private equity investment firm, for approximately $250 million. The terms of the sale include fixed consideration of $175 million composed of an upfront payment of $135 million, a long-term note for $40 million and contingent payments of up to $75 million that will enable Mallinckrodt to capture future BioVectra growth potential.

The transaction is expected to close in Q4/19, subject to customary closing conditions, and the notice states that it is not anticipated that the sale will have any material tax impact for Mallinckrodt. The company indicates that it intends to use the proceeds from this divestiture consistent with its previously disclosed capital allocation priorities, and asserts that the transaction continues to advance its strategic focus on branded biopharmaceuticals by monetizing a non-core business.

The release identifies BioVectra as a contract development and manufacturing organization (CDMO) whose global client base includes many of the top biopharmaceutical companies in the world. BioVectra has over 45 years of experience specializing in cGMP microbial fermentation, complex chemistry - high potency APIs, biologics and formulation development. After the sale, BioVectra will continue to supply an active pharmaceutical ingredient supporting Mallinckrodt's specialty brands business under a long-term arrangement.

President and CEO of Mallinckrodt Mark Trudeau stated, "This transaction continues to advance Mallinckrodt's strategic focus on branded, high-growth biopharmaceuticals by monetizing a non-core business...While we recognize the longer-term growth potential for BioVectra, we believe that the structure of this deal enables us to participate in the future success of the business, and therefore we see this sale as the best option for both Mallinckrodt and BioVectra moving forward."

Mike Gallagher, managing director at H.I.G. Capital commented, "We are excited to support BioVectra's exceptional leadership and highly dedicated employees...BioVectra demonstrates a tremendous ability to generate robust organic growth and utilizes a broad set of technical capabilities to deliver outstanding service and quality. They are completing major capital expenditure programs to significantly expand capacity and the company is well positioned to capitalize on growing demand for their services."

Mallinckrodt reports that it is a global business consisting of multiple wholly owned subsidiaries that develop, manufacture, market and distribute specialty pharmaceutical products and therapies. The company's Specialty Brands reportable segment's areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; analgesics; and gastrointestinal products. Its Specialty Generics reportable segment includes specialty generic drugs and active pharmaceutical ingredients.

H.I.G. Capital was founded in 1993 and is a large global private equity and alternative assets investment firm with more than $34 billion of equity capital under management. The firm is based in Miami, with offices in New York, Boston, Chicago, Dallas, Los Angeles, San Francisco and Atlanta in the U.S., as well as international affiliate offices in London, Hamburg, Madrid, Milan, Paris, Bogotá, Rio de Janeiro and São Paulo. H.I.G. specializes in providing debt and equity capital to small and mid-sized companies. The firm's current portfolio includes more than 100 companies with combined sales in excess of $30 billion.

Mallinckrodt started today with a market capitalization of about $176.4 million. The company has 84.01 million shares outstanding, and as of yesterday had a short interest of around 50.9%. The stock has a 52-week price range of $1.43–34.10/share. MNK shares opened today at $2.27 (+$0.27, +8.10%) compared to yesterday's closing price of $2.10. The stock has traded on higher than average volume today between $2.23 and $3.57/share and currently is trading at $3.40 (+$1.30, +61.90%).


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