Mallinckrodt to spin off specialty generics business

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Mallinckrodt to spin off specialty generics business

By Sandra Levy - 06/04/2019
Mallinckrodt today announced updated plans for its spin-off of a new company consisting of Mallinckrodt's specialty generics/active pharmaceutical ingredients business to Mallinckrodt shareholders.

The separation is intended to create two independent, appropriately capitalized, publicly traded companies — one focused on innovative specialty branded pharmaceuticals, the other concentrated primarily in specialty generic products and APIs manufacturing — with each positioned to optimize future success as they pursue independent growth strategies. The separation is subject to final Mallinckrodt board approval.

As previously announced, the planned separation is expected to be executed through a pro-rata distribution of common stock of Mallinckrodt – a newly formed company that, at the time of the separation, will hold the specialty generics business – to Mallinckrodt's shareholders, generally tax-free for U.S. federal income tax purposes. The completed spin-off is projected to occur in the second half of 2019. It is anticipated that Mallinckrodt will be listed on the New York Stock Exchange, or NYSE and will assume the MNK ticker symbol along with the Mallinckrodt name. At separation, the remaining Specialty Brands company will continue to be listed on the NYSE, renamed Sonorant Therapeutics and is expected to adopt SRTX as its ticker symbol.

James Sulat has been nominated as the independent chairman of the board of the new company upon separation. Most recently, Sulat was the CEO of Maxygen, and also served as CEO of Memory Pharmaceuticals. He has extensive board experience and his current involvement includes AMAG Pharmaceuticals.

Michael Atieh has been nominated as chair of the audit committee of the new board of directors. Atieh is the former executive vice president and chief financial officer of Ophthotech. He currently serves as a member of Chubb's board of directors, where he is a member of the risk and finance committee, and previously served as chairman of the audit committee from 2012 to 2018. Atieh is also a member of the board of directors of electroCore, where he serves as chairman of the audit committee.

"We are very pleased with the progress being made in building the board of the new Specialty Generics company," said Sulat. "Michael brings exceptional experience to the audit chair role, and we have a number of well-suited candidates we are actively assessing and expect to create a well-rounded board in the near term. Equally important, Matt Harbaugh has formed a management team with deep experience and business acumen, and I am excited to work with them to advance a strong strategic vision for the company."

As progress is made toward separation completion, the new board of directors for Mallinckrodt will be expanded and announced as appropriate, the company said.

As previously announced, Matthew Harbaugh, current president of Mallinckrodt's Specialty Generics business and formerly the company's chief financial officer, is projected to become president and CEO of the new company upon completion of the separation.

Eric Slusser has joined the company and is expected to serve as CFO of the new company upon separation. Slusser has more than 35 years of experience in corporate finance, audit, business development, information technology, financial planning and analysis, controllership, real estate and investor relations. He previously served as CFO for a number of notable public companies including Express Scripts, Gentiva Health Services and Centene.

A full management team is now in place and the two businesses are on track to be operationally ready for separation, according to the company.

"I am very pleased with the highly experienced management team we have assembled," said Harbaugh. "We are well positioned for separation and eager to advance the strategic goals we've established for our new company."

It was previously announced, and reflected in the preliminary registration statement on Form 10 filed by Mallinckrodt with the U.S. Securities and Exchange Commission, that the new spun-off company would include Amitiza (lubiprostone). Given the strong, return-to-growth performance of the Specialty Generics business, it has been determined that the Amitiza product should remain with the Specialty Brands company.

"When we announced our intent to separate the specialty generics business through a spin-off in December 2018, we noted the final allocation of assets between the two companies could change. Our goal from the outset has been to establish two new, appropriately capitalized, independent companies well positioned to unlock and increase value over the long term," said Mark Trudeau, president and CEO of Mallinckrodt. "We now believe retaining the Amitiza product will better serve the needs of the Specialty Brands company, providing revenue diversification and stronger cash flows to support our commitment to debt reduction. Importantly, as a result of this change we believe the new specialty generics company will emerge with significantly less debt than previously anticipated, and have greater flexibility to pursue growth and investment strategies aligned with its goals."

Without the Amitiza product, for the 12 months ended March 29, 2019, the collective net sales from the specialty generics business were $722.6 million on an as-reported basis.

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