| Mallinckrodt to Buy Questcor for $5.6 Billion -- Update | By Jonathan D. Rockoff and Tess Stynes
Mallinckrodt PLC agreed to buy Questcor Pharmaceuticals Inc. for about $5.6 billion in cash and stock, in the latest sign of consolidation in the specialty pharmaceuticals business.
Under the terms, Mallinckrodt would pay $86.10 in cash and stock for each share of Questcor, a 27% premium over Questcor's closing price on Friday. The deal is expected to close in the third quarter.
Specialty pharmaceuticals are non-mass-market drugs treating conditions such as multiple sclerosis, rheumatoid arthritis and keratitis. Questcor's H.P. Acthar gel injections treat all three of those conditions.
Companies selling such drugs have been consolidating in recent months, partly to gain leverage with private and government insurers trying to contain spending. Companies have also been trying to take advantage of low interest rates and, in many cases, are doing deals to lower their tax rates.
Just last week, Swedish drug maker Meda AB said it rejected an approach by Mylan Inc.
Last year, there were 19 deals in the specialty-pharmaceutical sector totaling $34 billion, up from 19 deals worth $11.5 billion the year earlier, according to Bank of AmericaMerrill Lynch Global Research.
Mallinckrodt, a pharmaceuticals spinoff from medical device and product maker Covidien PLC, has also been bulking up. In February, it announced a $1.3 billion deal to buy another specialty pharmaceuticals company, Cadence Pharmaceuticals Inc.
"With Questcor, combined with our recently completed acquisition of Cadence Pharmaceuticals, the new Mallinckrodt will have a significant, established presence with prescribers, payers and hospitals. We will also have an increasingly diversified specialty pharmaceuticals portfolio," Mallinckrodt CEO Mark Trudeau said in a statement.
Acthar gel is the crown jewel of the Questcor deal. The drug has U.S. Food and Drug Administration approval for 19 indications, many related to autoimmune and inflammatory conditions. Sales of Acthar rose 50% to $761.3 million in 2013 and make up almost all of Questcor's revenue.
Questcor will function as a separate business unit within Mallinckrodt's specialty pharmaceuticals segment, and Mr. Trudeau will lead the combined company, Mallinckrodt said.
Questcor shareholders will receive $30 a share in cash and 0.897 Mallinckrodt shares for each share of Questcor that they own. After the deal closes, Mallinckrodt shareholders will have a 50.5% stake in the combined company, while Questcor holders will have the remainder.
The buyout would provide a big payout for some patient Questcor investors who saw the stock tank to under $20 a share in September 2012 after the U.S. government said it was investigating the company's promotional practices and health insurer Aetna decided to limit reimbursement for Acthar.
Corrections & Amplifications An earlier version of the story misstated Acthar's sales and didn't reflect the payment for stock options in the total acquisition price.
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