Mallinckrodt declines as ALS study permanently halted, dialysis names under scrutiny

By Paul A. Harris

Portland, Ore., July 17 – Bonds of Mallinckrodt plc fell one point to two points on Wednesday, as the company stated that the phase 2b clinical study evaluating Acthar Gel in treating amyotrophic lateral sclerosis (ALS) is being permanently halted.

Additionally, a trader who works distressed names, pointing to the lackluster secondary market performance of a recent deal from U.S. Renal Care, Inc., said that high-yield dialysis care names are swimming into the purview of distressed players on the heels of the Trump administration effort to reshape how the government pays for health care, including an initiative to encourage home-based dialysis.

The broad high-yield market ended flat to slightly lower on Wednesday, with the CDX HY32 index of high-yield credit default swaps down 0.012 points in the early afternoon, at 107.198 bid, 107.278 offered, a hedge fund manager said.

Mallinckrodt tumbles

Mallinckrodt's bonds fell Wednesday on news from the company that the phase 2b clinical study evaluating Acthar Gel in treating amyotrophic lateral sclerosis (ALS) is being permanently halted, a trader said.

The Mallinckrodt International Finance SA/Mallinckrodt CB LLC 5½% senior notes due April 2025 were down one point to two points at 61¾ bid.

Those bonds were 64 bid on Tuesday, the source added.

The study was pulled on the recommendation of its independent data and safety monitoring board which expressed a concern that more ALS patients taking Acthar were developing pneumonia compared to patients on a placebo.

The immediate fallout is that Mallinckrodt will not acquire another approved indication for drug which is currently approved by the U.S. Food and Drug Administration for 19 indications.

In May Mallinckrodt filed a lawsuit against the U.S. Department of Health and Human Services and the Centers for Medicare and Medicaid Services, seeking to table a ruling that might eliminate its sales of Acthar Gel to Medicaid.

Dialysis names

Dialysis services providers in the high-yield universe, including names such as Fresenius Medical Care AG & Co. and DaVita Inc. may be starting to attract the scrutiny of distressed players after the Trump administration outlined steps for reshaping how the federal government pays for care of end-stage renal disease, including efforts to encourage home-based dialysis and kidney transplants, said a trader whose purview includes distressed bonds.

A lackluster secondary market performance by bonds priced in mid-June by U.S. Renal Care, Inc. may be conspicuous, in this regard, the trader said.

The U.S. Renal Care (BCPE Cycle Merger Sub II, Inc.) 10 5/8% senior notes due July 2027 (Caa2/CCC+) were trading around 98 on Wednesday, after trading as high as 103, the source said, adding that there may be a significant downside for this paper.

The deal priced at par on June 13, at the wide end of price talk after undergoing covenant changes.

Medicare has been providing coverage for end-stage renal disease since 1973. DaVita, in a recent regulatory filing, said that in 2018 75% of its patients were covered by Medicare.

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