Mallinckrodt plc has officially announced that a definitive agreement to merge with Endo in a stock and cash transaction to create one global, scaled, diversified pharmaceuticals leader.
According to certain reports, both the companies will effectively combine their generic pharmaceuticals businesses, while simultaneously leveraging Endo’s sterile injectables business. However, they also intend to separate that business from the newly-formed entity at a later date. Such a separation would be subject to approval by the combined company’s Board of Directors and other conditions.
“The combination of Mallinckrodt and Endo brings together two essential pharmaceuticals organizations to accelerate value creation for our shareholders, customers, employees, the patients we serve and our other stakeholders,” said Siggi Olafsson, President and Chief Executive Officer of Mallinckrodt. “Our businesses are highly complementary, with durable, on-market products in our branded portfolios and extensive capabilities across the value chain in our generics businesses. This exciting combination will create a larger and more diversified entity.”
Talk about the benefits of this merger on a slightly deeper level, we begin from its promise to scale and diversify branded pharmaceuticals portfolio. You see, the combined company’s brands portfolio will include leading pharmaceutical brands across a range of therapeutic areas, including XIAFLEX® (collagenase clostridium histolyticum), Acthar® Gel (repository corticotropin injection), Terlivaz® (terlipressin), SUPPRELIN® LA (histrelin acetate), and AVEED® (testosterone undecanoate).
This, in turn, should enable both the companies to achieve strong growth with an attractive cash flow profile.
Next up, there is the potential for enhanced financial flexibility to pursue growth opportunities. As the new enterprise will have strong balance sheet with net leverage of approximately 2.3×1 expected at close, it can cultivate a strategic focus to build on its branded platform through near-term business development and long-term innovation, thus extending its leadership in existing therapeutic areas, and potentially adding capabilities in other strategic therapeutic areas.
Almost like an extension of that, the combined company will also generate pro forma 2025 revenue of $3.6 billion and pro forma 2025 Adjusted EBITDA of $1.2 billion. All in all, the combined company is expected to generate at least $150 million of annual pre-tax run-rate operating synergies by Year 3, and approximately $75 million of pre-tax synergies in Year 1, driven by business function integration and R&D savings from economies of scale, among other areas.
We referred to the merger’s promise to scale branded pharmaceuticals, but what we haven’t expanded upon yet is that it will also scale sterile injectables and generics pharmaceuticals business.
The stated feature is made possible by the fact that Mallinckrodt and Endo’s combined company is going to have a complementary product portfolio across multiple delivery technologies, formulations, and dosage forms, along with a leading controlled substances franchise.
Not just that, It will also be able to access robust commercial and manufacturing infrastructure, extensive supply chain capabilities, deep expertise in complex, highly regulated products, and a strong compliance culture. With such a comprehensive setup to aid its case, the new business should be able to generate significant free cash flow both immediately and over the long term.
Moving on, the new company will also enjoy a robust operating footprint, primarily located across the United States and supported by capabilities in Europe, India, Australia and Japan. It will have a total of 17 manufacturing facilities, 30 distribution centers, and approximately 5,700 employees at closing.
Among other things, we ought to mention that Mallinckrodt and Endo will also get to rely upon deep clinical and regulatory expertise to drive approvals of complex drugs and devices, as well as experience related to commercializing complex, highly regulated products.
“We believe this combination with Mallinckrodt, along with the subsequent separation of the combined sterile injectables and generics business, presents a unique opportunity to deliver significant shareholder value,” said Scott Hirsch, Interim CEO of Endo. “The combined company will possess a branded business with the scale, cash flow and balance sheet strength to invest in both internal and external growth opportunities, including pursuing commercial-stage assets. The stable and robust free cash flow generated by the combined sterile injectables and generics business should enable consistent capital returns”
