The former NYSE-listed company has gone through a wild twist of events since its heyday on the Exchange. Mallinckrodt (OTC: MNKKQ) and its subsidiaries went into bankruptcy in 2020. It pushed forward with a plan to reorganize going as far as gaining support with its lenders holding over $1 billion in loans for the company.

Bankruptcy may have appeared to be the single issue faced by the company as Mallinckrodt continued developing its platform for treating autoimmune and rare diseases. It even “earned top marks” in the Human Rights Campaign Foundation’s 2022 Corporate Equality Index in January. But it looks like there are more than just investors looking at the company.

The Department Of Justice has been interested as well. In fact, news hit this week that the DOJ and Mallinckrodt reached a massive, $260 million settlement. The case made hefty allegations as well. According to the DOJ, Mallinckrodt “violated the False Claims Act by knowingly: 1. underpaying Medicaid rebates due for its drug H.P. Acthar Gel (Acthar); and 2. using a foundation as a conduit to pay illegal co-pay subsidies in violation of the Anti-Kickback Statute for Acthar.”

The company acquired the gel in 2014. Acthar is indicated in multiple therapeutic areas including rheumatology, ophthalmology, nephrology, pulmonology, and neurology.

Penny Stock MNKKQ & The DOJ

The concerns raised by the DOJ had much more to do with how money was being translated than anything else. The suite said Mallinckrodt entered into a five-year Corporate Integrity Agreement (CIA) with the Department of Health and Human Services Office of Inspector General. This Agreement includes specific drug pricing transparency and monitoring provisions for Medicaid rebate and assistance programs for patients.

“The department is committed to protecting tax-payer funded health care programs and their ability to supply reasonably priced pharmaceutical products to elderly and vulnerable populations…As this settlement demonstrates, the department will pursue those who seek to undermine these protections,” explained Brian M. Boynton, head of the Department of Justice’s Civil Division and Principal Deputy Assistant Attorney General.

U.S. Attorney Rachael S. Rollins for the Massachusetts District echoed this sentiment. She said that Mallinckrodt reduced the amounts paid to state Medicaid programs illegally. Improper calculations for rebates owed resulted in “illegally” boosting profits with Medicaid and families paying for it. “This company unlawfully siphoned money out of the Medicaid program which poor people depend on for their medical care,” said Rollins in the DOJ statement.

“When pharmaceutical companies manipulate Medicare Part D by covering patient copays, the whole structure of the Part D program is undermined,” said U.S. Attorney Jennifer Arbittier Williams for the Eastern District of Pennsylvania.

This more than quarter-billion-dollar settlement resolves allegations that the company “cheated” the Medicaid program and taxpayers. That was according to Special Agent in Charge Joseph R. Bonavolonta of the Boston FBI. He said Mallinckrodt explored a system set to monitor rising drug prices and protect those vulnerable to receive medical treatment.

Medicaid Rebates & Kickbacks?

The DOJ cited a March 3rd, 2020 complaint alleging that Mallinckrodt “knowingly underpaid rebates due for Acthar from 2013 until 2020.” The payments, according to the DOJ’s claims were made as if Acthar was a “new drug” as opposed to a drug that had been approved since the 1950s.

kickback scheme

The kicker: the government alleged that Acthar’s price rose to more than $28,000 per vial by 2013, which ignored “all pre-2013 price increases for Medicaid rebate purposes.”

In the settlement, Mallinckrodt actually admitted that Acthar was, in fact, not a new drug as of 2013. The suit highlights that it was approved by the FDA and marketed prior to 1990. Accordingly, Mallinckrodt said that it would correct Acthar’s base data and not charge the date in the future.

But it wasn’t just Medicaid rebates that came into question. according to the DOJ, Mallinckrodt also violated The Federal Anti-Kickback Statute. This Statute “prohibits a pharmaceutical company from offering or paying, directly or indirectly, any remuneration — which includes money or any other thing of value — to induce Medicare patients to purchase the company’s drugs.”

In a complaint filed in June of 2019, the government said prohibits a pharmaceutical company from offering or paying, directly or indirectly, any remuneration — which includes money or any other thing of value — to induce Medicare patients to purchase the company’s drugs. “knowingly used a foundation as a means to pay kickbacks via copay subsidies for Acthar. According to the DOJ suit, this was done so Acthar could be marketed as “free” to doctors and patients. At the same time, the price was increasing.

What’s Next For MNKKQ Stock?

It isn’t a very active penny stock, to begin with. However, this latest DOJ case emphasizes the topic of due diligence and meaningful research. Many traders will look at penny stocks as a way to “get in” early. But like all things, there are plenty of risks involved. Without properly researching a company, things can end up worse for those taking a long-term position in a lower-priced stock.

The Mallinckrodt settlement provides for the company to pay roughly $234.7 million for the Medicaid rebate allegations. The U.S. will receive roughly $123.6 million of this payment with another $110.1 million going to the Medicaid States under terms of separate settlement agreements. Another $26.3 million will be paid for the kickback scheme.

What’s more, this settlement was also approved for payment by the U.S. Bankruptcy Court for the District of Delaware. Since these allegations were brought in cases filed under the whistleblower provision of the False Claims Act, private parties can sue for fraud on behalf of the U.S. and share in any recovery. in total, whistleblowers related to the kickback allegations and Medicaid rebate allegations will receive roughly $29.6 million.

Emergence From Bankruptcy

With this massive DOJ case seemingly in the rearview, can Mallinkrodt recover? That is to be seen. However, the plan is moving forward with reorganizing the company. In a February release, Mark Trudeau, President and Chief Executive Officer of Mallinckrodt, said, “We have made important progress and are now turning to the final phases in a reorganization process designed to reduce debt, address litigation claims, and position the Company for long-term success.”

penny stock news MNKKQ Mallinckrodt stock

The company anticipates emerging from Chapter 11 during the first half of this year. It will be interesting to see how the market reacts once this process wraps up. For now, MNKKQ stock remains under $0.15 at the start of March.

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