Mallinckrodt to Buy Pain-Drug Maker Cadence for $1.3 Billion

Feb 11, 2014 4:13 pm ET

(Updates with closing shares in the fifth paragraph.)

Feb. 11 (Bloomberg) -- Mallinckrodt Plc, the drugmaker spun off by Covidien Plc last year, agreed to buy Cadence Pharmaceuticals Inc. for about $1.3 billion in cash to add a pain treatment used in hospitals.

Mallinckrodt will begin a tender offer for Cadence shares at $14 each, the companies said today in a statement. The price is 26 percent above San Diego-based Cadence’s closing price yesterday in New York.

The purchase will accelerate Mallinckrodt’s growth in specialty pharmaceuticals and will increase the company’s presence in hospitals, Chief Executive Officer Mark Trudeau said today on a conference call. Cadence makes Ofirmev, an intravenous form of acetaminophen for pain management that had an estimated $110.5 million of sales last year. The medicine has the potential to double its sales, Trudeau said.

“It’s a unique and very good product, but most companies have more than one product so we always thought that Cadence would eat someone or be eaten itself,” said Eric Schmidt, an analyst at Cowen & Co., in a telephone interview.

Cadence rose 26 percent to close at $14 in New York. Mallinckrodt, domiciled in Dublin and run from Hazelwood, Missouri, gained 12 percent to $66.19, the highest value since the company was spun off from Covidien in June.

Company Strategy

The deal follows Mallinckrodt’s strategy of investing money in the specialty pharmaceuticals business while reducing focus on medical imaging, Trudeau said in an interview. When the company was spun out, the two businesses each were half of revenue. Now the drugs side is 57 percent and the imaging business could be sold at some point, he said.

“The future of the company is building out specialty pharma,” Trudeau said. “We will consider strategic options for imaging. That business is unlikely to be part of our long-term strategy.”

Mallinckrodt may attract takeover interest because of Ireland’s low tax rates. While Trudeau said the company has room to grow on its own, he would listen if a suitor came knocking.

“We would have to consider that,” he said. “We would have to do what’s best for the shareholders.”

Cadence’s Ofirmev is on the list of medicines, or formulary, covered by more than 2,350 U.S. hospitals and has been used to treat as many as 7 million patients since it came on the market in January 2011, according to the statement.

Mallinckrodt specializes in pain treatment. Its hydrocodone products are one of the most-dispensed generic pharmaceuticals in the U.S., according to the company’s website. The drugmaker also markets a brand-name opioid product Exalgo and a topical anti-inflammatory Pennsaid.

Mallinckrodt’s financial adviser for the transaction is Deutsche Bank Securities Inc., and its legal advisers are Wachtell, Lipton, Rosen & Katz in the U.S. and Arthur Cox in Ireland. Cadence’s advisers are Lazard and Centerview Partners and its legal adviser is Latham & Watkins LLP.

--With assistance from Caroline Chen in New York and Phil Serafino in Paris. Editors: Bruce Rule, Phil Serafino