Shares of Mallinckrodt (MNK) are under pressure after Andrew Left's Citron Research tweeted that the company failed its "only real clinical trial of Acthar" and also failed to disclose the outcome. Additionally, the short-focused research firm pointed out that the "failed clinical studies comes weeks after OIG publishes that Acthar is a drug based on a history of fraud and abuse". 

CITRON ACCUSES MALLINCKRODT OF NOT DISCLOSING FAILED TRIAL: Using its Twitter account, Andrew Left's Citron Research said that, "[Mallinckrodt] has just FAILED its only real clinical trial of Acthar. Mallinckrodt has failed to disclose. Citron will follow with the full story on why the OIG and MEDPAC are finally about to put an end to this charade." The short-focused research firm linked its tweet to an article from the Clinical Journal of the American Society of Nephrology that discusses the ATLANTIS Randomized Trial. The conclusions section states that, "ACTH at 80 U/1.73 m2 administered twice weekly was ineffective at preventing disease relapses in pediatric nephrotic syndrome." The publication also stated: "The ATLANTIS trial was the first randomized trial of ACTH in childhood nephrotic syndrome. The trial was stopped early because of the lack of discernible efficacy. ACTH monotherapy at 80 U/1.73 m2, administered twice weekly, given during disease remission failed to maintain disease remission, with similar relapse rate and time to relapse when compared with no relapse-preventing treatment. The negative trial findings contrast with recent case series that have suggested that ACTH is effective in reducing proteinuria in adults with nephrotic syndrome". In a follow-up tweet, Citron also added that "[Mallinckrodt] failed clinical studies comes weeks after OIG publishes that Acthar is a drug based on a history of fraud and abuse. Citron believes that $MNK could be first pharma to go BK if Medicare opens its eyes". 

OIG RESPONSE: The OIG response mentioned by Citron Research was published on November 16 and stated that "we conclude that the Proposed Arrangement could potentially generate prohibited remuneration under the anti-kickback statute and that the Office of Inspector General - "OIG" - could potentially impose administrative sanctions on [company redacted] under sections 1128(b)(7) or 1128A(a)(7) of the Act in connection with the Proposed Arrangement. [...] In addition, certain publicly available information that relates to the subject of this request for an advisory opinion illuminates our analysis of the fraud and abuse risks posed by the Proposed Arrangement." Commenting on the response, Wells Fargo analyst David Maris highlighted in a research note last week that the OIG has advised Mallinckrodt that the proposed patient access program for Acthar in hospitals would "present more than a minimal risk of fraud and abuse under the anti-kickback statute." While not a setback to current Acthar sales, this is a negative outcome in Mallinckrodt's efforts to expand access to the drug, the analyst argued. Maris told investors that he believes the OIG opinion effectively states that if Mallinckrodt gives Acthar to hospitals for free for a chronic syndrome, and then will provide it for free only to those patients when discharged whose insurance won't pay for it, then the company is effectively giving away a product to help get those with commercial insurance to pay for it when out of the hospital. Maris also said he believes Mallinckrodt's Acthar faces a "challenging environment" with HHS and OIG. He kept a Market Perform rating and $27 price target on the shares.

WHAT'S NOTABLE: Previously, in June, Citron published a report entitled "Citron provides New PROOF (post-SALT Conference) why Mallinckrodt is on its way to ZERO." In November of 2016, Citron Research had tweeted: "$MNK exposed by Medicare. CEO LYING to Wall Street. Acthar has become most expensive drug per treatment for Medicare. Big problems ahead".

PRICE ACTION: In afternoon trading, shares of Mallinckrodt have dropped almost 10% to $23.88.