Specialty pharmaceuticals company Mallinckrodt Plc will buy drugmaker Questcor Pharmaceuticals Inc for about $5.6 billion to gain access to its multiple sclerosis drug, Acthar Gel, which is set to hit sales of $1 billion this year.
The acquisition is Dublin-based Mallinckrodt's second in less than two months as it pushes into the lucrative specialty drugs market, which focuses on complex and chronic diseases.
Mallinckrodt's shareholders took a dim view of the deal, however, pushing the company's shares down as much as 10 percent.
Questcor has been facing federal probes into its marketing practices related to Acthar and multiple accusations from short-seller Citron Research.
The company's shareholders will receive $30 in cash and 0.897 Mallinckrodt shares for each share held, for a total value of about $86.10 per Questcor share, the companies said in a statement on Monday.
Questcor's shares were trading at $77 on the Nasdaq on Monday afternoon. Mallinckrodt was down 6 percent at $58.50 on the New York Stock Exchange.
The deal - the latest in a series of acquisitions structured to take advantage of Ireland's low corporate tax rate - represents a 27 percent premium to Questcor's Friday close.
Acthar is approved by the U.S. Food and Drug Administration for 19 conditions, many of which are associated with autoimmune and inflammatory diseases, including multiple sclerosis and infantile spasms.
"We currently expect solid double-digit revenue growth for Acthar to continue in the future, driven by educational efforts and further expansion into indications currently on the Acthar label," Mallinckrodt Chief Executive Mark Trudeau said on a conference call.
Almost all of Questcor's revenue comes from the drug, which had annual sales of about $760 million in 2013, an increase of about 50 percent from 2012. The company acquired the drug from Aventis for $100,000 in 2001.
Questcor's stock fell to below $20 in September 2012 as U.S. government agencies, including the Securities and Exchange Commission, launched investigations into the company's marketing practices and health insurer Aetna Inc cut reimbursement for the drug. The investigations are still on.
The company has also faced repeated accusations from short-seller Citron Research regarding the drug's high price and Acthar's composition.
The injectable drug, a formulation of pituitary hormones extracted from pigs, is priced at about $30,000 per vial.
Acthar is expected to touch $1.9 billion in sales in 2018, according to Thomson Reuters data.
Originally developed as a treatment for infantile spasms, Acthar has an orphan drug exclusivity until October 15, 2017 for the indication.
The deal values Questcor at 12 times forward earnings, well below the median of 18.4 for the broader pharmaceutical industry, according to Thomson Reuters StarMine data.
In the 12 months to Friday's close, Questcor's stock had risen more than 125 percent. Still, the stock trades at a strong discount to its median 10-year historical price-to-earnings ratio.
Stocks of several high-growth biotechnology companies, which led a rally in the broader market in 2013, fell on Friday, making investors anxious about how much further they may fall.
Barclays analyst Ying Huang said the recent selloff in biotech stocks puts more companies in the "sweet spot," with a market capitalization of $1 billion to $10 billion, where potential acquirers might give them a look.
Big pharmaceutical companies facing patent expirations still need to replenish pipelines, he said.
Mallinckrodt, which traces its roots back to 1840 in St. Louis, Missouri, makes drugs for pain management, cerebral and spinal spasticity, inflammatory diseases and depression. It also makes generic drugs and active pharmaceutical ingredients.
The company, which bought Cadence Pharmaceuticals Inc for $1.3 billion in February, had revenue of $2.2 billion in 2013.
Mallinckrodt, which was spun off from Covidien Plc in July last year, said it expected the deal to add to adjusted earnings in 2014 and significantly boost adjusted profit in 2015.
Mallinckrodt will fund the deal through cash on hand and debt financing from Barclays, which also advised the company. The deal is expected to be completed in the third quarter.
Wachtell, Lipton, Rosen & Katz and Arthur Cox were Mallinckrodt's legal advisers in Ireland.
Centerview Partners was Questcor's financial adviser, and Latham & Watkins LLP and Matheson were its legal advisers in Ireland.
(Additional reporting by Susan Kelly; Editing by Kirti Pandey and Saumyadeb Chakrabarty)