Drugmakers Mallinckrodt and Endo get a bump from tariffs in $6.7 billion merger

Audio By Carbonatix

Enlarge

By Sabrina Valle

(Reuters) -Mallinckrodt and Endo, drugmakers which recently emerged from bankruptcy after a wave of U.S. opioid lawsuits, announced plans Thursday to join forces in a deal valued at $6.7 billion.

Mallinckrodt Chief Executive Siggi Olafsson said the companies’ operations and products complement each other. With large manufacturing facilities in the U.S., he said the combined company could actually see some benefit from U.S. President Donald Trump’s tariffs on imported goods.

“We saw (tariffs), in a way, as an opportunity,” Olafsson told Reuters, adding that the companies have a manufacturing base in the U.S. for many key products. “That helps us.”

Endo shareholders will get $80 million in cash and own 49.9% of the combined company, while Mallinckrodt shareholders will own the rest for an enterprise value of $6.7 billion, the companies said on Thursday.

The merger transforms two companies, previously at risk of closure due to declining revenue and lawsuits on their highly addictive opioid drugs, into a U.S.-focused entity specializing in generic drugs, urology, and various autoimmune and rare diseases, set to be listed on the New York Stock Exchange.

TRUMP EFFECT

Deals between companies with strong U.S. bases have some protection from the whipsaw policy announcements coming out of Trump administration that have been roiling markets and disrupting M&A activity, four top healthcare bankers told Reuters this week.

Those announcements include Food and Drug Administration firings potentially slowing drug approvals as well as a promised crackdown on drug prices that could reduce revenue projections and company valuations, they say. The uncertainty is making CEOs more hesitant to pursue big deals, the bankers added.

Olafsson, the future CEO of the merged company, said that a robust U.S. manufacturing base will help the business to grow amid fierce competition from more than 200 generic drug makers. U.S. production also gives the combined company an advantage in an era in which disruptions like COVID-19 pandemic caused Asian product shortages.

“It’s a very crowded market,” he said, adding he considers many of the generic products sold in pharmacies already “extremely low cost.”

The deal is expected close in the second half of 2025. 

The merged company will primarily operate in the U.S., with support in Europe, India, Australia, and Japan, and around 5,700 employees.

OPIOIDS

Both the companies sell generic treatments including highly-regulated drugs such as opioids which once played a bigger role on their sales.

The overall market for opioids has gone down, Olafsson said, with the bankruptcy and lawsuits forcing the companies to increase standards and move quality control to the U.S., despite its higher costs.

“It’s a very different environment than you saw 10 years ago,” he said. “We are very proud of the U.S.-based manufacturing, even though we pay our laborers a fair amount more than maybe we would do in Asia.”

The two firms plan to combine their generic drug businesses and Endo’s sterile injectables unit into another company that executives plan to sell or spin off after the deal closes, a person close to the transaction said.

Dublin-based Mallinckrodt went bankrupt twice – once in 2020 due to its high debt load and litigation over allegedly deceptive marketing of highly addictive generic opioids, and again in 2023 due to declining sales of its key branded drugs, including Acthar Gel.

As part of its second restructuring, Mallinckrodt was able to trim $1 billion from its previously agreed upon opioid settlement that resolved about 3,000 lawsuits.

Endo filed for bankruptcy in 2022 and completed its financial restructuring last year.

Endo will become a wholly-owned unit of Mallinckrodt.

Lazard served as Mallinckrodt’s financial adviser, while Goldman Sachs & Co. LLC served as Endo’s financial adviser. 

(Reporting by Sabrina Valle in New York and Sneha S K and Sriparna Roy in Bengaluru; Editing by Devika Syamnath)