Relevant Document:Emergency Motion
Mallinckrodt today asked the U.S. Court of Appeals for the D.C. Circuit to enjoin the U.S. Centers for Medicare and Medicaid Services, or CMS, from locking the company out of the Medicaid Drug Data Reporting system pending the company’s
appeal of U.S. District Judge Thomas Hogan’s
decision in the Acthar gel overpayment litigation. According to an emergency motion filed by Mallinckrodt on the appellate docket, the company “will face an existential threat” if CMS is not enjoined.
CMS has agreed not to begin the process of locking Mallinckrodt out of the reporting system until after June 14, but it opposes any further delay of enforcement action, according to today’s motion. Mallinckrodt’s arguments for an injunction in the appellate court
mirror those rejected by Judge Hogan in his May 29 ruling denying a stay: The company submits that it has a substantial likelihood of success on appeal and contends that if CMS is not prevented from locking it out, it would be forced to lower Acthar’s base date average manufacturer price, or AMP, in the Medicaid system to reflect the decision, triggering a $640 million liability to states that it “cannot afford.” If the company does not adjust the base date AMP in the system, the motion submits, it would be locked out and declared “out of compliance,” and state Medicaid agencies “will no longer be generally required to cover Acthar,” resulting in “significant” financial harm and “irremediable” reputational harm.
In a
response to Mallinckrodt’s stay motion before Judge Hogan, the CMS defendants argued that by using an elevated Acthar base date AMP for years, the company obtained a $600 million “interest-free loan at taxpayers’ expense” which it should repay in due course. The CMS defendants also pointed out that “the normal administrative procedures for correcting Medicaid rebate billing and payment” do not require “that Mallinckrodt must immediately pay the entire amount that it owes.”
According to today’s motion, the CMS defendants have agreed to file a brief in opposition to the current stay pending appeal request by June 8.
Judge Hogan found in his May 29 order denying a stay that the company failed to present sufficient evidence that it would suffer “irreparable harm” absent a stay, notwithstanding potential
implications for the company’s proposed opioid litigation settlement and refinancing efforts. In today’s motion, Mallinckrodt reiterates that the district judge’s decision “risks unwinding a $1.6 billion
settlement in principle Mallinckrodt reached in the opioid litigation, necessitating re-negotiation with Mallinckrodt in a weakened position.” Mallinckrodt also points out again that the judgment resulted in the
collapse of a refinancing of “approximately $615 million in debt payments due April 15” on “favorable loan terms.” The judgment forced Mallinckrodt “to refinance only a portion of the debt on less favorable terms” through an
exchange offer, the company says, “forcing Mallinckrodt to pay out the remainder - worth approximately $120 million.”
“Mallinckrodt will have no option but to take drastic and painful measures, up to and including the prospect of bankruptcy” if an injunction is not granted, the company concludes.
On a May 5
earnings call, Mallinckrodt management told investors that the company “will look to build liquidity with the goal that, if needed, it could use cash on hand to address the CMS liability.” The company’s current cash balance is in excess of $700 million. Mallinckrodt contends in today’s motion, as it did before Judge Hogan, that if it returns the $640 million in overpayments to the states now and Judge Hogan’s decision is subsequently reversed on appeal, it may not be able to easily claw back those refunds from the states or set them off against future rebate payments.
Mallinckrodt also argues in today’s motion that the public interest favors an injunction because the company “is working to investigate whether an existing drug product can treat severe lung dysfunction caused by COVID-19,” and “[i]f all of Mallinckrodt’s free cash flow is devoted to Acthar Medicaid payments, it would put such research and development activities at risk.”
Finally, with respect to likelihood of success on appeal, Mallinckrodt argues that all that matters when determining a drug’s base date AMP is the date of approval of the latest new drug application, or NDA, under which the drug is produced and marketed, and the reason for the filing of the new NDA - whether it be for a new drug, new formulation or new indication - is irrelevant. Because Acthar was produced and marketed after 2013 under an NDA approved in 2010, the company contends, the drug’s base date AMP was reset, and the fact that the new NDA was for a new infantile spasms indication rather than for an “entirely new drug product” does not matter. “The drug product itself need not somehow change physically to count as a separate covered outpatient drug or to qualify for a new base date AMP,” Mallinckrodt concludes.