Wall Street's most hated pharma company just lost a lifeline

A court ruling on Tuesday left Mallinckrodt Pharmaceuticals without protection from 11 patents on its drug Inomax, a hypoxic respiratory failure drug that made up 15% of the company's revenue.

As Reuters reported, the ruling was on a lawsuit that Mallinckrodt had filed against Praxair Inc. Mallinckrodt plans to appeal the ruling, Reuters reported.

Its shares, as you can see, were crushed by the news.

A huge source of Mallinckrodt's revenue being threatened by a generic rival, but - more importantly - the company could be forced to rely on two business lines that have drawn intense scrutiny from both Washington and Wall Street.

Last week Missouri Attorney General Josh Hawley announced that he was seeking information from 7 pharmaceutical companies about the marketing of their opioid products, including Mallinckrodt.

Hawley, along with Missouri Senator Claire McCaskill (D), is investigating whether or not opioid manufacturers marketed their drugs for off-label uses. That is to say, they want to know if the companies encouraged doctors to proscribe the drugs to treat diseases outside their intended use. Mallinckrodt manufactures oxycodone.

Then there's Acthar, a controversial almost-$40,000 infantile spasm drug Mallickrodt bought from Questcor back in 2014. It's Mallinckrodt's blockbuster drug, but it hasn't been tested since the 1950s, and investors across the country have been clamoring to see its efficacy tested.

The company has said that Acthar is only used for a very small number of extremely sick patients, but that hasn't stopped people from asking questions.

There are a few reasons for that:

• Only 1% of doctors in the country prescribe Acthar.
• Yet it is one of Medicare's biggest spends (in the top 20 in 2015).
• The fact that it's one of Medicare's big spends is weird since the primary use of the drug is for infants and that program is for the elderly. So Senators have been asking questions about that.
• Mallinckrodt has a cozy, questionable relationship with Express Scripts, a pharmacy benefit manager that handles Acthar's sales, distribution and any charitable need a patient might have. The Feds are also looking into Express Scripts for its dealings with pharmaceutical manufacturers and its clients.

Investors are taking this to mean that Mallinckrodt is going to have to rely on shakier parts of its business. Short sellers are already circling, and Inomax only has exclusivity until October 2018. We reached out to the company's spokesman for additional comment and will update this post if there's a response.