14 BARRON’S September 9, 2019
REVIEW
26,797.
Dow Industrials:+394.
Dow Global Index:+7.
10-year treasury note:+0.
MALLINCKRODT’S EXPANDING LEGAL PUZZLE
Argentina in Crisis Again
Argentina imposed capital controls on
businesses, after the peso lost a quar-
ter of its value. Revoking capital con-
trols had been a signature reform of
President Mauricio Macri’s govern-
ment when it came to power in 2015.
Macri has also frozen gasoline and
some food prices, with inflation hit-
ting 55% and foreign currency re-
serves draining away. Peronist candi-
date Alberto Fernández is widely
expected to defeat Macri in the runoff
for the presidency in late October.
Freeing Freddie and Fannie
The Trump administration released a
plan to privatize the two mortgage
giants Fannie Mae and Freddie Mac.
The two have been under government
conservatorship since being bailed out
during the financial crisis in 2008.
Both parties had promised to abolish
the pair, which back more than half of
all U.S. mortgages.
Drugmaker’s
Litany of Woe
The shares of drugmaker Mallinckrodt approached
penny stock territory last week, after Bloomberg re-
ported that it had hired restructuring advisors. Analysts
say the company denies that it is close to filing for bank-
ruptcy. But there’s not much that could go wrong that
hasn’t gone wrong for Mallinckrodt stockholders.
Mallinckrodt (ticker: MNK) shares have dropped
99% in the past five years and the company’s market cap
has shrunk from $15 billion to $200 million, as the
Irish-domiciled, St. Louis-based outfit found its opera-
tions at the center of some of the pharmaceutical indus-
try’s biggest controversies. Steep price hikes? Check.
Questionable sales practices? Check. Opioids? Check.
While the pricing and marketing of Mallinckrodt’s
lead product, Acthar Gel, brought the business its first
unwelcome headlines, a crush of opioid lawsuits now
threatens a balance sheet already leveraged with net
debt that’s nearly five times Mallinckrodt’s annual cash
flow. Current cash just about equals debt that comes
due next year.
The company sells more than $3 billion a year worth
of drugs, but it’s fair to say that its most urgent busi-
ness is to get out from under a mountain of lawsuits.
At last count, Mallinckrodt says it was aware of 2,
opioid-related cases. The company says it can’t esti-
mate its possible losses in these suits, but on Friday it
agreed to settle two of them for $30 million. One other,
over Acthar Gel sold to Medicaid programs, could cost
it as much as $600 million, the drugmaker warns.
—Bill Alpert
$3.8 T
The current size of the Federal
Reserve’s balance sheet, down
from a peak of $4.5 trillion.
13.9%
Decline in chip sales in the first
half according to IHS Markit, the
biggest drop since 2009.
63.2%
Labor force participation rate in
September, up from 63% in
August.
$1,
The price of gold rose 1% on
Tuesday, hitting a six-year high.
The reason: trade and recession
fears
A Post-Labor Day Rally
Global manufacturing contracted,
while the Chinese yuan, the Argentine
peso, and the Brexit-battered British
pound fell, and on Tuesday the Dow
industrials lost 285 points. Stocks
then rallied on news of trade talks
resuming, and were undeterred by a
below-expectations jobs report. On the
week, the Dow industrials rose 1.49%
to 26,797.46; the S&P 500 gained
1.79% to 2978.71; and the Nasdaq
Composite advanced 1.76% to 8103.07.
Dorian Moves Slowly On
A slow-moving Hurricane Dorian,
which had been upgraded to Category
5, with wind speeds up to 185 miles
per hour, killed at least 20 people in
the Bahamas. The Abaco Islands and
Grand Bahama weredevastated when
the storm stalled. Dorian then fell to
Category 2 but grew larger, then lum-
bered toward the Florida coast, ham-
mering the coastlines of Georgia and
the Carolinas with wind, rain, and
storm surge.
See You in October
The U.S. and China hiked tariffs on
each other, deepening trade tensions
and bolstering the belief that Presi-
dent Trump wants to decouple the two
economic giants. Trump, in fact,
warned China not to delay resuming
negotiations because he’d double tar-
iffs “when he won [reelection].” After
a Thursday phone call between Chi-
nese and American trade representa-
tives, the two countries agreed to meet
in October.
Chaos in Commons
Boris Johnson returned after the Au-
gust recess to find he had lost his
one-member majority—the defecting
Tory walked across the floor while
the PM was speaking—and over 20
members of his Conservative Party
joined the opposition to vote to delay
Brexit on Oct. 31. Johnson had sus-
pended Parliament until mid-Octo-
ber, raising fears he would trigger a
hard exit. The PM, in turn, threat-
ened a snap election, and to ban de-
fectors from running as Tories. The
House blocked that attempt, and the
thrust and parry continues.
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THE NUMBERS
HE SAID
“I’d rather
be dead in
aditch.”
United Kingdom Prime Minister
Boris Johnson on his feelings
about a Brexit delay.
Joel Arbaje (Mallinckrodt); Jeremy Selwyn/Getty Images (Johnson)