Mallinckrodt Pharmaceuticals shares slid nearly 7 percent on news of a whistleblower lawsuit involving its best-selling drug, Acthar.
In the suit, Rasvinder Dhaliwal, former associate director at Mallinckrodt, claims the company continued to raise the price of the blockbuster medicine without knowing what was in it. She also alleges Accredo Health, a mail-order pharmacy unit of Express Scripts, was involved in pricing the drug.
The suit was filed Tuesday, and Business Insider outlined the allegations on Wednesday.
"(Mallinckrodt) vehemently disagrees with the allegations made in the complaint and intends to vigorously defend itself in this matter," a company spokesman said in a statement.
An Express Scripts spokeswoman disputed the pricing claim, saying neither Express Scripts nor Accredo sets the price for medication, rather it is determined by the drugmaker.
Express Scripts is named in the suit but is not a defendant. "We strongly disagree with the claims in the suit as they relate to Accredo," the spokeswoman said.
Acthar has been a controversial drug. It's used to treat infant spasms, multiple sclerosis and a number of other conditions. Under Questcor Pharmaceuticals' ownership, the price of the drug skyrocketed. By 2007, the full course of therapy reached $23,000, up from $1,650, according to news outlet FiercePharma.
Mallinckrodt bought Questcor in 2014. The course of treatment now runs $38,892, excluding discounts, a spokesman said. Last year, Acthar generated $1.2 billion for Mallinckrodt.
In a note to clients, Wells Fargo analyst David Maris said whistleblower suits and court documents tend to read poorly for a company because they're usually one sided and don't include the company's perspective. However, he said many whistleblowers don't undertake suits lightly given the personal and financial consequences they may face.
Some whistleblowers have a history of filing suits, which may not make their allegations untrue, but it does add perspective, he said.
"Because of this, and because of our inability to assess the veracity of the allegations, we would not take the complaint at its word for being true, nor would we suggest investors dismiss it as completely irrelevant," Maris said.
"The complaint alleges a number of bad actions by Mallinckrodt that could have larger implications if true," he said. "Time (and a court process) will tell, and we would not jump to any conclusions, other than that this [is] perhaps the last type of attention Mallinckrodt, or any company, would want."
Shares of Mallinckrodt have plummeted almost 40 percent this year and nearly 70 percent over the last 12 months.