This News Explains Mallinckrodt's Fall Today

MarketsMotley Fool

What happened

News of a grand jury subpoena sent shares of Mallinckrodt (NYSE: MNK), a company focused on generic and specialty drugs, dropping as much as 13% in afternoon trading on Wednesday. The stock has since recovered a bit, but was still down 11% as of 3:25 p.m. EST.

Continue Reading Below

So what

Mallinckrodt revealed in a Securities and Exchange Commission filing that it has received a grand jury subpoena from the U.S. Attorney's Office for the Southern District of Florida. The government is requesting documentation on generic drugs it produces that contain the opioid painkiller oxymorphone. Specifically, it is investigating the company's distribution, marketing, and sales practices.

Given the revelation, it isn't hard to figure out why investors are spooked.

Now what

Many state and local governments have filed lawsuits against drugmakers that produce opioids in recent years for their role in exacerbating the opioid epidemic. In this case, the U.S. attorney's office is seeking damages to recover the costs that it has borne as a result of the ongoing drug addiction crisis.

Will this lawsuit culminate in Mallinckrodt being forced to write the government a big check? That remains unclear. However, given the risk, I don't consider today's drop to be a buying opportunity, even though shares are currently dirt cheap.

10 stocks we like better than MallinckrodtWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Mallinckrodt wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of September 5, 2017

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.