Express Scripts And Malllinckrodt: In Case Chanos Is Right – Express Scripts, Inc. (NASDAQ:ESRX)

Jim Chanos: Short Express Scripts And Mallinckrodt

As Seeking Alpha news editor Stephen Alpher reported Thursday, Jim Chanos announced at the SALT Conference that his firm was short Express Scripts (NASDAQ:ESRX) And Mallinckrodt (NYSE:MNK). Chanos elaborated on his short thesis for both names in an interview with Eric Schatzker of Bloomberg TV, on Thursday’s “What’d You Miss.” We’ve transcribed part of it below; following that, we discuss courses of action for longs.

Eric Schatzker: Mallinckrodt and Express Scripts. Let’s be clear, is this a short thesis on both stocks?

Jim Chanos: It is. And the reason we talked about both companies in the presentation is that we think they underscore the problem with pharmaceutical pricing in the United States, and they’re both great shorts on their merits, fundamentally, but the fact that there’s a linkage between the two made it interesting to us. […] The drug that Mallinckrodt sells, Achthar, is over 100% of their operating profitability right now. It’s been around since 1952 and it really only has efficacious studies for one indication. It’s a drug that’s gone from $40 to $35,000 over the past 15 years, and that’s outrageous in our opinion. And companies like Express Scripts, PPMs, rather than work to eradicate these costs, have actually accelerated them. And that’s the issue.

Eric Shatzker: The PPMs are actually supposed to be negotiating lower prices on behalf of their clients…

Jim Chanos: In fact, the independent ones like Express Scripts benefit from rising drug prices, and that’s the paradox.

Eric Shatzker: You believe that PPMs like Express Scripts, independent of this particular example, are guilty of drug price inflation.

Jim Chanos: And I’m not the only one. Their biggest customer, Anthem (NYSE:ANTM), sued them over this issue.

Eric Shatzker: Jim, you mentioned something interesting in your presentation. You accused these two companies of having a Philidor-like relationship [referring to the pharmacy…

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