[Updated 1/27/17, 6:49 pm. See below.] The sale of Stratatech, a Madison, WI-based maker of human skin tissue, to Mallinckrodt Pharmaceuticals in August cost the company $76 million in cash, according to a filing submitted to federal securities regulators.
In addition, U.K.-based Mallinckrodt (NYSE: MNK) could be on the hook for another $121 million in milestone payments, which are “primarily regulatory and royalty obligations,” according to the filing, which became public in November.
Mallinckrodt has offices around the world and a current market cap of nearly $5 billion. In recent years, the pharmaceutical giant has fueled some of its growth by snapping up smaller companies.
Stratatech, meanwhile, is developing cell-based skin tissue. One application for the tissue, which is designed to coax a patient’s body into regenerating its own skin, is treating burn wounds.
The company’s flagship skin replacement product, known as StrataGraft, is a sheet of living tissue made from a type of human keratinocyte progenitor cells. In March 2015, Stratatech announced top-line results from a mid-stage clinical trial of StrataGraft. The product still has a ways to go, however; according to a press release put out in August that provided details on the Mallinckrodt deal, a decision from the FDA on whether to approve StrataGraft may not come until 2020.
In its regulatory filing, Mallinckrodt pegged value of StrataGraft at $99.8 million. The calculation was based on cash flow projections if the product receives FDA approval and reaches the market.
The $76 million paid upfront for Stratatech is based on Mallinckrodt’s assessment that it would be acquiring $160.5 million worth of assets and assuming $84.5 million in liabilities, according to the filing.
Mallinckrodt declined to comment specifically on the Stratatech purchase price and potential milestone payments, instead referring inquiries to past Mallinckrodt filings with the SEC. However, senior communications manager Rhonda Sciarra said via e-mail that “the integration of Stratatech into Mallinckrodt is progressing well and as expected.” [This paragraph has been updated with comments from Mallinckrodt.]
“Our acquisition of Stratatech expands pipeline and research capabilities within Mallinckrodt’s established development infrastructure,” Sciarra said. “We believe we can leverage our leadership position in the U.S. hospital space through existing commercial presence in burn centers and established relationships with hospital networks, insurance companies and group purchasing organizations. Having Stratatech as a part of Mallinckrodt also strengthens our surgical offerings to further improve patient outcomes.” [This paragraph has been updated with comments from Mallinckrodt.]
Stratatech had about 50 employees at the time of the sale. Sciarra said in August that she and others at Mallinckrodt “expect the Stratatech operation to remain in Madison.”
Also likely to carry over are some of the contracts Stratatech had signed with federal agencies and other groups before the Mallinckrodt deal closed. In late 2015, the company announced it had been awarded a $247 million contract by the Biomedical Advanced Research and Development Authority (BARDA), part of the U.S. Department of Health and Human Services.
“Stratatech and its employees remain the contractors to BARDA, the U.S. Department of Defense and other public funding agencies. We don’t anticipate any changes to our commitments and external funding levels,” Sciarra said. [This paragraph has been updated with comments from Mallinckrodt.]
Stratatech was founded in 2000 by B. Lynn Allen-Hoffmann, a researcher and professor at the University of Wisconsin-Madison.
Rock Mackie, an engineering professor at UW-Madison who has helped form and grow several healthcare-focused business over the years, said last February that he believes university professors are typically not well-suited to also serve as corporate CEOs. However, Allen-Hoffmann is an exception to this rule, Mackie said.