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Hospital Product Sales Drive Mallinckrodt (MNK) Q1 Earnings


Following the release of first-quarter 2018 results, shares of Mallinckrodt Public Limited Co. MNK moved up 7.3%.

Hit by challenges in 2017, Mallinckrodt’s stock has lost 67.4% over a year compared with the industry’s fall of 30.5%.

The company reported adjusted earnings of $1.31 per share in the reported quarter, up from the year-ago figure of $1.04, beating the Zacks Consensus Estimate of $1.11.

Net sales in the quarter came in at $572.6 million, up 2.3% year over year, and surpassed the Zacks Consensus Estimate of $566 million. The year-over-year growth in sales was due to strong hospital products performance.

Quarter in Detail

Acthar, Mallinckrodt’s largest product, garnered sales of $243.8 million, down 10.3% due to the residual impact of patient withdrawal issues.

Inomax, its second-largest product, generated sales of $139.8 million, up 8.9% due to strong utilization and favorable contractual renewals. Ofirmev sales increased 11.7% year over year to $82 million driven by strong demand.

Sales of the Therakos immunology platform were $57.4 million, up 12.1% as growth was seen in both the United States and EU, driven in part by a new UK coverage policy for acute graft versus host disease.

Sales of Amitiza were $23.0 million. The drug was added to the company’s portfolio following completion of the Sucampo acquisition in mid-February.

BioVectra, the company's contract manufacturing business in Canada, generated net sales of $10.5 million. Other sales were $16.1 million due to the divesture of the Intrathecal business in the first quarter of 2017.

Adjusted selling, general and administrative expenses in the quarter decreased 12.4% to $189.2 million. Meanwhile, research and development expenses increased to $64.1 million from $45 million due to higher pipeline investment and inline portfolio data generation.

During the quarter, the company repurchased 2.9 million shares for $45.2 million.

The company is committed to reducing debt throughout the remainder of 2018. The company recently repaid debt of $300 million in April. The debt balance has decreased by approximately $215 million since Dec 29, 2017.

Pipeline Update

In February 2018, Mallinckrodt acquired erstwhile Sucampo Pharmaceuticals for diversifying and reviving its beleaguered portfolio. The Sucampo acquisition added two approved drugs namely, Amitiza and Rescula to Mallinckrodt’s portfolio.

Mallinckrodt also completed the sale of Hemostasis business – PreveLeak Surgical and Recothrom Thrombin topical products to Baxter International, Inc BAX in March 2018. The company had acquired these products from The Medicines Co. MDCO.

The company suffered a setback when the FDA’s Gastrointestinal Drugs Advisory Committee and Pediatric Advisory Committee recommended in a vote of 21 to 3 that the risk-benefit profile of stannsoporfin does not support approval for the treatment of newborns ≥35 weeks of gestational age with indicators of hemolysis who are at risk of developing hyperbilirubinemia (severe jaundice).

The ongoing terlipressin trial for the treatment of hepatorenal syndrome type 1 reached its midpoint for patient recruitment in the quarter. The trial is expected to continue to completion of the full 300 patients as designed and a decision on approval is expected in 2020.

The company continues to have ongoing discussions with the FDA and with the EMA to define a potential path for approval in Europe for StrataGraft, the company’s regenerative skin therapy and development trials for treatment of deep partial- and full-thickness burns.

2018 Guidance

The hospital franchise is expected to grow in the mid- to high-single digits in 2018. Acthar sales are expected to cross $1 billion in 2018. The company expects to generate approximately $500 million in free cash flow in 2018.

Our Take

The earnings and sales beat in the first quarter relieved the distressed investors for Mallinckrodt which has been in troubled waters for quite some time now for high prices of its drugs and opioid misuse. While Acthar sales continue to decline, the hospital franchise (Inomax and Ofirmev) continue to register growth. Therakos also performed well in the quarter.

The company is currently streamlining its business to focus better on its innovative medicines and therapies like terlipressin and StrataGraft. While the Sucampo buyout to diversify the company’s portfolio considering Amitiza’s potential is commendable, it remains to be seen if it will be enough to bail Mallinckrodt out of its current crisis.

Zacks Rank & Stock to Consider

Mallinckrodt currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the healthcare sector is Exelixis EXEL which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Exelixis’ earnings per share estimates increased from 59 cents to 86 cents for 2018 over the last seven days after the company reported better-than-expected first-quarter results.

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