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The generic drug industry has been one of the toughest to compete and survive in lately and today's Bear of the Day, Mallinckrodt PLC (MNK - Free Report) , is another prime example.

The now $2 billion Dublin-based maker of specialty pharmaceutical products and medical imaging agents has fallen nearly 60% this year and last month's quarterly report did not help the outlook.

The company reported adjusted Q3 earnings of $1.97 per share, down from the year-ago figure of $2.04 due to continued pricing pressure within the Specialty Generics segment. Net sales in the quarter came in at $793.9 million, down 10.5% year over year.

Quarter Details

Mallinckrodt reports results under two segments — Specialty Brands and Specialty Generics.

Sales at the Specialty Brands segment were $591.4 million, down 6.6% from the year-ago quarter. Acthar, Mallinckrodt’s largest product, garnered sales of $308.7 million, down 5.6% due to volume declines.

Mallinckrodt is experiencing an industry-wide issue where an increasing number of written prescriptions are going unfilled. The impact to Acthar sales increased at the end of the quarter. Sales of the drug are expected to be down sequentially as well.

Inomax, its second-largest product, generated sales of $125.7 million, down 0.9%. Ofirmev sales dipped 0.3% year over year to $75.4 million while sales of the Therakos immunology platform were $55.3 million, up 1.5%.

As expected, weakness in the Specialty Generics segment continues due to competitive pressure. The segment recorded sales of $189.1 million, down 21.1%.

Attempting to Right the Ship

Expenses were also down, but not as much as sales. Adjusted selling, general and administrative expenses in the reported quarter decreased 18.7% to $197.5 million. Meanwhile, research and development expenses declined 12.4% to $59.5 million.

Mallinckrodt is currently streamlining its business with a renewed focus on its specialty pharmaceutical business after having sold its Nuclear Imaging business.

The company also sold its Intrathecal Therapy business. The acquisition of hemostasis drugs — Recothrom Thrombin topical (recombinant), PreveLeak and Raplixa (fibrin sealant) — from The Medicines Co. (MDCO)    has strengthened Mallinckrodt’s growing hospital portfolio.

Earlier in the month, Mallinckrodt announced that it will acquire a clinical stage biopharmaceutical company Ocera Therapeutics, Inc. Ocera's experimental product OCR-002, an ammonia scavenger, is being evaluated for the treatment of hepatic encephalopathy, a neuropsychiatric syndrome associated with hyperammonemia, a complication of acute or chronic liver disease.

The candidate is currently in phase II. Mallinckrodt will discuss with FDA to confirm the regulatory pathway to gain FDA approval and subsequently launch the IV formulation, expected by 2022, and the oral formulation, expected by 2024.

Generics in the Cellar

The Generic Drugs industry is in the bottom 14% of all Zacks industries by virtue of aggregate earnings momentum. With 22 stocks in that industry, three are Zacks #4 Rank (Sell) and three are Zacks #5 Rank (Strong Sell), including Teva Pharmaceuticals (TEVA - Free Report) whose stock price has also dropped 60% this year.

The warning signs still stay "Danger!" for generics, despite their incredibly attractive valuations. Our value stock expert Tracey Ryniec has long recognized them as "value traps."

So until the earnings stop going down, and start going back up, drive past these icy curves. The Zacks Rank will let you know.

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