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What's in Store for Mallinckrodt (MNKKQ)This Earnings Season?

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We expect Mallinckrodt (MNKKQ - Free Report) investors to focus on updates related to bankruptcy proceedings, initiated during the fourth quarter, when the company announces results.

Shares of the company have lost 89.9% in the past year against the industry’s rise of 21.4%.

Mallinckrodt’s earnings performance has been encouraging over the trailing four quarters. The company beat expectations in the last four quarters, with earnings surprise of 37.87%, on average.

In the last reported quarter, Mallinckrodt delivered an earnings surprise of 66.91%.

Let’s see how things have shaped up prior to this announcement.

Factors to Note

In a major move, the company voluntarily filed for bankruptcy proceedings in the U.S. Bankruptcy Court for the District of Delaware in October 2020. The company intends to implement a restructuring support agreement to reduce its debt by approximately $1.3 billion, and resolve all opioid-related claims and various lawsuits related to its lead drug, Acthar Gel. The company’s future is dependent on the outcome of the proceedings. Investors will likely ask questions related to the proceedings on the fourth quarter earnings call.

Sales of Acthar, Mallinckrodt’s largest product, is likely to have declined during the fourth quarter due to the negative impact of COVID-19 and continued payer scrutiny as well as due to changes to the Medicaid rebate calculation.

However, sales of the company’s second-largest product, Inomax, are likely to have moved north due to higher demand, especially among COVID-19 patients.

Sales of Amitiza, Ofirmev and Therakos might have been hurt in the fourth quarter due to reduction in elective surgeries and stay-at-home directives.

Apart from the regular top and bottom-line numbers, we expect investors to focus on the company’s two late-phase programs on terlipressin and StrataGraft.  In October 2020, the FDA issued a complete response letter to the new drug application seeking approval for terlipressin treatment of hepatorenal syndrome type 1 in October 2020. The company plans to request the FDA in the first quarter for a discussion on the path forward for the candidate.

StrataGraft is under review with the FDA for deep partial-thickness thermal burns. A decision was expected by Feb 2 from the regulatory agency. Investors will likely look for any update on the FDA delay.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Mallinckrodt this earnings season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Mallinckrodt’s Earnings ESP is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $1.44.

Zacks Rank: Mallinckrodt currently carries a Zacks Rank #3.

Stocks That Warrant a Look

Here are some stocks from the biotech and generic sectors that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

Personalis, Inc. (PSNL - Free Report) has an Earnings ESP of +8.48% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bausch Health Cos Inc. (BHC - Free Report) has an Earnings ESP of +7.49% and a Zacks Rank #3.

Atreca, Inc. (BCEL - Free Report) has an Earnings ESP of +16.04% and a Zacks Rank #3.

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