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Mallinckrodt (MNK) Beats on Q2 Earnings and Sales, Ups View

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Shares of Mallinckrodt Public Limited Company (MNK - Free Report) are up 20.9% after the company reported strong results for the second quarter of 2018 and upped its annual guidance. Performance of hospital products especially Inomax and Ofirmev were impressive.

 

As a result of strong gains following Q2 results, Mallinckrodt’s stock has gained 30.4% in the year so far compared with the industry’s growth of 5.3%.

The company reported adjusted earnings of $1.78 per share in the reported quarter, up from the year-ago figure of $1.36, beating the Zacks Consensus Estimate of $1.50.

Net sales in the quarter came in at $631.7 million, up 5.3% year over year and surpassed the Zacks Consensus Estimate of $622.1 million.

Quarter in Detail

Acthar, Mallinckrodt’s largest product, generated sales of $293.2 million, down 8.2% due to the residual impact of the previously reported patient withdrawal issues.  
Inomax, its second-largest product, generated sales of $131 million, up 4.4% driven by strong demand. In particular, uptake for the cardiovascular indication in Japan was robust. Ofirmev sales increased 13.1% year over year to $85.6 million on strong demand as customers focus on non-opioid or multimodal pain management.

Sales of the Therakos immunology platform were $56.8 million, up 10.9% driven by increased demand in Europe.

Amitiza sales came in at $48 million. The drug was added to Mallinckrodt portfolio as as a result of erstwhile Sucampo Pharmaceuticals acquisition.

Adjusted selling, general and administrative expenses in the quarter decreased 8.9% to $190.2 million. Meanwhile, research and development expenses increased 55.4% to $81.3 million.

Pipeline Update

During the quarter, the company reported positive preliminary data on Acthar for the indication of rheumatoid arthritis and multiple sclerosis. Further updates are expected in the coming quarters.

Top line results from the registration study on VTS-270 for the treatment of Niemann-Pick Type C indication is expected shortly. The company is preparing for upcoming final discussions with the FDA on the statistical analysis plan.

The company is also making progress with two of its late-phase programs - terlipressin and StrataGraft. Patient recruitment is two-thirds complete in the phase III trial, terlipressin, for the treatment of Hepatorenal Syndrome type 1.

Enrollement is ongoing with nearly half the planned patients enrolled in the deep partial thickness study on StrataGraft. The candidate is in development trials for treatment of deep partial and full thickness burns. The FDA had earlier accepted Mallinckrodt’s New Drug Application (“NDA”) seeking approval of the recently acquired developmental product stannsoporfin. Under the Prescription Drug User Fee Act, the FDA set its action date to respond to the NDA as Aug 22, 2018.  The agency previously granted Fast Track status to stannsoporfin.

The phase III acute graft versus host disease trial in Therakos is on track to achieve 50% enrolment.

2018 Guidance

Propelled by a strong performance in the first half of 2018, the company increased its annual guidance.

Net Sales in 2018 are now expected to grow by 4-7%, compared to the earlier estimate of 3-6%. Adjusted EPS is now estimated around $6.50 - $6.90, up from the previous projection of $6.00 - $6.50. Hospital portfolio is expected to post growth rates in the mid to high-single digits.  Net sales for Acthar is expected to be above $1 billion. Combined sales for Amitiza and Rescula are anticipated around $200 million in 2018.

Our Take

The strong results in the second-quarter is impressive or Mallinckrodt which has been in troubled waters for quite some time now.  While Acthar sales continue to decline, the hospital portfolio looks solid.

2018 is expected to be a transformative year for Mallinckrodt as the company strives hard to revive its product portfolio/pipeline.  The company sold a portion of its hemostasis business, inclusive of its PreveLeakSurgical Sealant and Recothrom Thrombin topical (products to Baxter International, Inc. (BAX - Free Report) approximately $185.0 million.

The company is currently streamlining its business to focus better on its innovative medicines and therapies like terlipressin and StrataGraft. A tentative approval will boost growth prospects. Acthar, which has been under the scanner for price hikes, posted positive preliminary results for two addictions.

Zacks Rank & Key Picks

Mallinckrodt carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the healthcare sector are Vertex Pharmaceuticals (VRTX - Free Report) and Seattle Genetics (SGEN - Free Report) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vertex’s earnings per share estimates moved up from $3.16 to $3.79 for 2018 and from $4.33 to $4.58 for 2019 in the last 30 days.

Seattle Genetics’ 2018 loss per share estimates narrowed from $1.81 to 83 cents and from 81 cents to 39 cents in the last 30 days.

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