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Why Is Mallinckrodt (MNK) Up 14.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Mallinckrodt (MNK - Free Report) . Shares have added about 14.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Mallinckrodt due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Mallinckrodt Beats on Q2 Earnings and Sales, Ups View

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, the drug’s uptake for the cardiovascular indication in Japan was robust. Ofirmev’s 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’s portfolio 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.

Mallinckrodt is also making progress with two of its late-phase programs — terlipressin and StrataGraft. Patient recruitment is two-thirds complete in the ongoing phase III trial on pipeline candidate, terlipressin, for the treatment of Hepatorenal Syndrome type 1.

Enrolment 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 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 with 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 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.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 8.4% due to these changes.

VGM Scores

Currently, Mallinckrodt has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Mallinckrodt has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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