Mallinckrodt Gains On Opioid Settlement, Beats On Q4 Earnings

Shares of Mallinckrodt (NYSE:MNK) were up 13.9% after the company announced a settlement agreement in principle of $1.6 billion for its ongoing opioid litigation and reported better-than-expected results for fourth-quarter 2019.

Mallinckrodt’s stock has slumped 80% in the past year compared with the industry’s growth of 0.7%.

The company reported adjusted earnings of $2.40 per share in the fourth quarter, handily beating the Zacks Consensus Estimate of $2.05. The figure came in higher than the year-ago quarter’s $2.18. Net sales in the quarter came in at $804.9 million, decreasing 3.6% year over year. The revenue figure also beat the Zacks Consensus Estimate of $774 million.

Quarter in Detail

The company now operates two reportable segments aligned with the previously-announced separation — the Specialty Brands and the Specialty Generics.

Specialty Brands sales came in at $611.4 million, down 6.3% year over year.

Acthar, Mallinckrodt’s largest product, generated sales of $232.6 million, down 17.8% year on year, primarily due to continued reimbursement challenges impacting new and returning patients and continued payer scrutiny on overall specialty pharmaceutical spending.

Inomax, the company’s second largest product, generated sales of $143.8 million, up 3.7% year over year, driven by strong customer demand for INOmax, partially offset by heightened competition in the market.

Ofirmev sales increased 28.2% year over year to $111.8 million, owing to typical quarter-to-quarter order variability.

Sales of the Therakos immunology platform came in at $63.3 million, up 11.1% primarily owing to the capture of new patients and the conversion to the Cellex device.

Amitza net sales were $50.9 million, down 21.2% due to lower royalties in the United States thanks to an increasingly competitive landscape.

Specialty Generics sales amounted to $193.5 million, up 6%.

Adjusted selling, general and administrative expenses were $191.6 million, down from the year-ago quarter’s $212.2 million. Research and development expenses decreased to $81.4 million from $100.4 million due to the completion of certain development programs.

2019 Results

Sales came in at $3.16 billion, down from $3.22 billion in 2018 due to weakness in Acthar product. Earnings per share came in at $8.88 compared with $8.01 in 2018.

Guidance

The company did not provide any guidance for 2020.

Opioid Settlement

Concurrently, Mallinckrodt announced that the company and its specialty generics-focused subsidiaries Mallinckrodt LLC, SpecGx LLC, and certain other affiliates have reached an agreement in principle on the terms of a global settlement that would resolve all opioid-related claims against the company, Specialty Generics, and other subsidiaries.

The agreement in principle has been reached with a court-appointed plaintiff’s executive committee representing the interests of thousands of plaintiffs in the opioid multidistrict litigation, and is supported by a broad-based group of 47 states and U.S. Territory Attorneys General.

Mallinckrodt expects that Specialty Generics, which manufactures certain generic opioid products, among other products, will file voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the coming months. The settlement terms include structured payments of $1.6 billion over eight years and warrants for 19.99% of company's outstanding shares.

Our Take

The proposed settlement agreement for lawsuits related to opioid crisis overshadowed the better-than-expected results for the fourth quarter. While the hospital products maintain momentum, Acthar faces challenges.

Nevertheless, the settlement of the opioid litigation will remove a major hangover from the shares.

Other companies which are involved in opioid litigations, include Teva Pharmaceuticals (NYSE:TEVA) and Johnson & Johnson (NYSE:JNJ) .

Zacks Rank & A Stock to Consider

Mallinckrodt is a Zacks Rank #3 (Hold) stock, currently. A better-placed rank in the healthcare sector includes Regeneron Pharmaceuticals (NASDAQ:REGN) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Regeneron’s earnings per share estimates have increased from $26.76 to $28.31 for 2020 in the past 60 days.

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