Mallinckrodt (MNK) Tops Q2 Earnings, Generics Segment Weak

Mallinckrodt Public Limited Company (NYSE:MNK) reported second-quarter 2017 results wherein earnings beat expectations but sales missed the same.

The company reported adjusted earnings of $1.85 per share in the reported quarter, beating the Zacks Consensus Estimate of $1.73. Earnings were however down from the year-ago figure of $2.03 due to continued pricing pressure within the Specialty Generics.

Net sales in the quarter came in at $824.5 million, down 4.9% year over year and missed the Zacks Consensus Estimate of $827.3 million.

Mallinckrodt’s stock price has declined 17.9% in the year so far, compared with the industry’s fall of 14%.

Quarter in Detail

The company reports results under two segments – Specialty Brands and Specialty Generics.

Sales at the Specialty Brands segment were $594.5 million, up 0.9% from the year-ago quarter. Acthar, Mallinckrodt’s largest product, garnered sales of $319.4 million, up 7.1%. Inomax, its second-largest product, generated sales of $125.5 million, up 3.6%. Ofirmev sales grew 7.1% year over year to $75.7 million.

Sales of the Therakos immunology platform were $51.2 million, down 2.5%. Although the kit supply issue was resolved in the first quarter, the company underestimated the complexity of the conversion from the XTS to Cellex devices, resulting in lower-than-anticipated net sales. Moreover, these transitional issues are expected to persist in the upcoming quarters.

As expected, weakness in the Specialty Generics segment continues. The segment recorded sales of $216 million, down 18% but better than management’s expectation due to the active pharmaceutical ingredients products and controlled substances and other products categories.

Adjusted selling, general and administrative expenses in the reported quarter increased 3.2% to $232.1 million. Meanwhile, research and development expenses declined 7.5% to $69.2 million.

During the second quarter, the company repurchased 2.4 million ordinary shares for $100.7 million under its share repurchase programs, bringing the total repurchased in the first half to 8 million.

2017 Guidance

The company reiterated its earnings guidance of $7.40 to $8.00 for 2017. The Zacks Consensus Estimate for 2017 is $7.53.

Our Take

Mallinckrodt’s second-quarter results were mixed as the company beat on earnings but missed on sales as weaknesses in the generics segment persist. While Acthar sales continue to be strong on the back of increased formulary positions and access for appropriate patients in both the commercial and public environments, sales of Therakos is expected to decline.

The company is currently streamlining its business. The company aims to focus better on its specialty pharmaceutical business after having sold its Nuclear Imaging business. The company also sold its Intrathecal Therapy business. On the other hand, the acquisition of hemostasis drugs – Recothrom Thrombin topical (recombinant), PreveLeak and Raplixa (fibrin sealant) – from The Medicines Co. (NASDAQ:MDCO) has strengthened its growing hospital portfolio.

Shares are down in pre-market trading.

Zacks Rank & Key Picks

Mallinckrodt currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the health care sector are Aduro Biotech, Inc. (NASDAQ:ADRO) and Gilead Sciences, Inc. (NASDAQ:GILD) . 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.

Gilead’s earnings per share estimates increased from $7.92 to $8.53 for 2017, over the last 30 days following strong results in the second quarter. The company delivered positive earnings surprises in three of the trailing four quarters, with an average beat of 8.18%.

Aduro Biotech’s loss per share estimates narrowed from $1.46 to $1.36 for 2017 over the last 30 days. The company delivered positive earnings surprises in two of the four trailing quarters with an average beat of 2.53%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>