Mallinckrodt (MNK) Q1 Earnings Beat Estimates, Sales Miss

Shares of Mallinckrodt MNK were down 14.8% after it reported mixed results for the first quarter, wherein sales missed estimates but earnings beat the same. Moreover, the company presented a disappointing outlook for the second quarter due to the ongoing pandemic.

Mallinckrodt’s stock has lost 19.5% in the year so far compared with the industry’s decline of 7%.

 

The company reported adjusted earnings of $1.64 per share in the first quarter, beating the Zacks Consensus Estimate of $1.41 but decreasing from the year-ago quarter’s $1.94.

Net sales in the quarter came in at $665.8 million, decreasing 15.8% year over year and missing the Zacks Consensus Estimate of $678 million.

Quarter in Detail

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

Specialty Brands’ sales came in at $490.6 million, down 18.8% year over year.
Acthar, Mallinckrodt’s largest product, generated sales of $167.6 million, down 25.1% year on year, primarily due to continued reimbursement challenges affecting new and returning patients, continued payer scrutiny on overall specialty pharmaceutical spending, and reduced patient demand due to the COVID-19 stay-at-home order.

Inomax, the company’s second-largest product, generated sales of $141.7 million, down 6.2% year over year due to increased competition for inhaled nitric oxide.

Ofirmev sales decreased 21.7% year over year to $74.9 million due to significant quarter-to-quarter order variability and a reduction in elective surgeries due to public health orders and institutions focusing on responding to the COVID-19 pandemic.

Sales of the Therakos immunology platform came in at $63.7 million, up 3.1%.
Amitza net sales were $41.1 million, down 22.5% due to increased competition in the United States and the biennial price reduction in Japan.

Specialty Generics’ sales amounted to $175.2 million, down 6%.

Adjusted selling, general and administrative expenses were $187.2 million, down from the year-ago quarter’s $211.4 million. Research and development expenses decreased to $77.4 million from $85.3 million owing to the completion of two phase III clinical trials in late 2019.

Guidance

Reduced patient demand due to the COVID-19 stay-at-home order started affecting the business toward the end of the first quarter and the company expects this impact to be more significant in the second quarter at least.

Litigation Update

In February 2020, Mallinckrodt announced an agreement in principle for a global resolution to its opioid litigation, subject to certain conditions. 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.

In March, the U.S. Attorney's office in Massachusetts announced its intervention in a lawsuit filed against the company alleging violations of the False Claims Act relating to the method to calculate Medicaid drug rebates for Acthar. Thereafter, the U.S. District Court for the District of Columbia ruled against Mallinckrodt in its lawsuit against the U.S. Department of Health and Human Services and Centers for Medicare and Medicaid Services (CMS) regarding the company's calculation of Medicaid drug rebates for Acthar    .

Our Take

Mallinckrodt’s first-quarter results were disappointing as the company missed on sales. Most products have registered a decline due to the ongoing pandemic and the impact will be magnified in the second quarter. The company warned that the next few quarters will be challenging due to the impact of COVID-19, as some of its products are sensitive to reduced numbers of surgical procedures and doctor visits.

Meanwhile, the company is embroiled in a litigation with the U.S. Department of Health and Human Services and CMS related to the calculation of Medicaid drug rebates for Acthar.

The woes do not seem to end for Mallinckrodt. The opioid litigation already adversely impacted its share price and now the coronavirus pandemic will affect the business.

Meanwhile, Mallinckrodt partnered with Novoteris, LLC and Massachusetts General Hospital to study inhaled nitric oxide as a therapeutic option for COVID-19 patients. Given the widespread outbreak, quite a few companies are evaluating their drugs/candidates to contain/prevent the contagion. Last week, Amgen AMGN too announced that it will begin clinical studies to evaluate inflammatory medicine, Otezla, to treat respiratory distress in late-stage COVID-19 patients. Incyte INCY has also initiated a study on its lead drug, Jakafi, for COVID-19 infection.

Zacks Rank & A Stock to Consider

Mallinckrodt is a Zacks Rank #3 (Hold) stock, currently. A better-ranked stock in this space is Adamas Pharmaceuticals ADMS, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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