Why Is Mallinckrodt (MNK) Down 5.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Mallinckrodt (MNK). Shares have lost about 5.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Mallinckrodt due for a breakout? 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 catalysts.

Mallinckrodt Q1 Earnings Beat Estimates, Sales Miss

Mallinckrodt 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 .

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -5% due to these changes.

VGM Scores

At this time, Mallinckrodt has a great Growth Score of A, a grade with the same score on the momentum front. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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