Mallinckrodt Profit Surges as Acquisitions Drive Sales

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But overall sales missed analysts’ lofty expectations, and shares slid 10.4% in midday trading—hitting a six-month low and giving up nearly half of the stock’s gain this year.

In March, the Dublin-based company agreed to buy privately held Ikaria Inc. for about $2.3 billion, in a move to expand its presence in hospitals and in the area of critical care. With this acquisition, the company inherited Ikaria’s inhaled form of nitrous oxide, which is used in hospitals for babies with respiratory failure. Mallinckrodt said the deal would add $150 million in sales and add at least 25 cents in earnings per share this year.

Mallinckrodt, like many other companies in the space, has sought to grow through acquisitions. The company, which in 2013 spun off from Covidien PLC, closed its $5.8 billion deal to buy Questcor Pharmaceuticals Inc. last summer and earlier purchased pain-treatment company Cadance Pharmaceuticals Inc. for $1.3 billion in cash.

Those pricey deals have fueled sales, particularly within Mallinckrodt’s specialty brand segment, where revenue nearly quintupled from a year earlier. The $446.2 million in sales for the unit represented nearly half of the company’s top line. But disappointing growth in sales of Acthar—a Multiple Sclerosis drug Mallinckrodt acquired when it bought Questcor—resulted in lower-than-expected overall revenue growth, according to analysts at Leerink Partners. Acthar revenue rose 3% from a year earlier, less than half the rate Leerink predicted.

In a research note, Leerink analysts said Acthar’s sales result further calls into question market expectations for roughly 9% annual growth of the drug.

“Investors may need to start looking at Acthar as a low to mid-single digit growing franchise,” the analysts said, cautioning that the company’s selling strategy or the market opportunity may not support a stronger growth profile.

On a call with analysts, Chief Executive Mark Trudeau said the company anticipated a challenging quarter for Acthar. “We don’t expect this pressure to lessen any time soon and indeed believe it may even increase with ongoing consolidation in the insurance sector,” Mr. Trudeau said.

Meanwhile, sales in Mallinckrodt’s other segments declined. Specialty generic sales fell 6.5% to $309.9 million, and in the company’s medical-imaging business, revenue slid 11% to $201.6 million.

For the quarter ended June 30, the company booked a profit of $58 million, up from $6 million a year earlier. Per-share earnings were 49 cents a share versus a loss of 41 cents a year earlier. Excluding items, earnings per share rose to $2.05 from $1.20.

Revenue surged 48% to $965.1 million.

Analysts polled by FactSet estimated $1.82 in earnings per share and $985 million in sales.

 

Aug. 4, 2015 12:57 p.m. ET

Write to Lisa Beilfuss at [email protected]


Source: Wall Street Journal Health