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Mallinckrodt (MNK) Looks Strong on Acthar, Generics Weak

We issued an updated report on Mallinckrodt plc MNK on Aug 14.

Mallinckrodt develops, manufactures, markets and distributes branded and generic specialty pharmaceutical and biopharmaceutical products and therapies as well as nuclear medicine products.

The company has been undertaking strategic acquisitions and divestitures to evolve as a high-performing specialty pharmaceutical company.

Acthar Gel, which became part of the company’s portfolio following the Questcor acquisition, continues to drive revenues. It is currently approved for 19 indications but marketed for only 9 with a 3% patient penetration rate. Hence, Mallinckrodt is working on boosting Acthar sales in the approved indications including rheumatology and pulmonology as well as underserved patient populations.

In a bid to expand into the hospital growth platform, Mallinckrodt acquired privately held critical care company Ikaria, which added Inomax (a vasodilator used in conjunction with ventilatory support and other appropriate agents) to its portfolio. Currently, Inomax is Mallinckrodt’s second-largest product. The company estimates that it is a roughly $400 million business on a global basis.

The Cadence acquisition added Ofirmev to the company’s specialty pharmaceuticals portfolio, thus expanding its pain management franchise. With Ofirmev in its portfolio, Mallinckrodt can target the adjacent acute-care hospital market. Penetration rates on available surgical procedures are relatively low and hospitals systems continue to develop recovery standards after surgery protocols, which might benefit products like Ofirmev and enable patients to recover quickly after surgery. Growth of the drug is expected to be driven by expanded patient reach.

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. MDCO has strengthened its growing hospital portfolio.

However, Therakos sales are down. 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.

The Specialty segment continues to face weakness as various product categories are witnessing stiff competition, which is hurting both their volumes and prices. The company expects double-digit declines in revenues from this segment. In addition, continued expected weakness in this segment will adversely impact gross profit margins also.

Investors interested in the healthcare sector can consider some top-ranked stocks like Gilead Sciences, Inc. GILD and Aduro Biotech, Inc.  ADRO.

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