Saturday, January 6, 2018

An Integrated BioSci Alpha Intelligence: Will Mallinckrodt Become A Successful Turnover Story Of 2018?


  • The spin-off from Covidien, Mallinckrodt is most likely to perform well in the long-term.
  • Share price took a beating in 2017 due to the declining sales of the flagship, Acthar Gel.
  • The company recently acquired Sucampo Pharmaceuticals to have access to its rare diseases portfolio and the stellar constipation medicine, Amitiza.
  • Amitiza will most likely deliver robust revenues in 2018 to offset the sales decline of Acthar Gel.
  • Recently acquired phase 3 drugs to service the orphan diseases market gives the company more “shots on goal” of finding significant revenue drivers.

“Spin-offs of divisions or parts of companies into separate, freestanding entities often result in astoundingly lucrative investments” - Peter Lynch

Like most spin-offs, the share price of Mallinckrodt (NASDAQ:MNK) - the 2013 daughter-firm that split from Covidien (NYSE:COV) - increased drastically from $43.50 to $132.47 in just over two years. The stock, however, has been trading on the downtrend since 2015. As follows, the stock receded by $29.8 to trade at $23.37 (for 56.3% potential loss) for the past 52-weeks. The change of fortune has been mostly due to the declining sales and controversy surrounding the flagship product, Acthar Gel. Of note, we stated in our prior research that Mallinckrodt recently acquired Sucampo Pharmaceuticals (NASDAQ:SCMP) for $1.2B (and this has important ramifications for Mallinckrodt). In this report, we'll analyze how the aforementioned Sucampo acquisition is most likely to change Mallinckrodt’s fortune as the Questcor acquisition for Acthar Gel once did.

Figure 1: Mallinckrodt stock chart. (Source: StockCharts)

About The Company

Before we discuss Mallinckrodt further, let’s take a look at Peter Lynch’s view on spin-offs (as it applies to this investing thesis),

“Spin-offs of divisions or parts of companies into separate, freestanding entities often result in astoundingly lucrative investments. Large parent companies do not want to spin-off divisions and then see those spin-offs get into trouble, because that would bring embarrassing publicity that would reflect poorly on the parents. Therefore, spin-offs typically have strong balance sheets and are well-prepared to succeed as independent entities. Once these companies are granted their independence, new management, and are free to run on their own, they can cut costs and take creative measures that improve the near and long-term earnings. Spinoff companies are often misunderstood and get little attention from Wall Street, making them a fertile area for the shareholders.”

As alluded, the United Kingdom-based firm, Mallinckrodt, split from Covidien in 2013. Thereafter, the company focuses on the development and commercialization of both branded and generics specialty therapeutic-segments. Accordingly, the firm seeks to service areas such as autoimmune, neurology, rheumatology, nephrology, ophthalmology, pulmonology, respiratory, and anesthesiology (as shown in figure 2). The generic subsidiaries include active pharmaceutical ingredients, biologics, medicinal opioids, controlled substances, and acetaminophen. The branded franchises feature corticotropin injection (Acthar), nitric oxide gas (Innomax), acetaminophen injection (Ofirmev), Therakos photopheresis, fibrin sealant (Raplixa), surgical sealant (Preveleak), and topical thrombin (Recothrom).

Figure 2: Branded products portfolio. (Source: Mallinckrodt)

Author’s Notes: We’re honored that you took the time out of your busy day to read our market intelligence. Founded by Dr. Hung Tran, MD, MS, CNPR, (in collaborations with Dr. Tran BioSci analyst, Ngoc Vu, and other PhDs), Integrated BioSci Investing (“IBI”) marketplace research is delivering stellar returns since inceptions. To name a few, Nektar Therapeutics (NASDAQ:NKTR) procured more than 210% profits; Spectrum Pharmaceuticals (NASDAQ:SPPI) delivered over 180% gains; Kite Pharma netted 82%. Exelixis Inc (NASDAQ:EXEL) earned greater than 50% capital appreciation. Our secret sauce is extreme due diligence coupled with expert data analysis. The service features a once-weekly exclusive in-depth Integrated BioSci Alpha-Intelligence article (in the form of research, reports, or interviews), daily individual stocks consulting, and model portfolios.

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