Why Mallinckrodt PLC Shares Popped

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of pharmaceutical company Mallinckrodt  (NYSE: MNK  ) are trading 10% higher this afternoon after the company issued a pre-market announcement that it would acquire Cadence Pharmaceuticals (NASDAQ: CADX  ) for $1.2 billion. Cadence is also trading higher -- the all-cash purchase price of $14 per share represents a 26% premium over Cadence's last close.

So what: Mallinckrodt was principally interested in Cadence's hospital painkiller Ofirmev, an intravenous form of acetaminophen that had estimated sales of $110.5 million last year. This is Cadence's only commercialized drug, but it's already posting strong growth -- 2013 sales were more than double the $50.1 million revenue Cadence generated from Ofirmev in 2012. Mallinckrodt has been pushing to expand its drug portfolio and its hospital footprint since being spun off as an independent company, and Cadence is an ideal way to address both needs at once.

Now what: Mallinckrodt had already been growing steadily before the acquisition, as its latest earnings report showed a 7% year over-year-improvement in sales and a strong 35% year-over-year rise in earnings per share. The Cadence acquisition is expected to provide a major lift to earnings in the next fiscal year. It could have greater benefits than many investors expect as Mallinckrodt uses the company's toehold in hospitals to sell more of its drugs. Mallinckrodt is not cheap at a 64 P/E, which would be the major worry for investors looking for sustainable growth -- don't dive right in without doing some further analysis on Mallinckrodt's drug portfolio.

Go big with tomorrow's blockbuster drugs...
The best way to play the biotech space is to find companies that shun the status quo and instead discover revolutionary, groundbreaking technologies. In the Motley Fool's brand-new FREE report "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that big pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2834576, ~/Articles/ArticleHandler.aspx, 8/31/2015 9:45:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Alex Planes

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.

Connect with Alex on LinkedIn or Twitter for more news and insight:

View Alex Planes's profile on LinkedIn

Today's Market

updated Moments ago Sponsored by:
DOW 16,643.01 -11.76 0.00%
S&P 500 1,978.73 -10.14 -0.51%
NASD 4,828.33 15.62 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
CADX $0.00 Down +0.00 +0.00%
Cadence Pharmaceut… CAPS Rating: **
MNK $89.93 Up +0.76 +0.00%
Mallinckrodt plc CAPS Rating: ***