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What's Behind Mallinckrodt's Better-Than-Expected Q4 Results

By Keith Speights - Feb 25, 2020 at 2:00PM

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The drugmaker topped Wall Street's estimates for both the top and bottom lines. And it had some other big news that overshadowed its Q4 performance.

Investors could be experiencing whiplash from the big up-and-down swings for Mallinckrodt (MNK). There have been at least half a dozen moves of at least 20% for the stock in just the first two months of 2020.

Mallinckrodt announced its 2019 fourth-quarter and full-year results before the market opened on Tuesday. And the stock had yet another big jump. Here are the highlights from the company's Q4 update.

Scientist filling a vial with a dropper.

Image source: Getty Images.

By the numbers

Mallinckrodt announced Q4 revenue of $804.9 million, down from the $834.9 million reported in the same quarter of the previous year. This result topped the average analysts' revenue estimate of $772.52 million.

The company reported a net loss in the fourth quarter of $1.2 billion, or $13.76 per share, based on generally accepted accounting principles (GAAP). This reflected considerable improvement from the GAAP net loss of $3.7 billion, or $44.64 per share, in the prior-year period.

Mallinckrodt's non-GAAP adjusted bottom line looked much better, though. The company posted adjusted net income of $2.40 per share, up 10% year over year. It also easily beat the Wall Street consensus earnings estimate of $2.05 per share.

Behind the numbers

The drugmaker's biggest segment didn't perform very well in Q4. Net sales for Mallinckrodt's specialty brands segment slipped 6.3% year over year to $611.4 million. Sales for Acthar Gel sank 17.8% to $232.6 million due to continued reimbursement headwinds. Net sales for Amitiza fell 21.2% to $50.9 million in the wake of increased competition.

There were some bright spots, though. Net sales for Inomax climbed 3.7% year over year to $143.8 million. Ofirmev's net sales jumped 28.2% to $111.8 million. Net sales for the Therakos immunology platform increased by 11.1% year over year to $63.3 million.

Mallinckrodt's specialty generics segment also performed relatively well. Fourth-quarter net sales for the segment rose 6% year over year to $193.5 million.

The company's GAAP bottom line improved significantly from the prior-year period, primarily due to a bigger non-restructuring impairment charge in the fourth quarter of 2018. This was partially offset, however, by a $1.64 million opioid litigation settlement charge in Q4 of 2019.

Looking ahead

Mallinckrodt's biggest news of the day wasn't its Q4 results. The company also announced an agreement in principle to settle all remaining opioid claims against it and its subsidiaries. This agreement involves Mallinckrodt's specialty generics businesses filing for Chapter 11 bankruptcy. Mallinckrodt would pay $1.6 billion over eight years and fork over warrants that would allow a trust set up as part of the agreement to buy 19.99% of the company's outstanding shares.

Investors liked the deal, with the pharma stock rising as much as 51.7% on Tuesday at one point. The agreement would enable Mallinckrodt to finally remove the dark cloud that's been hovering over its head related to opioid litigation. It would also allow the company's specialty brands business to avoid bankruptcy.

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