Biotech and Pharma

Mallinckrodt stock swings up 16%, then down, after drugmaker beats earnings estimates and raises 2019 profit outlook

Key Points
  • Mallinckrodt Pharmaceuticals generated $790.6 million in revenue for the first quarter of 2019, beating estimates of $767.2 million.
  • The company has recently been embroiled in two whistleblower lawsuits that have negatively impacted the company's stock.
The Mallinckrodt Pharmaceuticals sign at the company's offices in St. Louis.
Whitney Curtis | AP

Shares of Mallinckrodt Pharmaceuticals seesawed Tuesday morning, swinging up by as much as 16.4% before the markets opened but trading lower after the company reported otherwise strong first-quarter earnings and raised its profit outlook for the year.

Mallinckrodt attributed its strong quarterly performance to sales of hospital products and generic drugs.

The stock was volatile in morning trading following its initial surge before the markets opened. It was trading down by about 2% around 11 a.m.

Here's how the company did compared with average analyst estimates compiled by Refinitiv:

  • Adjusted earnings per share: $1.94 versus $1.70 expected
  • Revenue: $790.6 million versus $767.2 million expected

"We have started 2019 with continued strong operational execution, achieving robust top- and bottom-line growth, and resulting in significant cash generation as we continue to transform our company," CEO Mark Trudeau said in a statement. "The hospital portfolio continued its positive momentum, and as anticipated we saw the return to growth reported for the Specialty Generics products."

Mallinckrodt's revenue rose 4.7 percent to $790.6 million from $755.3 million during the same quarter last year. On an unadjusted basis, the company swung to a profit of $154.9 million, or $1.83 per share, from a loss of $18 million, or 21 cents a share, during the first three months of 2018. The company's adjusted earnings exclude certain reorganization costs, taxes and other items.

Mallinckrodt raised its sales projections for its specialty generic drugs, saying they will grow by 2% to 5%, up from its original guidance of 1% to 4%. The company also raised guidance for its 2019 adjusted earnings to $8.30 to $8.60 per share, up from its original estimate of $8.10 to $8.40 per share.

The company said one of its main focuses for 2019 will be to complete the separation of its Specialty Generics and Amitiza segment, which Mallinckrodt in December announced it was spinning off into its own company. Mallinckrodt expects the spinoff to happen in the second half of this year.

The generics segment of the company reported net sales of $243.3 million, up 17.6% year over year. Amitiza sales were up 3.5%, generating $53 million.

Sales of one of the company's best-performing drugs, H.P. Acthar Gel, fell 8.2%, bringing in $223.9 million compared with last year's $243.8 million. The company said it still expects sales for the drug to exceed $1 billion this year.

Used for treating multiple sclerosis and seizures in children, H.P. Acthar Gel accounted for 35% of Mallinckrodt's net sales in 2018. The drug is also the target of two whistleblower lawsuits that say a drugmaker Mallinckrodt acquired in 2014, Questcor Pharmaceuticals, bribed doctors to prescribe the drug. The suits also claim Questcor defrauded Medicare by illegally marketing H.P. Acthar Gel.

The Department of Justice in April decided to intervene in the cases after conducting an investigation of the allegations.

During Mallinckrodt's shareholder conference call, Trudeau said the company is working "diligently" to resolve the lawsuits. He noted that the complaints were filed in 2012 and 2013, before Mallinckrodt acquired Questcor.

Trudeau said "while we strongly disagree with the substance of the complaints," the company has been working to negotiate a resolution that is "reasonable and manageable" for both parties.

H.P. Acthar Gel is known for its sharp price hike in 2007. That year Questcor raised the price of one vial of the medicine too $28,000 from $2,000 — it now costs more than $40,000.

According to analysts at Mizuho, the miss in net sales for the Acthar Gel seemed to be priced into the stock already.

"The Acthar miss was likely already in the stock to some extent, in our view, but remains an important driver of the stock during earnings," the Mizuho analysts said.