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Inside Mallinckrodt’s Major Valuation Catalysts

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Acthar, Mallinckrodt’s lead drug, currently serves 11,227 patients

Acthar is Mallinckrodt’s (MNK) leading product, and the company plans to achieve mid-single-digit to low-double-digit growth for the drug in fiscal 2016. To achieve this target, the company has to increase its product penetration by addressing a wider population. Similarly, payer engagement at the policy level would further enhance the revenues from Acthar.

Inside Mallinckrodt's Major Valuation Catalysts

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Inomax acquired in April 2015

The company gained access to Inomax on April 16, 2015, following the acquisition of Ikaria for $2.3 billion. The drug has exclusivity until 2029, but Mallinckrodt is developing additional intellectual property in order to extend protection for the drug beyond 2029. The drug is a major treatment option in neonatal critical care and holds 50% of the market share in the neonatal intensive care patient population.

Inomax, the second-largest drug in Mallinckrodt’s portfolio, fetched $110.8 million in the first quarter of fiscal 2016. Mallinckrodt expects a long-term growth rate in the mid-single digits for the drug, and rising sales of the drug might prove to be a big valuation catalyst for the company.

Ofirmev acquired in March 2014

During March 2014, Mallinckrodt (MNK) acquired Ofirmev from Cadence Pharmaceuticals for a consideration of $1.3 billion. The active ingredient in injection Ofirmev is acetaminophen, which is indicated for mild to moderate pain. The drug is protected by two patents that will expire in August 2017 and June 2021, but the company may obtain six months additional exclusivity for each patent if the FDA (US Food and Drug Administration) offers pediatric exclusivity.

During the first quarter of fiscal 2016, the drug earned $66.9 million for Mallinckrodt, reflecting a 6.3% decline. The company has also observed volume growth for the drug, although its revenue decline was due to inventory adjustments.

Therakos immunotherapy products

Mallinckrodt acquired Therakos on September 25, 2015, for a consideration of $1.3 billion. Through this acquisition, the company gained access to Therakos’ immunotherapy drug/device system UVADEX/UVAR XTS and UVADEX/CELLEX. Therakos immunotherapy added $50.4 million to Mallinckrodt’s top-line in the first quarter of fiscal 2016. The company expects high-single-digit growth in sales in immunotherapy, and to achieve this growth, the company plans to implement a label expansion strategy.

Given patent expiries and the dearth of pipeline candidates, larger pharmaceutical companies have begun acquiring smaller companies with promising pipelines. In this way, Sanofi (SNY), Pfizer (PFE), and Valeant (VRX) have all grown inorganically.

To gain exposure to Mallinckrodt while avoiding excessive company-specific risks, you might consider investing in the Guggenheim S&P 500 Equal Weight ETF (RSP). Mallinckrodt accounts for 0.18% of RSP’s total holdings.

For related analysis, check out Market Realist’s Pharmaceuticals page.

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