Mallinckrodt Reports Earnings Results For First Quarter Of Fiscal 2017

STAINES-UPON-THAMES, United Kingdom, May 8, 2017 /PRNewswire/ -- Mallinckrodt plc (NYSE: MNK), a leading global specialty pharmaceutical company, today reported results for the first quarter fiscal 2017. Unless otherwise noted, all comparisons of the first quarter fiscal 2017 are to the comparable period in fiscal 2016 ended Mar. 25, 2016.

Net sales were $810.9 million in the first quarter, down 0.6%, or 0.4% on a constant-currency basis. GAAP gross profit was $418.6 million with gross profit as a percentage of net sales of 51.6%, compared with 52.1%. Adjusted gross profit was $594.9 million, compared with $601.0 million. Adjusted gross profit as a percentage of net sales was 73.4% versus 73.7%.

“Mallinckrodt’s first quarter results were solid, driven by good, balanced performance across our Specialty Brands segment, in line with expectations, as we continue to successfully execute on creating value for patients with high unmet medical needs,” said Mark Trudeau, President and Chief Executive Officer. “Somewhat stronger than expected Specialty Generics segment performance provided benefit as well, though future quarters will likely see results for that business more aligned with our guidance. We also continued to strategically allocate capital - purchasing shares and repaying debt - while divesting non-core assets. Looking ahead, we are equally focused on adding both commercial and late-stage assets through business development to enhance and further diversify our portfolio. Notably, we continue to see strengthening in Acthar formulary positions and access for appropriate patients in both the commercial and public environments, including relaxation or removal of previous formulary restrictions and, in at least one case, addition of Acthar to a formulary for the first time.”

“On the organic growth front, our Specialty Brands pipeline continues to advance, with a number of company-sponsored clinical trials progressing well, such as the terlipressin Phase 3 trial, and we’ve completed the MNK-1411 Phase 1 study. We recently announced the first patient enrolled in our StrataGraft^® regenerative skin tissue Phase 2 trial for full thickness burn patients, and expect to highlight a number of similar milestones across our diverse portfolio this year,” said Trudeau. “Our Specialty Generics pipeline is also advancing, with more than a dozen products currently in development, reaching an anticipated five or more Abbreviated New Drug Application filings annually in 2018 and beyond, some of which we expect to be first-to-file opportunities.”

GAAP selling, general and administrative (SG&A) expenses were $308.1 million, compared with $209.3 million, representing 38.0% and 25.7% of net sales, respectively. SG&A in the first quarter was impacted primarily by a $69.2 million charge associated with the termination of the company’s defined benefit pension plans. Adjusted SG&A expenses were $237.4 million or 29.3% of net sales, compared with $210.8 million or 25.8%. Research and development expenses in the first quarter were $62.2 million or 7.7% of net sales, compared with $58.1 million or 7.1%.

Income tax benefit was $39.5 million versus $63.8 million, resulting in GAAP effective rates of 372.6% and negative 183.9%, respectively. The adjusted effective tax rate was 15.0% in the first quarter compared with 13.4%. The variance between the GAAP and non-GAAP effective tax rate relates to the tax effect on pre-tax non-GAAP adjustments and deferred tax benefits recognized upon pay down of intercompany installment notes created by internal sales of acquired intangible assets.

GAAP diluted earnings per share results from continuing operations were $0.28 in the first quarter compared with $0.88. The reduction reflects the impact of expenses associated with termination of the company’s defined benefit plans, higher SG&A spending and continued weakness in the Specialty Generics business, partially offset by one-time gains from the Intrathecal Therapies divestiture. Adjusted diluted earnings per share were $1.68 versus $1.81.

BUSINESS SEGMENT RESULTS

Specialty Brands Segment

Net sales for the Specialty Brands segment were $557.2 million in the first quarter, compared with $535.0 million, an increase of 4.1%, or 4.6% on a constant-currency basis.

H.P. Acthar^® Gel net sales were $271.8 million in the first quarter period, a 9.4%² increase over $248.4 million. INOMAX^® (nitric oxide) gas, for inhalation, generated net sales of $128.4 million, up 11.2% over $115.5 million, or 11.1% on a constant-currency basis. OFIRMEV^® (acetaminophen) injection net sales were $73.4 million compared with $71.1 million, an increase of 3.2%².

Net sales of the Therakos^® immunology platform were $51.2 million compared with $50.2 million, an increase of 2.0%, or 6.9% on a constant-currency basis. During the quarter the company resolved the third-party manufacturer production issue, incurring minimal impact from the supply imbalance.

Net sales of the Specialty Brands’ other category were $19.3 million compared with $38.4 million, resulting from lower net sales of EXALGO^® (hydromorphone HCl) extended-release tablets, CII, in the quarter and, to a lesser extent, the sale of the Intrathecal Therapies business. That sale will significantly impact the company’s net sales within this category throughout the remainder of the year.

Specialty Generics Segment

Net sales in the first quarter decreased 9.8% to $238.6 million, compared with $264.4 million, somewhat better than expectations due to the performance of methylphenidate HCl extended-release tablets, USP CII, and certain one-time orders within the segment’s other products category. On a constant-currency basis, segment net sales declined 10.0%.

LIQUIDITY

Mallinckrodt’s cash used in operating activities was $97.4 million, a free cash flow outlay of $150.0 million in the quarter. Operating cash flow and free cash flow were unfavorably impacted by specific items in the quarter including the payment of a legal settlement and final payments associated with the termination of the company’s defined benefit pension plans as well as higher cash tax payments. Offsetting these operating cash outflows were investing proceeds from the company’s divestitures of its Nuclear Imaging and Intrathecal Therapies businesses.

During the first quarter, the company repurchased 5.6 million ordinary shares for $275.6 million under its share repurchase programs, bringing total shares repurchased since January 2015 under the company’s authorized programs to 18.7 million, or approximately 16.1% of diluted shares outstanding. Further, the company fully repaid its revolving credit facility, with total debt reduced by $208.9 million from Dec. 30, 2016.

Despite the significant capital allocation activities undertaken in the quarter, Mallinckrodt’s cash balance was $259.8 million at the end of the first quarter with its $900.0 million revolver undrawn. The company remains committed to utilizing the various capital allocation levers to drive total shareholder return.

CONFERENCE CALL AND WEBCAST

Mallinckrodt will hold a conference call for investors on Monday, May 8, 2017, beginning at 8:30 a.m. U.S. Eastern Time. This call can be accessed in three ways:

• At the Mallinckrodt website: http://www.mallinckrodt.com/investors.
• By telephone: For both listen-only participants and those who wish to take part in the question-and-answer portion of the call, the telephone dial-in number in the U.S. is (877) 359-9508. For participants outside the U.S., the dial-in number is (224) 357-2393. Callers will need to provide the Conference ID of 90995647.
• Through an audio replay: A replay of the call will be available beginning at 11:30 a.m. Eastern Time on Monday, May 8, 2017, and ending at 11:59 p.m. Eastern Time on Monday, May 22, 2017. Dial-in numbers for U.S.-based participants are (855) 859-2056 or (800) 585-8367. Participants outside the U.S. should use the replay dial-in number of (404) 537-3406. All callers will be required to provide the Conference ID of 90995647.

ABOUT MALLINCKRODT

Mallinckrodt is a global business that develops, manufactures, markets and distributes specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; and analgesics and hemostasis products.

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