CHESTERFIELD, United Kingdom, Aug. 4, 2015 /PRNewswire/ -- Mallinckrodt plc (NYSE: MNK), a leading global specialty biopharmaceutical company, today reported results for the third quarter of fiscal 2015, which ended June 26, 2015.
Net sales were $965.1 million compared with $653.1 million in the third quarter of fiscal 2014, an increase of 47.8%. The increase was primarily driven by the inclusion in the company’s portfolio of H.P. Acthar® Gel (repository corticotropin injection) and INOMAX® (nitric oxide) for inhalation, acquired in August 2014 and April 2015, respectively, and higher net sales of hydrocodone-related products within the Specialty Generics segment. The increase was partially offset by decreased net sales of methylphenidate HCl extended-release (ER) tablets, USP, CII and oxycodone-related products within the Specialty Generics segment, and net sales within the Global Medical Imaging segment. In addition, the negative impact of foreign currency lowered reported net sales by $24.8 million, driven primarily by changes in the Euro.
On a GAAP basis, net income for the third quarter of fiscal 2015 was $58.0 million, or $0.49 per diluted share, compared with a $24.1 million loss, or a $0.41 loss per diluted share, in the prior-year period. The increase in net income principally reflects increased net sales and profits in the Specialty Brands segment from acquisitions. These factors were partially offset by higher selling, general and administrative (SG&A) costs and interest expense resulting from the debt associated with the acquisitions of Acthar and INOMAX. The fiscal 2015 diluted share count also reflects the issuance of shares in connection with the acquisition of Acthar.
On a non-GAAP basis, Mallinckrodt’s adjusted net income(1) for the third quarter of fiscal 2015 was $241.0 million, compared to $71.6 million in the same quarter a year ago. Adjusted diluted earnings per share were $2.05, compared with $1.20 a year ago, primarily reflecting the addition of acquired products in its Specialty Brands segment.
“Mallinckrodt reported another solid quarter, with meaningful top- and bottom-line growth in our Specialty Brands segment. The revenue contributed by specialty biopharmaceutical products continues to increase as an overall percentage of net sales,” said Mark Trudeau, Chief Executive Officer and President of Mallinckrodt. “The recent announcement of the planned divestiture of our contrast media and delivery systems business further demonstrates our commitment to the strategy we have outlined, as we refine our portfolio to further transform the company into a leading specialty biopharmaceutical company focused on long-term, durable and sustained growth.”
Gross profit was $533.5 million for the third quarter of fiscal 2015, compared with $284.3 million in the prior-year quarter, representing an increase of 87.7%. This significant growth was the result of the additions and performance of Acthar and INOMAX. Adjusted gross profit as a percentage of net sales was 71.0% for the quarter versus 52.9% in the same prior year period. This result was impacted by a $96.1 million increase in amortization, primarily related to the acquisitions of Acthar and INOMAX.
SG&A expenses for the third quarter of fiscal 2015 were $332.7 million, compared with $221.3 million in the prior-year quarter. However, adjusted SG&A as a percentage of net sales for the quarter was 28.2% for fiscal 2015, an improvement of 140 basis points from the adjusted number in the fiscal third quarter of 2014. The absolute increase in SG&A expenses includes $105.6 million attributable to the addition of both the Acthar and INOMAX marketing and sales organizations into Mallinckrodt’s portfolio. SG&A for the third quarter of fiscal 2015 also included charges of $15.5 million associated with the settlement of Synacthen® (tetracosactide) related litigation and $19.6 million of share-based compensation associated with the Questcor acquisition. These factors were partially offset by an $11.5 million legal settlement related to OFIRMEV® (acetaminophen injection) during the three months ended June 27, 2014 and lower expenses due to benefits from prior and current restructuring actions. Restructuring charges were $23.1 million for the quarter, compared with $23.8 million in the prior-year quarter.
Income tax expense in the third quarter was $3.3 million, leading to an effective rate of 5.4%, compared to a benefit of $2.4 million and an effective rate of 9.0% in the prior-year quarter. The third quarter fiscal 2015 non-GAAP effective tax rate was 18.0%.
Cash on the balance sheet was $225.3 million as of June 26, 2015. Notably, the company was able to both draw down its revolver in the amount of $240 million to fund the Ikaria acquisition in April and subsequently pay it back fully within the quarter.
Nine-Month Fiscal 2015 Results
In the first nine months of fiscal 2015, net sales were $2.741 billion, compared with $1.751 billion in the first nine months of the prior year, which represents a 56.5% increase. The increase was primarily driven by the inclusion and performance of Acthar, INOMAX and OFIRMEV, and higher net sales in the Specialty Generics segment.
On a GAAP basis, net income for the first nine months of fiscal 2015 was $249.5 million, compared with $33.1 million for the same period in fiscal 2014. Diluted earnings per share were $2.11 compared with $0.56 last year.
On a non-GAAP basis, adjusted net income was $655.7 million, compared with $179.2 million. Adjusted diluted earnings per share were $5.60, compared with $3.04 last year, an increase of 84.2%. The increase came from all reported segments.
BUSINESS SEGMENT RESULTS
Specialty Brands Segment
Net sales for the third quarter fiscal 2015 increased $361.3 million to $446.2 million, compared with $84.9 million for the prior-year quarter. As noted, the increase in net sales was primarily driven by the inclusion and performance of Acthar and INOMAX, which collectively generated net sales of $350.2 million. In addition, net sales for the three months ended June 26, 2015 increased due to OFIRMEV growth of $8.9 million, or 16.7% from the prior-year period.
Specialty Brands operating income for the third quarter fiscal 2015 increased $240.6 million to $189.2 million, compared with a $51.4 million loss for the prior-year quarter. Segment operating margin was 42.4% compared with negative 60.5%.The increases in operating income and margin were primarily due to higher net sales from the acquisitions of Acthar and INOMAX. These higher net sales were partially offset by higher SG&A costs associated with these acquisitions.
Specialty Generics Segment
Net sales for the third quarter fiscal 2015 decreased $21.5 million, or 6.5%, to $307.9 million, compared with $329.4 million for the prior-year quarter. The decrease in net sales was driven by decreases of $24.7 million and $22.2 million in net sales of methylphenidate ER and oxycodone-related products, respectively, partially offset by a $12.1 million increase in net sales of hydrocodone-related products. The decrease in methylphenidate ER net sales was primarily attributable to the U.S. Food and Drug Administration’s reclassification of these products to a BX rating in November 2014 and the decrease in net sales of oxycodone-related products was driven by increased market competition.
Specialty Generics operating income for the third quarter fiscal 2015 decreased $19.8 million to $157.2 million, compared with $177.0 million for the prior-year quarter. Segment operating margin was 51.1% compared with 53.7%. The decreases in operating income and margin were primarily due to lower net sales.
Global Medical Imaging Segment
Net sales in the company’s Global Medical Imaging segment were $201.6 million, versus $227.1 million in the prior-year quarter. For the third quarter of fiscal 2015, operating income for the segment was $34.6 million, compared with $11.2 million. Operating margin was 17.2%, compared with 4.9% in the prior-year period.
CONFERENCE CALL AND WEBCAST
Mallinckrodt will hold a conference call for investors on Tuesday, August 4, 2015, 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 76072223.
- Through an audio replay: A replay of the call will be available beginning at 1:30 p.m. U.S. Eastern time on Tuesday, August 4, 2015, and ending at 11:59 p.m. U.S. Eastern Time on Tuesday, August 11, 2015. 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 (404) 537-3406. All callers will be required to provide the Conference ID of 76072223.
ABOUT MALLINCKRODT
Mallinckrodt is a global specialty biopharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents. Areas of focus include therapeutic drugs for autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology; neonatal critical care respiratory therapies; and analgesics and central nervous system drugs. The company’s core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities. The company’s Specialty Brands segment includes branded medicines; its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing; and the Global Medical Imaging segment includes contrast media and nuclear imaging agents. To learn more about Mallinckrodt, visit www.mallinckrodt.com.
(1)NON-GAAP FINANCIAL MEASURES
This press release contains financial measures, including adjusted net income, adjusted diluted earnings per share, adjusted gross profit, adjusted SG&A, operational growth and non-GAAP effective tax rate, which are considered “non-GAAP” financial measures under applicable Securities and Exchange Commission rules and regulations.
Adjusted net income, adjusted gross profit and adjusted SG&A represent amounts, prepared in accordance with accounting principles generally accepted in the U.S. (GAAP), adjusted for certain items (on a pre-tax basis for adjusted gross profit and adjusted SG&A and on an after-tax basis for adjusted net income) that management believes are not reflective of the operational performance of the business. Adjustments to GAAP amounts include, as applicable to each measure, restructuring and related charges, net; amortization and impairment charges; discontinued operations; acquisition-related expenses, significant legal and environmental charges and other items identified by the company. Adjusted diluted earnings per share represent adjusted net income divided by the number of diluted shares.
The non-GAAP effective tax rate is calculated as the income tax effects on continuing and discontinued operations plus the income tax impact included in our reconciliation of adjusted net income, divided by income from continuing and discontinued operations plus the pre-tax, non-income, tax-related adjustments included in our reconciliation of adjusted net income (excluding dilutive share impact). The income tax impact item included in our reconciliation of adjusted net income primarily represents the tax impact of adjustments between net income and adjusted net income as well as U.S. tax payments associated with internal installment sale transactions.
Operational growth measures the change in net sales between current- and prior-year periods using a constant currency, the exchange rate in effect during the applicable prior-year period. This measure is one of the performance metrics that determines management incentive compensation.
The company has provided these non-GAAP financial measures because they are used by management, along with financial measures in accordance with GAAP, to evaluate the company’s operating performance. In addition, the company believes that they will be used by certain investors to measure Mallinckrodt’s operating results. Management believes that presenting these non-GAAP measures provides useful information about the company’s performance across reporting periods on a consistent basis by excluding items that the company does not believe are indicative of its core operating performance.
These non-GAAP measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. The company’s definition of these non-GAAP measures may differ from similarly titled measures used by others.
Because non-GAAP financial measures exclude the effect of items that will increase or decrease the company’s reported results of operations, management strongly encourages investors to review the company’s consolidated financial statements and publicly filed reports in their entirety. A reconciliation of certain of these historical non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the tables accompanying this release.
CAUTIONARY STATEMENTS RELATED TO FORWARD-LOOKING STATEMENTS
Statements in this document that are not strictly historical, including statements regarding future financial condition and operating results, economic, business, competitive and/or regulatory factors affecting Mallinckrodt’s business and any other statements regarding events or developments that we believe or anticipate will or may occur in the future, may be “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve a number of risks and uncertainties.
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