CHESTERFIELD, United Kingdom, Aug. 2, 2016 /PRNewswire/ -- Mallinckrodt plc (NYSE: MNK), a leading global specialty pharmaceutical company, today reported results for the third quarter of fiscal 20161. Unless otherwise noted, all comparisons of fiscal 2016 third quarter or year-to-date performance are to the comparable periods of fiscal 2015.
Total Mallinckrodt net sales were $970.6 million in the third quarter of fiscal 2016, up 10.6%, or 10.8% on a constant-currency basis. Specialty Brands segment revenue was up 32.1% and was the primary component of overall net sales acceleration. Results were led by solid volume growth in H.P. Acthar Gel (repository corticosteroid injection), unusually strong net sales results for INOMAX (nitric oxide) gas, for inhalation, and incremental volume growth for OFIRMEV (acetaminophen) injection and for the Therakos immunotherapy platform. Specialty Brands results were partially offset by decreased net sales within the Specialty Generics and Nuclear Imaging segments.
GAAP2 net income from continuing operations for the quarter was $195.7 million, or $1.79 per diluted share, compared with $55.6 million, or $0.47 per diluted share. The increase principally reflects higher net sales and profits from acquired assets in the Specialty Brands segment and strong net sales and profit contribution from Acthar. In addition, selling, general and administrative (SG&A) costs decreased due to 2015 charges that did not recur in fiscal 2016. These factors were partially offset by higher interest expense resulting primarily from the debt associated with the acquisitions of INOMAX and Therakos. Adjusted diluted earnings per share were $2.20, up 8.9% from $2.02.
"Mallinckrodt's strong performance in the third quarter of fiscal 2016 reflects an ongoing focus on execution in Specialty Brands -- particularly in our commercial and scientific organizations. We continue to generate compelling new data and clinical evidence for key brands, and are working to bring this data to new physicians and patients - clear evidence that our Acquire to Invest strategy is creating performance momentum," said Mark Trudeau, President and Chief Executive Officer. "We are particularly pleased with the results in the quarter from Acthar - driven solely by volume gains - and INOMAX, with OFIRMEV and Therakos continuing to contribute notable advances. By following our strategy and focusing on execution, we are making steady progress in building a leading specialty pharmaceutical company and are creating near- and long-term value for patients and shareholders."
GAAP gross profit was $541.3 million for the quarter, up 7.4% over $503.8 million. This growth resulted from the performance of Acthar, the full quarter inclusion and performance of INOMAX, the performance of OFIRMEV, and the inclusion and performance of Therakos, partially offset by decreased gross profit from the Specialty Generics segment. Gross profit as a percentage of sales was 55.8% compared with 57.4%, reflecting increased amortization expense. Adjusted gross profit was $718.5 million for the quarter, up 9.7% over $654.9 million. Adjusted gross profit as a percentage of net sales was 74.0% versus 74.6%.
GAAP SG&A expenses for the quarter were $248.4 million, compared with $295.0 million, representing 25.6% and 33.6% of net sales, respectively. The decrease in absolute SG&A expenses is due to fiscal 2015 legal and stock compensation costs that did not recur in fiscal 2016, and lower transaction costs in the current year. Adjusted SG&A expenses for the quarter were $250.1 million, compared with $234.5 million, principally driven by the additions of INOMAX and Therakos. Adjusted SG&A expenses as a percentage of net sales for the quarter were 25.8%, an improvement of 90 basis points.
Income tax benefit in the third quarter was $89.3 million, versus a benefit of $1.2 million, resulting in GAAP effective rates of negative 83.9% and 2.2%, respectively. The adjusted effective tax rate was 18.6% compared with 16.8%. 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.
Nine-Month Fiscal 2016 Results
Net sales were $2.803 billion, up 13.8% compared with $2.465 billion. The increase came primarily through continued volume-driven net sales performance for Acthar, the inclusion and performance of INOMAX, performance for OFIRMEV, and the inclusion and performance of Therakos. Specialty Brands results were partially offset by decreased net sales within the Specialty Generics segment.
Diluted earnings per share from continuing operations were $3.84 compared with $1.85, an increase of 107.6%. Adjusted diluted earnings per share were $6.29, compared with $5.52, an increase of 13.9%.
Liquidity
During the fiscal third quarter, the company repurchased 1.7 million ordinary shares under its share repurchase program for $100.3 million and repaid $150.0 million of the company's revolving credit facility.
In the first nine months of fiscal 2016, Mallinckrodt generated $994.4 million in operating cash flow and $860.9 million in free cash flow, with $412.2 million in free cash flow in the third quarter alone. The company used a portion of this strong nine-month cash generation and the cash received from the divestiture of the CMDS business to repurchase $600.2 million of ordinary shares under our authorized program, reduce debt by $208.8 million, and acquire the Hemostasis products for $173.5 million.
Mallinckrodt's cash balance at the end of the fiscal third quarter was $521.9 million. In July, after the close of the fiscal third quarter, the company paid off the remaining balance of $250.0 million on its revolving credit facility, which is now undrawn. The company's liquidity position remains quite strong and management remains focused primarily on allocating capital to share repurchases, further debt reduction and additional business development.
BUSINESS SEGMENT RESULTS
Specialty Brands Segment
The segment benefited from strong commercial execution throughout the third quarter with net sales increasing to $589.3 million, compared with $446.2 million, an increase of 32.1%, or 32.3% on a constant-currency basis.
Acthar net sales were $298.3 million in the quarter, an 11.0% increase over $268.7 million. Mallinckrodt's second largest product, INOMAX, generated net sales of $121.1 million, up 48.6% over $81.5 million, with constant-currency pro forma basis growth of 23.5%. OFIRMEV net sales were $70.7 million compared with $62.1 million, an increase of 13.8%. Net sales of the Therakos immunotherapy product line were $52.5 million, with constant-currency pro forma basis growth of 15.7%.
Specialty Generics Segment
Net sales for the segment in the third quarter decreased 14.5% to $263.4 million, compared with $307.9 million, driven principally by net sales declines in various product categories due to increased competition negatively impacting both volume and price. On a constant-currency basis, segment net sales declined 14.3%. Management continues to expect decreased net sales in this segment in coming quarters.
Nuclear Imaging Segment
Net sales for the third quarter fiscal 2016 for the Nuclear Imaging segment were $104.0 million, compared with $108.8 million, a 4.4% decline, or 4.7% on a constant-currency basis.
GUIDANCE UPDATE
Management provided an adjusted diluted earnings guidance range for calendar year 2016 (the 53-week period ending December 30, 2016) of $8.50 to $8.80 per share. Management also noted they now expect results from fiscal year 2016 (the period ending September 30, 2016) to come in above the high end of the previously provided range of $8.15 to $8.50 per share.
Mallinckrodt does not provide guidance on GAAP diluted earnings per share because it is unable to predict with reasonable certainty the following items without unreasonable effort: intangible asset amortization, restructuring and related charges, inventory step-up expense, non-restructuring impairment charges, changes in contingent consideration fair value, acquisition-related expenses, and legal and environmental charges. These items are uncertain, depend on various factors and could be material to Mallinckrodt's GAAP diluted earnings per share.
CONFERENCE CALL AND WEBCAST
Mallinckrodt will hold a conference call for investors on Tuesday, Aug. 2, 2016, 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 34055287.
- Through an audio replay: A replay of the call will be available beginning at 11:30 a.m. U.S. Eastern time on Tuesday, Aug. 2, 2016, and ending at 11:59 p.m. U.S. Eastern Time on Tuesday, Aug.16, 2016. 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 34055287.
ABOUT MALLINCKRODT
Mallinckrodt is a global business that develops, manufactures, markets and distributes specialty pharmaceutical and biopharmaceutical products and therapies, as well as nuclear imaging products. 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; analgesics and hemostasis products; and central nervous system drugs. The company's core strengths include the acquisition and management of highly regulated raw materials 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 Nuclear Imaging segment includes nuclear imaging agents. To learn more about Mallinckrodt, visit www.mallinckrodt.com.
Mallinckrodt uses its website as a channel of distribution of important company information, such as press releases, investor presentations and other financial information. It also uses its website to expedite public access to time-critical information regarding the company in advance of or in lieu of distributing a press release or a filing with the U.S. Securities and Exchange Commission (SEC) disclosing the same information. Therefore, investors should look to the Investor Relations page of the website for important and time-critical information. Visitors to the website can also register to receive automatic e-mail and other notifications alerting them when new information is made available on the Investor Relations page of the website.
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, net sales growth on a constant-currency basis, adjusted effective tax rate, pro forma third quarter fiscal 2015 INOMAX net sales, pro forma third quarter fiscal 2015 Therakos net sales, and free cash flow, which are considered "non-GAAP" financial measures under applicable SEC 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) and adjusted for certain items that management believes are not reflective of the operational performance of the business.
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