Author Topic: MNK - Mallinckrodt  (Read 10539 times)

Stuart D

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MNK - Mallinckrodt
« on: August 28, 2019, 01:53:12 AM »
Pharma company Mallinckrodt (MNK) has entered equity stub territory, with a Trailing twelve month FCF ~$500m and a market cap of ~$300m.

Total liabilities are $7.1b, current assets $1.2b, current liabilities $1.5b.

Their stock plunged 15% yesterday after they lost an appeal in a patent dispute. The patent was over "Inomax" which represents close to 17% of MNK's revenue.

I went through Mallinckrodt's 10-K's from 2013 - 2018 to get an idea of their revenue streams. Revenue percentages below for each of MNK's brands for 2018 (I tried to upload a table but couldn't get the formatting right).

1. 34% H.P. Acathar Gel
2. 17% Inomax
3. 14% "Other Revenue" (I would need to spend some time digging to find out what's in this bucket.)
4. 11% Ofirmev
5. The remaining 24% is made up of 6 brands (Hydrocodone, Oxycodone, Acetaminophen, Amitiza, Therakos, Bio Vectra)

So, while the patent decision on Inomax is bad, I'm not sure if the drop in share price was fully justified given their revenue seems somewhat diversified.

There is high uncertainty around litigation. A couple of days ago Johnson and Johnson were fined $572m for their role in opoids. Mallinckrodt also has opoid lawsuits.

Interest expense for 2018 was $370m. I suppose the question is whether they can continue to cover this amount. If they can, it could be a good buy.

I don't know much about pharma, but I'm a sucker for stocks with P/FCF < 1.
Is anyone else watching this space?


kab60

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Re: MNK - Mallinckrodt
« Reply #1 on: August 28, 2019, 02:37:36 AM »
I've been following Teva pretty closely. They had their blockbuster (Copaxone) come off patent which has been a big hit, but new drugs are about to make up for the continueed losses, so their revenues are expected to start growing a bit. I think it's very tricky to invest in equity stubs if revenues are falling off the cliff.

Anything interesting on the way form Mallinckrodt in the form of new drugs?

Otherwise I think it might be a donut from the numbers you posted. Look at where the bonds trade. They got 700m coming up in 2020, and I don't see how they'd be able to refi if they'll lose 17 pct. of revenue going forward - plus there's litigation risk.

Teva has had a lot of cost levers to pull following a disastrous acquisiton, and there should be more on the way.

I think Teva will survive, but I still haven't felt one gets compensated quiet enough just yet (3xPE, 33 pct. FCF yield).

They also have some debt maturities coming up which adds a joker in that if capital market get rough, their interest will increase quiet a bit, and with almost 30B of debt and 3B FCF, they might be quiet sensitive to higher interest.

InelegantInvestor

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Re: MNK - Mallinckrodt
« Reply #2 on: August 28, 2019, 04:28:40 AM »
Between Acthar and opiods, this is too risky to touch. The equity could easily be wiped out in a blink.

DeepSouth

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Re: MNK - Mallinckrodt
« Reply #3 on: August 28, 2019, 06:19:56 AM »
Pharma company Mallinckrodt (MNK) has entered equity stub territory, with a Trailing twelve month FCF ~$500m and a market cap of ~$300m.

Total liabilities are $7.1b, current assets $1.2b, current liabilities $1.5b.

Their stock plunged 15% yesterday after they lost an appeal in a patent dispute. The patent was over "Inomax" which represents close to 17% of MNK's revenue.

I went through Mallinckrodt's 10-K's from 2013 - 2018 to get an idea of their revenue streams. Revenue percentages below for each of MNK's brands for 2018 (I tried to upload a table but couldn't get the formatting right).

1. 34% H.P. Acathar Gel
2. 17% Inomax
3. 14% "Other Revenue" (I would need to spend some time digging to find out what's in this bucket.)
4. 11% Ofirmev
5. The remaining 24% is made up of 6 brands (Hydrocodone, Oxycodone, Acetaminophen, Amitiza, Therakos, Bio Vectra)

So, while the patent decision on Inomax is bad, I'm not sure if the drop in share price was fully justified given their revenue seems somewhat diversified.

There is high uncertainty around litigation. A couple of days ago Johnson and Johnson were fined $572m for their role in opoids. Mallinckrodt also has opoid lawsuits.

Interest expense for 2018 was $370m. I suppose the question is whether they can continue to cover this amount. If they can, it could be a good buy.

I don't know much about pharma, but I'm a sucker for stocks with P/FCF < 1.
Is anyone else watching this space?

The sub bonds trade in the 40s/50s. Acthar is a terminally declining scam facing litigation. Inomax will face terminal decline. They are one of the opioid kingpins in the US and could be the only large public player to get bk'd by settlements.

If you want to own risk like this, Endo probably better. At least it's a real company.

havingheart

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« Last Edit: August 28, 2019, 10:34:28 AM by havingheart »

Stuart D

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Re: MNK - Mallinckrodt
« Reply #5 on: August 28, 2019, 11:43:50 PM »
Anything interesting on the way form Mallinckrodt in the form of new drugs?

From having a look through MNK's most recent 10-K (2018) and 10-Q's (Mar & June, 2019), it seems there are 4 drugs currently in the pipeline:
- Terlipressin (phase 3)
- Stratagraft (phase 2 and phase 3)
- Xenon gas for inhalation(phase 3)
- MNK-6105/6106 ("Currently working with the FDA to initiate phase 3 trials")

Note: Terlipressin and Xenon were described in the 10-K but not the 10-Q's.

Stuart D

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Re: MNK - Mallinckrodt
« Reply #6 on: August 29, 2019, 12:05:58 AM »

The sub bonds trade in the 40s/50s. Acthar is a terminally declining scam facing litigation. Inomax will face terminal decline. They are one of the opioid kingpins in the US and could be the only large public player to get bk'd by settlements.

If you want to own risk like this, Endo probably better. At least it's a real company.

Where did you find a quote on the sub bonds?

I could find some of their debt at the cbonds website, e.g.   http://cbonds.com/emissions/issue/163639

But I didn't see any prices in the 40s/50s.
Thanks,

DeepSouth

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Re: MNK - Mallinckrodt
« Reply #7 on: August 29, 2019, 08:33:07 AM »

The sub bonds trade in the 40s/50s. Acthar is a terminally declining scam facing litigation. Inomax will face terminal decline. They are one of the opioid kingpins in the US and could be the only large public player to get bk'd by settlements.

If you want to own risk like this, Endo probably better. At least it's a real company.

Where did you find a quote on the sub bonds?

I could find some of their debt at the cbonds website, e.g.   http://cbonds.com/emissions/issue/163639

But I didn't see any prices in the 40s/50s.
Thanks,

bloomberg terminal broker runs:
'23s offered 46
'25s offered <50
'24 TLB offered 77

Jurgis

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Re: MNK - Mallinckrodt
« Reply #8 on: August 29, 2019, 08:41:14 AM »
Fido has some 2023 at ~$45.
"Before you can be rich, you must be poor." - Nef Anyo
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Stuart D

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Re: MNK - Mallinckrodt
« Reply #9 on: August 29, 2019, 10:58:50 PM »
Thank you!