Mallinckrodt Beat Fiscal 2Q16 Expectations, but What's Changed?

(Continued from Prior Part)

Acthar

Acthar is Mallinckrodt’s (MNK) lead drug, which fetched $248.4 million, or 46%, of total sales for the company’s Specialty Brand segment. Revenues from the drug grew by 8.9% in 2Q16 on a YoY (year-over-year) basis. But its contribution to total revenues has dropped 31% in fiscal 1Q16 to 27.6% in fiscal 2Q16.

Notably, however, Inomax’s and Therakos’s contributions during the same period have helped the company reduce its dependence on a single drug. (For more information on the drug, please refer to “Understanding Acthar’s Big Contribution to Mallinckrodt’s Top-line.”)

Volume growth

Acthar’s sales growth in fiscal 2Q16 was driven by rises in volume more than rises in price. The drug experienced volume growth following an increase in prescriptions in the pulmonary and rheumatology space. Similarly, sales growth stemmed from increases in the drug’s market share in the infantile spasm space.

For procuring and securing long-term access to Acthar, the company is signing payer contracts. Mallinckrodt’s continuous activities related to market access, commercial and medical affairs, and new data generation have meanwhile been driving growth. The company expects the data on an open-label extension on its lupus trial to be available by the second half of fiscal 2016.

Increasing penetration rate

Acthar serves ~10,000–11,000 patients in any given year and expects to increase its penetration rate further. To support growth for a lead drug, companies have to carry out label expansions for the drug. Vertex Pharmaceuticals (VRTX), Medivation (MDVN), and Alexion Pharmaceuticals (ALXN) have carried out similar strategies for their key drugs.

Mallinckrodt expects a similar kind of growth performance for the drug in next several quarters, when the sales should grow “at the lower end of the mid-single to low-double-digit.”

To get exposure to Mallinckrodt and at the same time control excessive company-specific risks, investors can choose to invest in ETFs like the Guggenheim S&P 500 Equal Weight ETF (RSP). Mallinckrodt accounts for 0.18% of RSP’s total holdings.

Now let’s move to Mallinckrodt’s Specialty Generics segment.

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Browse this series on Market Realist:

• Part 1 - Understanding Mallinckrodt’s Impressive Revenue and Earnings in 2Q16

• Part 2 - Behind Mallinckrodt’s Operating Segments in Fiscal 2016

• Part 3 - How Mallinckrodt’s Specialty Brands Performed in 2Q16