Mallinckrodt Plc Reports Earnings Results For Second Quarter Of Fiscal 2017

The following excerpt is from the company's SEC filing.

-- Net sales of $824.5 million --

-- Specialty Brands segment net sales increased 0.9%, 1.2% on a constant-currency basis --

-- Specialty Generics segment net sales decreased 18.0%, 17.8% on a constant-currency basis --


diluted earnings per share from continuing operations of $0.72; adjusted diluted earnings per share of $1.85 --

-- Second quarter operating cash flow of $319.9 million; free cash flow of $270.9 million --

-- Adjusted diluted earnings per share guidance reiterated at $7.40 to $8.00 for fiscal 2017 --

STAINES-UPON-THAMES, United Kingdom - Augus t 8, 2017 -

Mallinckrodt plc

(NYSE: MNK), a leading global specialty pharmaceutical company, today reported results for the three-month and six-month periods ended June 30, 2017. Unless otherwise noted, all comparisons are to the prior year comparable three-month and six-month periods ended June 24, 2016.

Net sales were $824.5 million in the second quarter, down 4.9%, or 4.6% on a constant-currency basis. GAAP gross profit was $416.1 million with gross profit as a percentage of net sales of 50.5%, compared with 56.4%, impacted by continued pricing pressure within the Specialty Generics segment. Adjusted gross profit was $591.9 million, compared with $666.0 million. Adjusted gross profit as a percentage of net sales was 71.8% versus 76.9%.

“Mallinckrodt delivered another solid quarter, executing against our strategy to become a high-performing, specialty pharmaceutical company,” said

Mark Trudeau, Chief Executive Officer and President, Mallinckrodt

. “We have made notable progress this quarter in advancing our organic pipeline in Specialty Brands and Specialty Generics. In addition, most recently we announced our planned acquisition of InfaCare and its new chemical entity stannsoporfin, a unique drug in late-stage development for treatment of severe hyperbilirubinemia, or jaundice, in newborns.”

“Mallinckrodt continues to build a differentiated, durable portfolio of branded therapies and with this addition, in particular, we are further benefiting fragile pediatric patients and the healthcare system today and in the future,” Trudeau concluded.

GAAP selling, general and administrative (SG&A) expenses were $232.1 million, compared with $224.9 million, representing 28.2% and 26.0% of net sales, respectively. Adjusted SG&A expenses were $226.3 million or 27.4% of net sales, compared with $226.6 million or 26.1%. Research and development expenses in the second quarter were $69.2 million or 8.4% of net sales, compared with $74.8 million or 8.6%.

Income tax benefit was $40.1 million versus $98.1 million, resulting in GAAP effective tax rates of negative 131.5% and 124.8%, respectively. The adjusted effective tax rate was 15.0% in the second quarter compared with 17.2%.

GAAP diluted earnings per share results from continuing operations were $0.72 in the second quarter compared with $1.62. The reduction in earnings per share from continuing operations reflects continued weakness in the Specialty Generics business impacting both net sales and gross margin

partially offset

(1) Generally accepted accounting principles in the United States

(2) The as-reported and constant currency growth percentages are identical for H.P. Acthar Gel, INOMAX and OFIRMEV.

by $6.6 million of gain in other income related to debt repurchases. Adjusted diluted earnings per share were $1.85 versus $2.03

Six-Month Fiscal 2017 Results

Net sales were $1.635 billion, down 2.8% compared with $1.682 billion. The decrease came primarily from continued pressure in the Specialty Generics segment

On a GAAP basis, income from continuing operations was $99.5 million, compared with $275.2 million. Diluted earnings per share from continuing operations were $0.98 compared with $2.48, reflecting the impact of various transactions including legal settlements and defined benefit pension termination expenses, offset by a gain on the divesture of the Intrathecal Therapy business

On an adjusted basis, adjusted net income was $356.4 million, compared with $424.6 million. Adjusted diluted earnings per share were $3.52, compared with $3.83

The company is reiterating its adjusted diluted earnings per share guidance of $7.40 to $8.00 for fiscal 2017.


Specialty Brands Segment

Net sales for the Specialty Brands segment were $594.5 million in the second quarter, compared with $589.3 million, or an increase of 0.9%, or 1.2% on a constant-currency basis.

Gel net sales were $319.4 million in the second quarter period, a 7.1%

increase over $298.3 million. INOMAX

(nitric oxide) gas, for inhalation, generated net sales of $125.5 million, up 3.6%

over $121.1 million. OFIRMEV

(acetaminophen) injection net sales were $75.7 million compared with $70.7 million, an increase of 7.1%

Net sales of the Therakos

immunology platform were $51.2 million compared with $52.5 million, a decrease of 2.5%; an increase of 1.2% on a constant-currency basis. While the kit supply issue was resolved in the first quarter, the company underestimated the complexity of the conversion from the XTS to Cellex devices, resulting in lower than anticipated net sales. These transitional issues will likely continue for the next several quarters; however, longer term the company believes the product will return to its normal expected growth range.

Specialty Generics Segment

Net sales in the second quarter decreased 18.0% to $216.0 million, compared with $263.4 million, better than expectations due to continued solid performance by the active pharmaceutical ingredients products, as well as the segment’s other controlled substances and other products categories. On a constant-currency basis, segment net sales declined 17.8%.


Mallinckrodt’s cash provided by operating activities was $319.9 million in the second quarter with free cash flow of $270.9 million

During the second quarter, the company continued share repurchases, buying 2.4 million ordinary shares for $100.7 million, bringing the total shares repurchased in the six-month period to 8.0 million ordinary shares. In addition to normal debt service, the company reduced its accounts receivable securitization by $25.0 million and repurchased $53.9 million in debt during the second quarter, resulting in a $6.6 million gain in other income

The company has repaid $292.8 million in debt during the six-months ended June 30, 2017.

Despite the significant capital allocation activities undertaken in the quarter, Mallinckrodt’s cash balance increased from the prior quarter to $330.2 million at the end of the second quarter, and its $900.0 million revolver remains undrawn.


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

At the Mallinckrodt website:

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 44423295.

Through an audio replay: A replay of the call will be available beginning at 11:30 a.m. Eastern Time on Tuesday, Aug. 8, 2017, and ending at 11:59 p.m. Eastern Time on Tuesday, Aug. 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 44423295.


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. 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 and its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing. To learn more about Mallinckrodt, visit

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.


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, 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. The adjustments for these items are on a pre-tax basis for adjusted gross profit and adjusted SG&A and on an after-tax basis for adjusted net income. Adjustments to GAAP amounts include, as applicable to each measure, restructuring and related charges, net; amortization and impairment charges; discontinued operations; acquisition-related expenses; changes in fair value of contingent consideration obligations;

inventory step-up expenses; significant legal and environmental charges; pension settlement charges; recurrent cash tax payments to the IRS associated with internal installment sales transactions; and other items identified by the company. Adjusted diluted earnings per share represent adjusted net income divided by the number of diluted shares.

The adjusted effective tax rate is calculated as the income tax effects on continuing and discontinued operations plus the income tax impact included in Mallinckrodt’s reconciliation of net income, divided by income from continuing and discontinued operations plus the pre-tax, non-income, tax-related adjustments included in its reconciliation of adjusted net income (excluding dilutive share impact). The income tax impact item included in its reconciliation of adjusted net income primarily represents the tax impact of adjustments between net income and adjusted net income as well as deferred tax benefits recognized upon pay down of intercompany installment notes created by internal sales of acquired intangible assets.

Net sales growth on a constant-currency basis 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.

Free cash flow for the second quarter represents net cash provided by operating activities of $319.9 million less capital expenditures of $49.0 million, each as prepared in accordance with GAAP. Free cash flow for the six-month period represents net cash provided by operating activities of $222.5 million less capital expenditures of $101.6 million, each as prepared in accordance with GAAP.

The company has provided these adjusted 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 adjusted 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 adjusted measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. The company's definition of these adjusted measures may differ from similarly titled measures used by others.

Because adjusted 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 adjusted financial measures to the most directly comparable GAAP financial measures is included in the tables accompanying this release.

Further information regarding non-GAAP financial measures can be found on the Investor Relations page of the company’s website.


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 businesses 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.

There are a number of important factors that could cause actual events to differ materially from those suggested or indicated by such forward-looking statements and you should not place undue reliance on any such forward-looking statements. These factors include risks and uncertainties related to, among

other things: general economic conditions and conditions affecting the industries in which Mallinckrodt operates; the commercial success of Mallinckrodt's products; Mallinckrodt's ability to realize anticipated growth, synergies and cost savings from acquisitions; conditions that could necessitate an evaluation of Mallinckrodt's goodwill and/or intangible assets for possible impairment; changes in laws and regulations; Mallinckrodt's ability to successfully integrate acquisitions of operations, technology, products and businesses generally and to realize anticipated growth, synergies and cost savings; Mallinckrodt's ability to successfully develop or commercialize new products; Mallinckrodt's ability to protect intellectual property rights; Mallinckrodt's ability to receive procurement and production quotas granted by the U.S. Drug Enforcement Administration; customer concentration; Mallinckrodt's reliance on certain individual products that are material to its financial performance; cost containment efforts of customers, purchasing groups, third-party payers and governmental organizations; the reimbursement practices of a small number of public or private insurers; pricing pressure on certain of Mallinckrodt’s products due to legal changes or changes in insurers’ reimbursement practices resulting from recent increased public scrutiny of healthcare and pharmaceutical costs; limited clinical trial data for H.P. Acthar Gel; complex reporting and payment obligations under healthcare rebate programs; Mallinckrodt's ability to navigate price fluctuations; future changes to U.S. and foreign tax laws; Mallinckrodt's ability to achieve expected benefits from restructuring activities; complex manufacturing processes; competition; product liability losses and other litigation liability; ongoing governmental investigations; material health, safety and environmental liabilities; retention of key personnel; conducting business internationally; the effectiveness of information technology infrastructure; and cybersecurity and data leakage risks.

These and other factors are identified and described in more detail in the "Risk Factors" sections of Mallinckrodt's Annual Report on Form 10-K for the fiscal year ended September 30, 2016. The forward-looking statements made herein speak only as of the date hereof and Mallinckrodt does not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise, except as required by law.


Coleman N. Lannum, CFA

Senior Vice President, Investor Strategy and IRO


Daniel J. Speciale, CPA

Director, Investor Relations


Rhonda Sciarra

Senior Communications Manager


Meredith Fischer

Chief Public Affairs Officer




(unaudited, in millions, except per share data)

Three Months Ended

June 30,

Percent of

June 24,

Cost of sales

Gross profit

Selling, general and administrative expenses

Restructuring charges, net

Loss on divestiture and license

Operating income

Interest expense

Interest income

Other income (expense), net

Income from continuing operations before income taxes

(Loss) income from discontinued operations, net of income taxes

Net income

Basic earnings per share:

Diluted earnings per share:

Weighted-average number of shares outstanding:


(unaudited, in millions except per share data)

June 30, 2017

June 24, 2016


Intangible asset amortization

Restructuring and related charges, net

Inventory step-up expense

Income from discontinued operations

Change in contingent consideration fair value

Acquisition related expenses

Intrathecal divestiture

Income taxes


As adjusted

Percent of net sales

Includes pre-tax accelerated depreciation.

Includes tax effects of above adjustments as well as the elimination of deferred tax benefits recognized upon pay down of intercompany installment notes created by internal sales of acquired intangible assets.


(unaudited, in millions)

Currency impact

Constant-currency growth

Represents net sales from an ongoing, post-divestiture supply agreement with the acquirer of the CMDS business. Amounts for periods prior to the divestiture represent the reclassification of intercompany sales to third-party sales to conform with the presentation of the ongoing supply agreement.




Therakos immunotherapy

Hemostasis products

Specialty Brands Total

Hydrocodone (API) and hydrocodone-containing tablets

Oxycodone (API) and oxycodone-containing tablets

Methylphenidate ER

Other controlled substances

Other products

Specialty Generics Total

Six Months Ended



Non-restructuring impairments

Gains on divestiture and license




Income from discontinued operations, net of income taxes


Non-restructuring impairment charges

Debt refinancing

Pension settlement charge










December 30,


Current Assets:

Cash and cash equivalents

Accounts receivable, net


Prepaid expenses and other current assets

Notes receivable

Current assets held for sale

Total current assets



Property, plant and equipment, net




Intangible assets, net



Other assets

Total Assets



Liabilities and Shareholders' Equity

Current Liabilities:

Current maturities of long-term debt

Accounts payable

Accrued payroll and payroll-related costs

Accrued interest

Income taxes payable

Accrued and other current liabilities

Current liabilities held for sale

Total current liabilities



Long-term debt



Pension and postretirement benefits

Environmental liabilities

Deferred income taxes



Other income tax liabilities

Other liabilities

Total Liabilities



Shareholders' Equity:

Preferred shares

Ordinary shares

Ordinary shares held in treasury at cost



Additional paid-in capital



Retained earnings

Accumulated other comprehensive income

Total Shareholders' Equity



Total Liabilities and Shareholders' Equity


Cash Flows From Operating Activities:

Adjustments to reconcile net cash from operating activities:

Depreciation and amortization

Share-based compensation



Non-cash impairment charges

Gain on divestitures


Other non-cash items

Changes in assets and liabilities, net of the effects of acquisitions:

Net cash from operating activities

Cash Flows From Investing Activities:

Capital expenditures


Acquisitions and intangibles, net of cash acquired


Proceeds from divestitures, net of cash

Net cash from investing activities


Cash Flows From Financing Activities:

Issuance of external debt

Repayment of external debt and capital leases



Debt financing costs

Proceeds from exercise of share options

Repurchase of shares



Net cash from financing activities



Effect of currency rate changes on cash

Net change in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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