Mallinckrodt Shares Tank, Despite Better-Than-Expected Earnings

Despite reporting better-than-expected earnings, Britain-based pharmaceutical firm Mallinckrodt plc (MNK) is tanking.

The company saw share prices fall more than 8% Tuesday, hitting $52.55 apiece after reporting earnings that beat analyst expectations. The plunge in the stock price is due in part, analysts say, to the company's decision to withhold guidance for fiscal year 2017.

The company reported adjusted earnings per share of $2.04, as compared to consensus estimates of $1.98 per share. Revenues for the fourth quarter were $887.2 million, as compared to consensus estimates of $851.1 million.

It turns out that investors are worried about several factors. Aside from the decision to withhold guidance on next year's results, there are worrisome results for its generics business.

"Since Mallinckrodt did not provide '17 guidance, concerns about lack of sales visibility for Acthar [a drug that treats several autoimmune disorders, including lupus], generics and the hospital franchise are weighing on shares," Guggenheim analyst Louise Chen wrote in a note.

Chen has a buy rating on the stock.

The company saw net sales for its generics division decrease 19% for the fourth quarter, which it blamed on increased competition.

Meanwhile, though Acthar saw a boost in sales, there's a lack of visibility on how the drug could do down the line.

What's worse, the company expects to see a shortage in its lymphoma palliative care devices known as Therakos kits.

"Because of a production issue, Mallinckrodt is experiencing a shortage in Therakos kits, which will affect revenue growth on the Therakos line for the next few quarters," Chen wrote in a note. "That said, for the December quarter, Mallinckrodt should be able to offset most of the negative earnings impact from strength in the rest of its business."

Mallinckrodt is expected to make some acquisitions in the coming months, including commercial and late-stage developmental companies.

As a buyer, the company would likely seek bolt-on deals to expand its hospital or specialty drug division, and while it has the capacity to spend as much as $2 billion to $3 billion on a deal would likely go after something smaller. Besides acquisitions, Mallinckrodt could also evaluate potential divestitures including its declining specialty generics business, TheStreet's sister publication, The Deal, reported in August. 

The company divested its nuclear imaging business to CapVest Partners LLP-backed IBA Molecular Imaging for up to $690 million that month. 

Mallinckrodt is expected to give a presentation Nov. 30 at the Jefferies Healthcare Conference.

The company has a market cap of $5.66 billion.

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