Canaccord Turns Bullish On Mallinckrodt: 4 Reasons Why

A Canaccord Genuity analyst came away from a meeting with Mallinckrodt PLC MNK's executive team with an upbeat forecast for the pharma company's near-term prospects. 

The Analyst

Analyst Dewey Steadman upgraded Mallinckrodt from Hold to Buy and increased the price target from $34 to $40.

The Thesis

Mallinckrodt continues to execute on its core business and could potentially move its Acthar franchise to stability or even growth, Steadman said in the Monday upgrade note. (See his track record here.) 

The analyst named four key takeaways form the meeting that drove Canaccord's bullish turn on Mallinckrodt: 

◘ Challenges to Inomax — the company's treatment option for hypoxic respiratory failure in term and near-term infants — from a potential launch of competing products by Praxair or AIT Therapeutics Inc AITB do not pose a threat of erosion of the entire franchise, Steadman said. That's because Mallinckrodt's product is seen to be superior, with smaller bottles and increased portability, he said. Praxair's products may hit the shelves only after the current patent appeal is resolved, possibly in the second half of 2019, he said. 

◘ Mallinckrodt has until May 2019 to sell its generic unit. The company would shift all liabilities for the unit with the sale, thereby keeping its investors focused on the now-core branded critical care portfolio, Steadman said. 

◘ Acthar is "emerging from recent challenges to a position of strength," the analyst said. The company expects the franchise to bring in over $1 billion in revenue in 2019 as it goes through six ongoing label modernization programs in key indications such as rheumatoid arthritis, sarcoidosis, multiple sclerosis, uveitis, lupus and FSGS, he said. 

◘ The launch of several products in the foreseeable future could address Mallinckrodt's perceived revenue shortfall, Steadman said; the company expects to launch five to seven products over the next three to five years. 

The Price Action

Mallinckrodt shares have gained about 36.8 percent year-to-date. The stock was trading higher by 2.11 percent at $31.51 at the time of publication Monday. 

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