Mallinckrodt PLC (MNK) Inomax Sales to Reach $505.9 Million by 2017 Despite Losing Patent Battle: Cantor

Solid MNK business model will eventually attract investors, says analyst.

Mallinckrodt PLC (NYSE:MNK) shares plummeted 12% Tuesday after the company lost its bid in federal court to prevent its competitor Praxair from marketing a generic version of its respiratory treatment Inomax. While some analysts expressed reservations over a further drastic decline in MNK stock, analyst Louise Chen of Cantor remains unconcerned, commenting investors should “just breathe,” as the “Inomax news is not that bad.” After her recent meeting with management, the analyst points to two important factors: First, Praxair’s generic drug has not yet received approval; second, even when the generic drug enters the competitive market, Chen argues Praxair will not be completely identical to MNK’s Inomax.

The analyst remains positive on MNK stock, noting: “Praxair has yet to be approved, and we believe that Praxair, while strong as an industrial gas manufacturer, has limited experience in providing services to hospitals, NICUs, and fragile patient populations. We think Mallinckrodt’s service offering model is hard to replicate, such that inroads for Praxair’s generic may be difficult. We also note that Inomax still has three other patents that expire in 2031/2034 that were not affected by this ruling, though they are a part of a secondary case that was stayed pending the outcome of this case. Mallinckrodt says it will appeal today’s decision.”

What is holding back investors from taking on Mallinckrodt? Chen believes the various risks associated with the pharma industry are blinding potential investors to the drug maker’s bigger picture that paints a tale of strength in its Specialty Brands segment, opining: “Mallinckrodt suffers from a perception problem that ties it to headline risks in the pharma industry (scrutiny of high-priced drugs, government investigations, etc.). This masks the growth potential of Mallinckrodt’s Specialty Brands business and its consistent ability to meet or beat expectations. Earnings beats cannot be ignored by investors forever, and we think solid execution will eventually result in a greater appreciation for Mallinckrodt’s business model.” As such, the analyst sees MNK  reaching $3.2 billion in total sales for 2017 with Inomax contributing $505.9 million.  

The analyst maintains an Overweight rating on MNK stock with a price target of $52.00 representing a 41% rise over current trading levels. (To watch Chen’s track record, click here)

TipRanks analytics show MNK as a Buy. Based on 14 analysts offering recommendations for this stock, 12 are bullish, while 2 are sidelined on Mallinckrodt stock. The 12-month average price target stands at $66.20, marking an 82% upside from current trading levels.

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