Dewey Steadman Is Playing it Cautiously Optimistic on Mallinckrodt PLC (MNK) on Back of Strategic Decision to Acquire Sucampo

Canaccord's Dewey Steadman is positive on the "ideal" Sucampo deal and notes that unlike other pipeline-driven takeovers, short-term profit opportunities will likely content MNK investors.


Mallinckrodt PLC (NYSE:MNK) shares are rising close to 3% after M&A news makes its way through the Street’s grapevine: this biotech player is purchasing Sucampo in a roughly $1.2 billion deal including debt payments, or paying $18 per share to capture constipation drug Amitiza. Sucampo’s lead asset treats CIC (chronic idiopathic constipation), IBS-C (irritable bowel syndrome with constipation), and OIC (opioid-induced constipation)

Canaccord analyst Dewey Steadman is staying on the sidelines for now, “waiting for the conversation to evolve,” but on a positive note, he believes the “Sucampo deal makes sense.”

On the heels of the takeover buzz, the analyst reiterates a Hold rating on MNK stock with a $24 price target. (To watch Steadman’s track record, click here)

The MNK team anticipates that riding the momentum of Amitiza sales-meets-profits, this deal will be 30 cents accretive to 2018 adjusted EPS results, closing by the first quarter of 2018 and prospectively upwards of 60 cents accretive come 2019. While more recently, deals driven by pipelines tend to dilute the bottom line, the analyst believes this marks a shift; one where short-term profit prospects from this deal could be “well-received by investors weary of continued pipeline dilution.”

All the same, the analyst keeps a watchful eye on biggest asset Acthar’s rapid-fire dipping sales and respiratory treatment system Inomax’s lost patent battle, waiting for a conversational shift away from these negatives to the excitement of the Sucampo acquisition.

Overall, “We think Mallinckrodt’s acquisition of Sucampo is an ideal transaction: one where near-term revenue from Amitiza and Rescula can bring immediate EPS accretion and future growth and durability can be delivered from two rare-disease pipeline products. Granted, Amitiza and Rescula are outside of Mallinckrodt’s core hospital/acute care franchises and offer little marketing overlap, but the near-term accretion from both products as marketed by commercial partners limits Mallinckrodt’s marketing overhead and more than funds near-term expenses related to Sucampo’s two rare-disease phase 3 programs that do fit into Mallinckrodt’s wheelhouse. While we’re excited about the transaction, we’re still on the sidelines until the conversation can meaningfully move away from potentially negative Acthar and Inomax catalysts,” Steadman surmises.

TipRanks indicates a cautious Wall Street leaning more towards the bulls on the biotech stock, with 5 out of 14 analysts polled in the last 3 months bullish on Mallinckrodt and 9 remaining on the sidelines. Is the drug maker overvalued or undervalued when taking under account analyst expectations? With a return potential of 33%, the stock’s consensus target price stands at $31.75.

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