CHESTERFIELD, United Kingdom, Nov. 29, 2016 /PRNewswire/ -- Mallinckrodt plc (NYSE: MNK), a leading global specialty pharmaceutical company, today reported results for the fourth quarter fiscal 20161. Unless otherwise noted, all comparisons of fiscal 2016 fourth quarter or full fiscal year performance are to the comparable periods of fiscal 2015. As announced in the Aug. 24, 2016 press release, Mallinckrodt now presents its nuclear imaging business as a discontinued operation for all periods.
Net sales were $887.2 million in the fourth quarter fiscal 2016, up 13.9%, or 14.2% on a constant-currency basis. Net sales growth rates benefited from an additional selling week in the fourth quarter fiscal 2016. Management believes this additional selling week positively affected reported growth rates by approximately 6 to 9 percentage points for the quarter.
GAAP2 gross profit was $490.2 million for the fourth quarter, up 15.1%, with gross profit as a percentage of net sales of 55.3%, compared with 54.7%. This growth resulted from strong performance across the Specialty Brands segment, partially offset by increased amortization expense from acquisitions and decreased gross profit from the Specialty Generics segment. Adjusted gross profit was $668.2 million for the quarter, compared with $582.4 million. Adjusted gross profit as a percentage of net sales was 75.3% versus 74.8%.
"Mallinckrodt finished fiscal 2016 with solid performance in the fourth quarter driven by an ongoing focus on execution in the Specialty Brands segment, which contributed over 70% of our total net sales. Our Acquire to Invest strategy continues to produce benefits as our scientific organization generates compelling new data and clinical evidence for key brands, and our commercial teams bring this data to physicians and their patients to help them make better informed treatment decisions," said Mark Trudeau, President and Chief Executive Officer. "Each of our key branded drugs – Acthar®, INOMAX®, OFIRMEV®, and Therakos® – contributed volume-led, double-digit net sales growth in the quarter, even excluding the extra week. By following our strategy and focusing on execution, we are making steady progress in building a leading specialty pharmaceutical company and are creating near- and long-term value for patients with high unmet medical needs."
Trudeau continued, "We're increasingly focused, too, on building a robust, organic pipeline in Specialty Brands – developing new indications and products in areas where patients currently have few alternatives and are in need of better options. This is evidenced, in part, by our recent acquisition of the investigational skin substitute product StrataGraft® and the broader development platform of regenerative skin substitutes that have the potential to transform the standard of burn treatment and wound healing."
GAAP selling, general and administrative (SG&A) expenses for the quarter were $267.8 million, compared with $267.3 million, representing 30.2% and 34.3% of net sales, respectively. Adjusted SG&A expenses for the quarter were $242.8 million or 27.4% of net sales, compared with $207.5 million or 26.6% of net sales, principally driven by the addition of Therakos. Research and development (R&D) expense in the fourth quarter fiscal 2016 increased 9.9%, with R&D as a percentage of net sales at 7.7% in the fourth quarter, as compared with 7.9%.
Income tax benefit in the fourth quarter was $56.4 million versus $56.6 million, resulting in GAAP effective rates of negative 105.2% and 343.0%, respectively. The adjusted effective tax rate was 15.7% compared with 16.2%. The variance between the GAAP and non-GAAP effective tax rate relates to the tax effect on pre-tax non-GAAP adjustments and deferred tax benefits recognized upon pay down of intercompany installment notes created by internal sales of acquired intangible assets.
Diluted GAAP earnings per share from continuing operations for the quarter were $1.01 in the fourth quarter fiscal 2016 compared with $0.62 per diluted share. The increase principally reflects strong net sales and profit contribution in the Specialty Brands segment. These factors were partially offset by declines in the Specialty Generics segment and by higher interest expense. Adjusted diluted earnings per share from continuing operations were $2.04, up 21.4% from $1.68.
FULL-YEAR FISCAL 2016 RESULTS
Fiscal 2016 net sales were $3.381 billion, up 15.7% compared with $2.923 billion. The increase came primarily from continued strength across the Specialty Brands segment, and was partially offset by decreased net sales from the Specialty Generics segment. Management believes the additional selling week positively affected the company's annual growth rate by approximately 1 to 3 percentage points.
Diluted GAAP earnings per share from continuing operations were $4.39 in fiscal 2016 compared with $2.00, an increase of 119.5%. Adjusted diluted earnings per share from continuing operations were $7.85 in fiscal 2016 versus $6.79, an increase of 15.6%.
BUSINESS SEGMENT RESULTS
Specialty Brands Segment
Net sales for the Specialty Brands segment were $633.1 million in the fourth quarter fiscal 2016 compared with $468.7 million, an increase of 35.1%, or 35.7% on a constant-currency basis.
H.P. Acthar Gel (repository corticotropin injection) net sales were $327.0 million in the quarter, a 19.3% increase over $274.2 million. Mallinckrodt's second largest product, INOMAX (nitric oxide) gas, for inhalation, generated net sales of $126.9 million, up 22.4% over $103.7 million, with constant-currency growth of 22.4%. In the quarter the U.S. Patent and Trademark Office and its Patent Trial and Appeal Board affirmed the validity of multiple INOMAX drug and device patents, enhancing the company's confidence in the intellectual property estate surrounding INOMAX to at least 2031. Turning to OFIRMEV (acetaminophen) injection, net sales were $75.6 million compared with $61.4 million, an increase of 23.1%.
Net sales of the Therakos immunotherapy platform were $54.5 million, with constant-currency pro forma basis growth of 24.1%. The business has recently experienced temporary, third-party manufacturer production issues with kits supporting its first-generation UVAR XTS® photopheresis system. Mallinckrodt is working diligently to mitigate the shortage. While it's possible the situation could continue into the second quarter of 2017, the company believes its efforts will successfully resolve the issue sooner. Overall revenue impact is expected to be between $5 to $10 million in each of the December 2016 and March 2017 quarters. Importantly, management believes it will be able to offset most of the earnings impact in the December quarter from strength in the rest of its businesses.
Specialty Generics Segment
Net sales for the segment in the fourth quarter decreased 19.2% to $239.8 million, compared with $296.7 million, driven principally by net sales declines in various product categories due to increased competition negatively impacting both volume and price. On a constant-currency basis, segment net sales declined 19.2%. Management continues to expect decreased net sales in this segment throughout 2017.
After submitting its request for a hearing to the U.S. Food and Drug Administration (FDA) on the agency's proposal to withdraw Mallinckrodt's Abbreviated New Drug Application for its extended-release (ER) methylphenidate tablets, the company requested and the FDA granted a 90-day extension of the deadline for submitting documentation to March 19, 2017 supporting the necessity of the hearing. It remains Mallinckrodt's position that its generic methylphenidate ER products are a safe and effective treatment option for patients who suffer from attention-deficit and hyperactivity disorder.
In fiscal 2016, Mallinckrodt generated $1.185 billion in operating cash flow and $1.002 billion in free cash flow, with $190.2 million in operating cash flow and $140.8 million in free cash flow in the fourth quarter.
During the fourth quarter fiscal 2016, the company repurchased 0.7 million ordinary shares under its share repurchase program for $50.3 million, bringing the total fiscal 2016 share repurchases under the company's authorized programs to $650.6 million or 9.7 million shares, or approximately 8.3% of diluted shares outstanding. Mallinckrodt also repaid $250.0 million of its revolving credit facility, which was undrawn at Sept. 30, 2016.
Mallinckrodt's cash balance at the end of the fiscal year was $280.5 million. With its strong cash generation expected to continue in the December quarter and in 2017, the anticipated proceeds from the sale of the nuclear imaging business and availability of its revolving credit facility, management remains confident in its liquidity position, and remains focused primarily on allocating capital to business development, share repurchases, and reducing debt.
CONFERENCE CALL AND WEBCAST
Mallinckrodt will hold a conference call for investors on Tuesday, Nov. 29, 2016, beginning at 8:30 a.m. U.S. Eastern Time. This call can be accessed in three ways:
At the Mallinckrodt website: http://www.mallinckrodt.com/investors.
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 4018122.
Through an audio replay: A replay of the call will be available beginning at 11:30 a.m. U.S. Eastern time on Tuesday, Nov. 29, 2016, and ending at 11:59 p.m. U.S. Eastern Time on Tuesday, Dec.13, 2016. 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 (404) 537-3406. All callers will be required to provide the Conference ID of 4018122.
Last updated on: 29/11/2016
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