NEW YORK (AP) -- Shares of Mallinckrodt returned some of their gains Monday after a UBS analyst downgraded the health care products company.
THE SPARK: Marc Goodman said Mallinckrodt's stock has climbed in the last two weeks and investors are overlooking some challenges the company faces. Those include generic competition for several key drugs and its struggling medical imaging business, he wrote.
Goodman lowered his rating to "Sell" from "Neutral" and kept a price target of $43 per share. He said sales of the company's experimental pain drugs Xartemis XR and MNK-155 will fall short of Wall Street expectations because they will face stiff competition from lower-priced generic pain drugs. He said the company's new Pennsaid 2%, which was approved earlier this month, will also be affected by sales of generic forms of the older Pennsaid.
Other parts of the company are struggling, he said.
"The medical imaging business is in a worse shape than we originally thought," Goodman said. "Since our initiation, this business has seen shrinking margins and supply disruptions."
THE BIG PICTURE: Mallinckrodt PLC was spun off from Covidien PLC in June. Its revenue grew 7 percent to $2.2 billion in fiscal 2013, but the company said medical imaging revenue fell 6 percent. That included a 4 percent decline in revenue from its nuclear imaging business, which makes and sells radioactive isotopes and drugs used in diagnostics. That division has been affected by problems with a reactor in the Netherlands.
The St. Louis company is trying to win marketing approval for Xartemis XR, an extended-release drug intended to treat moderate to severe acute pain. It combines oxycodone with acetaminophen, the active ingredient in Tylenol. MNK-155 is a low-dose drug also intended to treat pain, and it combines acetaminophen with hydrocodone.
The FDA approved Pennsaid 2% on Jan. 17 as a treatment for pain caused by osteoarthritis of the knee. Under a settlement reached last year, generic drugmaker Apotex will be able to start selling a version of Pennsaid by April 1.
SHARE ACTION: Mallinckrodt shares lost $3.17, or 5.3 percent, to $56.25 in afternoon trading. The stock is up 13.9 percent since Jan. 7, and has risen 32 percent since it opened at $45 on June 17.