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Mallinckrodt Down as District Court Invalidates Inomax Patents

Zacks Equity Research

Shares of Mallinckrodt plc MNK were down 12.3% after a U.S. District Court invalidated 11 patents covering its second-largest product Inomax per a Reuters report. 

Moreover, Mallinckrodt’s stock price has declined 28.7% year to date, compared with the industry’s fall of 19.5%.

The drug represented 20% of the company’s total revenues in 2016. We note that Mallinckrodt acquired privately held critical care company Ikaria, which added Inomax (a vasodilator used in conjunction with ventilatory support and other appropriate agents) to its portfolio.

We remind investors that in February 2015, Mallinckrodt along with its subsidiaries filed suit in the U.S. District Court for the District of Delaware against Praxair, Inc. PX following receipt of a January 2015 notice from the latter. The notice was regarding Praxair’s submission of an ANDA containing a Paragraph IV patent certification with the FDA for a generic version of Inomax.

Subsequently, in July 2016, Mallinckrodt filed a second suit against Praxair following receipt of a Paragraph IV notice concerning three additional patents recently added to the FDA Orange Book regarding its ANDA for a generic version of Inomax.  Thereafter, a third suit was filed in September 2016.

Mallinckrodt plans to appeal against the decision and stated that Inomax has patent protection till 2018.

Our Take

The news comes as a major disappointment for Mallinckrodt as Inomax is its second-largest product after Achtar. The loss of patent protection for Inomax will adversely impact revenues.

Mallinckrodt is currently streamlining its business. The company aims to focus better on its specialty pharmaceutical business after having sold its Nuclear Imaging business. However, generic segment continues to face weakness as various product categories are witnessing stiff competition, which is hurting both volumes and prices. The company expects double-digit declines in revenues from this segment. In addition, continued expected weakness in this segment will adversely impact gross profit margins also.

Zacks Rank & Key Picks

Mallinckrodt currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the health care sector are Aduro Biotech, Inc. ADRO and Gilead Sciences, Inc. GILD. Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Aduro Biotech’s loss per share estimates narrowed from $1.36 to $1.32 for 2017 over the last 30 days. The company delivered positive earnings surprises in two of the four trailing quarters with an average beat of 2.53%.

Gilead’s earnings per share estimates increased from $8.69 to $8.76 for 2017, over the last 30 days. The company delivered positive earnings surprises in three of the trailing four quarters, with an average beat of 8.18%.

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