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MNK

MNK

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Published by bluegreenblack1
Mallinckrodt write-up
Mallinckrodt write-up

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Categories:Types, Business/Law
Published by: bluegreenblack1 on Jul 22, 2013
Copyright:Attribution Non-commercial

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10/10/2013

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Thesis
 
We
 
believe
 
Mallinckrodt
 
plc
 
(MNK)
 
is
 
an
 
attractive
 
investment
 
opportunity.
 
As
 
a
 
recent
 
$2.5
 
billion
 
market
 
cap
 
specialty
 
pharmaceutical
 
spin
out
 
from
 
Covidien
 
(COV),
 
a
 
$29
 
billion
 
market
 
cap
 
S&P
 
500
 
medical
 
device
 
company,
 
MNK’s
 
stock
 
has
 
exhibited
 
classic
 
post
 
spin
 
off 
 
technical
 
selling.
 
MNK’s
 
shares
 
currently
 
trade
 
at
 
a
 
significant
 
discount
 
to
 
specialty
 
pharmaceuticals
 
peers
 
in
 
spite
 
of 
 
the
 
company’s
 
attractive
 
end
 
markets
 
and
 
pipeline
 
of 
 
promising
 
abuse
 
resistant
 
pain
 
killers.
 
MNK
 
is
 
a
 
likely
 
acquisition
 
target
 
for
 
many
 
of 
 
its
 
larger
 
competitors
 
as
 
it
 
has
 
a
 
market
 
capitalization
 
that
 
is
 
small
 
enough
 
to
 
digest,
 
dominant
 
positions
 
in
 
niche
 
markets,
 
and
 
a
 
highly
 
free
 
cash
 
generative
 
business.
 
Furthermore,
 
as
 
an
 
Irish
 
domiciled
 
company,
 
MNK
 
is
 
an
 
interesting
 
acquisition
 
target
 
as
 
a
 
means
 
for
 
the
 
acquirer
 
to
 
reduce
 
their
 
long
 
term
 
tax
 
rate.
 
Management
 
incentives
 
are
 
well
 
aligned
 
at
 
the
 
current
 
stock
 
price
 
given
 
the
 
$44/share
 
strike
 
price
 
for
 
management’s
 
options
 
acquired
 
as
 
part
 
of 
 
the
 
spin
 
off.
 
We
 
expect
 
MNK
 
shares
 
to
 
see
 
significant
 
upside
 
from
 
the
 
current
 
share
 
price
 
of 
 
$43.50/share
 
as
 
the
 
technical
 
selling
 
related
 
to
 
the
 
spin
 
off 
 
ends,
 
the
 
company
 
hosts
 
an
 
analyst
 
day
 
in
 
the
 
fall
 
providing
 
more
 
color
 
on
 
its
 
product
 
pipeline,
 
the
 
company
 
gains
 
FDA
 
approval
 
for
 
its
 
new
 
pain
 
killers,
 
the
 
company
 
is
 
“discovered”
 
by
 
specialty
 
pharmaceuticals
 
analysts,
 
and
 
the
 
company
 
is
 
ultimately
 
acquired
 
by
 
one
 
of 
 
its
 
much
 
larger
 
peers.
 
Overview
 
Mallinckrodt
 
Pharmaceuticals
 
was
 
spun
 
off 
 
from
 
Covidien
 
on
 
June
 
30
th
 
2013.
 
As
 
a
 
large
 
medical
 
devices
 
company,
 
Covidien
 
viewed
 
its
 
pharmaceuticals
 
and
 
medical
 
imaging
 
businesses
 
as
 
low
 
growth
 
cash
 
cows
 
that
 
could
 
be
 
used
 
to
 
fund
 
growth
 
in
 
the
 
devices
 
businesses.
 
Mallinckrodt’s
 
shares
 
have
 
seen
 
significant
 
technical
 
selling
 
related
 
to
 
the
 
spin
 
off 
‐‐
shares
 
started
 
trading
 
initially
 
at
 
$49/share
 
in
 
the
 
when
 
issued
 
market
 
before
 
falling
 
to
 
$41.50/share
 
last
 
week.
 
Covidien’s
 
shareholders
 
have
 
largely
 
ignored
 
the
 
business
 
as
 
they
 
were
 
significantly
 
more
 
interested
 
in
 
the
 
medical
 
device
 
business
 
and
 
viewed
 
the
 
MNK
 
business
 
as
 
a
 
drag
 
on
 
revenue
 
and
 
earnings
 
growth.
 
We
 
expect
 
most
 
Covidien
 
shareholders
 
to
 
sell
 
their
 
shares.
 
In
 
addition,
 
COV
 
was
 
part
 
of 
 
the
 
S&P
 
500,
 
while
 
MNK
 
with
 
only
 
2.5B
 
market
 
cap
 
was
 
not
 
included
 
in
 
the
 
index,
 
therefore,
 
index
 
holders
 
were
 
forced
 
to
 
sell
 
their
 
MNK
 
shares.
 
Some
 
natural
 
buyers
 
of 
 
orphan
 
spin
 
offs
 
like
 
special
 
situation
 
and
 
event
 
driven
 
funds
 
are
 
hesitant
 
to
 
touch
 
MNK
 
given
 
the
 
specialized
 
nature
 
of 
 
generics
 
and
 
pharmaceuticals.
 
Therefore
 
the
 
stock
 
has
 
underperformed
 
since
 
when
 
issued
 
trading
 
began
 
as
 
the
 
shareholder
 
base
 
has
 
undergone
 
a
 
change.
 
MNK
 
operates
 
in
 
2
 
principal
 
business
 
lines
 
of 
 
roughly
 
equal
 
size:
 
specialty
 
pharmaceuticals
 
and
 
global
 
medical
 
imaging.
 
Each
 
of 
 
the
 
company’s
 
business
 
lines
 
are
 
highly
 
regulated
 
business
 
areas
 
where
 
MNK
 
has
 
a
 
strong
 
competitive
 
position.
 
In
 
specialty
 
pharma,
 
MNK
 
deals
 
in
 
controlled
 
substances
 
where
 
the
 
government
 
has
 
strict
 
quotas
 
on
 
the
 
supply
 
of 
 
the
 
active
 
pharmaceutical
 
ingredients
 
that
 
can
 
be
 
manufactured
 
as
 
well
 
as
 
significant
 
limitations
 
on
 
foreign
 
imports.
 
The
 
nuclear
 
imaging
 
business
 
has
 
relatively
 
limited
 
competition
 
given
 
the
 
need
 
to
 
source
 
radioactive
 
materials
 
and
 
the
 
very
 
limited
 
number
 
of 
 
suppliers
 
of 
 
these
 
materials.
 
 
 
Capitalization
 
Specialty
 
Pharmaceuticals
 
MNK’s
 
specialty
 
pharmaceuticals
 
segment
 
develops,
 
manufactures
 
and
 
sells
 
branded
 
drugs
 
including
 
Exalgo
 
for
 
the
 
treatment
 
of 
 
moderate
 
to
 
severe
 
pain
 
in
 
opiod
 
tolerant
 
patients
 
and
 
Gablofen
 
which
 
are
 
injections
 
indicated
 
for
 
use
 
in
 
the
 
management
 
of 
 
severe
 
spasticity
 
of 
 
cerebral
 
or
 
spinal
 
origin.
 
MNK’s
 
pharmaceuticals
 
segment
 
also
 
develops,
 
manufactures
 
and
 
sells
 
generic
 
drugs
 
most
 
of 
 
which
 
contain
 
US
 
DEA
 
Schedule
 
II
 
or
 
III
 
controlled
 
substances.
 
MNK
 
has
 
40%
 
share
 
of 
 
the
 
DEA
 
quota
 
for
 
controlled
 
substances
 
for
 
active
 
pharmaceutical
 
ingredients
 
(API).
 
For
 
opiate
 
oral
 
solid
 
tablets,
 
MNK
 
has
 
a
 
32%
 
market
 
share.
 
The
 
need
 
to
 
obtain
 
DEA
 
quotas
 
effectively
 
acts
 
as
 
a
 
moat
 
ensuring
 
limited
 
competition
 
for
 
MNK’s
 
products.
 
MNK
 
is
 
attempting
 
to
 
capitalize
 
on
 
their
 
expertise
 
and
 
strength
 
in
 
controlled
 
substances
 
to
 
expand
 
their
 
footprint
 
now
 
that
 
Debt
 
($MM) 920Cash
 
($MM) 168Net
 
Debt
 
($MM) 752Shares
 
(MM) 59Stock
 
Price $43.48Market
 
cap
 
($MM) 2,565EV
 
($MM) 3,317
 
they
 
are
 
able
 
to
 
operate
 
as
 
an
 
independent
 
business
 
(in
 
contrast
 
to
 
being
 
run
 
as
 
a
 
cash
 
generation
 
business
 
while
 
part
 
of 
 
COV).
 
Concerta
 
On
 
December
 
28
th
,
 
2012,
 
MNK
 
received
 
approval
 
for
 
the
 
generic
 
versions
 
of 
 
the
 
27mg,
 
36mg
 
and
 
54mg
 
strengths
 
of 
 
Concerta
 
 –
 
an
 
attention
 
deficit
 
hyperactivity
 
disorder
 
(ADHD)
 
drug.
 
Concerta
 
had
 
sales
 
of 
 
$1.6B
 
drug
 
including
 
both
 
generic
 
and
 
branded
 
formulations
 
in
 
2012.
 
JNJ
 
is
 
the
 
branded
 
manufacturer
 
for
 
Concerta
 
while
 
Actavis
 
(ACT)
 
markets
 
a
 
generic
 
version
 
through
 
an
 
exclusive
 
agreement
 
with
 
JNJ
 
that
 
has
 
the
 
vast
 
majority
 
of 
 
market
 
share.
 
MNK
 
launched
 
the
 
generic
 
27mg
 
tablet
 
on
 
December
 
31
st
,
 
2012.
 
As
 
the
 
first
 
generic
 
to
 
receive
 
approval
 
on
 
these
 
dosage
 
strengths
 
MNK
 
has
 
180
day
 
exclusivity
 
for
 
each
 
strength
 
following
 
their
 
first
 
commercial
 
launch.
 
In
 
February
 
2013
 
MNK
 
submitted
 
an
 
application
 
for
 
the
 
18mg
 
strength
 
tablet.
 
The
 
overall
 
market
 
contracts
 
in
 
the
 
summer
 
due
 
to
 
the
 
end
 
of 
 
the
 
school
 
year
 
for
 
children.
 

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