Covidien (COV) Provides Outlook for Mallinckrodt Ahead of Spin Off
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Covidien (NYSE: COV) today announced 2013 full year guidance for Mallinckrodt plc as Mallinckrodt prepares to spin off from Covidien to become a separate, publicly traded company in mid-2013.
Mallinckrodt’s fiscal year will end on September 27, 2013, with net sales growth expected to be in the range of 7% to 11% versus 2012, assuming foreign exchange rates at current levels. Net sales are expected to be up 21% to 25% in Mallinckrodt’s Specialty Pharmaceuticals segment and to decline 3% to 7% in its Global Medical Imaging segment.
For fiscal 2013, Mallinckrodt expects adjusted EBITDA1 as a percentage of sales,2 to be in the range of 17% to 21%. The guidance ranges for adjusted EBITDA reflect the financial results for one quarter of Mallinckrodt operating as a standalone, public company and three quarters reflecting the business as historically managed part of Covidien prior to the separation.
The recurring annual operating costs for corporate staff, governance functions and international infrastructure that were previously managed on Mallinckrodt’s behalf by Covidien are expected to be $130 million. This cost is approximately $40 million higher than what Mallinckrodt incurred in fiscal 2012. These amounts do not reflect any additional one-time costs related to establishing Mallinckrodt’s international infrastructure as a standalone public company and/or any potential savings that Mallinckrodt may achieve over time through organizational realignment or restructuring.
For fiscal 2013, the effective tax rate, excluding one-time items, is expected to be between 34% and 38%. The tax rate for the first three quarters of fiscal 2013 will be calculated based upon the business as historically managed as part of Covidien; while the effective tax rate, excluding one-time items, for the fiscal fourth quarter is expected to be between 28% and 32% and will be based upon the business operating as a standalone public company. Capital expenditures are expected to be $140 million to $160 million in fiscal 2013.
“As we approach our anticipated spin off, we are building on a strong foundation and are well positioned for long-term growth,” said Mark Trudeau, who will serve as President and CEO of Mallinckrodt. “We delivered double-digit growth in sales for the second quarter of fiscal 2013, driven in large part by the launch of the 27 mg, 36 mg and 54 mg tablet strengths of Methylphenidate HCl Extended-Release (ER) Tablets, continued growth of EXALGO® and the addition of Gablofen®. We have some challenges to navigate -- such as the loss of marketing exclusivity for products in both our Brands and Generics portfolios, a need for investment to successfully deliver on our pipeline opportunities, and the ongoing challenge of the shutdown of the high flux reactor in the Netherlands. But overall, we are optimistic that we are well positioned for the spin and for a positive future as a stand-alone company.”
Key Products
EXALGO (hydromorphone HCl) Extended-Release Tablets (CII) sales are expected to be at least $100 million in fiscal 2013. Sales will largely be driven by the addition of the 32 mg tablet strength approved by the U.S. Food and Drug Administration (FDA) in August 2012-- which provided additional flexibility to physicians in treating patients with a single daily dose. EXALGO was granted marketing exclusivity by the FDA as a prescription medication until March 2013. Although no generic product has been launched to date, with the end of this period of exclusivity, we expect generic competition in the marketplace to negatively impact sales.
In December 2012, Mallinckrodt received approval from the FDA to manufacture Methylphenidate HCl ER Tablets USP (CII), a generic version of CONCERTA® for the treatment of Attention Deficit Hyperactivity Disorder in tablet strengths of 27 mg, 36 mg and 54 mg. Sales of Methylphenidate HCl Extended-Release (ER) Tablets are expected to be at least $125 million in fiscal year 2013. We believe we hold a 180-day exclusivity period for each of the tablet strengths, which began upon the commercial launch of each individual tablet strength. The 27 mg tablet strength was launched upon approval, during the first fiscal quarter of 2013, and the 36 mg and 54 mg tablet strengths were launched during the second fiscal quarter. In February 2013, we submitted a supplement to our approved Abbreviated New Drug Application (ANDA) for an 18 mg tablet strength.
Pipeline OpportunitiesThe Mallinckrodt pipeline portfolio contains various products and product candidates resulting from the reformulation of existing molecules for treatment of pain and for treatments in closely adjacent therapeutic areas. The following are key products in our near-term pipeline.
MNK-795 is a reformulation of existing controlled substance analgesic combination products with the addition of certain characteristics designed to deter certain types of abuse. Mallinckrodt has completed its pivotal Phase 3 trial of MNK-795 and is preparing to submit a New Drug Application (NDA) to the FDA for review in the first half of calendar 2013. If the product is accepted, reviewed and approved by the FDA, we expect to incur significant expenses for commercializing the product.
MNK-155 is also a reformulation of existing controlled substance analgesic combination products, different from those in MNK 795, to which we have added certain characteristics designed to deter certain types of abuse. MNK-155 entered Phase 3 clinical development in the first half of fiscal 2013.
MNK-395 is a 2% formulation of diclofenac topical solution. This modified formulation, studied in twice-daily administration in patients with osteoarthritis of the knee, was submitted to the FDA in June 2012. In March 2013, the FDA requested additional information before this application could be considered for approval. In compliance with this request, Mallinckrodt is in the process of repeating a pharmacokinetic study and we anticipate that we will be able to submit results from this study to the FDA in the third quarter of calendar 2013.
Intrathecal Product Development – Mallinckrodt has an R&D pipeline of additional formulations/presentations of Gablofen (baclofen injection) for the management of severe spasticity. Those formulations are at various stages of development. In addition to Gablofen line extensions, we also have opioid products under investigation for the treatment of pain for intrathecal administration (i.e., injection into the sheath around the spinal cord), which, if approved, could provide standardized, manufactured alternatives to products that are currently only available through compounding pharmacies. Additionally, this R&D pipeline may present opportunities for development of certain products that may qualify to receive “orphan” status from the FDA.
Long-range ObjectivesMallinckrodt’s long-range objective is to become a leading specialty pharmaceutical company. The company’s plan is to expand profitability through operating leverage and growth in its Specialty Pharmaceutical segment.
Mallinckrodt’s fiscal year will end on September 27, 2013, with net sales growth expected to be in the range of 7% to 11% versus 2012, assuming foreign exchange rates at current levels. Net sales are expected to be up 21% to 25% in Mallinckrodt’s Specialty Pharmaceuticals segment and to decline 3% to 7% in its Global Medical Imaging segment.
For fiscal 2013, Mallinckrodt expects adjusted EBITDA1 as a percentage of sales,2 to be in the range of 17% to 21%. The guidance ranges for adjusted EBITDA reflect the financial results for one quarter of Mallinckrodt operating as a standalone, public company and three quarters reflecting the business as historically managed part of Covidien prior to the separation.
The recurring annual operating costs for corporate staff, governance functions and international infrastructure that were previously managed on Mallinckrodt’s behalf by Covidien are expected to be $130 million. This cost is approximately $40 million higher than what Mallinckrodt incurred in fiscal 2012. These amounts do not reflect any additional one-time costs related to establishing Mallinckrodt’s international infrastructure as a standalone public company and/or any potential savings that Mallinckrodt may achieve over time through organizational realignment or restructuring.
For fiscal 2013, the effective tax rate, excluding one-time items, is expected to be between 34% and 38%. The tax rate for the first three quarters of fiscal 2013 will be calculated based upon the business as historically managed as part of Covidien; while the effective tax rate, excluding one-time items, for the fiscal fourth quarter is expected to be between 28% and 32% and will be based upon the business operating as a standalone public company. Capital expenditures are expected to be $140 million to $160 million in fiscal 2013.
“As we approach our anticipated spin off, we are building on a strong foundation and are well positioned for long-term growth,” said Mark Trudeau, who will serve as President and CEO of Mallinckrodt. “We delivered double-digit growth in sales for the second quarter of fiscal 2013, driven in large part by the launch of the 27 mg, 36 mg and 54 mg tablet strengths of Methylphenidate HCl Extended-Release (ER) Tablets, continued growth of EXALGO® and the addition of Gablofen®. We have some challenges to navigate -- such as the loss of marketing exclusivity for products in both our Brands and Generics portfolios, a need for investment to successfully deliver on our pipeline opportunities, and the ongoing challenge of the shutdown of the high flux reactor in the Netherlands. But overall, we are optimistic that we are well positioned for the spin and for a positive future as a stand-alone company.”
Key Products
EXALGO (hydromorphone HCl) Extended-Release Tablets (CII) sales are expected to be at least $100 million in fiscal 2013. Sales will largely be driven by the addition of the 32 mg tablet strength approved by the U.S. Food and Drug Administration (FDA) in August 2012-- which provided additional flexibility to physicians in treating patients with a single daily dose. EXALGO was granted marketing exclusivity by the FDA as a prescription medication until March 2013. Although no generic product has been launched to date, with the end of this period of exclusivity, we expect generic competition in the marketplace to negatively impact sales.
In December 2012, Mallinckrodt received approval from the FDA to manufacture Methylphenidate HCl ER Tablets USP (CII), a generic version of CONCERTA® for the treatment of Attention Deficit Hyperactivity Disorder in tablet strengths of 27 mg, 36 mg and 54 mg. Sales of Methylphenidate HCl Extended-Release (ER) Tablets are expected to be at least $125 million in fiscal year 2013. We believe we hold a 180-day exclusivity period for each of the tablet strengths, which began upon the commercial launch of each individual tablet strength. The 27 mg tablet strength was launched upon approval, during the first fiscal quarter of 2013, and the 36 mg and 54 mg tablet strengths were launched during the second fiscal quarter. In February 2013, we submitted a supplement to our approved Abbreviated New Drug Application (ANDA) for an 18 mg tablet strength.
Pipeline OpportunitiesThe Mallinckrodt pipeline portfolio contains various products and product candidates resulting from the reformulation of existing molecules for treatment of pain and for treatments in closely adjacent therapeutic areas. The following are key products in our near-term pipeline.
MNK-795 is a reformulation of existing controlled substance analgesic combination products with the addition of certain characteristics designed to deter certain types of abuse. Mallinckrodt has completed its pivotal Phase 3 trial of MNK-795 and is preparing to submit a New Drug Application (NDA) to the FDA for review in the first half of calendar 2013. If the product is accepted, reviewed and approved by the FDA, we expect to incur significant expenses for commercializing the product.
MNK-155 is also a reformulation of existing controlled substance analgesic combination products, different from those in MNK 795, to which we have added certain characteristics designed to deter certain types of abuse. MNK-155 entered Phase 3 clinical development in the first half of fiscal 2013.
MNK-395 is a 2% formulation of diclofenac topical solution. This modified formulation, studied in twice-daily administration in patients with osteoarthritis of the knee, was submitted to the FDA in June 2012. In March 2013, the FDA requested additional information before this application could be considered for approval. In compliance with this request, Mallinckrodt is in the process of repeating a pharmacokinetic study and we anticipate that we will be able to submit results from this study to the FDA in the third quarter of calendar 2013.
Intrathecal Product Development – Mallinckrodt has an R&D pipeline of additional formulations/presentations of Gablofen (baclofen injection) for the management of severe spasticity. Those formulations are at various stages of development. In addition to Gablofen line extensions, we also have opioid products under investigation for the treatment of pain for intrathecal administration (i.e., injection into the sheath around the spinal cord), which, if approved, could provide standardized, manufactured alternatives to products that are currently only available through compounding pharmacies. Additionally, this R&D pipeline may present opportunities for development of certain products that may qualify to receive “orphan” status from the FDA.
Long-range ObjectivesMallinckrodt’s long-range objective is to become a leading specialty pharmaceutical company. The company’s plan is to expand profitability through operating leverage and growth in its Specialty Pharmaceutical segment.
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