Analyst: Mallinckrodt Investors Seem To Be Pricing In Extreme Issues For Acthar

After completing a sum-of-the-parts analysis, UBS analyst Marc Goodman still sees Mallinckrodt PLC (NYSE: MNK) as a strong risk/reward play. Goodman maintained his Buy rating and 12-month $70 price target.

“The key overhang for the stock remains the sustainability of Acthar, particularly from potential competition, but our base case assumes significant competition already. In fact, without competition we believe that Acthar would be worth at least $100 per share,” he said.

Could Different Types Of Transactions Provide Further Value?

While Goodman noted this is a possibility, he highlighted management may not pursue these paths.

“It may instead just continue to add long-duration assets to the in-line portfolio and/or pipeline, which is really how it has added most value in the past,” he said.

He also doesn't believe the market is fully reflecting in Mallinckrodt’s ex-Acthar business, even those these brands made up 50 percent of specialty branded sales in 2017. Specifically, he said, “the business could have high-single digit growth into the next decade if just some of the pipeline (e.g., Terlipressin, StrataGraft) is successful. Our DCF analysis yields $61 for the brand business ex-Acthar.”

Finally, Mallinckrodt’s management team is finally acting with a sense of urgency, which has resonated well with investors according to Goodman.

Overall, even as specialty pharmacy sector is up over 10 percent on the year, it's obvious Goodman sees more in the tank for Mallinckrodt.

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