Jefferies: Reaction In Mallinckrodt Shares To Praxair Competition Overblown

Competition from Praxair, Inc. (NYSE: PX) has rattled Mallinckrodt PLC (NYSE: MNK) investors, but Jefferies' bullish thesis remains intact. 

The Analyst

Jeffries analyst Anthony Petrone reiterated a Buy on Mallinckrodt with a $35 price target. 

The Thesis

Mallinckrodt shares have taken a 17-percent hit from the FDA clearance of Praxair's abbreviated new drug application for Noxivent, a generic version of Mallinckrodt's INOmax, Petrone said in a Friday note. (See his track record here.) 

Not everyone has the same sentiment: the analyst said the sell-off is overblown.

While Praxair is a threat, the extent is still unclear and does not warrant the sell-off in shares, which amounts to a priced-in $130-million revenue shortfall for Mallinckrodt's inhaled nitric oxide product, Petrone said. 

“Praxair’s gaining FDA clearance for Noxivent, the first generic version of INOmax, was not unexpected following last year’s court ruling that Praxair’s version of the product was not infringing on MNK’s IP around this technology." 

Many unknowns surround the Praxair product that could affect its success, the analyst said. 

“Given lack of clarity around the level of clearance (ANDA only or ANDA + 510k), ongoing appeals process and go-to-market strategy, handicapping [the] time to market entry for Noxivent is a bit challenging,” Petrone said.

It's unclear whether Praxair has 510k approval for the Noxivent delivery device, the analyst said. If the approval is not secured, Praxair likely has another 90 days, and more information on this front should become available in about a week when the FDA discloses new 510k clearances, he said. 

“INOmax could also prove more durable on an IP and labeling front. On IP, Praxair’s final design could indeed infringe on other patents within the INOmax estate, particularly around device design and delivery of the gas. On labeling, MNK is actively pursuing extensions into lung transplant and various cardiovascular indications, which if successful will add a further layer protection to INOmax."

Jeffries forecast $564 million in 2019 INOmax sales, and said the uncertainty surrounding Noxivent's entry should not change the projection.  

Price Action

Mallinckrodt shares were up 0.86 percent at $25.95 at the time of publication, while Praxair was down 1.11 percent at $164. 

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