If shedding nearly 60% of its stock price over the last year and attracting the attention of a known short-seller wasn't enough, Mallinckrodt (MNK) must also contend with new guidelines from the Centers for Disease Control and Prevention.
In an effort to curtail opioid use disorder and overdose, the CDC released new recommendations on Tuesday for prescribing opioid medications, such as oxycodone and hydrocodone, for chronic pain. While the majority of Dublin-based Mallinckrodt's revenue is derived from its branded drugs, sales of generic opioids accounted for 7% of its revenue in the fourth quarter of 2015.
Although the contribution of generic opioids to revenue may appear less significant, Mallinckrodt is able to achieve high margins on those sales. Additionally, the company's main drug, Acthar, which is used to treat infantile seizures, has come under scrutiny because of allegations of price gauging and questions about the drug's efficacy. With uncertainty in Mallinckrodt's main business contributing to a deep decrease in the company's stock, difficulties elsewhere at the drugmaker should not be ignored, either.
In a February earnings call with analysts, CFO Matt Harbaugh noted that sales of oxycodone declined by nearly 40% in the fourth quarter of 2015 from the year-ago period due to increased competition in the space. Put simply, the company has been losing market share that in a sector that is now receiving more regulatory attention.
An analyst team at Morgan Stanley led by David Risinger reacted to Mallinckrodt's recent stock movement, as well as the release of the CDC guidelines, on Wednesday. Morgan Stanley has and Overweight rating on Mallinckrodt and an $88 price target.
Shares of the company fell as much as 12% in Wednesday's trading and are priced around $52 a share.
"We believe the opioid downside Mallinckrodt should be limited because Mallinckrodt has marginal exposure to the extended release or long-acting opioids, which were singled out by the FDA," Risinger wrote.
However, on the same note, Risinger said that Mallinckrodt's stock was recently affected by negative news about Valeant Pharmaceuticals (VRX) and specific comments made about Mallinckrodt by short-seller Andrew Left of Citron Research. (On Tuesday, Left told Real Money that Mallinckrodt makes Valeant look like a choirboy.)
Unfortunately, companies don't always get to choose which headlines affect them. If Mallinckrodt could be affected by news about Valeant, it is reasonable to assume that it could be negatively affected by news tied specifically to its business.