Mallinckrodt plc
Q4 2014 Earnings Call Transcript

Published: 19 Nov 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Mallinckrodt's Fourth Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, John Moten, Vice President of Investor Relations. You may begin.

[John Moten:]

Good morning. This is John Moten, Vice President of Investor Relations for Mallinckrodt Plc. The press release with details of our fourth quarter and full year results was issued earlier today and is available on our website and the newswires. During today's call, we'll be making some forward-looking statements and it is possible that actual results could differ materially from our current expectations. Please note that under the Safe Harbor rules, we're under no obligation to update the information contained in these forward-looking statements, even if actual results or future expectations change materially. We ask you to please refer to the cautionary statements contained in our SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements. We'll also discuss some non-GAAP financial measures with respect to our performance today. A reconciliation of non-GAAP measures to GAAP measures can be found in our earnings release and its related financial tables. With that, I will now turn the call over to Mark Trudeau, President and Chief Executive Officer of Mallinckrodt Plc. Mark?

[Mark Trudeau:]

Thanks, John, and thank you all for joining the call today. I'm pleased to report that Mallinckrodt achieved another very strong quarter and robust full year results and adjusted net income. Our revenue was up 45% on an operational basis to $789 million in the quarter versus prior year and up 16% to $2.5 billion year-on-year on an operational basis. Adjusted diluted earnings per share were up 71% for the fourth quarter and 58% for the fiscal year. Matt will cover the fourth quarter for you in depth today, and I'll focus primarily on the full year. Before I begin, I'll make one note. Many of you may have seen the news late last week of the FDA's reclassification of methylphenidate hydrochloride ER products. I'll talk about that as part of an overall discussion of our Specialty Controlled Substance Generics portfolio, and Matt and I will of course take your questions during the Q&A session. Now let me turn back to our fiscal 2014 performance. Overall, fiscal 2014 was a notable year for Mallinckrodt, as we further diversified our business portfolio and created a number of new business drivers and platforms that enhance our potential for long-term growth and profitability. In just over a year, we roughly doubled our share price, increased company value in terms of market cap approximately four-fold and became a component of the S&P 500. This was driven in part by the two acquisitions we made, but was also a result of our continued focus on creating a lean efficient business and simultaneously executing on a number of parallel activities to increase efficiency and profitability. In fiscal 2014, we broadened our business foundation to support long-range success as a top specialty biopharmaceutical business by diversifying our portfolio of branded products with durable assets for pain, autoimmune and rare diseases, expanding our commercial capabilities to serve physician offices, hospitals and outpatient surgical centers and driving value in one of the industry's deepest, most diverse controlled substance specialty generics portfolio. In addition to the more immediate impacts of our 2014 acquisitions with their new therapeutic area of focus and channel presence also helps us further frame future business development targets and focus our R&D strategy to deliver sustainable growth. In fiscal 2014, total company operational revenue growth was approximately 16%, driven by our Specialty Pharmaceuticals segment, but tempered by continued declines in Global Medical Imaging. Our robust topline results were accompanied by even stronger adjusted diluted earnings per share growth to $4.94, an increase of 58% compared to the prior year. Our fourth quarter adjusted diluted earnings per share performance was equally impressive, up 71% over the same period in the prior year. By executing on our strategy, our business mix continues to shift toward Specialty Pharmaceuticals, and this segment is driving both topline and bottomline results. In the fourth quarter, net sales on this segment were 72% of our total. And as we said in our October Investor Briefing, we expect that shift to continue, driving Specialty Pharmaceuticals to roughly 80% of the company's net sales in fiscal 2015. Turning to performance on a segment basis, Specialty Pharmaceuticals generated operational growth of 33% in fiscal 2014, driven by strength in both our brands and Specialty Controlled Substance Generics products. Our Brands business benefited from EXALGO contributions in the first half of the fiscal year and the additions of OFIRMEV and H.P. Acthar Gel in the second half. Our Specialty Controlled Substance Generics business also enjoyed an exceptional year with strong results across the portfolio, led by $210 million in net sales for methylphenidate ER. As you saw last week, the FDA unexpectedly reclassified the methylphenidate ER products from Mallinckrodt and Kudco Ireland Limited from AB to BX, providing no opportunity for discussion of data or the scientific issues before making the change. We strongly believe our methylphenidate ER products are both safe and effective. While we were pleased to see that the FDA's public statement emphasized that they have not identified any serious safety concerns with these products, we also believe the agency's conclusions with regard to efficacy are not supported by strong scientific evidence. We provided company data showing that in the 21 months since launch out of the more than 88 million doses of our products that IMS Health shows have been prescribed, we've received only 68 confirmed adverse events related to a lack of efficacy when the patient switched from the branded drug to our product. Though it's too early to quantify the impact this change will have on us in fiscal 2015, we believe we have a number of opportunities to mitigate that impact to some extent. We will continue exploring all of our options with the FDA and have posted an update on our website. We'll be happy to talk more about this and to take your questions later in the call, but I want to refocus on our purpose today, earnings, and also think it's important to think about methylphenidate ER in the context of the strong performance and continued potential of Mallinckrodt Specialty Controlled Substance Generics portfolio. Mallinckrodt has one of the broadest, most diverse generic portfolios in the industry, but importantly we're focused exclusively in specialty controlled substances. With decades of expertise and product spanning 43 different categories, we continue to be a leader in this area and as a leader continually invest in the business, maintaining the infrastructure, portfolio strength and breadth that allow us to respond very effectively to market challenges. For example when the DEA rescheduled hydrocodone combination products, in just six weeks Mallinckrodt had a complete new line of products and was able to manage the significantly more sophisticated material handling and storage requirements needed to comply with Schedule II standards. Notably too, you'll also see that the combined fiscal 2014 net sales of oxycodone and other controlled substances were up an impressive 27%. Now turning to branded products. OFIRMEV is the cornerstone of our hospital platform. Contributing $66 million in net sales in the fourth quarter, OFIRMEV posted revenue growth of 128% over the same quarter in the prior year. We see significant opportunities to continue to drive OFIRMEV volume growth in fiscal 2015 through a focus in three areas

[Matt Harbaugh:]

Thanks, Mark, and let me add my welcome to everyone on the call. I'll provide comments on our fiscal fourth quarter results. As John mentioned earlier, all results are compared against our performance for the same period in the prior year. And as a reminder, we have a September fiscal year-end. Our fourth quarter ended on September 26, 2014. As Mark previously indicated, fiscal 2014 was a milestone year for Mallinckrodt, both strategically and financially. We ended the fiscal year with good momentum and are positioned well for 2015. Net sales for the fourth quarter of fiscal 2014 were $789 million versus $545 million, representing operational growth of 45%. Specialty Pharmaceuticals drove these results. Fourth quarter net sales in this segment were $565 million, representing operational growth of 85.7%. Brands net sales were $214 million achieved largely through the addition of Acthar and OFIRMEV to our portfolio. As Mark mentioned, OFIRMEV posted very strong results in the quarter, with $66 million in net sales versus $29 million last year, a 128% increase over the same period in the prior year before Mallinckrodt acquired the asset. Acthar net sales for the six weeks in the quarter during which we owned the product were $123 million. As Mark mentioned earlier, our specialty generics and API business had a very strong quarter with net sales of $351 million versus $247 million, representing 42.2% year-over-year operational growth. Notably, oxycodone and other controlled substances continued to post increased net sales and profitability compared to the prior-year quarter, more than offsetting the weakness we've continued to see in hydrocodone throughout this fiscal year. The overall improvement and broad strengthened Specialty Controlled Substance Generics coupled with contributions from OFIRMEV and Acthar led to excellent results for this segment. Global Medical Imaging net sales for the quarter were down 6.7% on an operational basis, in line with our expectations. As you saw in the release, we reported non-cash impairment charges of $356 million in our fourth quarter primarily related to Global Medical Imaging segment goodwill and intangibles initially recorded as a result of Tyco's acquisition of Mallinckrodt in the year 2000. Additionally, we recently settled a legacy royalty dispute related to Acthar on terms favorable to the company and we continue to work to resolve other ongoing litigation matters as listed in our public filings. Total company adjusted gross profit was $488 million, up $227 million with adjusted gross profit as a percentage of net sales of 61.8% compared to 47.9% in the prior-year quarter. Our adjusted gross profit has continued to strengthen throughout 2014 and we expect this trend to continue with the ongoing mix shift towards higher-margin Specialty Pharmaceutical products. Selling, general and administrative expenses or SG&A for the quarter were $281 million compared to $136 million. SG&A in the quarter included $45 million in transaction and legal expenses, as outlined in our press release today. Excluding these expenses, SG&A was in line with our expectations for the quarter and reflects the addition of the OFIRMEV and Acthar commercial teams. Turning to restructuring, we incurred $75 million in charges during the quarter associated with both the previously announced base Mallinckrodt program and restructuring associated with our fiscal 2014 acquisitions. Under the base Mallinckrodt program, we incurred charges of $29 million. And our 2014 acquisitions resulted in restructuring charges of an additional $46 million. Portions of these charges relate to termination of the third-party agreement and also restructuring in our autoimmune and rare diseases business. In addition to pairing SG&A and cost of goods sold, we continue to proactively trim lower-margin revenue products from our portfolio aimed towards driving long-term profitability. Since the inception of our base Mallinckrodt restructuring program, we've taken over $89 million in charges, driving efficiencies and increasing profitability long term. Total company operating loss for the quarter was $357 million compared to income of $55 million in the prior year. Keep in mind that our operating income reflects the impacts of restructuring, transaction and legal cost and impairment charges. Excluding these impacts, operating income was $105 million, up $35 million, driven by the strength of the Specialty Pharmaceuticals segment and ongoing restructuring savings. Interest expense in the quarter was $38 million compared to $10 million due to debt incurred from the recent acquisitions. Please note we only had a partial quarter of Acthar-related debt on our balance sheet. So we expect interest expense to be higher in future quarters. Our non-GAAP effective tax rate in the fourth quarter was 22%. Notably and as a reminder, last month we announced our fiscal 2015 guidance to a range of 20% to 23%, reflecting our ongoing focus on driving our tax rate lower over time. Fourth quarter adjusted diluted earnings per share were $1.68, up 71.4% compared to the prior-year quarter. Fiscal year 2014 adjusted diluted earnings per share were $4.94 compared to $3.13. Before we open up the line for questions, I'd like to finish by highlighting a few key balance sheet items. At the end of the fourth quarter, we had $708 million in cash on hand compared with $276 million at September 27, 2013, reflecting the strong underlying performance of our business. And also notable, our net debt leverage further decreased to 2.8 as of September 26, 2014, down from 3.1 in mid-August following the close of Questcor. You'll also see in the release today that our fiscal year-end net inventory value was down just slightly, about $7 million year-over-year. But when you consider that this includes the addition of roughly $64 million in combined inventory for OFIRMEV and Acthar during the year, it's easier to fully appreciate the importance of this achievement. When you compare base Mallinckrodt inventory levels year-on-year, the balance becomes materially lower, a direct outcome of our ongoing focus on tight management and restructuring in key areas of our business to maximize cash flow, while maintaining strong customer service levels. Finally, with the addition of Acthar to our portfolio and the ongoing seasonality of Mallinckrodt's base business, while we expect fiscal 2015 to be higher in both net sales and profitability than the prior year, the first half of the year is anticipated to be lower than the back-half. In particular, our first fiscal quarter sales tend to slow in our specialty generics and API business in addition to the effect of the agency's reclassification of methylphenidate ER, and our second quarter will likely be impacted as Acthar historically tends to be slow during this timeframe. Thank you. Now I'll ask the operator to open up the line for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of David Maris of BMO Capital Markets.

[David Maris:]

A couple of questions. First, Matt, why do you not have the '15 updated guidance yet? And should investors be thinking about this that not only will you sell either next to no product or very little product, but also that wholesalers will send the product back and you'll have a cash charge related to that? And then secondly, oxycodone now had two $50 million-plus quarters. Is that run rate sustainable for the full year next year?

[Mark Trudeau:]

I think as we have indicated before, given the fact that there are a fair number of moving parts in our business and given the fact that just a week ago we got this information of methylphenidate ER and of course we're taking some action there, general thinking here is that it's a little too early for us to give updated fiscal '15 guidance. Keep in mind that we've got a very broad and diversified portfolio now and while the methylphenidate ER news was certainly a downside for us, we've got a number of other potentially very promising things going on in the overall portfolio. Keep in mind we've only owned Acthar now for not even a full quarter just yet. We've got some very positive developments we're expecting around the commercial plan around OFIRMEV. We've also got the whole rescheduling in hydrocodone that's going on, and that's just now starting to play out in the marketplace. So we've got a number of positives certainly that are evolving as we speak. And we've also got this very new potential negative around methylphenidate ER. So we need to let this play out for a little bit longer. And certainly as it plays out a little bit further into the year, we'll be giving updated guidance as appropriate.

[Matt Harbaugh:]

As it relates to guidance, you almost started to answer your own question there a little bit as it relates to trying to figure out what the wholesalers are going to do. While this may feel like a month ago to you, it occurred just last weeks. So we need to spend more time really digesting how this is going to play out. We're also obviously in the middle of our first quarter. So we had good visibility as to how the quarter is in holding, but we still got plenty of time here. I do want to make sure, though, that as you're thinking about your models, you need to significantly modulate on methylphenidate ER. We obviously were selling in October and early November, and so we're going to have to figure out what the impact is here as we close out our first quarter. As it relates to oxycodone, as we've said before in previous calls, one of the things were this time last year here in Ireland, as a matter of fact, we had been talking about oxycodone and we had said we were taking water on the boat from a pricing penalty viewpoint. And we certainly did that during the first half of the year and we said, look, give it time and we'll start to see benefit from that in the back-half of the year. And so you're seeing that benefit. So in answer to your question, the nice thing is, is we should be seeing some benefit here as we move forward just because we did have those pricing penalties last year, whereas this year we will not. We saw a great success, which was highlighted in the release around our other controlled substance line as well. On that particular line item, we're going to start anniversarying some of the numbers, because obviously the activity around that was in our fourth quarter and first quarter of last year and the penalties were nowhere near as extreme. So the Specialty Controlled Substance Generics business really had a strong fourth quarter. We'll definitely see some of that roll into our first quarter. And it remains to be seen, to Mark's point, around how hydrocodone plays out.

[Operator:]

Our next question comes from the line of Gary Nachman of Goldman Sachs.

[Gary Nachman:]

Just a follow up on methylphenidate ER. Could you give us some order of magnitude of the potential impact? What were you thinking in the original guidance? How much was that going to contribute during the year? And what are the rough gross margins for generic Concerta, so we could think of the potential bottomline impact as well?

[Mark Trudeau:]

We need to put this in perspective. If there were to have impacted us a year ago, it would be dramatically different than the way we're talking about it now. That's really the beauty of the whole acquisition strategy and the diversification of our portfolio as well as the enhancement of our overall Specialty Controlled Substance Generics portfolio. You saw what we posted for 2014, and it was $210 million. Given the fact that there's been relatively no change in the marketplace, you could roughly expect on a 2015 go-forward basis it'd be in that same order of magnitude. So while it's a dramatic impact on the methylphenidate business and has an impact on our Specialty Controlled Substance Generics business, the fact that we've got this well diversified portfolio gives us a number of levers now to potentially offset at least some of this impact. And in general, methylphenidate ER and if you look at our Specialty Controlled Substance Generics portfolio in general, while we don't give individual product margins, our controlled substance generics portfolio tends to come with slightly higher margins than our overall corporate average.

[Matt Harbaugh:]

To follow up on that, Gary, clearly the FDA's decision negatively impacts this product and it does impact shareholder return. But you can take it home to the bank that we're not resting on our laurels, to Mark's point. We're looking at every opportunity to mitigate. I would go back to what I said at our Investor Briefing a month ago before I knew how this was going to play out and at the Investor Briefing, I had said that we had exceeded our guidance on methylphenidate ER in the fourth quarter and that we're hopeful for it to be in the range of what it had been in fiscal year '14. And you can go back and see that. So that was kind of what we were hoping at the time. But again, it's early days and there's a lot of moving parts in this business. And to Mark's point, we're blessed that if something like this that was going to so negatively impact us, we can mute it more so now than we ever could before this time last year.

[Gary Nachman:]

And then on Acthar, could you give us a sense of the vials shipped and new paid Rxs reach of the major indications than what Questcor used to give? That will be helpful.

[Mark Trudeau:]

The general way to think about this, Gary, is as we said in the prepared remarks, overall year-on-year Acthar growth has continued to be in the double-digit range. We posted 19% total prescription growth for the full year. And as we look forward, much like we said in our Investor Briefing, we fully expect that Acthar is going to continue with double-digit growth. Typically we're seeing a lot more growth, high double-digit growth in the rheumatology area. Pulmonology which is a new area of us, which essentially was relatively modest last year, is starting to show some very promising growth as well. And then neurology and nephrology, the growth rates there tend to be in the kind of low single-digit range. And that's pretty consistent with what our expectations are. We're actually very pleased with the whole Acthar addition to our portfolio. We think this is going to be a very important product for us going forward. The fact that it's got such a long durability in front of it and the fact that there's so much untapped opportunity really gives us a lot of excitement about this product on a go-forward basis.

[Matt Harbaugh:]

And following up on Mark's comments, the other thing I would add, Gary, as it relates to Acthar is one should not take what we posted in revenue and then do a lot of extrapolation to figure out what the quarter is, because obviously it was in Questcor's hands until we closed. Questcor worked on a calendar year basis. We work on what's called a 454 basis. And under Mallinckrodt ownership, we use the 454 basis. That's why I went out of my way in my prepared remarks to talk about the fact that we closed not on September 30th, but before that. So there's a lot of apples and oranges going on in there. I cannot wait to get through the first quarter, so that it's clean and it's on a Mallinckrodt basis. But just I want to encourage everyone just to understand that there is a lot of ups and downs and all around. It's a big if then statement. So generally we're pleased with the performance of Acthar throughout the quarter and we're very interested to see how it plays out in the coming year.

[Operator:]

Our next question comes from the line of David Amsellem of Piper Jaffray.

[David Amsellem:]

Just had a couple. So first on OFIRMEV, at the Analyst Day, you had commented on some impact to volumes related to the price reset. So I wanted to get your sense of how volumes are trending since then and are they recovering, are they trending upward and what are your thoughts going forward. And then secondly, just on I guess a hypothetical on Concerta, which is that if the FDA ultimately doesn't reverse course or isn't convinced to reverse course, would you consider over time just selling it as just a non- substitutable generic maybe along the lines of, say, what Impax does with their OPANA ER product? How do you think about that?

[Mark Trudeau:]

Let's talk about OFIRMEV at the start. I mean we're very excited about the prospects of this product going forward. You saw the strong results that we posted in the quarter, and it's clear that the price reset strategy that we established earlier in the year is paying dividends in a big way. As expected, we did see some short-term reductions in volume on the order of what we showed in the Investor Briefing. It's kind of plateaued, if you will, or troughed at about 20% versus peak. But we're very encouraged to see that that's starting to recover quite nicely. We've had a number of our major accounts start to return to growth. And so really this is playing out very much as we expected. And I think the other very compelling thing about OFIRMEV, as you see this probably posted pretty routinely at a number of publications that are documenting now and demonstrating the value of this product, particularly in its ability to potentially move patients out of surgery and into ambulatory situations much faster. So again, we think this is a really excellent product. And we also are very intrigued by the fact now that we're going to combine OFIRMEV with XARTEMIS in the outpatient setting with our office-based sales team. One of the opportunity is we believe there is a space for OFIRMEV that hasn't really been tapped is in ambulatory surgery centers and outpatient surgery centers. Those types of outlets were not covered previously by our hospital sales team and now our office-based sales team will cover that audience as well. So again, we see this continuum of care opportunity between OFIRMEV and XARTEMIS that's complementary to both products. So we're quite excited about the prospects for OFIRMEV. With regards to your second question, methylphenidate ER, there are certainly opportunities to do what you described, David. We're investigating all different options for maximizing value for that product going forward. Obviously what would be in our best interest is to be able to have dialog with the FDA and have the appropriate discussion on the scientific merits of our product versus the [technical difficulty]. But we're also exploring other options to maximize value if in fact we're unable to get the FDA to reverse their position.

[Matt Harbaugh:]

Yeah, David, the only thing I would add to that is we do expect the lion's share of the volume growth to occur in the back-half of 2015. And I would just take you back to my prepared remarks as it relates to the calendarization of our results that the weighting of both our sales and our earnings per share profit will be more heavily weighted to the back-half of the year versus the first half of the year. Part of that is Acthar, which as I mentioned earlier is likely to be slow in our second quarter. Part of that is the Specialty Controlled Substance Generics business tends to slow in our first quarter and now with methylphenidate ER impact that's going to be in there. So OFIRMEV is part of the directional guidance that we're giving on a full year basis as it relates to calendarization.

[Operator:]

Our next question comes from the line of Sumant Kulkarni of Bank of America Merrill Lynch.

[Sumant Kulkarni:]

First one is on methylphenidate ER. How confident is the company that it could submit the required bioequivalence that the FDA has asked for within six months? The second is for Matt. Is this a good way to think about SG&A absolute dollars going forward on a quarter basis, the last reported quarter that is? And a bigger question for Mark. You mentioned you're looking at a wider set of opportunities. Could you put some color around that? Is hospital-based product still among your top priorities there?

[Mark Trudeau:]

Let me take the first question with regards to methylphenidate bioequivalence data. Look, there is no issue with us being able to generate that data. In fact we're sure that's not where the dialog should be. Where the dialog should be is around the experience of the product in the marketplace and the fact that as we stated in the prepared remarks, from an efficacy perspective, this is a product that's highly efficacious. It's been demonstrated in the marketplace. And obviously the FDA has also concluded that it's very safe. The dialog that we believe needs to be focused upon is the fact that when it comes to reports of our product and lack of efficacy, we only have 68 cases out of over 88 million doses where the product is reported to have lack of efficacy when switched from the originated product. So I think there is a lot of compelling evidence to say the FDA really needs to rethink their position based on the availability of the scientific and end-market experience data. So while we can certainly do the bioequivalence work and we're considering that option, we think the dialog needs to start with the data that's available in the marketplace. With regards to the business development activities, let me take that and I'll ask Matt to get to your third question. With regards to business development, as I said, the beautiful thing about what we've been able to do strategically is to diversify our portfolio, which gives us just innumerable benefits. We described some of the financial benefits. Obviously we're very pleased with the products that we've brought onboard because of their potential for growth and profitability and also because of their durability and the fact that they really address some significant unmet medical needs in the marketplace. But furthermore, as a result of the commercial infrastructure that we brought over through both acquisitions, we now have the ability to consider opportunities in the hospital channel and also in some key specialties where Acthar is a product that's used by specialists like neurologists, rheumatologists, pulmonologists and nephrologists. In each one of those instances, we essentially have a single product sales force. So in each one of those specialties, those Acthar specialties as well as the hospital platform, we've got capacity in our commercial infrastructure to add additional products on top of what we have already. So we consider OFIRMEV and Acthar to be foundational assets in those areas, and we would look to add additional products that are either appropriate for the hospital channel and/or build on our pain portfolio and pain heritage as well as build on some of these key specialty areas, particularly in some of the more mature and developed areas, in autoimmune and rare disease like neurology and nephrology, for example. And the other really beautiful thing about this from our standpoint is these tend to be areas, at least several of these, where there are assets available and not a significant number of competitors looking for those types of assets. So we see strategically this broad aperture, opportunities that are available and of course we've got the financial flexibility, the cash flow to be able to access these assets whether they're smaller or larger. And in fact, we also have the ability now to consider not only assets that are immediately accretive, but those that are likely to be rapidly accretive, but may be in their late stage of development. So again, we see a landscape that's much broader and much more attractive than ever before. And of course we're going to continue to be very active in doing business development, because we think we can add value for shareholders and patients in doing so.

[Matt Harbaugh:]

So as it relates to your question to SG&A, if you run the math for last year, it was 28% of sales, which is in our release this morning. But that had a bit of apples and oranges around due to time and space. If you run the math at this point and you take out some of the noise of the one-time call-outs, we're around that 27% range. But if you take it in the context of the $100 million to $125 million Mallinckrodt program that we put in place 15, 16 months ago, if you go back and you look at the history, in the fourth quarter of last year we did $15 million, in Q1 we did $7 million, in Q2 we did $21 million, Q3 $16 million and Q4 $30 million. That gets you to the $89 million in that restructuring program. So you can see it was weighted to the back-half of our year and so that should lead to the incremental savings in fiscal year '15. I would also add in the $55 million that we also announced this morning as it relates to restructuring around both Cadence and bringing Acthar into the fold, that was heavily weighted to our fourth quarter. So $9 million occurred in Q2 and Q3 and $46 million hit in Q4. So the way I would think about it is they've done of restructuring, a lot of it weighted over the back-half of the year and that we should really start to anniversary those savings as we move forward. Our goal all along has been to take it from the upper 20s and take it down as fast as we can. And that's why we're trying to be so clear and where we're in the $89 million restructuring program as well as the $55 million that we took for those acquisitions. So I think you should take that as a sign that we're being maximally aggressive in driving our cost of infrastructure down.

[Operator:]

Our next question comes from the line of Greg Gilbert of Deutsche Bank.

[Greg Gilbert:]

First on Acthar, I just want to confirm that you're deciding to not provide the paid Rxs by indication, so you could let us know on that. And then, Matt, in any way that you can talk about, can you talk about the net sales growth for Acthar for the full quarter? Just want to make sure that you're not suggesting that there's a short-term disruption. Looks like the growth rate implied there is quite a bit lower than it has been in prior quarters. But I may be missing something on that. And lastly, Matt, anything new to discuss on the GMI front as it relates to strategic options you're thinking about?

[Matt Harbaugh:]

As it relates to Acthar, as Mark mentioned earlier, we were happy with the year-on-year growth of 19%. You should not read into whatsoever what I said earlier about the net sales growth. What I was trying to frame for you is, is that it's a bit of an apple and an orange because of the fact that we report on a different cycle than Questcor did historically, and there's always timing in quarters. You can't just divide it out and it just flows that way. It doesn't tend to flow that way. Orders kind of ebb and flow throughout the quarter. We're very happy with Acthar and we're still right where we were at the Investor Briefing when we said double-digit topline growth. That's how we're thinking about that product portfolio. As it relates to future releases of data, it's early days. As Mark mentioned, we haven't even had it in the full for a quarter. And obviously some of that data is available in the public domain. As it relates to Global Medical Imaging, I would highlight for you, we've been saying over the course of the first six months of our last fiscal year that we had been doing a lot of restructuring in the spirit of driving that business focused on cash and underlying profitability. Despite the fact that you saw some incremental pressure in our revenue in the fourth quarter, I find it notable that we did $25 million in operating income in the first nine months of the fiscal year and then we did $21 million in operating income in the fourth quarter alone. So said differently, 42% of all the income generated out of Global Medical Imaging business came in our fourth quarter, and that's a direct correlation with the restructuring that we did earlier in the year. I know you didn't it specifically, but as it relates to the impairment that we took today, we did have two things that impacted the business. And I alluded to these at the Investor Briefing. The two things that really occurred in the quarter, one was on the last day of the fourth quarter, we were notified that we were no longer going to be in a contract with Premier. That was a relationship that we had for 19 years. So that impacted our financials as we moved forward. Additionally, I also mentioned in the Investor Briefing and I know some people heard it, because I got a follow-up questions over e-mail shortly thereafter, we had a third-party supply agreement that was terminated with 12 months' notice. And what I mentioned is that the revenue associated with that was roughly $50 million. It's actually $46 million in our last fiscal year, and we're expecting that to decline as this contract rolls out. That also impacted the valuation as it relates to Global Medical Imaging. Those two things really drove us to the impairment charge that we took in the quarter.

[Mark Trudeau:]

I just wanted to add one other thing on Acthar. We couldn't be more pleased actually with the way this product is performing. It's performing very much to our expectations, and our expectations were high. Furthermore, as we get further into this product, we're seeing tremendous opportunities to enhance the growth of the product, to move into new areas and to invest in some key growth opportunities. So for example, we see rheumatology where there is five indications, pulmonology which is relative new indication. We're significantly increasing our sales force presence in each one of those two categories. We mentioned the fact that we're going to be investing in research and development and clinical affairs activities. We're looking at potentially more than 30 new publications documenting Acthar usage in both the preclinical and the clinical arena in a variety of different indications. And we're intrigued by some of the health economic potential for this product in some key indications. So for us, it's a very exciting opportunity, one where we're going to be investing in heavily, looking to enhance the growth prospects. And again, when you got a product that we believe has such a long period of durability and has such relatively low penetration, we've only penetrated about 3% of the available market opportunity for this drug in the marketed indications, all of these things suggest to us that this is a very exciting product and a very important one for Mallinckrodt going forward.

[Operator:]

Our next question comes from the line of Marc Goodman of UBS.

[Marc Goodman:]

A few things. First, can you give us the full quarter of Acthar sales as it you owned it for the whole quarter? Second, can you talk about your expectations for the operating margins in the imaging business for this year, I guess which probably the last year you own it. But how do we think about the improvements we saw, a lot of improvement in the fourth quarter, as you just talked about? But how much more improvement should we see, or is this basically what we're going to get? And then the FDA clearly has a stance on Concerta. We're just curious if there is a more pervasive issue going on there at FDA. Are they looking at other controlled substances or anything like that or was this just a one-off type of issue?

[Matt Harbaugh:]

As it relates to Acthar, look, I understand the desire to get that data. You'll get a full quarter here soon enough. As I mentioned earlier, there's a lot of timing involved in there. Directionally speaking, Marc, we were happy with the performance of the product in the quarter and we saw the kind of growth that we've seen historically. As Mark mentioned earlier, we were really happy to see some of the results in pulmonology and rheumatology. The issue we have, as I mentioned earlier, is we work on a 454 schedule. They worked on a calendar basis. And then there is just timing flows in there. So it becomes too many if then statements to do that. And obviously it wasn't under our ownership until midpoint in the quarter as well. As it relates to operating margins in Global Medical Imaging, I did mention that we did have those two events that led us to the impairment charge that we took this morning. As it relates to the Premier agreement, that will have a modest impact, I would say, in fiscal year '15 on the margins. It certainly would be negative. The supply agreement that we had literally was a no-margin or next to no profit. So that will not have an impact on the operating income of Global Medical Imaging. It's a bit of a call-out. The issue there is that the product represents about half of the production at one of our facilities. And so it's more of an absorption issue from a cost of goods sold issue than it is a revenue or really truly a bottomline hit. Albeit we'll do everything we can to mitigate what it means to the bottomline. So I would say we're really pleased with what happened in the fourth quarter with our Global Medical Imaging business. The team did a good job managing a lot of the restructuring and we saw benefit in the fourth quarter. But I wouldn't get too aggressive with the operating margins in that platform because of the headwinds that ultimately led to the charge that we took.

[Mark Trudeau:]

With regards to the FDA situation, so clearly this caught us by surprise and likewise a fair part of the market by surprise as well. But from our standpoint, certainly from a Mallinckrodt standpoint, everything else appears to be business as usual with the FDA. I mean keep in mind that we have regulatory agencies in our organization whether it's FDA or DEA or NRC or any of the other government regulatory agency. It's just a course of business. We fully expect that given the fact that we operate in some of the most highly regulated aspects of the pharmaceutical industry and we're quite comfortable there given the fact that we've had such a long history in managing these challenging substances. In this particular situation, it was a surprise. And normally, when the FDA does make a change, they offer industry an opportunity to review and comment and in fact that was the first time that we'd heard of this issue really when we got the revised draft guidance that also gave a window for a review and comment. So therefore we were quite surprised when a couple of days later the FDA took this unilateral action, which is why we've reacted in a strong way. Again, we really think we're on the right side of the scientific argument in this case. And frankly, we think it's in the best interest of both patients and shareholders to really contest this issue. But across the board, across the Mallinckrodt portfolio, we see very much business as usual with regards to our regulatory agencies, whether it's FDA or any of the others. But again, I really want to put this in perspective. Methylphenidate now is a very important product to us and a very important product to our Specialty Controlled Substance Generics portfolio. In the broader scheme of things, it's part of a well diversified portfolio. And of course we're going to do everything that we can, as we've indicated throughout the call, to mitigate the challenges that the FDA action currently has placed in front of us. So let me just take this opportunity to now wrap up. And I want to thank all of you for your questions.

[Mark Trudeau:]

As I said earlier, fiscal 2014 was really a landmark year for Mallinckrodt. As we look to the future, we'll continue to implement strategies that will capitalize on the diverse new growth platforms we've created. And in fiscal 2015, we'll focus on five key things. One, drive continued growth in prescription volume of Acthar. To do this, we plan to invest, invest in documenting clinical experience and health economic outcomes, invest in R&D, medical affairs and commercial resources to further build data in approved indications, and invest in streamlining the reimbursement process and increasing payer engagement at the policy level. Two, drive volume growth for OFIRMEV. We plan to invest here as well and resources supporting increasing the number of hospitals utilizing the product, expanding use of the product into other surgical specialties and procedures and by the increasing the number of vials prescribed for patients. Three, drive further growth margin expansion, especially controlled substance generics by building on the capabilities and strengths we have as a long-term market leader in this area. Fourth, continue to focus on refining our business and operating a lean and efficient business model. And five, transform our science and technology platform to advance our internal pipeline and seek opportunities that are good strategic and financial fits. We're confident that these strategies and capabilities will drive sustainable growth, improve our profitability and continue to deliver long-term value for Mallinckrodt patients and our shareholders. In closing, let me remind you that today's earnings release is available and a replay of this call will be available on the Investor Relations section of our website. Thank you for your interest in Mallinckrodt and for joining us on today's call.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.