March 4, 2019

Opportunity Equity Update for Week Ended 3/1/19

Mallinckrodt Up on 4Q Results While Intrexon Down on 4Q Earnings

Last week, the Opportunity Equity strategy lost 1.20%, underperforming the S&P 500’s 0.46% rise (Exhibit 1). The strategy ended the week up 19.88% YTD, or 762 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 3/1/191

Time Period Opportunity Equity S&P 500
Last Week (2/22 – 3/1) -1.20% 0.46%
MTD 0.18% 0.70%
QTD 19.88% 12.26%
YTD 19.88% 12.26%
Inception (annualized since 6/26/00) 7.17% 5.62%

Source: Bloomberg, Miller Value Partners

Mallinckrodt plc (MNK) crossed above the 100 and 200-day moving average after announcing 4Q results and providing 2019 guidance. The company had revenues of $835M and non-GAAP EPS of $2.18 in 4Q. For 2019, the company expects specialty generics and Amitiza to generate top-line growth of 1-4%, with EBITDA of $300M. In the branded segment, the company expects Acthar to continue to bring in revenue >$1B, top-line revenue growth of 1-4% and expects very limited impact from generic competition of INOmax. Adjusted EPS is guided for $8.10-8.40. CCP-1x data should come available in the coming weeks and Acthar has read outs in RA and MS expected in the back half of the year. Endo International plc (ENDP) announced strong 4Q results and provided 2019 guidance. The company reported revenue of $786M versus consensus of $741M and EPS of $0.75, ahead of consensus of $0.59. For 2019, the company expects to bring in EBITDA of $1.24-1.34B and EPS of $2.00-2.25 compared to consensus of $1.33B and $2.66, respectively. The company also announced the termination of its acquisition agreement with Somerset Therapeutics due to delays in receiving approval from authorities in India. Alexion Pharmaceuticals (ALXN) presented at the SVB Leerink Global Healthcare Conference last week where it disclosed that 13% of Soliris PNH patients were already enrolled in OneSource for Ultomiris, with 8% already on therapy. This steady progress lends confidence to ALXN reaching its goal of converting 70% of patients of Soliris to Ultomiris within 2 years of launch. Amgen filed three IPRs against three separate Alexion Soliris patents but they have not started their P3 in PNH yet and most analysts expect ALXN’s patents to hold-up. Inc. (AMZN) crossed above the 100-day moving average. It was reported that Amazon is planning to open dozens of grocery stores across the US with a wider variety of products and reportedly lower prices than their current grocery store offering at Whole Foods. There was minimal news on RH (RH).

Exhibit 2: Significant Contributors to Performance, 2/22/19 – 3/1/19

Name Type Return
Mallinckrodt plc Equity 15.9%
RH Equity 6.5%
Endo International plc Equity 7.0%
Alexion Pharmaceuticals Equity 6.2% Inc. Equity 2.5%

Source: Miller Value Partners

Intrexon Corp. (XON) crossed below the 50-day moving average after releasing 4Q results. The company reported 4Q sales of $43.2M ahead of the Street at $42.6B with EPS of -$2.59 below consensus of -$0.34. The company currently has $220M in cash which management expects to last through 1H20. The company noted that they expect to receive an opinion that “there is substantial doubt about its ability to continue as a going concern” in the 10-K filing. Brighthouse Financial Inc. (BHF) crossed below the 200-day moving average. Brighthouse announced that CFO, Anant Bhalla, was resigning from the company to pursue new opportunities. Conor Murphy, chief operating officer, was appointed to serve as the interim chief financial officer. Genworth Financial Inc. (GNW) fell after its acquirer, China Oceanwide, disclosed its auditor resigned on Friday. Homebuilders declined as the Commerce Department reported housing starts fell to 1,078k in December vs. 1,214k in the prior month and expectations of 1,256k, led by multi-family starts down 20.4% to 320k and single-family starts down 6.7% to 758k. Lennar Corp. (LEN) crossed below the 200-day moving average while Pulte Group Inc. (PHM) fell below the 200 and 50-day moving average.

Exhibit 3: Significant Detractors from Performance, 2/22/19 – 3/1/19

Name Type Return
Intrexon Corp. Equity -38.8%
Brighthouse Financial Inc. Equity -9.5%
Genworth Financial Inc. Equity -10.7%
Lennar Corp. Equity -6.4%
Pulte Group Inc. Equity -4.4%

Source: Miller Value Partners

1The performance figures reflect the results of a representative account net of management fee and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

©2019 Miller Value Partners, LLC

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