Mayne Pharma Group Ltd (ASX:MYX): Pricing Pressure In Generics Weighs Heavily On Stock

Australian pharmaceuticals manufacturer Mayne Pharma Group Ltd (ASX:MYX) saw its market capitalisation cut by nearly a tenth after warning investors of pricing headwinds to its generic products business in the US. The company expects full year revenue of $581 million against expectations of $602 million and a core profit below $215 million, while analysts expected $220 million. The US accounts for nearly 95% of MYX’s revenue and generics manufacturers have faced increased pricing pressure in the country due to consolidation among distributors and investigations related to price collusion, by the US Justice Department, among generics manufacturers, which also included MYX. ASX:MYX Mayne Pharma Group Past and Future Earnings by Simply Wall St Nearly a billion spent on acquisition of generic products portfolio of Teva Pharmaceuticals didn’t perform as Mayne had anticipated. For the year ending June 30, Teva products are expected to generate US$94.5 million in core earnings (EBITDA), said the company, citing competitive pricing in the generics sector. Further disclosure on the challenges faced in the US generics sector reflected in it booking a $25 million non-cash charge, downward revision of its product portfolio value, and a reduction of useful life of Teva products to 15 years from 20 years.

On a positive note

In contrast to the generics business, Mayne expects its other businesses—Specialty Brands, Metrics Contract Services and Mayne International—to deliver strong continued growth in the year ahead. Additionally, the company said it’s targeting $12 million (more than 5% of its current core earnings) in cost savings and diversification into new channels such as government and specialty pharmacy to offset the headwinds. A lot of these efforts relate to the company’s patent-protected dermatology brands Doryx, launched in Aug’16, and Fabior and Sorilux, both launched in Jan’17. With currently 8% market share of Doryx and just 1% captured by Fabior, the company scaled its sales team from 60 to 120 to target a larger market share in tetracycline oral acne and topical retinoid acne markets, respectively.

Institutional buying

Although the latest drop doesn’t indicate that there are any strong buyers as the stock made new 52-week low, institutional investors have been buying MYX shares throughout its nearly 60% drop over the past year. ASX:MYX Mayne Pharma Group Recent Insider Trading by Simply Wall St It’s interesting to note that after retail investors, institutions are the largest investors in MYX. While there are dark clouds over its future, the smart money seems to be finding a bargain. Mayne is relocating its CEO Scott Richards to the US to focus on these growth opportunities. It remains to be seen whether Mr Richards delivers on expectations of these big investors; however, as of now, the market as a whole appears to be clearly discounting Mayne’s efforts to boost profitability.