for balance against my assessment, here is an article from afr's joe aston talking down myx.
i dont agree with many of the points he makes:
1) i think the downward price pressure is by m&a of customer pharmacies/ hmo's/ hospitals rather than trump driven, thus it wont necessarily continue downward although it is a risk
2) richards has flagged further m&a of small strategic acquisitions that have a hugh potential to complement the business or create synergy or open portals to new manufacturing texhniques or new customers (eg the recent foam and transdermal acquisitions which are lucrative and niche manufacturing techniques which myx has strategically gained the ip for and can now use to develop further new foam/ patch products for organic growth or can be a manufacturer for other companies)
the article makes no attenpt to be balanced and is clearly an attack on richards and myx. interesting to know what aston's agenda may be. either way it doesnt change my thesis but thought i should share it in case other posters agree with his analysis.
Mayne Pharma finally fesses up to acute generics pain
by
Joe Aston
RCG Corporation might have had 27 per cent of its value wiped in Monday's trading session, but Mayne Pharma earned a solid silver medal with an 11 per cent collapse to $1.20 (by Tuesday night it had recovered to $1.26) after delivering a less-than-beautiful set of numbers to an investor day at Sydney's Sheraton on the Park.
Mayne has been aggressive in denying the effect of its exposure to
Washington's explicit crackdown on huge price hikes in generic medicines, particularly medicines with "low to moderate level of competitive intensity" (Mayne chief executive Scott Richards' description of his portfolio).
Yet on balmy Elizabeth Street, Mayne admitted to institutions that a "tougher generics pricing environment in 2H17… is expected to result in FY17 Teva portfolio generic sales below original guidance". Oh?
This is pretty much what Bank of America Merrill Lynch analyst William Dunlop was arguing in his bearish April 12 note, and consistent with market chatter late last year. Last time
we wrote about Mayne Pharma, back on November 8, it was trading at $1.63 off the back of news the US Department of Justice had launched an investigation into the generic medicines market (Mayne was one of 10 drug companies subpoenaed). They already seem like halcyon days!
Remember that Mayne bought Teva in June last year, telling investors that Teva's net sales (being revenue minus distributors' cost of sales) for the 12 months to March 31, 2016 were $US292 million. Mayne promised to eke net sales of "at least" $US237 million from the asset in 2016/17, a forecast the market (understandably) felt was conservative.
At Mayne's AGM on November 29, management reiterated. "We are confident we will achieve the revenue and earnings guidance provided at the time of the acquisition." At its interim result on February 24, confidence verily oozed: "Teva product acquisition on track with revenue and margins ahead of guidance." They reported first-half revenue (on a pro forma basis) of $120 million, with the promise of integration upside in 2H.
From ahead of guidance – not just meeting it – nearly eight months into the year, to falling short of it not 10 weeks later when, on that same February day, Richards reckoned "pricing hasn't been, again, at the portfolio level, highly volatile… and it probably goes to the assets we purchased."
Mayne's gross margins on generics are still greater than 50 per cent, yet management argues it is experiencing the worst of the price deflation (10 to 15 per cent so far). To us, this stretches credibility.
And all while Mayne commits to increasing its R&D spend from 5.3 per cent of sales to between 8 and 10 per cent of sales, while promising to triple sales to more than $1.5 billion (so an R&D budget exploding from $31 million to a presumptive $150 million), less than half from acquisitions. So then just Santa Claus delivering sleighs full of free cash? We suspect Rudolph will be seeing more acquisitions than his boss might be bargaining for."
