Mayne Investment Thesis

I thought I'd post my notes for my MYX investment thesis. I'd love to hear everyone's thoughts, and any potential considerations I've missed. I'll start with a brief summary of the business. Here are the basic figures:
~$600m MC
FY20 $460m revenue (down 13% YoY, which has been declining for 3-5 yrs)
EBITDA $80m
Positive operating cashflow of $100m
Majority of their revenue is from the US market. (~91%)

There's 3 aspects to the business, generic products, contract services and speciality products (recent focus on women's health). So the business has traditionally focused on it's generic products segment which has been stagnating in growth. Over the past couple of years there's been a shift in priorities to the speciality products. This is a big positive for Mayne Pharma because branded drugs have patents that last 10-20 years, so the earnings stream from this division will be far more predictable than those of the generics business.


The main focus for me is their NEXTSTELLIS (E4) product. It's a female contraception pill that is likely to cause a significant rerate short term. It's at the latter stages of FDA approval, with results due by March 2021. In terms of the potential upside to revenue of the product, "Mayne Pharma said that the product is expected to be EBITDA positive in its first full financial year following approval with peak net sales potential in excess of US$200 million per year. Additionally, the TAM is US$4B. With the successful launch of NEXTSTELLIS alone, the revenue would be over ~$700 million. Typical pharma revenue multiples range from 2.5x - 10x. Mithra in comparison is trading on a ~9x multiple right now. If we're conservative and use a 3x revenue multiple, that gives us a MC of >$2B. Assuming the no of shares stays the same, we're looking at a SP of $1.23. This is around the SP from late 2018.

I've read through the actual clinical trials and they look really promising to me. Very selective drug with a limited side effect profile. The additional advantage of the NEXTSTELLIS product comes from the reduced rate of clotting. This is really important for a subset of contraception users.


In terms of their management, the team is quite experienced. The general consensus from this thread is their CEO Scott Richards is well respected within the industry and a safe pair of hands. However, there's quite a lot of negativity towards Roger Corbett (a dinosaur) who's been on the board as Chairman since 2010. Impressively he's had a lot of retail experience and was even the CEO of Woolworths Limited at one stage. Overall I'm fairly neutral on the management team.

I've entered a smaller position around this 35-36c range, and I'll look to top up in the low 30s off the back of any volatility. I have a short term target price based on the potential rerate from NEXTSTELLIS (~$1.20) and another target based on a longer term outlook (~$2.00).

References: https://*********.com.au/mayne-pharma-mithra-introduce-next-generation-oral-contraceptive/https://www.livewiremarkets.com/wires/six-stocks-we-re-happy-to-be-holdinghttps://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02291572-3A552154?access_token=83ff96335c2d45a094df02a206a39ff4