The MYX share price fell 12% today after the company provided an unaudited trading update on its operations for the 10 months ended April 30, 2019.
The company’s operations were negatively impacted by mounting competition in its key generic products segment and pressures in the overall generics market.
About Mayne Pharma (ASX MYX)
Mayne Pharma (ASX MYX) is a 30-year old pharmaceutical company with manufacturing plants in Australia and the USA. They also have global distribution in Australia, North America, Europe and Asia.
It is a technology driven company with expertise in formulating complex oral dose forms. This includes highly potent compounds, controlled substances, modified release products and inherently unstable compounds.
Solid growth in other businesses despite a challenging environment
Management has described the current market scenario as a challenging market environment. Nevertheless, the company has found comfort from the solid growth observed in the other businesses in the first four months of the half-year.
Mayne’s Specialty Brands grew 53%, Metrics Contract Services 21% and International was up 8% compared to the previous period.
Mayne Pharma generics under pressure
Mr Scott Richards, the CEO, said: Our generic business has faced a challenging start to calendar 2019 driven by competitive pressure on our key products including liothyronine and dofetilide.”
“We have also faced typical wholesaler destocking in the retail channel in the first calendar quarter, one-off failure-to-supply penalties emanating principally from products supplied by third-party manufacturers, together with shelf stock adjustments resulting from price changes on some products.”
The company’s update shows that revenue in the generics products business fell 32% during the 4 months period of January – April 19 compared to the same period last year.
Mayne Pharma also disclosed that its gross profit margin fell to 45% during this period. This was down from 57% in the first half of FY19.
The company faced difficulties in its US generics business too. Key problems were customer consolidation, new competitive launches and pricing pressures.
It said the inability to earn a remunerative economic return forced companies to withdraw products and even to forego launches of FDA approved products.
However, the company said it saw a silver lining in the market from the likely exit of competitors. This could provide long term stability to its generics business.
It also foresaw a rebound in generic operations in the fourth quarter underpinned by supply disruptions in the market.
In its strategy review, Mayne Pharma said generics will remain a substantial part of its pharma business for the foreseeable future.
Nevertheless, investors should be aware that it proposes to conduct a detailed review of the carrying value of generic assets on June 30, 2019.
Mayne Pharma has warned that “any impairment would reset the balance sheet,” and that “it would be consistent with many US generic peers who have also made impairments of their generic intangible assets over the last few years.”
Mayne Pharma expects a strong FY20
Its proprietary dermatology and women’s health portfolios are expected to show further traction.
However, deliveries on the pipeline of committed Metrics Contract Services business may improve.
Mayne Pharma results will also receive a kicker from the opportunities in two new generics markets which are devoid of generic product competition. These new markets are projected to have sales of US$150M.
Fundamental changes are happening in the generics market and investors should be wary of volatility in the MYX share price as market turmoil progresses.
There is also the threat from asset write-downs.
At the current MTX share price, the company’s valuations are better than the industry on every measure.
However, the stock is considered to be a higher risk buy at this point, at least until the generics business stabilizes.
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