Shares in Mayne Pharma Group Ltd (ASX: MYX) have plunged as much as 15% to $1.37 this morning, after a media report in the U.S. overnight suggested that the company was not complying with a US Department of Justice (‘DoJ’) investigation into alleged price collusion among U.S. pharmaceutical companies.

Mayne released an announcement this morning declaring that the article was incorrect. It also stated that Mayne is cooperating with the U.S. DoJ and that the investigation was not expected to have a material impact on profits.

Price collusion?

The allegation of price collusion (companies agreeing to set specific prices) is a serious one, complicated by the political situation with customers understandably outraged by the repricing of a number of vital drugs in the U.S. in recent years.

Some readers will be aware of the egregious price rises that users of Mylan’s EpiPen (prices up 400% since 2007) and Turing Pharmaceutical’s Daraprim (up from $13.50/pill to $750/pill) have suffered in recent years. Actions such as these have made the issue a very hot topic in the U.S., with the public and justice officials highly sensitive to instances of possible pharmaceutical wrongdoing.

Perhaps fortunately for shareholders, Mayne Pharma has not been accused of these types of price rises, and has instead been subpoenaed for information about its marketing, pricing, and sales practices for its doxycycline hyclate and potassium chloride powders.

I do note however that the company has not denied wrongdoing, which is usually the very first action taken by a company which falls under a regulatory cloud. It was also quick to assure shareholders that the investigation will not have a material impact on future earnings, even though ‘no assurance can be giving as to the timing or outcome of the investigation’ (emphasis mine).

Foolish takeaway

The outcome of any investigation is largely unknown to shareholders, and can take quite some time to come to fruition – whether the company in question is guilty or not. If you have faith in management, my instinct would be to grit your teeth and weather the uncertainty. Mayne has a good financial position with $50 million in cash and minimal debt, which ameliorates some of the risk.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.