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Mayne Pharma Group Ltd shares plunge as it warns of tougher drugs pricing environment

The Mayne Pharma Group Ltd (ASX: MYX) share price has fallen 10% to $1.20 today after the group updated the market as to its operational performance so far in financial year 2017.

The news over its operational performance is seemingly not good and the market has been nervous over the company’s prospects ever since the election of President Trump. While it also disclosed last year that it is subject to a U.S. Department of Justice investigation into the marketing, pricing and sales of some of its generic drug products.

Today the company conceded that sales guidance for its recently acquired $652 million portfolio of generic drugs from U.S. pharmaceutical giant Teva would not be reached due to a “tougher generics pricing environment in 2H 17”.

I warned back in January that a lot of risk to the downside remains in the U.S. over the future of drugs pricing, with Trump reportedly telling the media that the U.S. pharmaceutical industry was “getting away with murder.”

Trump has also claimed his administration will save “billions of dollars” by negotiating harder on what the government was prepared to pay for drug prices.

Just months before Trump’s election, Mayne Pharma completed its $652 million acquisition of drug products from Teva and Allergan to make it a major player in the U.S. pharmaceutical drugs market.

However, today’s sales downgrade is sure to disappoint investors and could be a symptom of a toughening regulatory or pricing environment only set to worsen.

The Teva portfolio now represents a significant part of Mayne Pharma’s business and it’s no surprise to see the shares being sold off based on today’s ominous update.

If you want to invest in the healthcare and pharmaceuticals space I would suggest looking to real market leaders that have non-generic products that are able to command price premiums. Two companies that come to mind are blood plasma therapy specialist CSL Limited (ASX: CSL) or hearing aid specialist Cochlear Ltd (ASX: COH).

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Motley Fool contributor Tom Richardson owns shares of Cochlear Ltd. and CSL Ltd.

You can find Tom on Twitter @tommyr345

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.

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