Why the Mayne Pharma Group share price is going gangbusters

Credit: Anoto AB

Shares in pharmaceutical business Mayne Pharma Group Ltd (ASX: MYX) are around 30% higher in morning trade to $1.92 as investors cheer its recent US$652 million acquisition of a portfolio of drug products.

The company has acquired 37 approved and five FDA filed products from US/Israeli pharmaceutical giant Teva for a price that represents less than 6x projected FY17 EBITDA for the whole portfolio.

Mayne stated that the acquisition will be “very significantly” accretive to cash earnings per share in FY17 and the company’s ebullience is shared by investors as the stock surged to new record highs today.

It also stated that the acquired portfolio is expected to contribute sales of US$237 million in FY17 with gross margins of more than 50% in what is a transformational acquisition for the business. The group will fund the acquisition with debt and a $601 million renounceable entitlement offer, alongside a $287 million share placement to institutions.

Teva Pharmaceuticals as the vendor is looking to raise and save cash as it attempts a business restructure aimed at growing its own profitability.

As part of that process it recently pulled the plug on funding it was providing to another ASX-listed business in Mesoblast limited (ASX: MSB). Subsequently Mesoblast shares have tanked as it’s left with a giant funding gap to plug, although management has been unable to provide any detail as to how it proposes to fill it.

Mayne Pharma was growing strongly prior to its recent acquisition and has attractive margins alongside the traditional tailwinds of the healthcare industry. Borrowings stood at $64.3 million as at 31 December 2015, which looks moderate at roughly just 2x net cash flows from operating activities for the six-month period ending 31 December 2015.

Investors’ eyes will now be firmly fixed on the future and whether it can deliver on its ambitions for its new drug portfolio. In this regard the business looks one for the watch list.

3 Rotten Shares to Sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.