It hasn't been a great end to the week for shareholders of Mayne Pharma Group Ltd (ASX: MYX). In morning trade the growing pharmaceutical company's share price has plunged 22% to $1.08. This leaves it just a touch above its 52-week low.
Today's decline appears to relate to a report on Reuters that reveals that 20 U.S. states have filed a lawsuit against six pharmaceutical companies including Mayne Pharma, Mylan, and Teva Pharmaceutical. The lawsuit alleges that the companies conspired on pricing of two common generic drugs.
The two drugs involved in Thursday's lawsuit are doxycycline and glyburide. Doxycycline is an antibiotic used in the treatment of infections caused by bacteria and protozoa. Glyburide is used for the treatment of diabetes.
Of the two drugs in question, doxycycline is the one which Mayne Pharma is alleged to have manipulated. According to the report, the price for 500 doxycycline tablets rose from $20 in October 2013 to $1,849 by May 2014.
Both Mylan and Teva have denied the allegations. A Teva spokesperson stated that the company has "not found evidence that would give rise to any civil or criminal liability."
Is this an overreaction?
I must admit to being extremely surprised by the sell off today, especially as the shares of Mylan and Teva Pharmaceutical didn't move an inch on the news overnight.
Mayne Pharma's management has come out this morning to acknowledge the news and once again reiterated its view that the "investigations and the legal proceedings will not have a material impact on its future earnings."
Whilst the prudent thing to do would be to wait for the investigation to conclude, I would be tempted to pick up shares on this weakness. I see Mayne Pharma as a great long-term investment thanks to its lucrative portfolio of drugs.
