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Why the Mayne Pharma Group Ltd share price is at a 52-week low

The Mayne Pharma Group Ltd (ASX: MYX) share price hit a 52-week low today as investors jump ship after new U.S. President Donald Trump promised to clamp down on the over-the-top drug pricing charging of pharmaceutical companies in the US.

In an unfortunate piece of timing, Mayne Pharma agreed to buy an extensive portfolio of drugs for US$652 million from Teva Pharmaceuticals and Allergan plc in June 2016 just months before the combative Trump won a shock election victory.

Since the U.S. election Mayne Pharma shares have lost around 35% of their value and the risk that the government may move to renegotiate the rates at which reimburses pharmaceuticals for drugs is one I covered back in January 2017, when Trump claimed the U.S. drugs retailers were “getting away with murder” over price charging.

Even before the election of Trump, Mayne Pharma had conceded that it was subject to a subpoena in June 2016 from the competition division of the U.S. Department of Justice “seeking information relating to the marketing, pricing, and sales of select generic products”. This admission being a red flag that the regulatory environment was set to toughen in the U.S for drugs sellers.

Indeed, on May 1 2017 Mayne Pharma downgraded its full year sales guidance due to a “tougher generics drugs pricing environment in 2H 17”.

It now seems investors are now waking up to the fact that President Trump probably has cause for complaint and political support over the accusations of outrageous pricing.

That’s why I’ve suggested investors avoid Mayne Pharma shares over the last six months in order to let the dust settle, as there’s plenty of risk the Trump administration backs up its tough talk with action in this space.

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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.

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