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Is it time to buy shares in Mayne Pharma Group Ltd?

The share price of pharmaceutical company Mayne Pharma Group Ltd (ASX: MYX) has had a solid start to 2018 rising 5.8% to 73.5 cents. The share price has now bounced 24.6% off its late November lows of 59 cents when Mayne issued a disappointing trading update at the company’s AGM which saw a sell off.

The large share price gains over the last several weeks for pharmaceutical companies operating in the generics space has occurred after the World’s largest generic drug manufacturer Teva announced a restructuring plan where it planned to cut 25% of its workforce and suspend dividends on its ordinary shares. While the recent gains are good news, these companies still have a long way to go to recover the losses of long term shareholders.

If you examine a 1 year chart comparing the share price movements between Teva and Mayne you can see a strong correlation in movement. The significant share price declines of 2017 for generic drug manufacturers was attributed to ongoing price deflation driven by the consolidation of U.S. buying groups and aggressive competition within the generics market. Mayne’s trading update in late November showed that group revenue to the end of October had declined by 12% to $151 million compared to the prior corresponding period. The company’s largest division, the Generics Product Division, saw its sales fall by 10% to US$88 million on the prior corresponding period.

 

Source: Google Finance

Time to buy? 

Mayne is well positioned to address the ageing population, increasing rate of chronic disease and rising demand for generics to lower the costs in healthcare. The company expects to receive FDA approval for 6 products targeting markets with sales of $US500 million in FY18. An even stronger pipeline of product launches is anticipated in FY19. However, with Teva announcing its quarterly earnings on February 8 and Mayne releasing its half yearly results on February 23, I think it is better to be on the sidelines waiting for the numbers before initiating a position.

Short interest in Mayne remains high and has even increased over the holiday period to 7.95% as at January 5. In the meantime, investors might want to look at CSL Limited (ASX: CSL) and Resmed Inc. (CHESS) (ASX: RMD) for exposure to the healthcare sector on the local market.

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Motley Fool Contributor Tim Katavic owns shares of CSL Limited. The Motley Fool Australia has recommended ResMed Inc. 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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