Why have Mayne Pharma Group Ltd shares performed so well in 2018? 

The Mayne Pharma Group Ltd (ASX: MYX) share price climbed 6.8% on Monday despite the company making no announcements. As there is a strong correlation between the share prices of Teva Pharmaceuticals and Mayne Pharma Group, it’s believed that the rally in Mayne’s share price can be attributed to upward movements in Teva’s share price.   

Mayne Pharma Group is a pharmaceutical company focused on the production of generic pharmaceutical products. Generic pharmaceutical products comprised 78% of total revenue in FY17, while the US region accounted for 94% of total revenue in FY17.  

Mayne Pharma Group recorded net profit after tax (NPAT) of $88 million and revenue of $503 million in FY17.

This means that NPAT increased by 137%, while revenue increased by 114% in FY17. The substantial increases in revenue and NPAT were predominantly the result of two major acquisitions, being the acquisition of 42 generic products from Teva/Allergan and the acquisition of dermatology foam products from GSK.  

However, a major headwind facing Mayne Pharma Group is the price declines of generic drugs. This price deflation has been driven by several factors such as the low barriers to entry associated with the generic pharmaceutical industry and the consolidation of wholesalers which has increased their buying power.

Moreover, the price declines are expected to continue into the foreseeable future which means that Mayne Pharma Group has to continually invest in research and development to develop new generic drugs to alleviate the earnings shortfall created by the price deflation of generic drugs. 

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 Motley Fool contributor Andrew Chen has no financial interest in any company mentioned. 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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