Mayne Pharma Group Ltd (ASX: MYX) announced today that it has completed the acquisition of generic Efudex (fluorouracil cream 5%) from Spear Pharmaceuticals.
Here are the highlights of the acquisition:
- Acquisition price of US$20 million comprising US$16 million in cash and US$4 million in Mayne Pharma equity
- An additional US$10 million in deferred contingent payments (depending on market conditions over the next three years)
- A long term supply agreement with the current US based manufacturer
- The acquisition is Earnings Per Share (EPS) accretive and has an implied EBITDA multiple in the "low single digits"
- Mayne Pharma will fund the acquisition through a combination of cash and undrawn debt
Rationale
Mayne decided to proceed with the acquisition because generic Efudex has a fairly sizeable and growing market.
The cream treats actinic keratoses (a condition caused by cumulative sun exposure) which, according to the company's announcement, affects 60 million Americans.
The annual market sales for generic Efudex are estimated at US$66 million with volumes growing at 10% per annum over the last five years according to IQVIA.
Spear's generic Efudex (the one acquired by Mayne Pharma) had calendar 2018 Q1 net sales of US$3 million.
Foolish takeaway
Whilst the acquisition won't make much of an initial impact on Mayne Pharma's $1.3 billion market cap, shareholders will be pleased that it is at least earnings accretive and with the potential of some further upside as the market is growing.
Despite that, I'm not a buyer of Mayne Pharma shares. It's been one of the most shorted stocks on the ASX and its share price has lost over 50% of its value in the last two years as the company battled generic drug price deflation which led to significant losses.
Other ASX pharma stocks such as Australian Pharmaceutical Industries Ltd (ASX: API) have also under-performed.
New product launches and acquisitions may eventually pull Mayne Pharma back up, but I think there are better opportunities elsewhere. For example, this FREE REPORT identifies a high flying smaller healthcare company that has outperformed Mayne Pharma and the market.
