Shares in pharmaceutical company Mayne Pharma Group Ltd (ASX: MYX) are up 3.15% in today's session to 65.5 cents following an overnight announcement by rival firm Teva Pharmaceutical Industries that has seen a bounce in generic drug manufacturers.
Teva announced a restructuring plan where it plans to cut 14,000 jobs (25% of its workforce) and suspend dividends on its ordinary shares. The announcement saw the price of Teva shares surge 10.19% on the day.
At its AGM in late November, Mayne issued a disappointing trading update which confirmed the market's fears prompting a sell off to a 52-week low of 59 cents.
Management noted that the generic drugs sector continues to suffer from deflation driven by the consolidation of buying groups and aggressive competition within the generics market. As a result, group revenue to the end of October was down 12% to $151 million compared to the prior corresponding period. The Generics Product Division is the largest division within the company and saw its sales decline 10% to US$88 million on the prior corresponding period.
Foolish takeaway
The company does have an intriguing pipeline of future generic products. In FY18, Mayne expects to receive FDA approval for 6 products that will target markets with sales of $US500 million and in FY19, the company expects an even stronger generic pipeline with approximately 8 potential launches that will target markets with sales of $US2 billion.
Mayne does have a lot of potential and is positioned for the ageing population, increasing rate of chronic disease, and rising demand for generics to lower healthcare costs.
Short interest in the stock has declined over the last 2 weeks but remains high at 7.83%. It is probably a bit premature to call a bottom as the generics price deflation cycle may not yet be over.
It is definitely a company Australian investors should keep an eye on for when the the industry returns to more normalised trading conditions. 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.
