Mayne Pharma Peps Up FY16 Outlook

This story features MAYNE PHARMA GROUP LIMITED. For more info SHARE ANALYSIS: MYX

-Strong second half improvement
-More products under direct control
-Large number in regulatory pipeline
 

By Eva Brocklehurst

Mayne Pharma’s ((MYX)) recent story has all been about the Doryx brand. A transition in ownership of a US distributor impacted negatively on the first half and then, from May this year, Mayne Pharma acquired the brand, enabling a full product margin.

Mayne’s earnings, excluding US Doryx, increased 7.0% in FY15. Directly distributed revenue increased to 72% from 56%, after the company brought additional products in house over FY15. This is in line with the stated intention of controlling earnings and capturing a greater portion of revenue. The company has reaffirmed guidance for a US$2.7m contribution per month from Doryx for FY16.

UBS expects Mayne Pharma can double its earnings in FY16, given the fourth quarter’s momentum and the disclosure on the Doryx performance. The broker maintains a Buy rating with a $1.30 target. The main risks to the outlook are the litigation by third parties against patents held by Mayne Pharma, which may lead to increased competition, and new products which may face patent challenges.

The company will also launch a generic BAC tablet in the US and expects to launch Tikosyn in FY16. There are now 35 products targeted for US sales, worth over US$7bn, of which 17 are pending approval from the Food & Drug Administration. In Australia, at least 20 products are in the pipeline. Six have been approved and will launch in FY16, while seven are awaiting approval from the Therapeutic Goods Administration.

Mayne Pharma provided no formal guidance. The company’s operating cash flow was lower than in the prior year, primarily because of the cost of establishing a specialty brands division in the US. A US$65m investment will be made to expand US manufacturing capacity at Greenville as well as a $11m investment in a machine for the Salisbury plant.

The year has transformed the company. Hence, Credit Suisse has an Outperform rating and $1.25 target. The broker believes Mayne Pharma is now better placed to deliver a material uplift to earnings in FY16 and beyond. It will also benefit from the full year contribution of the Doryx franchise. Internalising previous third-party distribution also appears likely to generate increased US generics growth.

The stock offers a compelling long-term investment for Moelis, supporting a Buy rating and $1.32 target. The broker understands that current script sales for Doryx are ahead of the company’s forecasts to date, which underpins assumptions.The second half is more indicative of the future, Moelis maintains. Earnings rose 49% versus the first half as a number of products, which underperformed at the start of the year, improved substantially.
 

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