EUR 850.00 For Business Accounts Only

Morningstar | Mayne Pharma’s Early Fiscal 2019 Results in Line With Our Full-Year Expectations; Shares Undervalued

No-moat Mayne Pharma’s reported sales for the first four months of fiscal 2019 put the firm on track to meet our full-year forecast. Revenue increased 21% to AUD 183 million versus the previous corresponding period, or pcp, driven by steady performance in the core generic drug division, rising contribution from specialty products, and solid gains in contract services and international sales. While the performance suggests a full-year run rate of about AUD 550 million, 4% below our AUD 570 million projection, we expect recent new product launches and a strong contract order book to make up the difference over the next eight months. And with gross margins trending upward--management noted the metric ticked up to 59% due to positive product mix and cost savings--we think Mayne remains on track to drive improved profitability through additional scale opportunities. We maintain our AUD 1.30 per share fair value estimate, and while we reiterate our very high uncertainty rating, we note shares trade at a sizable discount to our valuation.

We had expected an improving competitive landscape in generics, and the flat top-line performance in the first four months of the year, in U.S. dollar terms, for Mayne’s generic products division supports this outlook. Despite dofetilide--Mayne’s largest product--seeing a previously anticipated 65% sales decline during the period due to pricing pressure and market share loss from new competitors, other product launches have helped to stem the tide. The firm has brought two further topic treatments to market fiscal year to date, and the segment remains on track to hit our full-year 3% revenue growth forecast.

The company’s results in specialty products and contract services were also together in line with our expectations. Specialty Brands, at AUD 26 million in revenue, is tracking slightly ahead of our full-year AUD 63 million forecast, while contract services, at AUD 22 million, is tracking slightly below our AUD 69 million projection. Nonetheless, we’re encouraged that the contract service backlog of signed work for the next six months finished the period up 50% versus pcp, suggesting some ground can be made up. We also remain positive on Mayne’s opportunity in specialty brands longer term, and continue to forecast high-teen annual revenue growth for the segment.