Mayne just what the medicine market needs
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News that Mayne Pharma Group (MYX) will start selling an authorised generic drug in the US has sent the stock surging to a more than two-year high this morning.
The drug supplier is now able to tap into a market worth around $US24 million a year with its authorised generic doxycycline hyclate tablet, which is used to treat certain types of bacterial infections.
Mayne added 3 cents (or 6%) to 53 cents in early trade, making it the best performer on the Uncapped 100 list this morning.
While this is good news, the new pill is unlikely to be a material development for Mayne’s bottom line for a number of reasons.
Firstly, Mayne’s pill is not the only generic version of the drug and it remains to be seen what kind of market share Mayne will be able to establish over the next year or two.
Even on optimistic assumptions about market penetration, and using the average operating margins that generic drug makers would typically make, doxycycline hyclate could add around 10% to the company’s bottom line.
Given that the stock is on an estimated consensus 2013-14 price-earnings multiple of close to 20 times, or nearly a 50% premium to its global peers, the new revenue stream is unlikely to push the stock into value territory.
However, some premium might be justified in the current market. The 100-day volatility for the All Ordinaries has nearly doubled since February and has hit a new 15-month high of 15.5%.
Since volatility has been trending up, stocks with defensive qualities have been outperforming. Other relatively defensive Uncapped 100 stocks in the health sector that have recently found renewed favour with investors include Nanosonics (NAN) and Universal Biosensors (UBI).
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