MYX - Mayne Pharma Group

[luutzu]

With some patience, I think that will prove to be the case. It may take a couple of positive reports before the SP really recovers but I agree its very cheap at less than a buck.

Not that it means anything, but a couple of big, successful investors I know have taken large positions in MYX, prior to the current lows, and they are confident MYX will be a very strong performer in their portfolios going forward. The common factors in their confidence were beliefs that the business was set for strong growth and the market had completely misjudged the potential negative impacts on the business.

Mind you I know a few big, successful investors who are now small, unsuccessful investors so I wouldnt read too much into it!

It might get a whole lot cheaper. Maybe not right away.

See how the above two companies raked in big earnings on an almost consistent basis, with very little or no new equity?

Here's a couple that fail, and MYX.

Investors piled in cash after cash, management kept acquiring new and improved opportunities.

Didn't end well for ABC Learning. I know because I was young and stupid I followed the "smart money" like Singapore's Tamasek [?] sovereign fund. That and how can a company possibly not make money looking after kids at exorbitant prices.

 

[Klogg]

Bought in today at 94c. It just seems insanely cheap. EPS of 9.7c forecast + growth.
Will stand ready to buy more if results are good. Reporting season soon which is good as I am a bit bored at the moment.

Remember, that figure has within it a $20m+ settlement from Forrest Labs. Certainly not a one time thing (these sort of law suits seem to go hand in hand with the industry), but I wouldn't be factoring it into regular earnings numbers.

 

[mcgrath111]

It might get a whole lot cheaper. Maybe not right away.

View attachment 71917

View attachment 71918

See how the above two companies raked in big earnings on an almost consistent basis, with very little or no new equity?

Here's a couple that fail, and MYX.

View attachment 71919

View attachment 71920

View attachment 71921

Investors piled in cash after cash, management kept acquiring new and improved opportunities.

Didn't end well for ABC Learning. I know because I was young and stupid I followed the "smart money" like Singapore's Tamasek [?] sovereign fund. That and how can a company possibly not make money looking after kids at exorbitant prices.

You're starting to sound like a broken record.

I enjoy a good apple for apple comparison but I find apple to meat pie is a tad confusing.

 

[luutzu]

You're starting to sound like a broken record.

I enjoy a good apple for apple comparison but I find apple to meat pie is a tad confusing.

A business is a business. It's supposed to make money.

It can sell widgets, generic medicines, news and current event, or just about anything and everything... a business must make money for its shareholders.

That's not comparing apples to meat pie. It's comparing to a known quality business against a known bankrupted one, against one under discussion. All using the same measure of what make a business a continued success or a potential bankruptcy.

----

Here's the cash flows overview for three drug companies:

Blue bar is net operating cash flow; red is net investing cash flow; green is net financing cash flow.

In all cases, you'd want a business to generally make a positive cash flow from operations.

You'd generally want negative outflow of cash from investing as that's the investing activities. So negative is it buying and making investment for future growth.

You'd want negative [outflow] of financing as that kind of activities goes negative when dividends and/or debts are paid. A positive mean more cash were raised or/and borrowed.

Putting these three activities together, you'd want to see an inflow from net cash from operating activities to to out weight the combined outflow of cash used in investing and cash used in financing activities.

Sirtex demonstrated this very simple idea to the T. It has always been operationally positive cash. Those cash more than paid for investments that it makes as well as financing - which if we look further into, will just be dividend payment as it has no debt to repaid.

The only year that stands out for SRX and raises questions would be 2012. Its cash used in investing outpaced the year's inflow from operations. Why is that? Can it afford it? Look at 2010 and 2011 where they made good operating cash in flow but little invesing and dividends... maybe its cash holdings would still cover that year's investing activities. But dig deeper to be sure.

Hikma paints a similar story. Though its 2014 and 2015 should be further looked at as they raises some cash. See if the balance sheet is still in good shape, maybe a little borrowing isn't such a bad idea else you'd get a lazy balance sheet.

But overall, Hikma's operating activities bring in more cash than it spend on investing and financing activities. So that's a good business.

Mayne again show the trait of a poor business.

Operating cash are positive but relatively small compared to investing outflow and financing inflow. i.e. Its operations does not produce enough cash to self-fund its ambitions. Needs to dip back into sharheolders pockets to get the cash... and all that cash has not produced much operating income to impress anyone but future generations, maybe.

 

[mcgrath111]

A business is a business. It's supposed to make money.

That's not comparing apples to meat pie. It's comparing to a known quality business against a known bankrupted one, against one under discussion.

Hikma paints a similar story. Though its 2014 and 2015 should be further looked at as they raises some cash. See if the balance sheet is still in good shape, maybe a little borrowing isn't such a bad idea else you'd get a lazy balance sheet.

But overall, Hikma's operating activities bring in more cash than it spend on investing and financing activities. So that's a good business.

Mayne again show the trait of a poor business.

Operating cash are positive but relatively small compared to investing outflow and financing inflow. i.e. Its operations does not produce enough cash to self-fund its ambitions. Needs to dip back into sharheolders pockets to get the cash... and all that cash has not produced much operating income to impress anyone but future generations, maybe.

I didn't say a business isn't supposed to make money, I thought I was on the MYX thread not MRM.

"It's comparing to a known quality business against a known bankrupted one, against one under discussion."
I also didn't know Mayne was Bankrupt...

You should note the Mayne / Teva acquisition skews the numbers significantly.

I feel your posts have a strong confirmation bias, but I'm sure we all experience that.

 

[luutzu]

I didn't say a business isn't supposed to make money, I thought I was on the MYX thread not MRM.

"It's comparing to a known quality business against a known bankrupted one, against one under discussion."
I also didn't know Mayne was Bankrupt...

You should note the Mayne / Teva acquisition skews the numbers significantly.

I feel your posts have a strong confirmation bias, but I'm sure we all experience that.

I hope you're not taking what I say personally man. It's all just my opinions and I do try to support it with your standard accounting analysis.

MRM weren't valued based on earnings, it's valued based on its NTA. For a company with NTA of some $1.70 but sells for $0.40 and does not seem to be going broke [at the time], I'd do it again if I find another opportunity with those same characteristics.

As to MRM's NTA being about $0.67 at last report, I'm not too concerned about that as assets have been sold off, some debts have been repaid, and the rest of the devaluation are just paper, non-cash impairment.

It's a bit close for comfort but I did add more at 20c, some more recently at 16c. So let's see if they will pick up work and put those assets to some decent earnings.

-----------

As to MYX... post Teva it will have some $1.1B in intangible assets. Market cap currently at some $1.4B... and going my McLovin quick estimate of its EBITDA of some $88m, interests, taxes and depreciation are real so that would put its post-Teva earnings at $60m? $50m?

That's a PE of 1400/60 = 23 times. That's at 92c a share and assumes management forecasts hit the mark. Not a screaming bargain.

And here's where I don't know much of anything about drug manufacturing... but it would be a small miracle if MYX management and people could pull off the Teva transfer as planned. Not in one financial year.

I mean, MYX just bought a company that is is essentially 4 times its size. For $1B in total [ip, working capital, technical transfer etc]. With no inventory acquired with the transaction that size, with no human resources acquired to help with ongoing operations beside the "technical transfer" consulted for some $35m.

Man, getting your head around a $1B operation isn't easy. To put all the logistics, the manufacturing (even if they're partly or mainly outsourced)... I guess it's possible. That would explain why management is looking into another business to acquire around the same time this biggest deal ever was being announced.

Anyway...

 

[Klogg]

A business is a business. It's supposed to make money.

It can sell widgets, generic medicines, news and current event, or just about anything and everything... a business must make money for its shareholders.

That's not comparing apples to meat pie. It's comparing to a known quality business against a known bankrupted one, against one under discussion. All using the same measure of what make a business a continued success or a potential bankruptcy.

----

Here's the cash flows overview for three drug companies:

View attachment 71927 View attachment 71928 View attachment 71929

Blue bar is net operating cash flow; red is net investing cash flow; green is net financing cash flow.

In all cases, you'd want a business to generally make a positive cash flow from operations.

You'd generally want negative outflow of cash from investing as that's the investing activities. So negative is it buying and making investment for future growth.

You'd want negative [outflow] of financing as that kind of activities goes negative when dividends and/or debts are paid. A positive mean more cash were raised or/and borrowed.

Putting these three activities together, you'd want to see an inflow from net cash from operating activities to to out weight the combined outflow of cash used in investing and cash used in financing activities.

Sirtex demonstrated this very simple idea to the T. It has always been operationally positive cash. Those cash more than paid for investments that it makes as well as financing - which if we look further into, will just be dividend payment as it has no debt to repaid.

The only year that stands out for SRX and raises questions would be 2012. Its cash used in investing outpaced the year's inflow from operations. Why is that? Can it afford it? Look at 2010 and 2011 where they made good operating cash in flow but little invesing and dividends... maybe its cash holdings would still cover that year's investing activities. But dig deeper to be sure.

Hikma paints a similar story. Though its 2014 and 2015 should be further looked at as they raises some cash. See if the balance sheet is still in good shape, maybe a little borrowing isn't such a bad idea else you'd get a lazy balance sheet.

But overall, Hikma's operating activities bring in more cash than it spend on investing and financing activities. So that's a good business.

Mayne again show the trait of a poor business.

Operating cash are positive but relatively small compared to investing outflow and financing inflow. i.e. Its operations does not produce enough cash to self-fund its ambitions. Needs to dip back into sharheolders pockets to get the cash... and all that cash has not produced much operating income to impress anyone but future generations, maybe.

I think the reason why a company is cash flow negative is extremely important. As an example, consider TGR. They generate free cash flow, and pay a small-ish dividend, which would result in net cash gain. But they've also used the rest of this cash, plus a little more, to invest in their business. Hatcheries, pens, leases - they're all items that need up front investment, hence they need to re-invest the cash back into the business.
By your example, TGR, or any other company reinvesting back into the business, would be a poor investment?

Another example - TGA. Their main line of business is writing consumer leases. To do this, they need to use their operating cash flows, and sometimes borrow some extra, to keep up with demand.
If they use all their operating cash flows and some more to write new loans, does this make them a bad business? Or could one reasonably assume that because it's their main line of business, perhaps reinvesting into the business will be beneficial for future cash flows to shareholders?

What really matters are future cash flows, not historical ones.

 

[Klogg]

I mean, MYX just bought a company that is is essentially 4 times its size. For $1B in total [ip, working capital, technical transfer etc]. With no inventory acquired with the transaction that size, with no human resources acquired to help with ongoing operations beside the "technical transfer" consulted for some $35m.

Man, getting your head around a $1B operation isn't easy. To put all the logistics, the manufacturing (even if they're partly or mainly outsourced)... I guess it's possible. That would explain why management is looking into another business to acquire around the same time this biggest deal ever was being announced.

MYX essentially bought the approval from the FDA to manufacture these drugs. Whether they do it themselves or from a third party is another thing, but all they really bought is an approval, a license.
Everything else could remain the same - manufacturer, distributor, sales force, etc.

For what it's worth, from the half yearly report:
"Successful transition of the acquired portfolio
- No supply chain disruptions or material loss of business outside normal market competition
- 99% of products SKU’s now in Mayne Pharma labelling
- Positive feedback from customers and Federal Trade Commission (FTC)"

Given almost everything has Mayne Pharma labelling, there was no supply chain disruption and the FTC are giving positive feedback, one could reasonably assume that this acquisition has progressed rather well, from an operations standpoint.

 

[luutzu]

I think the reason why a company is cash flow negative is extremely important. As an example, consider TGR. They generate free cash flow, and pay a small-ish dividend, which would result in net cash gain. But they've also used the rest of this cash, plus a little more, to invest in their business. Hatcheries, pens, leases - they're all items that need up front investment, hence they need to re-invest the cash back into the business.
By your example, TGR, or any other company reinvesting back into the business, would be a poor investment?

Another example - TGA. Their main line of business is writing consumer leases. To do this, they need to use their operating cash flows, and sometimes borrow some extra, to keep up with demand.
If they use all their operating cash flows and some more to write new loans, does this make them a bad business? Or could one reasonably assume that because it's their main line of business, perhaps reinvesting into the business will be beneficial for future cash flows to shareholders?

What really matters are future cash flows, not historical ones.

No, a company ought to reinvest back into the business. That's what it's supposed to do. I actually don't like dividends being paid out, but that's just at my current life-cycle where I don't need it. Others would want dividends etc.

Point is, a company should definitely reinvest their earnings. I agree with you.

But the key word there is reinvest. The business ought to earn enough cash from its operating activities to re-invest back for further organic growth or one through acquisitions.

If its current operating activities does not generate positive cash inflow to exceed investing and/or financing outflow requirements... maybe more expansion through acquisition isn't the answer the business and managerial inadequacy.

MYX's net operating cash is quite puny in relation to its "needs" for investment and debt repayment. That's why it kept on financing new cash. Can't keep that up so one way to fake it is acquire and "grow". Get the cash in early enough, pay out later enough and you got yourself a perpetual cycle of growth through acquisition to one day dominate the world.

That's not to say that businesses shouldn't grow through acquisition either. A quality business, one so profitable and well-oiled that management can sit back from the day to day operations to study and think about new opportunities and directions... those companies still make strong positive net operating cash year on year, then in between those good years, yes, raise new equity (at what would be a high share price) or borrow for that "transformative" acquisition.

Those quality operations are never operating cash poor yet still keeping on buying and borrowing/raising cash. Not year on year like MYX has over the past eight.

That's not growth, definitely not quality. That's a bad business with management stumbling around to find the next big thing to make it work. And if the market and shareholders are patient and generous enough with their cash, someday they might hit the jackpot... Teva might very well be that jackpot. Though, again, on a theoretical basis, Teva don't get to where they are through offloading businesses with great future potential - forced or otherwise by the FDA.

Here's another cashflows summary of Monadelphous. A company I think we all agree are well managed with outstanding financial position and performance.

Here's the bankrupted ABC Learning Centres. The growth through debt and expansion story of the early 2000s.

Not raking in enough operating to fund all those growth. Those growth did not produced much noticeable contribution to cash inflow either.

You can look above for MYX. The only good thing we can say about MYX cash summary is that it's been improving lately. Then came the $888m cap raising with the rest borrowed for that $1B acquisition (includes costs). That'll show up FY17. Won't be pretty.

As Buffett said, if an investor (fund manager) fail to perform in their domestic market, it's a bit much to expect to say that once they goes offshore they'll really begin to show their stuff. Same with business management - Mayne have failed to deliver much back to shareholders over the past 8 years, we're now told to expect that this Teva acquisition they just bought for a $1b is going to be a game changer (in a good way). Maybe. Maybe they're kidding themselves.

 

[luutzu]

MYX essentially bought the approval from the FDA to manufacture these drugs. Whether they do it themselves or from a third party is another thing, but all they really bought is an approval, a license.
Everything else could remain the same - manufacturer, distributor, sales force, etc.

For what it's worth, from the half yearly report:
"Successful transition of the acquired portfolio
- No supply chain disruptions or material loss of business outside normal market competition
- 99% of products SKU’s now in Mayne Pharma labelling
- Positive feedback from customers and Federal Trade Commission (FTC)"

Given almost everything has Mayne Pharma labelling, there was no supply chain disruption and the FTC are giving positive feedback, one could reasonably assume that this acquisition has progressed rather well, from an operations standpoint.

Yea, you could be right. I really don't know. I guess we just take management's words that things are progressing well.

Just from my limited experience getting paid from large corporations and gov't agencies... and maybe it's just the amount we get paid are the equivalent of half a cent compare to these hundreds of millions... but it took a couple of months to just get the paperwork and verification as to why they ought to pay us for the same work, under a new contract.

People are in no hurry to pay you, it seems. Any excuse to delay a month or two will do.

Bu tyea, it's a big purchase and certain hickups are expected so even if there's some delay I wouldn't blame MYX management over it. Mr. Market might not be so patient or nice though

 

[mcgrath111]

Teva just reported.

Clear pricing pressure in generics (as expected).
Revenues were up, but that didnt translate into the bottom line.

As some on HC brought to my attention is that mayne focus more on specialised generics / vs teva's all reaching/producing everything under the sun.
Reportingtime will be interesting. I dont expect big things, just not too bad on the price deflation front.

But who knows!

 

[luutzu]

Teva just reported.

Clear pricing pressure in generics (as expected).
Revenues were up, but that didnt translate into the bottom line.

As some on HC brought to my attention is that mayne focus more on specialised generics / vs teva's all reaching/producing everything under the sun.
Reportingtime will be interesting. I dont expect big things, just not too bad on the price deflation front.

But who knows!

Don't mean to be a pain in the azz but think about it a bit...

If you're Teva, would you offload your best, most profitable stuff?

 

[Klogg]

Don't mean to be a pain in the azz but think about it a bit...

If you're Teva, would you offload your best, most profitable stuff?

I would offload whatever the FDA told me I had to offload to ensure my $40bn transaction goes through.

 

[JTLP]

Well MYX is copping an absolute pummeling this morning off the back of this. World of hurt for holders!

 

[galumay]

World of hurt for holders!

...or opportunity to accumulate, depends on how your viewpoint!

 

[JTLP]

...or opportunity to accumulate, depends on how your viewpoint!

Maybe post results.

 

[luutzu]

I would offload whatever the FDA told me I had to offload to ensure my $40bn transaction goes through.

That's one interpretation.

The other would be that Teva deemed their own offloads weren't as good as the Allergran's version of those generics so they gave it away for $1B.

I mean the FDA forced Teva to offload due to competition concern right? So whatever it was they offloaded to MYX, there's at least one other competitor in Allergran. I'm no lawyer but it seem that the FDA would be fine if either the Teva's version is offloaded or the acquisition's version.

Anyway...

 

[mcgrath111]

...or opportunity to accumulate, depends on how your viewpoint!

Its never nice seeing an 8% drop. The difference I am seperating from the two is:
Teva is debt funded.
Mayne was funded by equity.

Mayne could post average results, and they may very well do that.

But, the difference in Mayne and Teva is substantial from the fiancial perspective.
They both sell generics, but thats largely (imo) where the comparison ends.

 

[Garpal Gumnut]

Big Pharma is basically a ponzi game.

The chart says it all.

MYX is a dead parrot.

Jump.

gg

 

[luutzu]

Price drop could also be due to news that Wal-Mart, Walgreen [and presumably all the major retailers] are putting their pricing power on the generic drug makers.

If Teva's going to have a hard time with WalMart, I don't think MYX's US operations will have much better luck.

Good thing they do some business in Australia where the supermarkets have somehow not been allowed to sell prescription drugs. I mean, have the regulators been to a typical pharmacy nowadays? It's like a more expensive version of Coles or Woolies - with a couple of pharmacists stacked away in some corner at the back.