Quick Pitch: Mayne Pharma (MYX:AX)

Merger Arbitrage (covered at A$6.48/share)

This one got away a bit while I was researching the situation, but with a 14% spread still available and the closing expected in 1.5 months, it’s still very much in play.

Mayne Pharma specializes in women’s health (think fertility, menopause, contraceptives, etc.) and dermatology drugs. In February, the company agreed to be acquired by U.S. peer Cosette Pharmaceuticals for A$7.40/share in cash. The market more or less labeled it as a done deal and the spread initially hovered at 2%. After the tariff day in early April, the spread widened to 6%. And then two days ago, the spread exploded to 30%, settling at 14% today.

The exact cause of the May 14 sell-off isn’t entirely clear, as it occurred without any official news. The ASX requested an explanation, and MYX responded that it wasn’t aware of any information that could have caused the price movement. However, further into the response, the company disclosed that it had received a letter from the FDA on April 28.

In the letter, FDA stated that promotional materials for MYX’s fastest growing drug, Nexstellis (a contraceptive), were too aggressive. Specifically, the company’s “speaker decks” (presentations aimed at doctors and healthcare professionals) were found to downplay side effects and present the drug as safer than it actually is compared to peers. MYX did not publicly disclose this letter on April 28, and referenced it for the first time only on May 14, in the response to ASX. However, the letter has always been available on the FDA’s website.

It appears that the market discovered the letter a bit late, and reacted with the sell-off, driven by concerns that the agency’s actions could trigger a material adverse effect (MAE) and prompt the buyer to walk away from the deal.

However, there are several reasons why that’s unlikely:

• After the letter was received on April 28, Cosette was promptly informed. So far, the buyer hasn’t voiced any concerns.
• MYX released the Scheme Booklet (the main acquisition document) yesterday, which is probably why the spread narrowed so fast. Although the buyer wasn’t required to formally approve the booklet, I guess they were supposed to, at least, review and agree with its content. So, the release of the Booklet strongly suggests that the merger remains on track.
• Mayne Pharma clearly views the FDA letter as a minor issue. It didn’t bother announcing it at first and only mentioned it as a side detail in its response to the ASX, stating that it had not consider the matter to be materially price-sensitive.
• Importantly, this wasn’t a “Warning Letter”, which is FDA correspondence for violations “of regulatory significance” that can trigger enforcement actions. It was an “Untitled Letter,” which is more of an initial notification that doesn’t meet the “regulatory significance” threshold. Kind of a slap on the wrist. MYX outlined that “the FDA Untitled Letter does not impact Mayne Pharma’s ability to continue to sell and distribute NEXTSTELLIS in the United States”. However, the agency did ask to change the promo materials.
• In the merger agreement, the material adverse effect is defined as any matter or event that reduces the company’s annual EBITDA by A$10.8m. Nextstellis generated A$22.8m in revenue in H1 FY25, implying a run-rate of A$45.6m. So while it’s a key growth product, it’s still relatively small in the broader financial picture (annual revenues for FY24 stood at A$388m). It’s quite likely that pulling the drug from the market entirely still wouldn’t be enough to trigger MAE. And that scenario isn’t even on the table. So far, MYX has simply stopped using the problematic speaker deck and continues to sell the product.

So if the sell-off was indeed caused by the FDA letter, it looks like the market severely overreacted, widening the spread briefly to 30%.

As for the tariff concerns, these are pretty unlikely to break the merger either:

• All of MYX’s manufacturing is outsourced to third-party CDMOs. Most of them are in the U.S.
• Any tariff impact likely falls under the standard MAE exception for “general economic or political conditions.” The carve-out to this exception would be if MYX was somehow uniquely harmed compared to everyone else, but that’s not the case here.
• The tariffs are “old news”. A month and a half has already passed since they were announced. If Cosette had plans to make noise or rethink the deal, you’d assume they would’ve said something by now.
• Cosette has two manufacturing facilities in the US and a portfolio with strong exposure to women’s health and dermatology. The buyer could probably absorb manufacturing of some MYX’s products, if needed.
• Trump’s May 12 executive order to align U.S. drug prices with those offered in other countries also appears to a non-issue for this merger. The market didn’t react to this at all on May 13, and the Scheme Booklet published on May 15 explicitly acknowledged that “as at the date of this Scheme Booklet, the Mayne Pharma Directors are not aware of any circumstances which would cause the No Mayne Material Adverse Change Condition Precedent to not be satisfied.”

All things considered, the meger looks likely to close, and I’d expect the remaining spread to tighten quickly.

 

Remaining approvals and valuation

U.S. antitrust approval is already in the bag. Australian foreign investment approval shouldn’t be a hurdle either, given that only 10% of Mayne Pharma sales comes from Australia, while 83% are generated in the U.S.

Shareholder approval seems likely as well. Bruce Mathieson, the Aussie billionaire with a 6.5% stake, is backing the deal. Other top holders include Goldman Sachs Asia (6.2%), UBS (5.5%), and Vanguard (5.2%). The shareholder vote is scheduled for June 18, with closing expected on July 2.

MYX has been going through a major turnaround since 2022. It divested U.S. CDMO operations, exited the U.S. generics portfolio, and refocused on specialized and branded products, alongside a significant cost-cutting push. The new strategy has been working well so far. Last fiscal year (ending June), the company grew revenue by 112% to A$388m and returned to positive EBITDA (A$23m). FY25 EBITDA is expected to more than double, driven mostly by growth in women’s health segment, particularly Nexstellis, and operating leverage from prior restructuring.

Valuation is tricky due to volatile financials and sizeable milestone (earn-out) liabilities on the balance sheet. Ignoring the earn-out liabilities, the headline multiple is at 1.5x run-rate revenue and 12x underlying FY25 EBITDA. With milestone liabilities, that rises to 2.4x sales and 20x EBITDA. The closest peer OGN, which also focuses mainly on women’s health and dermatology, trades at 1.7x forward revenue and 5.5x EBITDA. However, OGN is extremely levered, with net leverage of 4.3x. Other relevant benchmarks are:

• MYX licensed 5 important women’s health products from TXMD in 2022 at ~2x revenue. These products now generate around 30% of MYX’s revenues.
• MYX sold its U.S. generics business in April 2023 at 0.9x revenue.
• Agile Therapeutics, a U.S. women’s health company with a single marketed contraceptive, was acquired in August 2024 at ~2x revenue.

 

The buyer – Cosette Pharma

Cosette Pharma is backed by healthcare private equity firm Avista Healthcare Partners (which raised $1.5bn for its sixth fund last year) and listed investment manager Hamilton Lane, which has a market cap of US$10bn.

Avista has been invested in Cosette since 2018. Last year, Hamilton Lane acquired a significant stake from Avista, and the two firms became Cosette’s controlling shareholders. At the time, it was noted that Cosette would begin pursuing “larger M&A opportunities”. The takeover of MYX fits that mandate.

Until now, Cosette has completed a series of product acquisitions, but most have been smaller and with undisclosed price tags, including Ambien (2024), Vyleesi (2024), and a portfolio of eight branded products from Daiichi Sankyo in 2022.

 

Other noteworthy details

TXMD lawsuit. On April 11, MYX announced that it had been sued by TXMD. TXMD licensed 3 women’s health drugs to MYX in 2022, and two vitamin brands as well. These products generated around 30% of MYX’s revenue in FY24.

TXMD alleged breach of contract and other claims. Interestingly, the market didn’t react to the news at all—probably because the buyer, Cosette, was likely informed of the ongoing dispute during due diligence. The press release stated:

These claims are related to one of a series of disputes that have been in discussion between Mayne Pharma and TXMD for some time. Mayne Pharma intends to vigorously defend the proceeding. Additionally, Mayne Pharma has a number of separate claims against TXMD that allege damages which Mayne Pharma believes are in excess of the value of the claims made by TXMD in this proceeding and will address those in due course. This proceeding is not an attempt to terminate the Transaction Agreement, the License Agreement entered into between TXMD and Mayne Pharma LLC on 4 December 2022, or Mayne Pharma’s rights with respect to the products licensed trom TXMD.

Opposition from retail shareholder group. The Australian retail shareholder forum Hotcopper has been unusually active, with a lot of opposition from investors arguing that the offer is too low. Still, I think that the risk of shareholder rejection is minimal. The valuation references listed above don’t indicate any material undervaluation. Major shareholders and debtholders also don’t think the price is too low:

• Bruce Mathieson (6.5%) supports the merger.
• Viburnum Funds, which previously held a 7.5% stake and initially backed the transaction, later exited in the open market at A$7.22/share.
• Largest holder of convertible notes Rubric Capital (~8.5% converted stake) has agreed to support the transaction, and sell the notes to Cosette on an as-converted basis.

With all of that, it’s hard to argue that the offer price is meaningfully off the mark.

Sell-off. Since it’s not entirely clear what triggered the May 14 sell-off, there’s a chance it wasn’t a reaction to the FDA letter but something else entirely. This risk seems low, as even the company itself has indicated it’s unaware of anything else that could’ve caused the drop. It also eventually issued a public announcement/explanation specifically addressing the “speculation on FDA untitled letter”.