Mayne Pharma avoids lengthy trial, settles class action for $38m

Mayne Pharma avoids lengthy trial, settles class action for $38m

The lawsuit related to Mayne's representations of US investigations into alleged anti-competitive practices for the acne medication Doxy DR. Photo: Ortega Ulloa, via Pixabay.

After almost three years of legal proceedings, Mayne Pharma (ASX: MYX) has agreed to settle a shareholder class action without liability for $38 million - a sum that represents around 10 per cent of the Adelaide-based group's market capitalisation.

Phi Finney McDonald filed the suit in August 2021 in the Supreme Court of Victoria alleging Mayne had breached its continuous disclosure obligations and engaged in misleading and deceptive conduct in relation to alleged price-fixing and market-share arrangements in the US between 2014 and 2016.

In mid-December 2016 the Attorney General of the US state of Connecticut started anti-trust civil proceedings against Mayne USA, alleging it had agreed to price fixing for acne drug Doxy DR with competitor Heritage Pharmaceuticals Inc.

Investors fled for the exits with the share price dropping as much as 24 per cent in one day amidst a tumultuous period for Mayne Pharma, having been included in a Bloomberg report a month prior alleging Mayne was not cooperating with the Department of Justice (DOJ) in a separate investigation, and that criminal charges may be brought against the Australian group.

Previously in June of that year, Mayne Pharma had informed shareholders in an investor presentation that it was one of numerous companies to receive a subpoena from the DOJ's Antitrust Division requesting information about the marketing, pricing and sales of select generic products.

In that presentation Mayne also added it had received a subpoena from the Connecticut Attorney General seeking similar information.

"Based on currently available information, Mayne Pharma does not believe these investigations will have a material impact on its future earnings," Mayne wrote in the presentation, which coincided with an $888 million capital raise to fund the acquisition of 42 therapeutic products from Teva Pharmaceutical Industries and Allergan.

One of Phi Finney McDonald's gripes with Mayne in the case was that it continued to make public representations that Mayne was compliant with competition law and was not exposed to the risk of reputational, financial or other impacts in the US for non-compliance with competition law.

"The class action alleges that investors who acquired Mayne Pharma shares during the Claim Period are entitled to compensation for loss and damage as they paid more for those shares than they would have paid as a consequence of Mayne Pharma’s conduct," the law firm stated.

"The class action also alleges that some group members would not have purchased Mayne Pharma shares if Mayne Pharma had complied with its obligations."

In today's statement, Mayne said the agreement to settle was a commercial decision made in the best interests of shareholders.

"The resolution of this matter enables Mayne Pharma to avoid the distraction and significant expense of a lengthy trial, and to remain focused on driving growth and shareholder value through its core commercial business," the company said.

"The settlement is without any admission of liability by Mayne Pharma – both with respect to the alleged underlying anti-competitive conduct in the United States, and the alleged misleading or deceptive conduct and breaches of continuous disclosure obligations – and is subject to Court approval."

Approximately $4.7 million of the $38 million settlement will be funded by insurance, with the remainder to be paid from Mayne Pharma’s cash reserves. 

As at the end of 2023, the group had $146.8 million worth of cash and marketable securities.

"The company maintains its outlook for the financial year ended June 2024 and will report its year end cash balance with its full year results in August."

The class action was funded by Vannin Capital Operations.

Since August 2016 MYX shares have fallen from $42 to their current level of $4.64, representing a decline of 89 per cent.

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