Mayne Pharma Group Limited (OTCPK: MAYNF) has been on a rollercoaster ride in recent years, grappling with challenges in the generic drug market and a hefty debt burden. Yet, their recent Q2 2024 earnings call hints at a potential resurgence, fueled by a strategic pivot that seems to have flown under the radar of most analysts.

While the headline figures show a remarkable turnaround – a swing to positive underlying EBITDA and strong revenue growth – there's a subtle shift in Mayne Pharma's narrative that suggests a deeper transformation is underway. This transformation goes beyond cost optimization and new product launches; it points towards a calculated strategy of reshaping the entire pharmaceutical value chain.

The key to this transformation lies in Mayne Pharma's disintermediation strategy, a concept that has been mentioned in previous communications but only recently brought to life through a pilot program in their Dermatology division. This strategy aims to bypass the traditional, often inefficient, intermediaries in the pharmaceutical supply chain, allowing Mayne Pharma to directly connect prescribers, patients, and their own manufacturing capabilities.

The pilot program, launched in partnership with GoodRx and AssistRx platforms, offers a glimpse into the potential of this approach. Providers and patients can now access dermatology products at the best available price, with co-pay cards and transparent pricing options. Patients without insurance coverage can purchase products directly through Mayne Pharma's mail-order pharmacy, Adelaide Apothecary.

This streamlined approach yields a win-win scenario. Patients benefit from lower costs and a frictionless experience, while Mayne Pharma gains greater control over pricing, reduces reliance on volatile channel dynamics, and secures a higher margin per prescription.

"The success of this pilot program has prompted a national rollout across the Dermatology division in January, with plans to extend it to the Women's Health division soon. This suggests that Mayne Pharma sees disintermediation as a core strategic pillar, not just a tactical maneuver."

But why hasn't this strategy garnered more attention from analysts? Perhaps it's because its true impact hasn't been fully reflected in the numbers yet. The national rollout only began this year, and its financial benefits are likely to unfold gradually.

However, we can already see some early indicators. The fact that Mayne Pharma has been able to secure higher margins per prescription in dermatology, despite the introduction of new products (which often come with initial pricing pressures), speaks volumes about the effectiveness of this approach.

Furthermore, the company's decision to invest $3.2 million in capital and system projects at their Salisbury facility suggests a commitment to bolstering their internal manufacturing capabilities, aligning with the disintermediation strategy.

NEXTSTELLIS Cycle Growth

NEXTSTELLIS, Mayne Pharma's flagship contraceptive, achieved run-rate breakeven in December, driven by cycle growth, improved net selling price, and cost reductions. The potential impact of disintermediation, coupled with the recent Orange Book patent listing extending protection to 2036, could propel NEXTSTELLIS's profitability beyond current expectations. The chart below shows the growth of NEXTSTELLIS cycles, indicating strong and consistent adoption.

Let's consider some hypothetical scenarios. If Mayne Pharma can achieve a similar margin improvement for NEXTSTELLIS as seen in the Dermatology pilot program, say a 10% increase in net selling price, their overall profitability could surge significantly. This, combined with the anticipated growth in cycles and potential expansion under the Affordable Care Act, paints a very optimistic picture for the Women's Health division.

While these scenarios are hypothetical, the underlying trends suggest that Mayne Pharma is on the cusp of a major transformation. By leveraging disintermediation, they are not just optimizing costs and launching new products, but fundamentally reshaping the way they operate and create value. This could potentially unlock significant upside for both revenue and profitability, turning Mayne Pharma from a struggling generic drug player into a disruptive force in the pharmaceutical market.

"Fun Fact: Did you know Mayne Pharma has a strong heritage in Australia, dating back to 1844? Originally a pharmacy in Adelaide, the company has evolved into a global pharmaceutical player, retaining its commitment to innovation and patient care."