underperform recommendation, page-19

Here's the latest from Bell - 19 November 2013
Acrux Limited (ACR)
Sales Execution To Improve
Revenue outlook remains positive despite 1Q13 stumble
Judging by the share price volatility in ACR over recent weeks, equity holders could be forgiven for thinking there had been an outbreak of virility amongst the target population for male hormone replacement therapy (MHRT) users. While this is not the case, 1Q13 Axiron revenues were below market expectation and this did wipe $50m from the market capitalisation. Despite this disappointing wobble, we expect a recovery in the December quarter followed by growth in 2H14.
September quarter revenues impacted by sloppy accounting
As suspected September quarter Axiron net revenues as reported by Eli Lilly included an estimated US$8m to US$10m adjustment for prior period errors in rebate calculations. This was beyond the control of Acrux and in fact it had no transparency on the matter. Reported revenues for the quarter were US$40.6m. After adding back the adjustment the actual revenue is likely to have been in the range of $US48m – US$50m. Acrux has guided the market to expect long term rebates in the order of 28% to 30%. We estimate the average net revenue per patient is now ~US$2,600 annually inclusive of recent price rises across most gel products.
Important short term catalysts ahead Eli Lilly is expected to have acquired important new managed care customers in recent months with the impact of these to be felt at the revenue line from 1 January 2014.
Acrux has stated that Axiron will have the highest level of unrestricted access in commercial managed care (vs any other gel product) from that date forward. While quantifying the incremental impact to revenues is difficult, we estimate this to be worth at least 1% to 2% market share and possibly far higher.
In the interim period we await early signs of increase in market share from IMS data.
The company has achieved $100m in sales this calendar year and we expect it to receive its next $25m milestone in early 2014.