ACR buy, page-11

E*TRADE Australia | Online Share Trading
E*TRADE Australia | Online Share Trading
Morningstar's Recommendation: Acrux Limited

Recommendation: Accumulate
Acrux's Axiron Maintains Market Share Despite Increasing Generic Competition
Net sales for Axiron, Acrux's lead product out-licenced to Eli Lilly, for the quarter ended 31 December 2014 totalled USD 47.6 million, up 31% sequentially from USD 36.3 million, but down 11% year on year. This was above our forecasts, and comprised U.S. and international sales of USD 45.4 million and USD 2.2 million respectively, compared with USD 53.0 million and USD 0.9 million in the previous corresponding period in fiscal 2014. Axiron's share of the topical testosterone market as at end of December 2014 was steady at 13.7% despite the launch of several generic competitors in the second half of 2014, including: Auxilium's Testim, Endo's 2% topical testosterone gel Fortesta, and Perrigo's generic version of AbbVie's low-strength testosterone treatment AndroGel 1.0%. We view this as positive and, in light of growing international sales, believe Axiron's metered dose gel and applicator-format delivery provides a competitive advantage. Our fair value estimate for no-moat rated Acrux remains unchanged at AUD 2.00 per share pending the release of first-half fiscal 2015 results on Thursday, 26 February. This implies the shares are undervalued at current levels. We maintain our very high fair value uncertainty and note the potential impact of an adverse ruling by the U.S. Food and Drug Administration, or FDA, on sales in the Unites States. At this time, the FDA has not issued a definitive ruling on whether FDA-approved testosterone products increase the risk of stroke, heart attack, or death. This is despite advising existing patients to "not discontinue" treatment without consulting their physicians.