I posted my last post about looking for positive achievements of management and nobody has taken me up on it. I am still hoping somebody has something to contribute.
I have taken the Easter break to reflect on the company and my strategy toward it and present here my thoughts and conclusions on it. This is just a record of my thoughts and intentions but is not advice of any kind.
The Basis for the Business.
1. Ultimately, the whole idea of the technology to apply drugs through the skin is a great idea.
2. The approach avoids the high risk of developing new medicines, but is appealing because it gets the best out of the existing ones.
2. For some people and medications, the traditional oral method of taking them becomes uncomfortable, undesirable or just no longer possible, so this provides a valid and desirable alternative approach
The Leadership.
1. The current leadership does not appear to be entrepreneurial in outlook, which is what we need.
2. The current leadership seems to be 'management focused' - it will pursue the pipeline but will seek to avoid any challenging goals or accountability.
3. Their is no desire for change. If the current CEO wanted to bring change then we would have seen evidence by now. Michael does not appear to a mover or a shaker. He just wants the ship to keep quietly sailing in the same direction.
4. The role of CEO to find new and innovative ways for the company to make money (or new projects to be involved in) is likely to be ignored. Can't see a new direction emerging.
5. There seems to be no evidence of incentivising management or staff to achieve desirable goals.
The Board
1. There is no indication from the board that they are dissatisfied with the direction of the company, the leadership or the share price.
2. There is no evidence I can see to believe that they wish to create major change in the business. If they were they would have done it by now. One can only presume they are concerned with the mechanics of their jobs, such as sitting on audit committees and attending meetings. Dotting i's and crossing t's. Important, but more is required.
3. The fact that the sp has fallen more than half since the CEO appointment does not seem to be a problem to them.
4. I am guessing that the fact that biotech companies have long timelines is being used as an excuse to pardon a multitude of failures.
5. Happy to remain unaccountable for the Helix matter. Want to bury the matter and hope it goes away or is forgotten
The SP
1. If you are an iron ore company, then one can understand a massive share price drop. This is because what they sell is worth so much less, in fact, less than the cost of production - and will be for years to come. This is not the case for Acrux.
2. Some have suggested that the share was overvalued. This probably was the case when in the $4 range but its hard to see that as true when the current CEO took over. After all the grossed up dividend was pretty high by that stage and not about to disappear overnight.
3. The explanation I have come to is that the market has lost faith that a new product will be available to sustain the divy once Axiron goes off the boil. For this reason one must balance the high divy against future capital loss.
The Outlook
1. The outlook for the existing products such as Axiron is probably quite good. These products are useful and have a place in the market.
2. As SLOGGER wisely points out, Axiron has been given an upper bound on sales by the royalty bonus structure that it is unlikely to overcome. It is unlikely the company will re-negotiate this, after all they would have done it by now if they were going to, as the problem has been evident for some time.
3. There may be some room for expanding the existing products into new markets, but once again without any entrepreneurial spirit, its hard to see them being bothered.
4. Nothing out of the pipeline for 3 years minimum.
The Outlook for the SP.
1. We have seen a steady down trend in play since the new CEO took over. I believe this is likely to remain in play for a long tine to come.
2. The longer the company goes with its secretive culture, the more the market will be suspicious of why. This will contribute to the down trend.
3. The longer the company remains unaccountable for its pipeline, the less market participants will have faith in a new product being available to replace Axiron. This will contribute to the down trend.
4. There will be no circuit breaker for the foreseable future. The board will not act, the leadership will not change, the pipeline will struggle and the whole dog and pony show will just keep on doing what it does. And the SP will slowly fall.
5. There is no existential threat. Axiron revenues will keep paying salaries for years and years to come. There is no need to have retrenchments or become more efficient. If Axiron sales fall, it gets taken out of the divy. Again this will contribute to the down trend slowly and surely.
6. There are some risks to be worried about e.g. Patent expiry, the FDA and its warning labels, competition from other products, studies that indicate testosterone therapy is not as efficacious as first thought. Worries about these things will contribute to the down trend.
My Own Position.
1. Its better for me to act rationally than live on hope as I currently am.
2. I have accepted that my investment in Acrux, at least at the price level I bought in at, was a mistake and that a large chunk of money is now lost.
3. I intend to back my judgement by slowly selling down my holding as the price continues to fall.
4. Once in the 40c range or lower and given Axiron revenues are holding up, I would consider slowly re-acquiring my holding. At this level or lower there will surely be more pressure for change and the divy even more attractive. However, any re-investment decision must be balanced against better alternatives elsewhere.
Accordingly I change my sentiment from HOLD to SELL.
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