just noticed the RBS Morgans analyst report posted on Acrux's website:
Acrux Bull's-eye ACR has secured Eli Lilly as a commercialisation partner for Axiron, currently pending FDA approval to treat testosterone deficiency in men. The deal was above our expectations and a great outcome for the company. Buy retained.
High Volatility Target price A$3.19 (from A$2.29) Price A$2.43 Short term (0-60 days)
We consider this to be an excellent deal, delivered in line with pre-defined company timelines and one which follows a robust negotiating process. Eli Lilly has significant experience in the mens health arena and, in our view, will be a solid partner for ACR. Eli Lillys performance with respect to Cialis (an erectile dysfunction treatment) is testament to this. We also view the quantum of the deal positively, noting that it is ahead of recent deals in the space. We would also make the comment that todays announcement marks, in our view, the start of a new period of maturity for the company. With regulatory approval on the horizon for Axiron and a substantial partner in place, we forecast on-going profitability for the company, assuming of course that the product is launched on time and without incident, an achievable task, in our view.
Regarding royalties: "We forecast a tiered rate ranging from 12% and increasing to 20% by FY15"
Regarding dividend: "Accordingly, we forecast an initial payout ratio of 10% in FY11, increasing to a payout ratio of 25% thereafter. We note that with the significant US$87m payment due from Eli Lilly upon market approval of Axiron suggests that a special dividend or other forms of capital management is likely in 2HFY11, although at this stage, we do not forecast any specifics."
Regarding probability of FDA approval for Axiron: "We have increased our probability of success for Axiron to 90% (from 80%). Each 5pp change to our probability of success for this programme alters our valuation by 15cps."
ACR Price at posting:
$2.37 Sentiment: Buy Disclosure: Held
