Acrux reported first-half fiscal 2016 net profit after tax, or NPAT, of AUD 9.7 million, up 38.6% on the prior corresponding period. EPS was up by a similar amount to AUD 0.08 per share. No interim dividend was declared, consistent with first-half fiscal 2015. Revenue increased 26.6% to AUD 18.0 million driven by AUD 1.5 million higher royalty revenue from Axiron, which included a significant benefit from a weaker Australian dollar, and the receipt of a milestone payment of AUD 2.5 million (USD 2 million) from Gedeon Richter versus none in the prior comparable period. Global sales of Axiron by partner Eli Lilly were down USD 0.9 million to USD 83.0 million. Notably, Axiron's U.S. volume market share remained steady at 14.4% despite increased competition from generic testosterone replacement therapy products introduced in January 2015. Operating expenses increased 19.5% to AUD 4.7 million. Employee expenses remain the biggest item increasing 32.2% to AUD 1.7 million, reflecting higher research and development investment. Royalty payments due to Monash Investment Trust increased 29.8% to AUD 0.6 million, in line with product income. Operating cash flow increased to AUD 8.4 million from AUD 3.2 million. This was primarily driven by higher cash receipts from royalties and milestones and lower tax payments. The balance sheet is strong with cash and no debt. The cash balance stood at AUD 21.5 million down AUD 1.5 million on 30 June 2015. We make no changes to our forecasts, and maintain our DCF-based fair value estimate at AUD 1.10 per share, which implies the stock is undervalued at current levels. Our nomoat rating for Acrux remains intact, largely reflecting its significant reliance on Axiron sales and its licensee partner Eli Lilly to invest in sales and marketing of the product accordingly. Our very high fair value uncertainty rating remains intact
ACR Price at posting:
67.0¢ Sentiment: Buy Disclosure: Held
