bby increases acr target to $4.10, page-4

RBS Report - 30 May 2011

Acrux

Keeps on delivering

With the approval of Ellavie in Sweden last week, ACR has demonstrated its ability to deliver on milestones. It is this consistent performance that sees us rate it as a stand-out stock in the life science sector. Buy retained.

Ellavie receives Swedish approval

Last week, the Medicinal Products Agency in Sweden granted marketing authorisation to Ellavie (estradiol spray), a treatment for menopause symptoms in women. The granting of
approval by Sweden allows ACR to seek approval in other EU countries under the Mutual Recognition Procedure. This was positive news and ACR now plans to seek a partner for
Ellavie in EU. The estrogen therapy market outside of the US is valued at US$360m. In EU, transdermal therapies account for half of this market.

Axiron launched in the US

ACR's partner Eli Lilly (NYSE: LLY) (NR) launched Axiron (testosterone) topical solution in the US market at the end of March 2011. The male testosterone therapy market in the United States is worth US$1bn per annum and growing at 20% annually. At this stage, no formal sales figures have been released by either Eli Lilly or ACR. We anticipate that a full six months of sales numbers will be required to make a full assessment on the market reaction to Axiron; although channel checking suggests that the launch has progressed smoothly and been well received to date.

Focus on upcoming milestones

Key milestones: 1) The receipt of ongoing updates on the progress of the Axiron launch in the US and the filing of marketing applications for Axiron in a number of countries outside the US.2) Following the positive decision from the Swedish MPA in relation to Ellavie, ACR will look to secure a suitable distributor for the major EU markets. 3) In our view, as ACR moves to the generation of recurring and sustainable cash flows, the company will be re-rated.

Buy maintained: A$4.06 target price

We have made minor adjustments to our forecasts, detailed overleaf. Our DCF valuation and price target have increased to A$4.06 (from A$3.88). Buy retained. Risks include the group?s ability to commercialise its pipeline and ACR?s partner?s ability to drive revenues.