Broker BUY @ $2.50

Canaccord Genuity have a BUY $2.50 Investment Perspective: With sales of Axiron for CY13 having triggered a US$25M (A$28M) milestone payment from Eli Lilly to ACR, the company has declared a special, unfranked dividend of $0.12. Including the milestone payment, product revenues for H1 were $43.3M of which $42.5M came from Axiron. The company has reported NPAT of $24.6M for H1 which equates to $0.15cps. Based on its current FY14 growth expectations for Axiron sales, the company believes it will be eligible for an additional US$50M (A$55M) milestone payment at the end of this year. While growth of sales of transdermal testosterone replacement therapies (TRTs) have declined significantly in the last 12 months (from ~30% in 2012 to 6% in 2013), ACR believes there are a number of potential drivers that will lift Axiron sales during 2014. What remains to be seen is the extent that healthcare concerns that have been highlighted by recent issuance of a Drug Safety Communication will impact on all US TRT sales across the board. We have upgraded our price target to $2.50 (previously $2.10) and our recommendation to BUY (previously HOLD) based on these latest results and an expectation that safety concerns will have limited impact.