Ignore the FDA and buy Acrux, page-18

TRT remains an approved therapy
Cardio issue to linger
Following the Advisory Committee (AC) meeting on Wednesday in the US to discuss the future use of Testosterone Replacement Therapy (TRT) we note the following.
There was no new evidence presented regarding cardiovascular risk. There was also no recommendation for a change to the Axiron label regarding cardiovascular risk. We regard this as a very significant positive. Perceptions around increased risk of material adverse cardio events had been the key driver of the Advisory Committee meeting.
The Advisory Committee did recommend the makers of TRT be required to conduct additional clinical trials to assess cardiovascular risk. The nature, timing and extent of these clinical trials, if any, is unclear. The financial burden of these trials would not rest with Acrux.

Off label use
The AC voted in favour of changing the language on TRT product labels to restrict the intended use of TRT, particularly in relation to age related low testosterone patients.
This was in line with our expectation. We are sceptical of the impact of any change to labelling regarding the long term use of TRT.
We conclude that Testosterone replacement remains an approved therapy providing proven clinical benefit to thousands of patients suffering low endogenous testosterone levels.
We expect Axiron revenues for the September quarter will be flat with the June quarter (i.e. US$47m) and show some improvement over the next 6 months as some of the volume lost to the market over the course of 2014 returns.

Recommendation
We maintain our price target of $2.26 and BUY recommendation. There are no changes to earnings following today’s announcement.