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hottuna

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08/07/14

10:33

Post #: 13626351
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Acrux
Generics hitting the shelves
Event
 We update our view on ACR in light of recent US prescription data and launch
of new generic TRT gels.
Impact
 Testosterone market continues to shrink: Weekly prescriptions for TRT
gels continue to decline, with the last week of June yielding on 77k scripts,
down 25% vs. pcp. With the FDA safety review ongoing and advertisements
for class action against TRT manufacturers continuing, we believe a
turnaround to volumes will unlikely occur anytime soon.
 Generics have begun to enter the market: Testim’s branded generic has
been released in the US and in two weeks has captured 4.2% of market
volumes. Another generic gel from Upsher-Smith (USL) will also hit the
shelves in the coming weeks, although it remains unclear whether it will be
directly substitutable to Testim. Whilst these generic products will not be
substitutable for Axiron, we believe they will still impact sales due to insurers
inserting the generic gels into preferred tier 1 levels of their formularies (which
carry lower or zero co-payments for users) in the coming months.
 Branded competition also intensifying: The FDA in May approved a nasal
testosterone product (Natesto), whilst an oral testosterone product (Rextoro)
is currently under review with a decision expected in November. Given the
relative attractiveness of these new product forms for patients (tablets in
particular), their launch onto the market could place further pressure on the
gels.
 We make downward revisions to our numbers: We have revised down our
TRT market assumptions (we now assume 77k per week with no growth), our
price assumptions (-5% pa due to escalating competition) and share
assumptions (we now assume flat share for Axiron). These changes, together
with a revision of our animal health revenue forecasts, result in a significant
downward revision to our valuation.
Earnings and target price revision
 EPS: FY14 +0.3%; FY15 –9.7%; FY16 –19.5%. TP reduced 30% to $0.70.
Price catalyst
 12-month price target: A$0.70 based on a DCF methodology.
 Catalyst: June quarter Axiron net sales expected late July
Action and recommendation
 Downgrade to Underperform: Although the generic gels entering the market
will not be directly interchangeable with Axiron, we still see impact as insurers
(i) incentivise their members to start on/switch to cheaper generic products
and (ii) use generics as a bargaining tool to reduce branded prices. We also
remain concerned about the continuing decline in TRT script volumes in the
US, (driven by safety concerns), and the potential entry of oral and nasal TRT
formulations.

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ACR Price at posting: $1.16 Sentiment: None Disclosure: Unspecified
1 Upvote

0 Great analysis

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