morningstar update

Acrux's Axiron Sales Steady Despite Intensifying Generic Competition.

Net sales for Axiron, Acrux's leading product out-licenced to Eli Lilly, for the quarter ended 31 March 2015 totalled USD 39.1 million, down 1% compared with the previous corresponding period. Pleasingly, this was well above our expectations for the quarter and points to maintenance of market share in the United States despite the recent launch of Auxilium's Testim, Endo's 2% topical testosterone gel Fortesta, and Perrigo's generic version of AbbVie's low-strength testosterone treatment AndroGel 1.0% in the second half of 2014. We estimate market share remains steady at about 14% and believe this reflects Axiron's metered dose gel and applicator format which provides a valuable point of differentiation compared with peer products in an increasingly regulated market place.

Our fair value estimate for no-moat-rated Acrux remains unchanged at AUD 1.10 per share. This implies the shares are undervalued at current levels and reflects the market's more negative stance on the stock following the changes to product labelling instituted by the U.S. Food and Drug Administration for the entire testosterone replacement therapy category in the U.S. Our earnings forecasts remain intact despite an expected translational gain, given the weak Australian dollar during the quarter, from Eli Lilly royalties. Notably, Acrux ended first-half fiscal 2015 with about AUD 16 million in cash, which provides modest funds for in-licensing of complementary technologies. Acrux's no-moat and very high fair value uncertainty ratings stand, given its reliance on Eli Lilly to invest in sales and marketing of lead product, Axiron.