From MS. Analyst Note 07/24/2014 Axiron net sales, as announced...

From MS.

Analyst Note 07/24/2014
Axiron net sales, as announced by Eli Lilly, for the quarter ended 30 June 2014 totalled USD 47.1 million, an increase of 19% on the previous quarter and slightly above our forecasts. This suggests a recovery of sales after the negative impact of the Drug Safety Communication, or DSC, issued by the U.S. Food and Drug Administration, or FDA, on 31 January 2014 on uptake of the product in North America. Notably, the FDA’s investigation of adverse events reported among men taking FDA-approved testosterone products and, in particular, the risk of stroke, heart attack (myocardial infarction) and death is still ongoing. However, the FDA advisory committee is scheduled to meet on 17 September 2014 to consider the evidence submitted by all stakeholders for a potential ruling on safety in early November. In addition, Acrux announced the appointment of a new chief executive officer and managing director, Mr. Michael Kotsanis, effective 3 November 2014. Mr. Kotsanis is currently the chief commercial officer of Synthon Holding BV in the Netherlands and brings 25 years of experience in the global pharmaceutical industry, which includes senior management roles in Hospira and Mayne Group.

Our fair value estimate of AUD 2.50 per share and investment thesis remain intact pending the release of full-year results on 21 August 2014. We do not consider Acrux to have a moat given its single-product focus, and limited control over sales under the Eli Lilly agreement, and reiterate our very high uncertainty rating. Nonetheless the stock is currently well below our fair value estimate which suggests it is undervalued