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Jelena Stevanovic
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Short ‘n’ Sweet – Acrux revisited
05/06/2014
by Jelena Stevanovic
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One of our regular features in the Switzer Super Report is our Fundie’s Favourite, where we ask a fund manager for the inside scoop on a company that they hold. Professional investors often have opportunities that retail investors can only dream about – how often would you get to meet the CEO of a company you want to invest in, for example?

But professional investors, just like retail investors, can get it wrong some times. Last year Platypus Asset Management portfolio analyst, Jelana Stevanovic, wrote about medical company Acrux. Acrux works on new delivery mechanisms for medicines that enable them to be administrated transdermally through fast drying invisible sprays and liquids. Unfortunately, that investment didn’t pan out as planned and they divested it a few months later.

The reasons they outline below provide a useful lesson in knowing when it’s time to sell. And Platypus Asset Management isn’t an underperforming asset manager by any means, it’s prudent strategies like this i.e. knowing when to sell, have contributed to an annual return of 14.3% after fees (to end April), compared to a 10.1% return by the S&P/ASX300 Accumulation Index.

How long did you hold Acrux?
We held Acrux for approximately five months in the early part of 2013. However, we exited our position shortly after that when it became obvious that the market share recovery was short lived and that the topical testosterone replacement therapy market was slowing down. This sell down is in line with Platypus’ disciplined strategy to exit a stock, if it isn’t delivering its pre-defined return targets.



Acrux (ACR)


What don’t you like about ACR?
The convenient mechanism of delivery for topical testosterone treatment Axiron and partnership with proven player Eli Lilly made it a strong investment proposition. However, Axiron struggled to grow its market share beyond 14% and while Eli Lilly managed to outgrow the number two product in the US, the dominant player, Abbott’s Androgel defended its leading position and its market share didn’t fall below 60%.

Eli Lilly’s inability to drive Axiron’s market share beyond the initial peak of ~13-14% coincided with a slowdown of the topical testosterone replacement market in the US.

How is ACR better than its competitors?
Unlike a vast majority of emerging healthcare companies listed on the ASX, Acrux is cash flow positive and has three commercialised products. The maximum earnings potential of Axiron, its star product has been significantly downgraded over the past few months; however, the company is not facing an imminent funding risk like most of its peers.

In addition, Acrux’s technology enabled the company to develop Axiron, a proven testosterone replacement therapy in a much better delivery mechanism, which is not just confined to Axiron. This platform technology can be used to develop other products and ACR is already working on two other research initiatives.

What do you like/not like about ACR’s management?
Acrux’s management has successfully developed and commercialised products and is generating earnings. Unfortunately, the outcome of the Eli Lilly – Axiron commercialisation agreement did not work out as shareholders initially hoped. Axiron was not marketed by Eli Lilly’s men’s health sales and marketing team from the outset, meaning it didn’t receive the attention it needed in the first few months after the launch – the most crucial time for establishing market share.

What is your target price on ACR?
Given that maximum earnings potential of Axiron, ACR’s most material product has been substantially downgraded, we believe that ACR will continue to trade around $1/share. Positive announcements, such as a recovery in the market share of Axiron, topical testosterone prescription growth, positive clinical trial outcomes, etc. could be a catalyst for share price outperformance going forward.

At what point did you sell it?
We exited our position in July 2013 once we saw evidence that Axiron’s market share recovery was short lived, and that the topical testosterone market continued to decline, slipping into negative growth territory.

Where do you see the value?
Acrux’s platform technology along with company’s intellectual property, such as Axiron underarm patent could potentially provide value, as the company may be able to develop new products.

Is there anything else you would like to say about Acrux?
Acrux demonstrated to Platypus, once again, how important it is to execute well on every step of pharmaceutical product development, including commercialisation and marketing. Acrux’s management successfully executed on product development and secured global regulatory approvals. The company also entered into a commercialisation agreement with a global partner known for success in men’s health. However, the fact that Axiron did not sit in Eli Lilly’s men’s health division, among other issues, prevented Axiron from achieving market share anywhere near the number one player.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.