The market does not seem to realise yet the significance of the very high growth rate in net Axiron sales. The June quarter 2013 net sales result is 166% higher than the June quarter 2012, and given that there was no increase in the September quarter 2012, this should increase to well over 200% for the September quarter.
For the whole FY14, I estimate a net sales growth rate of at least 55% (55M, 62M, 68M & 73M in net sales for the coming quarters). The USA launch rebates are still being wound back, the combined growth of the US market is currently around 30% per year, Axiron's market share is still increasing and Axiron has been launched in Canada and Australia. Then there is an increasing royalty rate (Acrux has indicated that the royalty rate will increase as net sales increase). It is reasonable to assume that the current royalty rate of around 15% will rise to around 17.5% this year.
Based on my assumptions, the royalty payments for FY14 should be around US$40M . This is an increase of 186% from the $14M in FY13. Combined with the milestone payment of US$25M this FY, total revenue should approach US$65M (around A$71M).
Assuming expenses and tax of $8M (it was only $3M for the Dec2012 half), NPAT for FY14 should be around A$63M (38cents/share). At the current share price, this represents a forward P/E of 9. For me, this is much less than half what it should be for a stock with the growth outlook of Acrux. I agree that normalised NPAT would be lower after deducting the milestone payment, but there is another milestone payment of $US50M due in FY15. Also, the increases in royalty payments should compensate for no milestones payable in FY 16. If paid, the FY15 milestone payment would mean NPAT of over $A100M in FY15.
Given the low expenses for Acrux , the free cash flow should allow for some pretty serious dividends to be paid to shareholders. A payout ratio of 50% in FY14 would amount to a dividend yield of 5.6% tax free. It is reasonable to expect this dividend to increase by 30% a year at least based on testosterone market growth alone. Not bad for a growth stock.
A further milestone payment of $US120M is expected to be paid around FY19 to FY22, but by then, the royalty payments will exceed this if they keep increasing by more than 30% per year.
All of the above are my estimates only. Please do your own research before making any investment decisions.
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