Excellent analysis @MarsC I first became alerted to ACR when...

Excellent analysis @MarsC

I first became alerted to ACR when Fred Woollard became a substantial holder some 4 months ago. Although his fund allocation of ~1.5% is perhaps indicative of the similar caution felt by you (and I).

There are a number of aspects which appeal to me about ACR as an investment. Not least of which is the sombre, even depressive mood of current long term shareholders. I must say, after browsing threads such as MSB it's highly refreshing to read of shareholders drained of their last remnants of optimism. In fact, it's fair to say that optimism accounts for absolutely zero in the pricing of this stock.

I like the company focus on the relatively low-cost, short runway of developing generics. Their stated aim of diversification is also coming to fruition with the increase from 5 to 12 products in development over the past year or so. Given the strong margin profiles, even accounting for R&D costs, one would think only a small fraction need to reach commercialisation for revenues to reach a long term self-sustainable level.

One aspect which is also arguably holding back new investors and frustrating existing holders is the lack of news. As noted in the investor presentation from February, non-disclosure of products in the pipeline is standard procedure in the industry for avoiding competition. Being the first generic to market makes it commercially much more attractive. So news flow will naturally be limited during heavy development phases such as now.

With an expected annual cash burn of $12-14 million, a run-way of about 2 1/2 years is provided before current cash is depleted. My investment thesis is based on increased revenue from Lanzetto and further revenue streams from the manufacturing of multiple new products over the coming 6-24 months.

With 3 products currently in manufacturing stage and the streamlining of FDA licensing to 10 months, I'm confident Acrux, as a bare minimum will maintain a cash surplus for many years to come.

One aspect I will maintain a close eye on is any shift from their primary focus on generics. The stated aim of funding the generic pipeline, as opposed to going to market to fund more complicated, longer duration non-generic projects is both conservative and its major appeal, in my mind. Any detour from this path will see me exit. Although listening to the investor presentation, I am confident this won't be the case. But worth keeping an eye on.

As noted by MarsC, ACR appears one of those asymmetric investments whereby the cash buffer, industry know-how and focus on diversified revenue streams provide minimal downside risk at this price. It's priced to do very little and in a worst-case scenario, it may just do that and you get your money back to play again. I like those kind of games.