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Acrux Limited – Is this to be avoided after the result crash?

Sep 30, 2015 | Team Kalkine
Acrux Limited – Is this to be avoided after the result crash?

Results for FY 2015


 
Acrux Limited (ASX: ACR) reported its results with cash amounted to $ 23.1 million compared to $ 25.8 million in the previous year. Revenue fell to $ 25.4 million compared to $ 53.9 million because milestone revenues fell to 0 as compared to $ 28.7 million in the previous year. Expenses were $ 8.6 million compared to $ 10 million in the previous year resulting in net profit before tax of $ 16.8 million ($ 43.9 million) and net profit after tax of $ 11.1 million ($ 28 million). EPS declined to 6.7 cents per share compared to 16.8 cents per share in the previous year and the dividend was 6 cents per share compared to 20 cents per share in the previous period. The balance sheet continues to remain strong with $ 23.1 million in cash and zero debt. The forecast is net operating cash inflow (excluding dividend payment) for the first half of FY 2016, no material increase in operating costs and increased project costs as projects progress to the clinic. The company has declared a dividend of 6 cents per share fully franked and the chairman said that the company is pleased to declare a tax-free dividend choosing the year with a strong cash position.


Income and Expense (Source: Company Reports)

The operating results showed total revenue of $ 24.4 million compared to $ 53.9 million in the previous year. Revenue from royalties was $ 24.6 million ($ 24.7 million in 2014) and interest income contributed $ 0.6 million ($ 0.5 million in 2014). Loyalty revenue from Axiron was $ 24.3 million ($ 24.5 million in 2014), Operating expenditure totalled $ 8.6 million ($ 10 million in 2014). Royalty payments due to the Monash trust declined to $ 0.9 million against $ 1.8 million in the previous year in line with the reduction in product income. Expenses on employee benefits increased to $ 2.7 million ($ 2.3 million in 2014) as a result of the general increase in staff salaries in line with the CPI and the recruitment of a new CEO. Directors fees declined to $ 0.4 million ($ 0.6 million in 2014) because of the Chairman relinquishing his executive capacity and the resignation of one non executive director. Professional fees increased to $ 0.7 million ($ 0.3 million in 2014) as a result of strategy investments and the legal costs incurred in the dispute with Hexima. Income tax expense was $ 5.7 million ($ 15.9 million in 2014) in line with the reduction in consolidated profit before tax.


In-use Dose (Source: Company Reports)

Net cash provided by operating activities came to $ 10.5 million ($ 36.4 million in 2014) and net cash outflow was $ 2.9 million (net cash inflow of $ 3 million in the previous year). Payments to suppliers and employees declined to $ 6.5 million ($ 6.7 million in 2014) and income taxes paid declined to $ 8.9 million from $ 10.8 million in the previous year. The outflow of cash for financing activities includes payment of $ 13.3 million ($ 33.3 million in 2014) of dividends comprising 8 cent final dividend for FY 2014.


Performance Overview (Source: Company Reports)
 

Other developments

Among the fundamentals of the company are the right ideas and projects including a new ideas committee, pre-agreed screening criteria, stage gate approach for rapid review and deep due diligence on selected projects and credible business case. The right organisational structure consists of refining organisational needs, identifying functions which are not required or can be outsourced, identifying functions where resources are underweight and focusing resources on product development.
 
In the anti-fungal development programme, in the project Antifungal Topical Product, the indication is for treatment of onychomycosis in finger nails and toe nails and the formulation is solution for topical administration with a dosage of once a day. The target profile is fast drying time with no residue, easy and convenient delivery, better efficacy than comparative products, once daily application, low systemic absorption and long patient life with new intellectual property. In the project, Topical Diclofenac with superior delivery profile, the daily dose of Acrux Diclofenac formulation is 34 times lower than approved comparative spray but provides a similar permeation profile. A single spray of the formulation has been shown to match 15 sprays of the approved comparative spray (maximum daily dose). In the project, topical ibuprofen with superior delivery profile, Acrux Ibuprofen product formulations demonstrate faster uptake through the human skin compared to existing competitors.
 
The generic topical or transdermal pipeline project is multiple identified generic targets and the indications are various based on existing approved and marketed drugs. The dosage is the same as the comparator. Generic development opportunities are identified through a screen of the universe of marketed topical/transdermal products and once initial products have been identified, the development has been initiated. For competitive reasons, the details of the identified pipeline have not been disclosed. However, the generic pipeline leverages existing technology, skills and the infrastructure within the company.
 
The Company recently also announced about marketing approvals being received for Lenzetto® triggering milestone payments of USD 2 million.
 
We're concerned about the poor sales numbers and the report from its US commercial partner Eli Lilly shows a worrying picture about the future prospects of the company. Stringent requirements issued by the US Food and Drug Administration (FDA) with regards to testosterone therapy products such as Axiron, seem to also have affected the share price in the recent past. In addition to this, the results clearly demonstrate that all the metrics are going downhill with no prospects for optimism in the near future. Accordingly, we recommend that you sell the stock at the current price of $0.57.
 

ACR Daily Chart (Source: Thomson Reuters)

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