Acrux looking to post maiden profit
Acrux Limited (ACR) said the deal with US-based top-10 global pharmaceutical company Eli Lilly announced last week was the beginning of a new era as it forecast a maiden profit of $44 million to $48 million for FY10.
The Australian drug delivery company said, in a presentation to Shaw Stockbroking, that entering the agreement with Eli Lilly for the potential commercialisation of Acrux’s experimental underarm testosterone solution AXIRON was the largest deal made by any Australian company in the biotechnology sector.
In exchange for these rights, Acrux is eligible for US$335 million, including an upfront payment of US$50 million, plus US$3 million on the transfer of manufacturing assets and US$87 million subject to issuance of marketing authorisation by the US Food and Drug Administration (“FDA”).
The company said it also eligible for $195 million in potential commercialisation milestones, as well as royalty payments on future global sales if AXIRON is successfully commercialised.
Acrux said the drug application is currently under regulatory review by the FDA for the treatment of testosterone deficiency (hypogonadism) in men.
With a distribution in 143 countries Acrux believes Lilly is the ideal partner, having already established leadership in men’s health through its erectile dysfunction therapy Cialis.
Cialis sales reportedly grew to $1.6 billion in 2009 to be placed in the top three in the market behind Viagra.
AXIRON also has the advantage of being the only product in the world delivered through the armpit.
Acrux CEO, Richard Treagus, said the company received a number of offers in its search for a global licensing partner and was confident in what Lilly had to offer.
“Something a lot of pharmaceutical companies want to do is sign a deal with one of these big gorillas,” Mr Treagus said.
“The company is established in men’s health, which stands us in good stead.”
Cialis’ track record, which included a 20% growth in sales numbers at the same time Viagra flat lined, was another factor.
“Right from the start the aim was not to run second or third in market,” Mr Treagus said in relation to Lilly’s objectives.
“It was to go right to the top.“
Another encouraging point for Acrux was the fact Lilly has a tendency to look at the product’s potential and whether it can be modified for other uses.
Given that the royalties include the perpetuity of anything developed from AXIRON and the technology used by Acrux, this could also have significant benefits for the company.
The company said 80% of the products market in the US, while Lilly also covers strong growth opportunities in Latin America and China.
“A lot more men are going to their general practitioner and getting tested,” Mr Treagus said mentioning that the population is ageing, while the test is also cheap and reliable.
“They (patients) are also getting comprehensively reimbursed.”
Acrux expects the outcome of the FDA review in 1QFY11 and the product launch in 2HFY11.
“For us it was an incredible return of investment,” chief financial officer Jon Pilcher said referring to the fact the company invested very little in AXIRON when compared to the potential return.
“This deal has completely transformed our financial position.”
Acrux forecast a significant reduction in costs in FY11 and when questioned on the risks surrounding the FDA decision Mr Treagus was clear.
“There is always a residual risk with the FDA,” he said.
“I think we’ve been diligent and we believe our product is certainly better than the market leader.”
Subject to FDA approval Acrux expects to pay it first dividend in 2011, which would be exempt from tax, while the company joined the ASX/300 last Friday in what has been a historical week for Acrux.
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