EUR 850.00 For Business Accounts Only

Morningstar | Acrux Shares Fall Back to Earth on Patent Litigation Woes; FVE Unchanged at AUD 0.23

We retain our AUD 0.23 per share fair value estimate for no-moat Acrux following patent litigation brought against the firm by Valeant Pharmaceuticals, subsidiary of no-moat Bausch Health Companies and owner of antifungal topical treatment Jublia. This is not surprising. In early August, the U.S. Food and Drug Administration accepted for review Acrux's Abbreviated New Drug Application dossier for its generic version of Jublia, and Acrux flagged at the announcement that the patent owner, Valeant, had 45 days to file patent litigation. Despite falling more than 20% to close at AUD 0.22, shares in Acrux are now trading at a level we consider fair.

Litigation cases against biosimilar drugs like these are not uncommon, and at this point, we continue to include Acrux's generic Jublia product in our outlook for the firm. We still think onychomycosis--the infection treated by Jublia--is an attractive market, given prevalence of nail bed infections in the general population and limited treatment options available prior to the launch of Jublia. However, we expect this to be a competitively priced generic space, and our forecasts imply Acrux will carve out a 25% market share by fiscal 2020.

But it is possible Valeant's litigation could derail Acrux's aspirations in this market. The legal action triggers a 30-month stay against the generic launch, which can be cut short upon conclusion of the litigation. A prolonged legal battle could negatively impact the timing of our estimated cash flow forecasts for Acrux, while an adverse decision would lead us to completely remove the product from our forecasts. We're encouraged by Acrux's solid financial position, with AUD 28.5 million in cash on hand at June 30, 2018, but nonetheless estimate about AUD 8 cents per share of our valuation stems from the firm's generic Jublia. As such, we would likely lower our fair value estimate to AUD 0.15 should Valeant prove successful in blocking Acrux's entry into this market.