Acrux posts steady revenue growth

Melbourne-based Acrux (ASX:ACR) posted revenue of AUD$4.8 million for the year ended June 30, 2005, up $1 million from the previous financial year, but also saw an increase in its net loss from $4.2 million in the previous year to $6 million in 2004-05.

The revenue increase was due to a new grant under the Pharmaceutical Partnerships Program (P3), contributing $700,000, and interest income on higher cash reserves following the company's initial public offering (IPO) on September 29, 2004. Product revenues of $2.7 million included payments from Vivus comprising a licence fee of US$1 million under their licence for its estradiol transdermal spray product Evamist, and milestone payments totalling $US1 million for Testosterone MDTS, in the USA.

Total expenditure increased from $8 million to $10.8 million, reflecting increased activity on product development and commercialisation following the company's IPO which required additional staff and more work conducted by external contract organisations to run clinical trials.

"We took on a number of people to undertake this extra R&D activity, so we don't envisage big increases in staff numbers from here on in, but we certainly had quite an increase during the year," said Acrux's CFO Jon Pilcher.

The company's loss was lower than planned, due to cost savings in the clinical trial programmes for pain drug Fentanyl UDTS and Testosterone MD-Lotion for men, the postponement of an initial trial with Oxybutynin MDTS due to unsatisfactory formulation, and the deferral of an initial trial with an undisclosed central nervous system product.

Acrux's external research expenses increased to $4.2 million for the 2004-05 financial year, up from $2.5 million in the previous period.

"We've done clinical trials on many more products than we had a year ago. We use external organisations to physically run the trials so there was a lot more activity going on there," said Pilcher.

Advertising and marketing expenses almost tripled from $53,374 in 2003-04 to $280,471 in 2004-05. Pilcher attributed part of the increase to market research expenditure and said: "A number of our products are now getting to the stage where we really want to understand the market even better and get real in depth market research, which enables us to get a better deal with a partner."

He also said that Acrux's portfolio was at a point where the company could do more licensing deals, "so there's more expense involved in trying to go out and get those deals."

Acrux had cash reserves of $28.1 million in 2004-05, up from $6.6 million in 2003-04 reflecting net proceeds from its IPO of approximately $27 million. "We've got $28 million. I've said we want to keep a prudent cash reserve at all times, so I certainly wouldn't want to see that going below $10 million," said Pilcher.

The company has a number of milestones coming up in the next year, said Pilcher.

The company will be reporting on the progress of the Evamist phase III trial, and the filing of the New Drug Application by Acrux's partner Vivus "is not too far away", he said.

Acrux is expecting the US FDA to decide what is required for the phase III trial for its testosterone for women soon.

The company is also looking to license Fentanyl out and has "been discussing that with people", said Pilcher.

Acrux wants to secure a licence from the Population Council for its Nestorone contraceptive spray in order to continue its development and will be reporting on clinical progress for its Testosterone for men, with "a number of trials planned", said Pilcher.

"Financially, our key goal is to become sustainably profitable in the financial year 2007-08, so we haven't given formal forecasts for the next two years," he said. "That basically implies we've got two more years of losses."

Acrux's year

• Signed agreements for CSL to distribute Testosterone MDTS for women (July 2004) and Fentanyl UDTS (November 2004) in Australia and New Zealand.
• Raised $30 million new capital in IPO and listed on ASX in September 2004.
• Completed first clinical trial with Testosterone MD-Lotion for men in October 2004.
• New US patent granted in November 2004.
• Vivus began phase III clinical trial for Evamist in USA in December 2004.
• Completion of Fentanyl UDTS phase I trial program in February 2005.
• Achieved primary endpoint with positive results in Testosterone MDTS phase II trial in February 2005.
• Signed agreement with Napa Biosciences to develop dermatology products using Acrux technology (subject to Napa raising capital) in May 2005.
• Positive results in first clinical trial of contraceptive spray, Nestorone MDTS, in collaboration with Population Council in June 2005.