Acrux lures a heavy hitter

Lang Walker, the property billionaire who made his fortune with Mirvac Corporation, has popped up on the register of biotech Acrux as a significant shareholder. Just as the wider biotech sector is struggling, Acrux is enjoying buy recommendations, a product launch in the US and the extra excitement of takeover speculation.

Walker Group Holdings spent more than $6 million to buy about 7.4% of Acrux when the 9% stake of its non-executive chairman, Ross Dobinson, was seized and sold by ANZ after the Opes Prime collapse. Dobinson, who had held 15 million shares, has since bought back 3.36 million shares from Walker and says he is “mildly perturbed” by the experience.

With Walker now holding 5.3% and the Bermuda-based Orbis Global Equity Fund holding 19%, Dobinson says having the big hitters on the books makes Acrux more robust.

Walker spends much of his time developing ski field projects in Canada and the US, and was unable to comment on the buy. According to the BRW Rich 200, he realised $1.2 billion from the sale of property assets and development projects to Mirvac Group in late 2006.

Acrux listed on September 29, 2004, at $1 a share and is now trading at $1.06, valuing the Melbourne-based firm at about $168.8 million. Like most biotechs, it’s had a rocky 12 months, with Dobinson describing the market over the past three or four years as “appalling”. A year ago it was trading above $1.70, but dropped below 80¢ in March.

“We’re actually pretty excited about where we’re at now. It takes a lot of patience, really, to sit over a decade and say, 'We’re almost there, we’re almost there’. But now we’ve got the first product on the market and a whole range of other products imminent,” he said.

Acrux has created and patented the Metered Dose Transdermal System, which delivers drugs through the skin. Dobinson says: “The great thing about transdermal delivery is it’s invisible; it’s non-confrontational in the sense that ingesting or injecting something really goes against the grain, whereas if you spray it on to the skin, you don’t see it, you don’t feel it, you don’t taste it.”

Stockbroker Patersons Securities said last year: “We believe ACR’s drug delivery platform will continue to attract the interest of bid pharma partners seeking to reinvigorate some of their pharmaceutical products, particularly those that are nearing patent expiry. As a consequence, we would not be surprised if, at some stage, one of the big pharma companies considers making a bid for ACR in order to secure this technology.”

The new Acrux product on the US market is EvaMist, which treats menopause symptoms. The company’s product pipeline includes a male testosterone product, testosterone for the treatment of female sexual dysfunction, a chronic pain relief product, veterinary products, an anti-smoking product and female contraceptives.

ABN-Amro recently rated Acrux a buy, with a target price of $2.09, saying the company is cashed up, its pipeline is strong and its shares have been sold down.

The co-editor of Bioshares, Mark Pachacz, in a recent (see Tasty Australian biotechs) described Acrux as a target, describing it as “significantly undervalued”.

Intersuisse analyst Darren J. Grubb says Acrux is “one of the better” companies in the biotech sector, having developed a “very elegant technology with multiple applications”. Acrux has a “quite definable risk profile”, Grubb says, and is one of the few companies that “has demonstrated price inclination”.

Although reluctant to nominate Acrux as a takeover target, Grubb did say companies that have licensing deal, a product in the market and demonstrable sales are clear targets.

Alison Coutts, a co-founder of the specialist biotech consultancy eG Capital, agrees, describing Acrux as one of the most prospective Australian-listed companies. Coutts says Acrux has a “very good” reputation in the industry because it has a “something that works” and various licensing agreements. She adds that Acrux is viewed as largely de-risked, and so could become a target.

Among analysts, potential bidders include Japanese giants, GlaxoSmithKline and Watson Pharmaceuticals. Another is Solvay Pharmaceuticals, which control about 80% of the US male testosterone drug market.

Dobinson says he does not believe a takeover is imminent, but adds that Procter & Gamble and Novartis are “logical candidates” among potential bidders. “I think it’s unlikely to be a Japanese company – although you can never rule anything out – because the Japanese tend to be fairly focused on their own domain,” he says.

“If you add EvaMist to male testosterone, and you look at the other products in the pipeline such as female testosterone, you’ve got a strong hormone category, which is probably in alignment with several big pharmas’ product pipelines.”