Acerus Pharmaceuticals has a 270 per cent upside, says Mackie Research

A supply shortage of the company’s nasal testosterone replacement therapy will impact sales estimates over the next two quarters but the end result is but a small hiccup for Acerus Pharmaceuticals (Acerus Pharmaceuticals Stock Quote, Chart, News TSX:ASP), according to Mackie Research’s André Uddin, who on Tuesday reiterated his “Speculative Buy” rating and $0.50 target price.

Toronto-based specialty pharma company Acerus is marketing its key product Natesto in North America, with the replacement therapy’s launch in South Korea having been announced last month through Hyundai Pharm. Yet the company announced on August 2 that due to nonconformity discovered in four commercial lots of Natesto, Acerus is replacing those lots in its Canadian and South Korean markets (the US market is not affected), and thus, temporary shortages in the Canadian and South Korean markets is expected. Acerus management said that the shortage is expected to continue until the end of October 2019.

Acerus Pharmaceuticals Q3 and Q4 estimates lowered

The event —which Uddin notes has not resulted in a harmful product for users but only difficulties in dispensing and a lowering of the dosage— has prompted Uddin to lower his Q3 and Q4 revenue estimates, from $2.9 million to $2.1 million for Q3 and from $2.0 million to $1.7 million for Q4. The analyst says that he expects more clarity on the size of the inventory write-off on the company’s second quarter earnings call, to take place on Wednesday morning at 8:30 am EST.

“We expect ASP’s share price to trade down [on Tuesday] due to this development,” says Uddin in a client update on Tuesday. “Management remains committed to turning this ship around. Acerus recently entered into a US co-promotion agreement with Aytu Bioscience for Natesto which we view as strategically transformative and financially accretive to the company,” writes Uddin.

The analyst is calling for fiscal 2019 revenue and fully diluted EPS of $8.8 million and negative $0.05 per share, respectively, and fiscal 2020 revenue and fully diluted EPS of $21.0 million and negative $0.03 per share, respectively. Uddin expects ASP to be EPS-positive in 2021.

On Wednesday, Acerus reported its financials for the three and six-month period ended June 30, 2019, generating second quarter revenue of $1.3 million ($2.1 million a year ago) and an EBITDA loss of $2.6 million (a loss of $5.6 million a year ago). For the six-month period, total revenue was $3.7 million with an EBITDA loss of $5.9 million (the EBITDA loss for the prior year period was $9.4 million). Management chalked up the decline in second quarter revenue to a combination of a $0.7-million drop in product revenue and a $0.1-million drop in licensing and other revenue.

Acerus on July 30 announced that it and partner Aytu Bioscience had signed an amended and restated license agreement to allow Acerus to enter the US market directly and to co-promote Natesto to the US specialist (urology and endocrinology) market. Acerus said it would create U.S. specialty sales force with a minimum of 25 representatives.

Uddin’s $0.50 target represented a projected 12-month return of 270 per cent at the time of publication. As of early Wednesday, at $0.14 per share ASP is up 16.7 per cent year-to-date.