By Chris Shaw

Life science stocks are not the most preferred of plays in an uncertain economic environment but as with all sectors of the market it is necessary to sift through the sector to find those companies that have the potential to deliver solid investment returns even in the currently unfavourable market conditions.

This means companies with a differentiating factor stand a good chance and according to ABN Amro Morgans Acrux (ACR) is one such stock, the broker seeing the company as a standout in the sector and initiating coverage on the company with a Buy rating given the attraction of its technology that repositions existing drugs to deliver doses through the skin.

This is achieved via the company's Metered Dose Transdermal System (MDTS), the broker noting the system offers benefits not only for the patients but also via lower costs and shorter development timelines. The system is proving itself as the company already has one product on the market, a spray on treatment for menopause symptoms known as Evamist.

As the broker points out the product is targeting a market worth around US$1.4 billion and given the company has a solid partner in KV Pharmaceuticals there is hope peak annual sales can grow to something in the order of US$125 million given Evamist has advantages over rival products including a reduced level of irritation, flexibility and accuracy in dosage and cosmetic preference.

Given the outlook for the product the broker expects group revenue will grow to around $3.8 million this year, $6.3 million in FY09 and $19.5 million in FY10, which in that year would translate into a profit of around $8.1 million. As a bonus the broker points out the company has around $37 million in available cash, which should be enough to fund Acrux's operations until it becomes cash flow positive.

The company is not solely reliant on Evamist though as there are a number of other products in its pipeline as it targets the symptoms of menopause, male and female testosterone deficiency, chronic pain and deficiencies in the central nervous system.

As well the group has a number of partnerships in place and these deliver revenue from milestone payments and royalties as well as lowering the company's development costs. This spread of operations offers scope for additional commercialisation opportunities in the broker's view, which along with its Evamist product gaining traction in the marketplace should prompt a re-rating in the share price as there should be regular announcements of various development and trials results being released to the market to keep the interest of investors.

The broker values the stock at $2.09 and has set its price target at this level, which implies significant upside given the stock is currently trading at around the $1.20 level. At current levels the company has a market capitalisation of a little under $200 million, which explains a lack of coverage by brokers as evidenced by the fact no other broker or research house in the FNArena database has released a report on the stock this year.

Shares in Acrux today are weaker and as at 12.05pm the stock was 10c lower at $1.15 on modest volume, which compares to a trading range over the past year of $0.75 to $1.75.

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