Lilly buys right to underarm lotion for low sex drive

Eli Lilly & Co., the maker of the impotence pill Cialis, bought exclusive rights from Australia’s Acrux Ltd.
to an underarm testosterone lotion called Axiron for men with limited sex drive due to low levels of the hormone.

Indianapolis-based Lilly will pay Acrux a $50 million license fee plus $3 million when manufacturing assets are transferred,
the companies said Monday in a statement. Acrux may earn $87 million more if U.S. regulators approve the drug for marketing,
$195 million in commercial milestone payments as well as royalty payments on future sales, the companies said.

Acrux filed a marketing application with the U.S. Food and Drug Administration in January, seeking to enter a global market
for testosterone therapies worth more than $1 billion a year. A study in 2006 found that at least one third of American men
older than 45 years have low testosterone. The problem can sap sex drive and cause impotence, osteoporosis and memory loss,
according to the Mayo Clinic in Rochester, Minn.

If approved, the product “could provide a new treatment option for men suffering from low testosterone,” said
Bryce Carmine, president of Lilly’s Bio-Medicines.

Results of a clinical trial released in September showed Axiron normalized testosterone levels in 84 percent of men after
four months.

Acrux, which has never made a profit, was spun off from Melbourne’s Monash University a decade ago. It has 30 employees.

Acrux won’t be asking investors for more money to develop its other products, CEO Richard Treagus said in a telephone
interview today.

“We’ve got no intention to go back to the market and raise funds,” he said. “This licensing deal
with Lilly certainly strengthens our balance sheet. It establishes a strong basis for what I believe is future sustainable

The company’s agreement with Lilly is the largest licensing deal ever stuck by an Australian biotech company, and is
a “new high water mark for Australian biotech” in terms of its size, said David Blake, co-editor of Bioshares,
a weekly report on Australia’s health-care industry. He owns Acrux shares.

“Our expectation is you’re going to see a whole new range of investors come into the stock, and they’ll
look at the stock very differently to how many smaller investors have,” Blake said in a telephone interview. “Those
new investors are more likely to be institutional investors who have a different requirement in terms of the quantum of stock
that they want to purchase.”

Royalties from sales of Axiron, which Lilly and Acrux didn’t disclose, are likely to be in the “high teens, low
20s” in percentage terms, Blake said.

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