Readers may be aware that the US Food and Drug Administration (FDA) is investigating testosterone products and possible links to stroke, heart attacks and death in men taking FDA-approved testosterone products.
This investigation includes products developed by Aussie company Acrux Limited (ASX: ACR), and the news sent its shares down to a 52-week low of $0.75 earlier this year.
Investors were concerned that sales of Acrux's testosterone products would vanish in the wind; a fear that the most recent sales figures appear to have alleviated.
Although the share price has recovered somewhat, Acrux is still down 48% for the year as of today, and by most metrics represents a great buying opportunity. Let's take a look:
The What
- Patented drug skin application method; sprays deposit drug on the skin, where it penetrates for long acting delivery
- Three products already developed and being sold in Europe and the USA
- Further products under development
- Pooled development fund – income is tax-exempt for investors
The Pros
- The stock is on sale, down 48% overall this year, and trading 34% below Morningstar's intrinsic value estimate
- Rapidly growing earnings make the company look even cheaper in future periods
- Tax advantages derived from Acrux's status as a Pooled Development Fund
- Dividend yield of 5% based on normal dividends in the past year (excluding special dividends)
- Other drugs in development including non-melanoma skin cancer drug and anti-fungal nail infection treatment
- Partnered with pharmaceutical giant Eli Lilly and Co (NYSE: LLY)
The Cons
- FDA investigation could have a negative effect on sales in the key U.S. market
- Attracts a lot of speculative interest from traders, which can cause wild price swings
- Competition from other forms of testosterone therapy (drug and otherwise)
It's worth noting that the primary risk to Acrux, the ongoing FDA investigation, is not as serious as it might first appear.
All drugs undergo rigorous scientific testing before approval both here and overseas to meet stringent criteria for patient health and safety.
The initial approval is not a minor hurdle and I give even odds of testosterone product sales continuing as they are, or at worst becoming contra-indicated for certain age groups or health conditions.
Acrux certainly has plenty of get up and go left in it, but it has a long way to go before becoming a stock worthy of that eminent investor, Warren Buffett.
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