Shares in testosterone therapy manufacturer Acrux Limited (ASX: ACR) crashed more than 15% on Friday as the company was removed from S&P / ASX All Australian 200 Index and went ex-dividend the day before.
The company's removal from the index may have led to some institutional selling of the stock by fund managers who are required to meet certain investment guidelines in terms of allowable asset allocations, weightings and ranges. Another company removed from the index on Friday, Maverick Drilling and Exploration Ltd (ASX: MAD), saw its shares drop more than 7%.
Acrux also went ex-dividend on September 4 and has come under selling pressure since given the lack of rights to an 8 cents per share annual payout.
Selling is also likely the result of the considerable regulatory risk still faced by Acrux. This with a U.S. Food and Drug Administration (FDA) Advisory Committee scheduled to meet on September 17 to discuss the safety of testosterone replacement therapy.
The FDA will reportedly consider the input of the Advisory Committee before making a decision on any action needed, although there is no definite time scale as to when that decision may come.
Acrux's key product, Axiron, already comes with heavy health warnings in its key U.S. market. It is also now being marketed in Brazil, Canada, South Korea, Germany and Australia, where it is available by prescription under the Pharmaceutical Benefits Scheme.
The product's popularity comes about from its ease of use as an underarm spray. While the fact that it improves the energy levels and sex drives of middle-aged or older men is indicative of why its sales have been on a strong growth trajectory in the giant U.S. market. In FY14 sales were up 46% on the prior year, despite the impact of the Drug Safety Communication by the FDA.
In March 2014 the company paid a special dividend of 12 cents per share after receiving a US$25 million milestone payment under its licensing agreement terms with U.S distribution partner, Eli Lilly.
Acrux is also eligible for an additional US$50 million milestone payment under the licensing agreement if certain sales hurdles are met in FY15. Evidently shareholders could expect a big pay day in the form of another special dividend under this scenario.
At $1.61 Acrux sell on just 9.6x 2014's earnings per share of 16.8 cents on a trailing yield of around 5% (excluding special dividends). If the FDA's investigation results in a positive outcome for Acrux then it seems reasonable to believe that sales will maintain an upward trajectory and the company will look attractive at today's prices.
Acrux shareholders do not pay tax on dividends or capital gains either as it has pooled development fund status.
