Pharmaceutical business and testosterone therapy manufacturer Acrux Limited (ASX: ACR) jumped 10% in trade this morning as bargain hunters speculated on its ability to ride out the sales declines of its key product Axiron. This after Acrux's North American sales licensee, Eli Lilly, announced net sales of $39.5 million for the quarter ending March 31, 2014, down 27% on the prior quarter.
Axiron is an underarm spray used by men with low testosterone levels to boost energy and sex drive or treat other underlying medical conditions. Sales fell in its key North American market after the U.S. Food and Drug Administration (FDA) announced it was looking into the potential adverse impacts of FDA-approved testosterone therapies such as those produced by Acrux.
Sales figures for Q2 2014 will be critical in showing just how much of an impact the announcement has had, but selling for around five times projected earnings today, it remains an attractive proposition for those prepared to speculate the company's problems will be short term in nature.
As at June 2014 Thomson Reuters market data shows that the median forecast amongst six analysts covering the stock is a price target of $1.25 with a high estimate of $1.76 and a low estimate of $1.
Large institutional holders of the business like AMP Limited (ASX: AMP) and BT Investment Management Ltd (ASX: BTT) dumped considerable holdings in the stock earlier in the year. It's possible to hazard a guess they may have wanted to take some profits given the worst-case scenario. Swiss investment bank UBS AG (NYSE: UBS) has picked up a substantial amount in the wake of the heavy selling, suggesting it's comfortable with the company's long-term future.
The business has also been under heavy pressure from short sellers and the price jump may in part be a result of those short sellers closing out positions as the price rebounds. The king carrot for those prepared to back the business at today's potentially bargain prices is that any capital gains realised by investors on the sale of Acrux shares will not be included in their assessable income for that year. This is because Acrux has concessionary tax status as a Pooled Development Fund.
Acrux is not the only high-risk, high-reward proposition for long-term investors…
