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Acrux Limited reports full year results: Should you buy?

What: Shares in testosterone therapy manufacturer Acrux Limited (ASX: ACR) have climbed more than 20% in the past five days and more than 120% over the past three months to trade at $2.02 today. This after the group announced sales of its key testosterone-therapy product, Axiron, grew strongly in the most recent quarter to June 2014.

Today the group announced a full year profit before tax of $43.9 million and final tax free dividend payout of 8 cents per share. Capital gains in Acrux shares are also completely tax free thanks to its legal status as a Pooled Development Fund.

Now what: Many investors have pegged Acrux as a one-trick pony and a risky one-trick pony at that given the safety of its key product (testosterone therapy) is currently being reviewed by the U.S. Food and Drug Administration (FDA), which is the health regulator and product licensor in its key U.S. market.

However, yesterday Acrux announced that another product it produces and sells globally, Estradiol, has been granted marketing approval in South Africa.

Moreover, the group’s key Axiron product is now being marketed in Australia, Brazil, Canada, Germany and South Korea, which collectively comprises more than half the U.S. market value. Over time Axiron clearly has a large growth runway if it becomes widely used.

What of the outlook? Assuming that the FDA investigation does not result in catastrophic consequences for Acrux, in my opinion it’s likely that Axiron will continue to deliver sales growth in its core U.S. and other global markets.

An FDA advisory committee is scheduled to meet in September to consider the safety issue, but it may be several months after that before any firm decision is reached.

Given the lack of urgency it would appear on the balance of probabilities that products like Axiron will continue to be sold perhaps with stricter conditions.

The product already contains heavy health warnings over potential adverse side effects, but given the growing popularity of testosterone therapy and Axiron’s key advantage, its ease of use, sales could be expected to pick up again over the long term. If Acrux is able to negotiate the obstacle course ahead, shares could rocket significantly higher by 2015.

Acrux remains a potential high-risk/high-reward proposition, but the fact it still has the FDA investigation hanging over it may put some investors off. If you’re looking for potentially high reward stocks with definitely no prospect of an FDA investigation then why not consider three of our favourite resource and energy prospects to buy now?

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Motley Fool contributor Tom Richardson owns shares in Acrux Limited. You can find him on Twitter @tommyr345

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