Acrux Limited tumbles on negative news reports: Should you buy?

What: Shares in Acrux Limited (ASX: ACR)are down around 24% in early trade after news reports in the United States that a U.S. Food and Drug Administration (FDA) advisory panel had voted to recommend new label warnings for testosterone therapy drugs.

What now: The reported cause of concern amongst the advisory panel was that testosterone therapy prescriptions were being prescribed to men who had general problems related to ageing rather than de facto low testosterone levels.

Rapidly growing testosterone therapy sales in the U.S. over the past few years suggest health warnings on medications have not put off men looking to avoid the perceived negative impacts of ageing, or improve their sex drive and energy levels.

What of the outlook: It looks likely the FDA will act in response to the advisory panel’s recommendations. However, the key question remains as to whether any additional health warnings or advisory statements will reduce demand amongst men for a therapy that is perceived, rightly or wrongly, to have beneficial impacts.

Despite the widely known issues around potential adverse side effects, sales of Axiron were up almost 20% for the quarter ending June 2014, compared to the prior quarter.

Drugs like Axiron already carry heavy health warnings and how any wording changes are potentially implemented by the FDA is not yet known. Another issue reportedly within the FDA’s control is to implement controls on how the drugs are marketed and advertised, which could have an impact on sales.

The bottom line is that it’s hard to say how much any potential changes over advisory warnings and prescription guidance will limit the sale and demand for testosterone therapy.

Trading at $1.30 investors are clearly expecting substantial sales falls for Acrux’s key product of Axiron. The news flow and exactly how sales progress will be the key driver of the share price going forward and Acrux remains a high risk play.

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

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