Acrux stuck in the twilight zone

The once darling of the biotech world has been condemned to walk with the living dead for some months at least after United States regulators voiced concerns about the safety of testosterone treatments.

The news sent Acrux (ACR) plummeting another 7.9% to a near four-year low of $1.91 this afternoon following yesterday’s 10.3% crash. The two-session loss is the biggest since August 2012 and the forth worst fall on record for stock.

The US Food & Drug Administration (FDA) is investigating the link between strokes, heart attacks and deaths in men taking FDA-approved testosterone treatments.

Acrux, whose spray-on technology is licensed to Lily for the pharmaceutical giant’s new hormone therapy, believes investors are jumping at shadows as such reviews by the FDA are not uncommon.

Further, the biotech says that Lily regularly reviews the warnings on the label of its treatment and that these risks have been highlighted to doctors and patients.

Some would agree that the stock has been oversold. RBS Morgans believes the stock has fallen into “buying territory” and risk-tolerant traders might do well buying the correction.

However, it is hard to see the stock making much of a recovery until the FDA concludes its investigation, which is expected to last for several months.

While Lily can continue to sell its treatment, there is a real risk that demand for such products will fall substantially, just like what happened to hormone replacement therapies (HRTs) a decade ago.

Canaccord Genuity noted that the health scare surrounding HRTs for women led to a significant drop-off in the sale of such treatments for several years, even though these concerns were later found to be baseless.

The timing of this development couldn’t have come at a worse time for Acrux as there are already concerns that the testosterone replacement market was slowing faster than analysts had predicted.

The stock looks cheap and one would imagine it would rebound at some stage. The problem is timing and time is on the side of those thinking about buying Acrux.

Acrux is part of the Uncapped 100.