I don't have the answer, but would like to know also. My LFS has had one similar looking to yours for months and was curious as to what is wrong with it and if it can heal. Here's a bump for ya though.
With a little luck...some TLC...and adaquate conditions I believe they can recover in time. I've never tried to heal one thats receeded like yours...but I've heard of folks that have had them recover. There are ways to remove the old skeleton...but if the remaining tissue is healthy I'd say let it gradually recover. Best of luck...