Smaller Loss at Auxilium Pharma
Auxilium Pharmaceuticals, Inc. (NasdaqGS:AUXL - News) reported a third quarter loss of 8 cents per share, well below the year-ago loss of 27 cents and the Zacks Consensus Estimate of a loss of 21 cents. Higher revenues boosted performance. Revenues, which increased 24.4% to $66.7 million, were marginally above the Zacks Consensus Estimate.
Quarter in Detail
During the reported quarter, total Testim sales increased 12% to $53.6 million. Testim revenues in the US were $52.9 million.
However, Testim faces significant competition in the form of Abbott’s (NYSE:ABT - News) AndroGel. With the entry of additional competition in the market, Testim’s market share in the US at the end of September 2011 was 20.8%, down from 21.9% in the year-ago period. Auxilium Pharma expects Testim revenues to exceed $200 million in 2011, up from $193 million in 2010.
Meanwhile, Xiaflex sales came in at $13.1 million, including contract and ex-US revenues. US revenues came in at $10.3 million. Although Xiaflex continued to gain market share of overall procedures, we were disappointed to see a sequential decline in total Dupuytren's procedures. Third quarter procedure volumes are typically flat on a sequential basis.
In addition to the US, Xiaflex is available in several other countries including the UK (trade name Xiapex), Germany, Austria, Denmark, Finland, Norway and Sweden. Auxilium Pharma achieved a $7.5 million milestone payment from partner Pfizer (NYSE:PFE - News) on the first sale of Xiapex in Spain. So far, Auxilium Pharma has earned $60 million in regulatory milestone payments from Pfizer and is eligible to receive an additional $15 million on Xiaflex’ launch in the remaining major markets of the EU.
Auxilium Pharma is working on creating and increasing awareness among physicians and patients about Xiaflex. The company continues to present data on the clinical profile of Xiaflex. Xiaflex is also in a phase IIIb Dupuytren's contracture multicord study - top-line results should be out in the second half of 2012.
Besides this, Auxilium Pharma is providing a Xiaflex sample to physicians who have not used the product and are not willing to go through the reimbursement process. The company also launched a new program in September that will cover out-of-pocket costs of patients for Xiaflex up to $1,000 per injection. A direct response TV campaign is scheduled to commence on November 7 in select market-ready cities.
A major part of Xiaflex revenues will be generated in the US. However, Auxilium Pharma now expects lower Xiaflex revenues in the US. The company currently expects Xiaflex US revenues towards the lower end of its previously issued guidance range of $45 to $50 million. The implementation of a permanent CPT code, potentially in January 2012, could help smoothen the reimbursement process. However, we expect the implementation of the CPT code to have a modest impact on Xiaflex sales.
Auxilium Pharma is working on expanding Xiaflex’ label. The company is currently conducting phase III studies with Xiaflex for Peyronie’s disease. Top-line results from the phase III program should be out in the second quarter of 2012.
In August 2011, Auxilium Pharma announced that it has dismissed all pending litigation against BioSpecifics Technologies Corp. (NasdaqGM:BSTC - News). Auxilium Pharma said that its 2008 development and license agreement with BioSpecifics for Xiaflex has been amended with the rights and responsibilities of the Joint Development Committee being specified clearly.
The companies said that they intend to move Xiaflex into studies for cellulite and human and canine lipoma. While Auxilium Pharma will initiate studies (phase Ib studies to commence in the first quarter of 2012) for the treatment of cellulite (edematous fibrosclerotic panniculopathy), BioSpecifics will initiate studies for the treatment of human and canine lipomas shortly. Auxilium Pharma also intends to move Xiaflex into a phase IIb study for the treatment of frozen shoulder syndrome later this year.
Meanwhile, research and development expenses for the reported quarter declined slightly to $14.2 million due to lower costs related to the development of a larger scale production process. Selling, general and administrative expenses increased 7.4% to $43.3 million mainly due to increased investment associated with the US launch of Xiaflex.
Although the company maintained its SG&A guidance range of $170 million to $180 million, we expect expenses to increase given the company’s efforts to promote Xiaflex. R&D spend is expected to increase to $60 - $70 million in 2011. The company continues to expect a loss of $40 - $45 million in 2011.
Neutral on Auxilium Pharma
We currently have a Neutral recommendation on Auxilium Pharma, which carries a Zacks #3 Rank (short-term Hold rating). Given the eventual slowdown in Testim growth, Auxilium Pharma’s future relies heavily on Xiaflex. However, Xiaflex’ performance continues to lag expectations. With Auxilium Pharma working on driving sales of the product, we expect investor focus to remain on Xiaflex.
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