(AUXL) Auxilium Pharmaceuticals Reports Narrower Loss

Auxilium Pharmaceuticals, Inc. (AUXL) reported a third quarter loss of 27 cents per share, narrower than the Zacks Consensus Estimate of a loss of 30 cents and the year-ago loss of 35 cents. Higher revenues helped the company post a lower loss. Net revenues increased 27.3% to $53.6 million in the quarter, short of the Zacks Consensus Estimate of $55 million.

Quarter in Detail

During the reported quarter, Testim sales in the US grew 17.9% to $47.4 million, mainly due to price increases and higher demand. Prescriptions increased 7.9% from the year-ago period.

However, Testim faces significant competition in the form of Abbott’s (ABT) AndroGel. We note that Testim’s share of the US testosterone gel market declined in September. According to IMS Health, Testim exited the month of Sep 2010 with a 22% share of the US testosterone gel market, down from the 22.3% share in the year-ago period.

Worldwide Testim revenues were $47.9 million (up 16.3%). Auxilium expects Testim revenues in the range of $185 million to $195 million in 2010.

Meanwhile, the sales ramp of new product, Xiaflex, continues to disappoint. Xiaflex received US Food and Drug Administration (FDA) approval for Dupuytren’s contracture in February 2010 and was launched in March.

Xiaflex sales came in at $5.7 million Incorporatedluding $1.1 million related to the amortization of upfront payments related to the out-licensing of Xiaflex to Pfizer (PFE). Total Xiaflex revenues were towards the lower end of the $5.5?$6.5 million guidance range issued by the company.

Reimbursement issues continue to hamper Xiaflex’s uptake. The implementation of the Xiaflex J-code from January 2011 could help improve uptake. Longer term, the implementation of a permanent CPT code, potentially in 2012, could help smoothen the reimbursement process and drive uptake. However, till then, we expect Xiaflex ramp-up to remain slow.

Auxilium reported that about 2,093 physicians have received training on using Xiaflex. The company is working on gaining formulary coverage for the product. Auxilium estimates that about 91% of insured lives have formulary access to the product. Auxilium expects Xiaflex revenues in the range of $7.0?$7.5 million in the fourth quarter Incorporatedluding the $1.1 million recognized by the company related to the amortization of upfront payments received from Pfizer.

Xiaflex sales in the fourth quarter could be impacted by factors like a continued slowdown in elective surgeries, the November?December holiday season and the deferral of treatment to January 2011 when the new J-code will be implemented. Xiaflex is currently under regulatory review in the EU with approval expected in 2011.

Auxilium recently moved Xiaflex into phase III studies for Peyronie’s disease. Top-line results from the phase III program should be out in the first half of 2012.

Meanwhile, both research and development and selling, general and administrative expenses increased during the reported quarter. While research and development expenses for the reported quarter increased 12.5% to $14.4 million, selling, general and administrative expenses increased 16.1% to $40.3 million mainly due to increased investments associated with the US launch of Xiaflex. Auxilium is working on creating and increasing awareness among physicians and patients about the product. Higher R&D spend reflected the initiation of phase III studies with Xiaflex for the Peyronie’s indication.

Neutral on Auxilium

We currently have a Neutral recommendation on Auxilium Pharma, which is supported by a Zacks #3 Rank (short-term “Hold” rating). Although we believe Testim could achieve a 25% market share, tough competition and the potential for a generic alternative beyond 2011 could limit the ultimate potential of the drug. Given the eventual slowdown in Testim growth, Auxilium’s future relies heavily on Xiaflex. Going forward, we expect investor focus to remain on the successful commercialization of Xiaflex, and label expansion of the product for additional indications.

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