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Auxilium Pharmaceuticals, Inc. (AUXL - Analyst Report) reported earnings (including stock-based compensation expense) of 14 cents per share in the second quarter of 2013, below the year-ago earnings of 16 cents but well above the Zacks Consensus Estimate of a loss of 6 cents per share.

Revenues, which increased 29% to $100.5 million, were well above the Zacks Consensus Estimate of $91 million. Results were boosted by the recently acquired subsidiary, Actient, which contributed $27.3 million to second quarter 2013 revenues.

Quarter in Detail

Lead product Testim posted sales of $54.4 million in the second quarter of 2013, down 15% year-over-year. Testim revenues in the U.S. declined 15% to $53.2 million. Sales were negatively impacted by slowing growth of the testosterone replacement therapy (TRT) market.

Auxilium Pharma said that the TRT market growth rate was much slower than the company’s expectations. U.S. scrips declined 18% in the reported quarter. Testim’s market share in the second quarter of 2013 declined to 14% from 17.8% in the year-ago period.

The company terminated its U.S. co-promotion agreement for Testim with GlaxoSmithKline (GSK - Analyst Report). Auxilium Pharma also announced its plans for its new sales force allocation. While the Primera sales force will promote Testim and Edex covering 150 territories, the Innovia sales force will cover 60 territories and will sell Testopel and Osbon ErecAid. The Innovia sales force will also be responsible for selling Xiaflex for the Peyronie's disease indication, once approved. The Agilis sales force, covering 47 territories, will be responsible for selling Xiaflex for Dupuytren's contracture.

Meanwhile, Xiaflex U.S. revenues grew 26% to $15 million. Auxilium Pharma is working on expanding Xiaflex’ label. The company is currently seeking FDA approval for Peyronie’s disease - a response should be out by Sep 6, 2013.

Research and development expenses for the reported quarter increased 35.8% to $12.9 million due to higher spending on activities related to the Xiaflex multi-cord studies. Selling, general and administrative expenses grew 29% to $50.7 million mainly due to the Actient acquisition, higher marketing and advertising spend related to the potential launch of Xiaflex for the Peyronie's indication and higher legal costs.

2013 Guidance Updated

Auxilium Pharma now expects revenues of $363 million to $405 million (old guidance: $360 million to $415 million). Testim guidance was narrowed to $210 million to $225 million (old guidance: $210 million to $240 million). U.S. Xiaflex sales guidance of $55 million to $65 million remained unchanged.

The company now expects ex-U.S. and deferred revenues for Xiaflex of $13 million to $15 million (old guidance: $10 million to $15 million). Meanwhile, Testopel and other revenues are expected in the range of $45 million - $55 million and $40 million - $45 million, respectively.

Net income is expected in the range of $23 million - $28 million.

Auxilium Pharma remains on track to generate cost synergies of about $20 million from the Actient acquisition with the majority of these synergies expected in 2014.

Our Take

Auxilium Pharma’s second quarter results were strong barring Testim’s performance. Xiaflex sales improved and the Actient acquisition boosted revenues. Testim sales, while down from the year-ago period, did improve sequentially. Testim sales could improve in the second half of 2013 based on managed care wins.

Auxilium Pharma currently carries a Zacks Rank #2 (Buy). We expect investor focus to remain on Testim sales and the regulatory status of Xiaflex for the Peyronie’s indication. In our view, Auxilium Pharma’s chances of gaining approval for the Peyronie’s indication are high.

Other companies that currently look well-positioned include Questcor Pharmaceuticals, Inc. (QCOR - Analyst Report) and NPS Pharmaceuticals, Inc. (NPSP - Analyst Report).

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