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Auxilium Pharmaceuticals, Inc. (AUXL - Analyst Report) reported fourth quarter 2013 earnings (including stock-based compensation expense) of 19 cents per share, beating the Zacks Consensus Estimate of 15 cents per share. The company had reported earnings of 14 cents per share in the year-ago quarter.

Fourth quarter revenues increased 56% to $125.9 million, above the Zacks Consensus Estimate of $111 million. Revenues were boosted by the recently acquired subsidiary, Actient, which contributed $43.7 million to fourth quarter 2013 revenues. Higher Xiaflex sales in the U.S. also contributed to the increase which was partially offset by lower Testim U.S. revenues.

The company reported full year earnings of 31 cents per share, beating the Zacks Consensus Estimate of earnings of 26 cents per share. Earnings came in at 4 cents per share in 2012. Full year revenues increased 32% to $400.7 million beating the Zacks Consensus Estimate of $384 million.

Quarter in Detail

Lead product Testim posted sales of $59.0 million in the fourth quarter of 2013, down 1% year-over-year. Testim revenues in the U.S. declined 2% to $57.1 million. Sales included inventory stocking worth $7 million - $8 million. Sales were negatively impacted by slowing growth of the testosterone replacement therapy (TRT) market.

The TRT gel market continues to slow down and the company said that the market grew just 1.4% in 2013, down from 31.4% growth in 2012. Moreover, so far in 2014 the market has shrunk 12.5%.

Xiaflex U.S. revenues grew 13% to $19.7 million.

While Testopel generated revenues of $25 million, Edex revenues were $8.9 million. Both are products gained through the Actient acquisition.

Research and development expenses for the reported quarter declined 2.3% to $12.9 million. Selling, general and administrative expenses grew 58.5% to $64.5 million mainly due to the Actient acquisition as well as higher marketing and advertising spend related to the launch of Xiaflex for the Peyronie's indication and Stendra.

2014 Guidance

Auxilium Pharma expects global net revenues of $450 million to $490 million in 2014. While R&D spend is expected in the range of $50 million to $55 million, SG&A spend is expected in the range of $255 million to $265 million.

Net income is expected in the range of $45 million - $50 million. Auxilium Pharma remains on track to generate cost synergies of at least $20 million from the Actient acquisition by 2014.

Our Take

Auxilium Pharma’s fourth quarter results were strong barring Testim’s performance. Xiaflex sales improved and the Actient acquisition boosted revenues. Xiaflex should do well in the Peyronie’s indication as well.

We are encouraged by the company’s efforts to build its urology portfolio. Stendra, in-licensed from VIVUS Inc. (VVUS - Analyst Report), is the first new chemical entity in the PDE5 inhibitor market in ten years. A fast onset of action (30 minutes), no specific meal restrictions, the ability to be taken with modest alcohol consumption, and a favorable side effect profile could help Stendra pick up share.

Auxilium Pharma currently carries a Zacks Rank #1 (Strong Buy). Other well-positioned companies in the health care sector include BioSpecifics Technologies Corp. and Shire (SHPG - Analyst Report) with both being Zacks Rank #1 stocks.

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