Auxilium Looks Toward Profits

Highlights include Auxilium Pharmaceuticals (AUXL - Analyst Report) and Pfizer Inc. (PFE - Analyst Report).

Xiaflex Positions Auxilium for Profitability in 2010

In March 2009, Auxilium Pharmaceuticals (AUXL - Analyst Report) filed a biologic license application (BLA) for Xiaflex seeking approval as a treatment for Dupuytren’s contracture. Dupuytren’s contracture is a condition that affects the connective tissue in the hand that limits movement of the fingers by an abnormal thickening of the palm.

The most severe cases, the hand can become deformed and patients will find it difficult to extend or even move their fingers. There are currently no pharmaceutical treatment options available for patients suffering from Dupuytren’s contracture.

The FDA should respond in May 2009 on either a priority review (six months) or standard review (ten months). The consensus is for a standard review by the FDA, so approval under a priority review would represent upside to the consensus forecasts.

Xiaflex is also under development for Peyronie’s disease and frozen shoulder syndrome. We believe the product has $500 million peak sales potential in Dupuytren’s, with another $250+ million if the label can be expanded to include Peyronie’s or frozen shoulder syndrome.

In December 2008, Auxilium entered into a lucrative deal with Pfizer Inc. (PFE - Analyst Report) for the development and commercialization of Xiaflex in the 27-member EU state along with 19 other European and Eurasian countries. Pfizer paid Auxilium $75 million in an up-front licensing fee for Xiaflex.

Plus, along with a tiered double-digit royalty on sales at Pfizer, Auxilium can earn an additional $150 million in regulatory milestones and $260 million in sales milestones. It was a homerun deal for Auxilium and one that clearly puts the company in a solid financial position to prepare for the U.S. launch either later in 2009 or in early 2010.

Outside of Xiaflex, Auxilium continues to gain market share with Testim, a 1% testosterone gel approved for hypogonadism (low testosterone levels in men). For 2009, management guided to a range of $150 – 155 million in total revenues, or which we expect $146 million to be sales of Testim.

Our only concern on the stock is the recent abbreviated new drug application (ANDA) filing by Upsher-Smith in October 2008 that challenges the Testim patent. Nevertheless, management filed a lawsuit against Upsher-Smith in December 2008, and we do not expect a generic Testim alternative until 2012 or beyond.

In the meantime, we see Auxilium has having strong positive fundamentals and our fair value price target is $34. We would be buyers of the stock below $25.