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Auxilium Pharmaceuticals, Inc. (AUXL - Analyst Report) recently announced that it has dismissed all pending litigation against BioSpecifics Technologies Corp. (BSTC). Auxilium Pharma has a development and license agreement with BioSpecifics for Xiaflex, an injectable enzyme (clostridial collagenase for injection). Xiaflex is currently approved for the treatment of Dupuytren’s Contracture, a condition that affects the connective tissue in the palm known as palmar fascia.

Auxilium Pharma said that its 2008 development and license agreement with BioSpecifics has been amended with the rights and responsibilities of the Joint Development Committee being specified clearly.

Earlier this year, Auxilium Pharma had filed a complaint against BioSpecifics. According to Auxilium Pharma, BioSpecifics had breached the 2008 development and license agreement by initiating studies evaluating the use of injectable collagenase for the treatment of canine lipomas without the prior knowledge and approval of the Joint Development Committee.

With the dismissal of the pending litigation, the companies said that they intend to move Xiaflex into studies for cellulite and human and canine lipoma. Auxilium Pharma and BioSpecifics also intend to work together on studying additional indications for Xiaflex.

While Auxilium Pharma will initiate studies (phase Ib studies to commence in early 2012) for the treatment of cellulite (edematous fibrosclerotic panniculopathy), BioSpecifics will initiate studies for the treatment of human and canine lipomas shortly.

Once BioSpecifics completes its development work, Auxilium Pharma has the option to exclusively license these indications. Per the terms of the amended agreement, BioSpecifics will receive an opt-in fee at the time of completion of Stage I development of cellulite by Auxilium Pharma. BioSpecifics will also be entitled to receive regulatory milestones, low double digit royalties and a markup of cost of goods on all indications.

Meanwhile, Auxilium Pharma’s opt-in rights regarding the two lipoma indications remain unchanged.

Neutral on Auxilium Pharma

We currently have a Neutral recommendation on Auxilium Pharma, which carries a Zacks #3 Rank (short-term Hold rating). We expect investor focus to remain on the successful commercialization of Xiaflex, and label expansion of the product for additional  indications. Xiaflex is currently in phase III studies for Peyronie’s disease with top-line results due in the second quarter of 2012.

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