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Auxilium Pharmaceuticals, Inc. (AUXL - Analyst Report) reported a first quarter loss of 4 cents per share, well below the year-ago loss of 25 cents and the Zacks Consensus Estimate of a loss of 12 cents. Revenues, which increased 26% to $73.6 million, were above the Zacks Consensus Estimate of $71 million.

Quarter in Detail

During the reported quarter, total Testim sales increased 27% to $58.7 million. Testim revenues in the U.S. were $57.9 million.

Auxilium Pharma expects Testim revenues of $215 - $225 million in 2012, up from $207.9 million in 2011. The company intends to focus on payors, physicians, and patients with Testim in 2012. Testim, however, is facing a patent challenge from Watson Laboratories, Inc.

Meanwhile, Xiaflex sales increased 22% to $14.9 million, including contract and ex-U.S. revenues. U.S. revenues increased 46% to $12.6 million. In addition to the U.S., Xiaflex is available in several other countries including the U.K. (trade name Xiapex), Germany, Austria, Denmark, Finland, Norway and Sweden.

Auxilium Pharma is working on creating and increasing awareness among physicians and patients about Xiaflex. The company continues to present data on the clinical profile of Xiaflex. Besides this, a direct response TV campaign is ongoing in select cities.

While the January 2012 implementation of a permanent CPT code could help smoothen the reimbursement process, we expect the implementation of the CPT code to have a modest impact on Xiaflex sales.

Auxilium Pharma is working on expanding Xiaflex’ label. The company is currently conducting phase III studies (IMPRESS) with Xiaflex for Peyronie’s disease. Top-line results from the phase III program should be out in June 2012. Positive results would allow the company to file for approval by year end.

Auxilium Pharma initiated a phase Ib study in Jan 2012 for the treatment of cellulite (edematous fibrosclerotic panniculopathy) – top-line results are expected in late 2012. Xiaflex is currently in a phase IIa study for the treatment of frozen shoulder syndrome with top-line results expected in the first half of 2013. BioSpecifics Technologies Corp. , Auxilium Pharma’s licensor, has initiated a phase II study in canine lipoma with results expected in the first half of 2013.

Research and development expenses for the reported quarter declined 24.1% to $12 million due to lower spending on the Peyronie’s studies. Selling, general and administrative expenses increased 8.6% to $46.9 million mainly due to higher spending on Xiaflex and direct to consumer advertising.

Neutral on Auxilium Pharma

We currently have a Neutral recommendation on Auxilium Pharma, which carries a Zacks #3 Rank (short-term ‘Hold’ rating). Although Testim has been performing well, tough competition could limit the ultimate potential of the drug. Given the eventual slowdown in Testim growth, Auxilium Pharma’s future relies heavily on Xiaflex. However, Xiaflex’ performance continues to lag expectations. With Auxilium Pharma working on driving sales of the product, we expect investor focus to remain on the successful commercialization of Xiaflex/Xiapex, and label expansion of the product for additional indications. An important event is coming up in June when the company expects to present data on the Peyronie’s indication.

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