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Auxilium Pharmaceuticals, Inc. (AUXL - Analyst Report) and Xstelos Holdings, Inc. recently received a notice from Upsher-Smith Laboratories, Inc. regarding the filing of  a 505(b)(2) new drug application (NDA) for Auxilium Pharma’s 1% testosterone gel, Testim.

The 505(b)(2) NDA contains a paragraph IV certification under 21 U.S.C. Section 314.52(c). The company is challenging ten US patents which are slated to expire in the 2023-2025 timeframe.

We note in April 2012, Watson Pharmaceuticals also challenged Testim’s patents. Auxilium Pharma has filed a patent infringement lawsuit against Watson.

Testim is the lead product at Auxilium Pharma, approved for the treatment of hypogonadism or low testosterone level. Testim sales came in at $55.4 million in the third quarter of 2012, accounting for 78% of the company’s revenues.

Testim’s share of total prescriptions for the gel segment of the testosterone replacement therapy (TRT) market was 20% in 2011, down from 22% in the year-ago period. The TRT gel market is growing at a slower rate and this will affect sales going forward.

Apart from this, the TRT market is highly competitive with the presence of Abbott Labs’ (ABT - Analyst Report) AndroGel, Endo Pharmaceutical’s (ENDP - Analyst Report) Fortesta and Eli Lilly’s (LLY - Analyst Report) Axiron.

The testosterone gel market will become even more competitive from 2015 when generic versions of AndroGel 1% are scheduled to enter the market. The availability of a cheaper generic testosterone gel product could impact Testim’s market share as well as its formulary status.

In this scenario, the sooner-than-expected entry of a generic version would be a major blow for the company.

Auxilium Pharma currently carries a Zacks #3 Rank (Hold).

Currently, pharma stocks which look more attractive are Valeant Pharmaceuticals International, Inc. (VRX - Analyst Report) and Ironwood Pharmaceuticals, Inc. (IRWD - Analyst Report). Both carry a Zacks #1 Rank (Strong Buy).

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