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Auxilium Pharmaceuticals, Inc. (AUXL - Analyst Report) reported fourth-quarter 2012 earnings per share of $1.83, well above the year-ago loss of 25 cents and the Zacks Consensus Estimate of $1.71 per share. The significant improvement resulted from the recognition of previously received and deferred up-front and milestone payments from Pfizer, Inc. (PFE - Analyst Report). The companies have mutually decided to terminate their collaboration from Apr 24, 2013.

Revenues, which increased 135.3% to $172.5 million, were well above the Zacks Consensus Estimate of $158 million. We note that fourth-quarter 2012 net revenues included $93.6 million of deferred revenues under the Pfizer agreement.

Full-year earnings came in at $1.74 per share, compared with the year-ago loss of 69 cents and the Zacks Consensus Estimate of $1.71 per share. Full-year 2012 net revenues increased to $395.3 million from $264.3 million in 2011. The Zacks Consensus Estimate was $381 million.

Quarter in Detail

Lead product, Testim, posted sales of $59.7 million in the fourth quarter of 2012, up 4% year-over-year. Testim revenues in the U.S. increased 3% to $58.4 million. Revenues may have benefited by about $4–$5 million due to buy-ins ahead of a price increase in early January and holiday schedules. There could be some inventory destocking in the first quarter of 2013.

Testim is facing additional competition in the testosterone replacement therapy (TRT) gel market.

Meanwhile, Xiaflex US revenues increased 30% to $17.5 million. 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.

Auxilium Pharma is working on expanding Xiaflex’ label. The company is currently seeking FDA approval for Peyronie’s disease - a response should be out by Sep 6, 2013.

Research and development expenses for the reported quarter declined 29.4% to $13.2 million due to lower spending on activities related to the development of a larger-scale Xiaflex production process. Selling, general and administrative expenses declined 18.8% to $40.7 million mainly due to lower spending on Xiaflex.

2013 Guidance

Auxilium Pharma expects 2013 revenues in the range of $325–$355 million. Testim revenues are expected in the range of $250–$265 million.

While Xiaflex sales in the US are expected to be $65–$75 million, ex-US and deferred revenues for Xiaflex are slated to be $10 to $15 million.

Auxilium Pharma also provided operating expenses guidance. The company expects R&D spend in the range of $45–$55 million. Meanwhile, SG&A spend is expected in the range of $185–$195 million. Auxilium Pharma expects 2013 net income of $18–$23 million.

We expect investor focus to remain on Testim sales and the regulatory status of Xiaflex for the Peyronie’s indication. In our view, Auxilium Pharma’s chances of gaining approval for the Peyronie’s indication are high. If all goes well, Xiaflex could be in the market for the Peyronie’s indication by late 2013. FDA approval would make Xiaflex the first biologic therapy to be approved for Peyronie’s.

Auxilium Pharma currently carries a Zacks Rank #3 (Hold). Right now, Furiex Pharmaceuticals, Inc. and Salix Pharmaceuticals (SLXP - Analyst Report) look more attractive with a Zacks Rank #2 (Buy).

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