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AUXL Cuts View Despite Lower Loss

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Auxilium Pharmaceuticals, Inc. reported a second quarter loss of 11 cents per share, well below the year-ago loss of 28 cents and the Zacks Consensus Estimate of a loss of 21 cents. Higher revenues boosted performance. Revenues, which increased 30.6% to $65.9 million, were in-line with the Zacks Consensus Estimate.

Quarter in Detail

During the reported quarter, total Testim sales increased 7% to $50.5 million. Testim revenues in the US were $49.7 million.

According to IMS Health, Testim US prescriptions grew 12% during the quarter with total prescriptions increasing 3%. However, Testim faces significant competition in the form of Abbott’s (ABT - Free Report) AndroGel. With the entry of additional competition in the market, Testim’s market share in the US at the end of June 2011 was 20%, down from 22% in the year-ago period.

Auxilium Pharma expects Testim revenues in the range of $200 million to $210 million in 2011, up from $193 million in 2010.

Meanwhile, Xiaflex sales came in at $15.4 million, including contract and ex-US revenues. US revenues came in at $9.9 million. Sales were hampered by seasonality. Xiaflex received US Food and Drug Administration (FDA) approval for Dupuytren’s contracture in February 2010 and was launched in March 2010.

In addition to the US, Xiaflex is available in several other countries including the UK (trade name Xiapex), Germany, Austria, Denmark, Finland, Norway and Sweden. Partner Pfizer (PFE - Free Report) launched the product in eight countries through the end of July. So far, Auxilium Pharma has earned $33.6 million in regulatory milestone payments from Pfizer and is eligible to receive an additional $22.5 million on Xiaflex’ launch in the remaining three major markets of the EU.

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.

The company conducted a phase IV study that evaluated the ability to inject multiple cords in a single hand simultaneously. A larger study evaluating the treatment of multiple cords simultaneously will be initiated in the third quarter of 2011. Another phase IV study on recurrent contractures successfully treated previously will commence in the first quarter of 2012.

Xiaflex revenues, which came in at $18.4 million in 2010, are expected to increase to $54 million to $61 million in 2011. A major part of the revenues will be generated in the US. However, Auxilium Pharma now expects lower Xiflex revenues in the US. The company currently expects Xiaflex US revenues of $45 to $50 million, down from the earlier guidance range of $50 to $60 million. The implementation of the Xiaflex-specific J-code in January 2011 could help improve uptake. Longer term, the implementation of a permanent CPT code, potentially in January 2012, could help smoothen the reimbursement process and drive uptake. However, till then, we expect Xiaflex ramp-up to remain modest.

Auxilium Pharma is currently conducting phase III studies with Xiaflex for Peyronie’s disease. Top-line results from the phase III program should be out in the second quarter of 2012.

Meanwhile, both research and development and selling, general and administrative expenses increased during the reported quarter. While research and development expenses for the reported quarter increased 19.8% to $13.3 million, selling, general and administrative expenses increased 5.3% to $43.4 million mainly due to increased investment associated with the US launch of Xiaflex.

Higher R&D spend reflected the initiation of phase III studies with Xiaflex for the Peyronie’s indication.

2011 SG&A spend is expected in the range of $170 million to $180 million, up from $164.7 million reported in 2010. Meanwhile, R&D spend is expected to increased to $60 - $70 million in 2011, up from $48 million reported in 2010.

2011 Guidance Revised

Auxilium Pharma lowered its Xiaflex US revenues guidance to $45 to $50 million from the earlier guidance range of $50 to $60 million. Total Xiaflex sales are expected in the range of $54 - $61 million.

With the decrease in the Xiaflex US revenues guidance, Auxilium Pharma has increased its loss expectations for 2011. The company now expects to incur a loss of $40 - $45 million, up from its earlier expectation of incurring a loss in the range of $31 - $41 million. Total revenues are expected in the range of $254 - $271 million.

Neutral on Auxilium Pharma

We currently have a Neutral recommendation on Auxilium Pharma, which carries a Zacks #3 Rank (short-term Hold rating). Auxilium Pharma’s future relies heavily on Xiaflex. Going forward, we expect investor focus to remain on the successful commercialization of Xiaflex/Xiapex, and label expansion of the product for additional indications.

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