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Auxilium Misses 4Q Estimates

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Auxilium Pharmaceuticals, Inc. reported a fourth quarter loss of 25 cents per share, well below the year-ago loss of 34 cents. Fourth quarter 2011 loss, however,  was well above the Zacks Consensus Estimate of a loss of 16 cents. Revenues, which increased 19% to $73.3 million, were just shy of the Zacks Consensus Estimate of $74 million.

Full year loss was 69 cents, well below the year-ago loss of $1.08 per share. However, 2011 loss was higher than the Zacks Consensus Estimate of a loss of 59 cents. Full year revenues came in at $264.3 million, up 25%, and in line with the Zacks Consensus Estimate.

Quarter in Detail

During the reported quarter, total Testim sales increased 8% to $57.6 million. Testim revenues in the US were $56.9 million.

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 Dec 2011 was 20%, down from 22% in the year-ago period. 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.

Meanwhile, Xiaflex sales came in at $15.7 million, including contract and ex-US revenues. US revenues came in at $13.4 million. 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.

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. Xiaflex is also in a phase IIIb Dupuytren's contracture multicord study - top-line results should be out in the second quarter of 2012. 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 with Xiaflex for Peyronie’s disease. Top-line results from the phase III program should be out late in the second quarter of 2012. Positive results would allow the company to file for approval in the second half of 2012.

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.

Meanwhile, research and development expenses for the reported quarter increased 33.6% to $18.7 million due to costs related to the development of a larger scale production process for Xiaflex and additional studies being conducted with the product. Selling, general and administrative expenses increased 6.6% to $50.1 million mainly due to charges related to the CEO change.

2012 Guidance Looks Achievable

The company expects net revenues in the range of $283 to $305 million in 2012. While Testim revenues are expected to increase to $215 - $225 million, Xiaflex revenues in the US are expected to increase to $55 - $65 million. Meanwhile,  ex-US and deferred revenues for Xiaflex are expected in the range of $13 to $15 million.

Research and development spend will be in the range of $55 to $65 million in 2012. Selling, general and administrative expenses are expected in the range of $180 to $190 million. The company expects a net loss of $5 to $15 million.

Signs Agreement with Actelion

In addition to announcing fourth quarter and full year 2011 results, Auxilium Pharma announced an agreement with Swiss biopharma company, Actelion Pharmaceuticals Ltd. , for the development, supply and commercialization of Xiaflex for the potential treatment of Dupuytren's contracture and Peyronie's disease.

Actelion will have exclusive rights for the commercialization of Xiaflex in Canada (regulatory review ongoing with a response expected in the second half of 2012), Australia, Brazil and Mexico. Regulatory filings for the Dupuytren's indication in Australia, Brazil and Mexico are scheduled to take place in the next 12 months.

Besides receiving an upfront payment of $10 million, Auxilium Pharma  will also be eligible to receive up to $58.5 million on the achievement of regulatory, pricing, reimbursement and sales milestones. The company will also be entitled to receive increasing tiered double-digit royalties based on Xiaflex sales.

This deal is in-line with Auxilium Pharma’s strategy of partnering Xiaflex in ex-US territories. Besides Actelion, Auxilium Pharma’s partners for Xiaflex include Pfizer (PFE - Free Report) and Asahi Kasei Pharma Corporation.

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.

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