Auxilium Loss Narrows

Strong Testim sales helped Auxilium Pharmaceuticals, Inc. (AUXL: 31.10 -1.53 -4.69%) report a narrower-than-expected net loss of 25 cents per share in the fourth quarter of 2009, 6 cents below the Zacks Consensus Estimate of a net loss of 31 cents and the year-ago net loss of 29 cents. Net loss for the full year was $1.22, 7 cents below the Zacks Consensus Estimate of a net loss of $1.29. Auxilium reported a loss of $1.12 in the year-ago period.
 
Net revenues increased 38% to $48 million in the fourth quarter. Full year revenues increased 30.8% to $164 million. During the reported quarter, Testim sales in the U.S. grew 24.4% to $42.3 million.
 
Revenues also included $4.9 million of ex-U.S. partner milestone revenue recognition and shipments of Testim and $0.9 million in revenues from the amortization of upfront payments related to the out-licensing of Xiaflex to Pfizer (PFE: 17.73 +0.06 +0.34%).
 
During the year, Testim revenues increased 28.1% to $160.4 million. Testim sales in the U.S. grew 23.2% to $151.9 million. According to IMS Health (RX: 21.90 0.00 0.00%), Testim prescriptions grew 14.9% from the year-ago period.
 
Research and development expenses for the reported quarter were $11.4 million, compared to $14.6 million in the year-ago period. The decline in R&D spend was due to a reduction in clinical development costs primarily related to the completion of Xiaflex clinical trials for Dupuytren’s contracture, and lower manufacturing development costs in Horsham with the commencement of commercial production activity in 2009.
 
Selling, general and administrative expenses increased 58.6% to $38.7 million mainly due to increased investments in anticipation of the U.S. launch of Xiaflex, higher compensation costs associated with increased headcount and increases in stock-based compensation costs.
 
Xiaflex recently received U.S. Food and Drug Administration (FDA) approval for Dupuytren’s contracture. Auxilium is looking to launch the product by March-end and has priced the product at $3,250 per vial.
 
With $182 million in cash and equivalents, we believe the company is well-positioned to support the launch of Xiaflex in the U.S. Meanwhile, Xiaflex is currently under regulatory review in the EU.
 
Auxilium has provided financial guidance for 2010. The company expects Testim revenues in the range of $185 million to $195 million. R&D spend is expected in the range of $50 million to $60 million. Meanwhile, selling, general and administrative expenses are expected to increase significantly to $160 million to $170 million.
 
We currently have a Neutral recommendation on Auxilium. We view the approval of Xiaflex as a major positive for the company. Although we believe that the lead product Testim could achieve a 25% share of the market, tough competition and the potential for a generic alternative beyond 2011 could limit the ultimate potential of the drug.
 
Given the eventual slowdown in Testim, the future of Auxilium relies heavily on the successful commercialization of Xiaflex. We expect investor focus to remain on the sales uptake of Xiaflex.