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Auxilium Beats on Earnings & Revs

Zacks Equity Research

Auxilium Pharmaceuticals, Inc. (AUXL) reported earnings (including stock-based compensation expense) of 10 cents per share in the third quarter of 2013, well above the year-ago loss of 21 cents and the Zacks Consensus Estimate of earnings of 5 cents per share.

Revenues, which increased 52% to $108.1 million, were above the Zacks Consensus Estimate of $102 million. Results were boosted by the recently acquired subsidiary, Actient, which contributed $38.3 million to third quarter 2013 revenues. Higher Xiaflex sales also contributed to the increase which was partially offset by lower Testim U.S. revenues.

Quarter in Detail

Lead product Testim posted sales of $52.3 million in the third quarter of 2013, down 6% year-over-year. Testim revenues in the U.S. declined 7% to $50.7 million. Sales included inventory stocking worth $3 million - $4 million. Sales were negatively impacted by slowing growth of the testosterone replacement therapy (TRT) market.

The TRT gel market continues to slow down and the company said that the market is expected to grow in the low single digit range compared to 2012.

Meanwhile, Xiaflex U.S. revenues grew 20% to $15.9 million. 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 Dec 6, 2013. Xiaflex is also in a phase IIa study for the treatment of cellulite.

While Testopel generated revenues of $20.6 million, Edex revenues were $8 million. Both are products gained through the Actient acquisition.

Research and development expenses for the reported quarter increased 11.3% to $11.8 million due to higher spending on activities related to the Xiaflex multi-cord studies. Selling, general and administrative expenses grew 4.5% to $57.8 million mainly due to the Actient acquisition as well as higher marketing and advertising spend related to the potential launch of Xiaflex for the Peyronie's indication.

2013 Guidance Updated

Auxilium Pharma now expects revenues of $370 million to $401 million (old guidance: $363 million to $405 million). Testim guidance was lowered to $200 million to $210 million (old guidance: $210 million to $225 million) reflecting the continuing softness in the TRT gel market. U.S. Xiaflex sales guidance of $55 million to $65 million remained unchanged.

The company now expects ex-U.S. and deferred revenues for Xiaflex of $15 million to $16 million (old guidance: $13 million to $15 million). Meanwhile, Testopel and other revenues are expected in the range of $55 million - $60 million (old guidance: $45 million - $55 million) and $45 million - $50 million (old guidance: $40 million - $45 million), respectively.

R&D guidance remained unchanged at $45 million - $55 million. SG&A guidance was narrowed to $205 million - $210 million from $205 million - $215 million.

Net income is expected in the range of $25 million - $30 million (old guidance: $23 million - $28 million). Auxilium Pharma remains on track to generate cost synergies of at least $20 million from the Actient acquisition by 2014.

Auxilium Pharma has also in-licensed Stendra, which is approved for erectile dysfunction. The company expects to start shipping the product from December and full promotional activities will commence in January. Auxilium Pharma’s 150 person PRIMERA sales force will promote Stendra – the sales force will target physicians who account for about 45% of PDE5 inhibitor scrips.

Our Take

Auxilium Pharma’s third quarter results were strong barring Testim’s performance. Xiaflex sales improved and the Actient acquisition boosted revenues. We are encouraged by the company’s efforts to build its urology portfolio. Stendra, in-licensed from VIVUS Inc. (VVUS), is the first new chemical entity in the PDE5 inhibitor market in ten years.

The market opportunity for erectile dysfunction treatments is significant with U.S. sales of about $3 billion in 2012. About 60% of men being treated with currently available PDE5 inhibitors switch to other treatments due to dissatisfaction. A fast onset of action (30 minutes), no specific meal restrictions, the ability to be taken with modest alcohol consumption, and a favorable side effect profile could help Stendra pick up share.

Auxilium Pharma currently carries a Zacks Rank #3 (Hold). We expect investor focus to remain on the regulatory status of Xiaflex for the Peyronie’s indication. Companies that currently look well-positioned include Shire (SHPG) and Pharmacyclics Inc. (PCYC) with both being Zacks Rank #1 (Strong Buy) stocks.

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