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Auxilium-Glaxo to Drive Testim Sales

Zacks Equity Research

Specialty biopharmaceutical company, Auxilium Pharmaceuticals, Inc. (AUXL) recently entered into a co-promotion agreement with GlaxoSmithKline plc‘s (GSK) U.S. subsidiary, GlaxoSmithKline LLC. The companies signed an agreement for the co-promotion of Auxilium Pharma’s Testim (1% testosterone), which is approved for the treatment of hypogonadism or low testosterone level.

Deal Terms

The deal provides Glaxo with exclusive rights to co-promote Testim in the U.S. with Auxilium Pharma through September 30, 2015. Glaxo will use its established sales force to promote Testim to testosterone replacement therapy (TRT) prescribers, especially primary care physicians. Glaxo already has a presence in this market where its sales reps promote cardiovascular, metabolic and urology products.

The companies have settled on a baseline revenue forecast for the co-promotion period – once Testim sales exceed this forecast, Glaxo will be compensated by the amount that Testim net sales exceed the baseline. Moreover, Glaxo is entitled to specified tail payments in certain circumstances.

Glaxo’s sales force will start promoting Testim early in the third quarter of 2012. Auxilium Pharma believes that the additional sales effort will increase the target audience to the top 25% of high-volume gel writers. Historically, the current Testim sales force has targeted the top 13% of the 159,000 US gel TRT prescribers.

Meanwhile, reach to primary care physicians, urologists and endocrinologists will increase with the additional detailing.

2012 Revenue Guidance Raised

Following the announcement of the Glaxo co-promotion agreement, Auxilium Pharma increased its revenue guidance for 2012 to $293 - $315 million (old guidance: $283 to $305 million). The company also trimmed its net loss guidance and now expects a loss in the range of $5 - $10 million (old guidance: $5 - $15 million). Testim revenues are now expected in the range of $225 million to $235 million (old guidance: $215 to $225 million). Testim sales were $207.9 million in 2011. Auxilium Pharma said that it expects SG&A spend towards the higher level of its previously issued guidance range of $180 - $190 million.

Our Take

We are pleased with Auxilium Pharma’s efforts to drive Testim sales. With urology being a key focus area at Glaxo, Testim sales should benefit from the additional promotional effort. Moreover, it has been seen that TRTs are sensitive to promotional efforts. Given the increasingly competitive environment, the additional sales effort should come in handy. The testosterone therapy market, while lucrative, has several players like Abbott Labs’ (ABT) AndroGel franchise (1% and 1.62%), Endo Pharmaceutical’s (ENDP) Fortesta, and Eli Lilly/Acrux’s (LLY) Axiron .

According to IMS Health data, annual testosterone therapy sales in the U.S. exceeded $1.6 billion, with testosterone gels posting sales of $1.4 billion. We believe the company will be able to achieve its raised revenue guidance range.

We currently have a Neutral recommendation on Auxilium Pharma, which carries a Zacks #3 Rank (short-term ‘Hold’ rating). We expect near-term investor focus to remain on top-line results on Xiaflex from phase III studies (:IMPRESS) for Peyronie’s disease. Results should be out in June 2012. Positive results would allow the company to file for approval by year end.

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