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Patent Challenge for Auxilium Pharma

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Auxilium Pharmaceuticals, Inc. (AUXL) and Xstelos Holdings, Inc. (XTLS) recently received a notice from Upsher-Smith Laboratories, Inc. regarding the filing of  a 505(b)(2) new drug application (:NDA) for Auxilium Pharma’s 1% testosterone gel, Testim.

The 505(b)(2) NDA contains a paragraph IV certification under 21 U.S.C. Section 314.52(c). The company is challenging ten US patents which are slated to expire in the 2023-2025 timeframe.

We note in April 2012, Watson Pharmaceuticals (WPI) also challenged Testim’s patents. Auxilium Pharma has filed a patent infringement lawsuit against Watson.

Testim is the lead product at Auxilium Pharma, approved for the treatment of hypogonadism or low testosterone level. Testim sales came in at $55.4 million in the third quarter of 2012, accounting for 78% of the company’s revenues.

Testim’s share of total prescriptions for the gel segment of the testosterone replacement therapy (TRT) market was 20% in 2011, down from 22% in the year-ago period. The TRT gel market is growing at a slower rate and this will affect sales going forward.

Apart from this, the TRT market is highly competitive with the presence of Abbott Labs’ (ABT) AndroGel, Endo Pharmaceutical’s (ENDP) Fortesta and Eli Lilly’s (LLY) Axiron.

The testosterone gel market will become even more competitive from 2015 when generic versions of AndroGel 1% are scheduled to enter the market. The availability of a cheaper generic testosterone gel product could impact Testim’s market share as well as its formulary status.

In this scenario, the sooner-than-expected entry of a generic version would be a major blow for the company.

Auxilium Pharma currently carries a Zacks #3 Rank (Hold).

Currently, pharma stocks which look more attractive are Valeant Pharmaceuticals International, Inc. (VRX) and Ironwood Pharmaceuticals, Inc. (IRWD). Both carry a Zacks #1 Rank (Strong Buy).

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