A Profitable Quarter for Auxilium
Auxilium Pharmaceuticals, Inc. (AUXL) swung to a profit in the second quarter of 2012 with earnings coming in at 16 cents per share, well above the year-ago loss of 11 cents and the Zacks Consensus Estimate of a loss of 6 cents. This was the first quarter in which Auxilium Pharma reported a profit. Higher revenues and lower costs led to the improvement in results. Revenues, which increased 18.7% to $78.2 million, were above the Zacks Consensus Estimate of $74 million.
Quarter in Detail
During the reported quarter, total Testim sales increased 26% to $63.8 million. Testim revenues in the US increased 26% to $62.5 million.
Auxilium Pharma expects Testim revenues of $245 - $255 million in 2012, up from $207.9 million in 2011. Testim, however, is facing a patent challenge from Watson Laboratories, Inc.
Meanwhile, Xiaflex sales declined 6% to $14.4 million, including contract and ex- US revenues. US revenues increased 21% to $11.9 million. However, ex-US Xiaflex net revenues decreased in the second quarter of 2012 – the year ago period included cumulative catch-up revenue adjustments totaling $3.8 million which did not occur in the reported quarter.
Auxilium Pharma’s partner, Actelion (ALIOF) is planning to launch Xiaflex in Canada in the first half of 2013. Actelion also intends to seek approval for Xiaflex in Brazil, Australia and Mexico over the next 15 months.
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. Besides this, the company has launched a targeted national media and education campaign.
Auxilium Pharma is working on expanding Xiaflex’ label. In June 2012, the company presented impressive top-line results from two phase III studies conducted for the Peyronie's disease indication. Auxilium Pharma intends to seek US Food and Drug Administration (:FDA) approval for this indication by year end.
Meanwhile, the company recently completed a 60-patient, multi-cord study with Xiaflex in Dupuytren's contraction. Auxilium Pharma intends to initiate a larger study in the third quarter which, if successful, would allow the company to seek expansion of the Dupuytren's label.
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 quarter of 2013. BioSpecifics Technologies Corp. (BSTC), Auxilium Pharma’s licensor, has initiated a phase II study in canine lipoma and a phase I study in human lipoma with results expected in the first half of 2013.
Research and development expenses for the reported quarter declined 23.3% to $10.2 million due to lower spending on the Peyronie’s studies. Selling, general and administrative expenses declined 1.8% to $42.6 million mainly due to lower spending and a change in the timing of spend on Xiaflex and Testim.
Ups Guidance
The company raised its 2012 revenue guidance by $17 million to $310 - $332 million. While Xiaflex global sales guidance was cut by $3 million to $65 - $77 million, Testim sales guidance was upped by $20 million to $245 - $255 million. Testim sales should benefit from the additional sales effort under Auxilium Pharma’s agreement with GlaxoSmithKline (GSK). Glaxo’s sales force started promoting Testim from mid-July 2012.
The reduction in Xiaflex’ guidance reflects lower sales expectation from ex-US markets. The company has cut its ex-US Xiaflex sales guidance by $3 million to $10 - $12 million due to reimbursement issues in some EU countries. US Xiaflex sales guidance remains unchanged at $55 - $65 million.
Auxilium Pharma also adjusted its operating expenses guidance. The company lowered its R&D guidance by $10 million to $45 - $55 million mainly due to its decision to push back additional work on a higher volume production capacity for Xiaflex that was previously expected in the second half of 2012. Meanwhile, SG&A guidance was increased by $10 million to $200 - $210 million to reflect higher legal costs and revenue sharing payments to Glaxo. Moreover, the company expects to recognize post-2015 tail payments to Glaxo over the term of the active co-promotion period.
Auxilium now expects 2012 net income of $0-$5 million instead of a loss of $5-$10 million.
Neutral on Auxilium Pharma
We currently have a Neutral recommendation on Auxilium Pharma, which carries a Zacks #2 Rank (short-term ‘Buy’ rating). We expect Testim to continue performing well especially with the additional promotional effort from Glaxo. 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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