Auxilium Pharmaceuticals, Inc. (AUXL) reported a first quarter loss of 25 cents per share, wider than the year-ago loss of 18 cents and the Zacks Consensus loss Estimate of 24 cents. Despite posting higher revenues, first quarter loss increased due to higher operating expenses.
Revenues, which increased 28.3% to $58.4 million, fell short of the Zacks Consensus Estimate of $61 million.
Quarter in Detail
During the reported quarter, total Testim sales increased 4% to $46.1 million. Testim revenues in the US grew 4% to $45.5 million. Sales were negatively impacted by inventory reduction at the wholesaler level.
According to IMS Health, Testim US prescriptions grew 13% during the quarter with total prescriptions increasing 9%. However, Testim faces significant competition in the form of Abbott’s (ABT) AndroGel 1%.
Competition will intensify further with the launch of Abbott’s AndroGel 1.62%. Testim’s market share in the US at the end of March 2011 was 21.4%, down from 22.2% in the year-ago period.
Auxilium Pharma expects Testim revenues in the range of $200 million to $210 million in 2011, up from $193 million in 2010.
Meanwhile, Xiaflex sales came in at $12.3 million, including contract revenues and a one-time benefit arising from a change in revenue recognition. Xiaflex received US Food and Drug Administration (FDA) approval for Dupuytren’s contracture in February 2010 and was launched in March. Auxilium Pharma reported that about 2,700 physicians have received training on using Xiaflex, representing 44% of the target range.
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. Auxilium Pharma will present top line, 3-year recurrence data from a long-term extension study of Xiaflex in June.
The company is also conducting a phase IV study that will evaluate the ability to inject multiple cords in a single hand simultaneously. Another phase IV study on recurrent contractures successfully treated previously will commence in the second half of 2011.
The implementation of the Xiaflex-specific J-code in January 2011 could help improve uptake. The company reported that more than 93% of insured Americans have access to Xiaflex. Longer term, the implementation of a permanent CPT code, potentially in January 2012, could help smoothen the reimbursement process and drive uptake. However, till then, we expect Xiaflex ramp-up to remain modest.
Xiaflex revenues, which came in at $18.4 million in 2010, are expected to increase to $59 million to $67 million in 2011. A major part of the revenues will be generated in the US.
Auxilium Pharma is currently conducting phase III studies with Xiaflex for Peyronie’s disease. Top-line results from the phase III program should be out in the second quarter of 2012.
Meanwhile, both research and development and selling, general and administrative expenses increased during the reported quarter. While research and development expenses for the reported quarter increased 85% to $15.8 million, selling, general and administrative expenses increased 19% to $43.2 million mainly due to increased investment associated with the US launch of Xiaflex.
Higher R&D spend reflected the initiation of phase III studies with Xiaflex for the Peyronie’s indication, costs associated with the development of a larger scale Xiaflex production process and costs incurred to address inspection comments from European regulators regarding Auxilium Pharma’s manufacturing plant.
2011 SG&A spend is expected in the range of $170 million to $180 million, up from $164.7 million reported in 2010. Meanwhile, R&D spend is expected to increased to $60 – $70 million in 2011, up from $48 million reported in 2010.
2011 Guidance Revised
Auxilium Pharma increased its Xiaflex contract and ex-US revenues guidance to $9 to $11 million from its earlier guidance of $5 to $7 million. The guidance range was increased to reflect the $30 million milestone payment received from Pfizer (PFE) on the launch of Xiapex (EU tradename for Xiaflex) in the UK and the $15 million milestone payment received from Asahi Kasei Pharma.
With the increase in the Xiaflex contract and ex-US revenues guidance, Auxilium Pharma reduced its loss expectations for 2011. The company now expects to incur a loss of $31 – $41 million, down from its earlier expectation of incurring a loss in the range of $35 – $45 million. Total revenues are expected in the range of $259 – $281 million.
Neutral on Auxilium Pharma
We currently have a Neutral recommendation on Auxilium Pharma, which carries a Zacks #3 Rank (short-term Hold rating). 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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