We recently downgraded
Auxilium Pharmaceuticals, Inc.
) to Underperform with a price target of $17.00. Auxilium
Pharma's third quarter results were disappointing with the
company reporting a loss of 21 cents per share, wider than the
year-ago loss of 8 cents and the Zacks Consensus Estimate of a
loss of 6 cents.
Lower-than-expected revenues and higher costs led to the
disappointing results. Revenues, which increased 6.4% to $71.0
million, were well below the Zacks Consensus Estimate of $80
In addition to reporting weak results, the company cut its
sales guidance for Testim and US sales guidance for Xiaflex. The
company also announced the termination of its
) agreement for Xiaflex, effective April 24, 2013.
Performance of lead product, Testim, was weak in the third
quarter. Auxilium Pharma attributed the weakness in Testim's
performance to challenges in the managed-care environment and
operational disruption resulting from the company's co-promotion
). Glaxo started co-promoting Testim in the US from mid-July.
The testosterone replacement therapy (TRT) gel market is
growing at a slower rate and this will affect sales going
forward. Moreover, Testim faces stiff competition from AndroGel,
a 1% testosterone gel sold by
) worldwide. As of December 31, 2011, the AndroGel franchise (1%
and 1.62%) accounted for 73.2% of the gel prescriptions. Testim
will have to continue to take market share from the AndroGel
franchise in the coming quarters to continue its growth.
Going forward, we see Testim sales slowing given the entry of
additional competitors like
) Axiron. Meanwhile, the testosterone gel market will become even
more competitive when generic versions of AndroGel 1% enter the
The availability of a cheaper generic testosterone gel product
could impact Testim's market share as well as its formulary
status. Auxilium Pharma cut its 2012 Testim sales guidance by $10
million to $235 - $245 million. We note that Testim is also
facing a patent challenge.
With Testim facing a patent challenge, Auxilium Pharma's
future is heavily dependent on Xiaflex. However, Xiaflex' sales
ramp has been disappointing so far. Auxilium Pharma lowered its
2012 Xiaflex US sales guidance to $52 - $60 million (old
guidance: $55 - $65 million). The unsuccessful commercialization
of Xiaflex and inability to gain approval for additional
indications would weigh heavily on the stock.
Although Auxilium Pharma expects Testim sales to improve, we
expect some weakness in the shares until Testim shows signs of
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