Wider Loss at Auxilium, Acquires Actient - Analyst Blog
Auxilium Pharmaceuticals, Inc. ( AUXL ) reported a loss of 12 cents per share in the first quarter of 2013, wider than the year-ago loss of 4 cents and the Zacks Consensus Estimate of earnings of 7 cents per share. Lower revenues led to the wider loss.
Revenues, which declined 10% to $66.2 million, were well below the Zacks Consensus Estimate of $80 million. US sales of both Testim and Xiaflex were weak in the reported quarter.
Quarter in Detail
Lead product Testim posted sales of $45.5 million in the first quarter of 2013, down 23% year-over-year. Testim revenues in the U.S. declined 22% to $45.3 million. Sales were negatively impacted by slowing growth of the testosterone replacement therapy (TRT) market, increased competition and managed care challenges, and the impact of managed care on the company's net realized selling price.
Auxilium Pharma said that the TRT market growth rate was much slower than the company's expectations. Scrips increased just 11% in the reported quarter compared to the 27% growth seen in the fourth quarter of 2012. Testim's market share in the first quarter of 2013 declined to 14.2% from 19% in the year-ago period.
Testim also faced some inventory de-stocking ($3 - $4 million) in first-quarter 2013.
Meanwhile, Xiaflex US revenues declined 5% to $12 million. The company took a price increase for Xiaflex in the US earlier this year. With physicians in this market being sensitive to reimbursement issues, the company expects pressure on volumes until the average selling price is reset.
Auxilium Pharma is working on expanding Xiaflex' label. The company is currently seeking FDA approval for Peyronie's disease - a response should be out by Sep 6, 2013.
Research and development expenses for the reported quarter declined 0.8% to $11.9 million due to lower spending on activities related to the Xiaflex Peyronie's studies. Selling, general and administrative expenses declined 5.5% to $44.3 million mainly due to lower spending on Xiaflex for the Dupuytren's indication.
In addition to announcing first-quarter 2013 results, Auxilium Pharma announced that it has acquired private urology specialty therapeutics company, Actient Holdings LLC. The acquisition terms include an upfront cash payment of $585 million and contingent consideration and warrants to purchase 1.25 million shares of Auxilium Pharma's common stock at an exercise price of $17.80 per share. Auxilium Pharma may also pay up to $50 million on the achievement of future revenue targets.
With this acquisition, Auxilium Pharma will add urology products like Testopel (testosterone replacement therapy), Edex (non-oral drug for erectile dysfunction), Striant (a buccal system for testosterone delivery) and Osbon ErecAid (a device for aiding erectile dysfunction) to its portfolio. Additionally, Actient has a non-promoted respiratory franchise consisting of Theo-24and Semprex-D and three other products.
Actient's revenues in 2012 were about $125 million.
The deal is expected to generate cost synergies of about $20 million with the majority of these synergies expected in 2014. The company also expects to achieve meaningful revenue synergies from cross-selling opportunities. These synergies and increased sales force leverage should lead to significant operating margin expansion over time.
2013 Guidance Revised
Auxilium Pharma revised its guidance to reflect the impact of the Actient acquisition as well as the performance of Testim and Xiaflex.
The company expects revenues of $360 million to $415 million. Both Testim and US Xiaflex sales guidance have been reduced reflecting the disappointing first quarter performance. While Testim sales are now expected in the range of $210 million to $240 million (old guidance: $250-$265 million), US Xiaflex sales are expected in the range of $55 million to $65 million (old guidance: $65-$75 million).
The company continues to expect ex-US and deferred revenues for Xiaflex of $10 million to $15 million. Meanwhile, Actient products are expected to contribute $85 million - $95 million to 2013 revenues.
While Auxilium Pharma refrained from providing specific net income guidance, it said that it expects the Actient acquisition to be accretive to the previously announced net income guidance of $18-$23 million. Auxilium Pharma expects a tax benefit of about $60 million due to the acquisition.
Auxilium Pharma's first quarter results were disappointing with both Testim and Xiaflex posting lower sales. Auxilium Pharma cut its outlook for both Testim and US Xiaflex sales in 2013. While the Actient deal should help strengthen the company's urology franchise and reduce its dependence on Testim, we are concerned about the lack of patent protection for some of the key Actient products.
Auxilium Pharma currently carries a Zacks Rank #4 (Sell). The shares were down about 12.7% following the release of first-quarter 2013 results. Companies that currently look more attractive include UCB ( UCBJF ), Catalyst Pharmaceuticals Partners Inc. ( CPRX ) and Onyx Pharmaceuticals, Inc. ( ONXX ). While UCB and Catalyst Pharma are Zacks Rank #1 (Strong Buy) stocks, Onyx Pharma is a Zacks Rank #2 (Buy) stock.
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