Auxilium Pharmaceuticals' total revenues decrease 17% to $83 million in Q2 2014

Aug 7 2014

Auxilium Pharmaceuticals, Inc. (NASDAQ: AUXL), a fully integrated specialty biopharmaceutical company, today announced financial results for the second quarter ending June 30, 2014. The Company highlighted important corporate, commercial, regulatory and clinical development updates from the quarter.

"Through the second quarter of this year, we are encouraged and pleased with the launches of XIAFLEX^® for Peyronie's disease and STENDRA^® for erectile dysfunction We believe these products offer patients important new treatment options and represent growth opportunities for Auxilium," said Adrian Adams, Chief Executive Officer and President of Auxilium. "Building on our corporate strategy, we believe our recently announced merger with QLT, Inc. represents a unique opportunity to accelerate the strategic transformation of Auxilium into a leading, diversified North American specialty biopharmaceutical company and, ultimately, build shareholder value."

After entering 2013 with only two products, Auxilium strategically broadened its portfolio to 12 products by the end of that year. The Company now has seven promoted products across men's healthcare and orthopedics, including STENDRA, XIAFLEX for Peyronie's disease (PD), XIAFLEX for Dupuytren's contracture (DC), TESTOPEL^®, edex^®, the Testim^® franchise and Osbon^® ErecAid^®. The Company is advancing ongoing R&D programs in cellulite, with a Phase 2a trial ongoing and ahead of schedule with data expected in the fourth quarter of 2014, and Frozen Shoulder Syndrome, with a Phase 2b trial ongoing and on track for anticipated data in the first quarter of 2015.

Recent Highlights & Corporate Milestones:

• Announcement of a definitive agreement pursuant to which Auxilium will merge with QLT Inc., a Canadian-based biotechnology company focused on developing innovative orphan ophthalmology products. The transaction is expected to drive shareholder value creation by accelerating Auxilium's ongoing transformation into a leading diversified North American specialty biopharmaceutical company. As a result of the merger, Auxilium expects to have an expanded corporate platform that includes focused investments in research and development and the continued pursuit of new products and M&A that will drive expected cost and tax synergies. The transaction is expected to close in the fourth quarter of this year, subject to the approval of Auxilium's stockholders and QLT's shareholders, the consent of Auxilium's lenders, Auxilium receiving a legal opinion from its tax counsel as to the tax treatment of the merger under U.S. law as in effect on October 31, 2014, required regulatory approvals in the U.S. and Canada, and other closing conditions that are customary for a transaction of this nature.
• Strategic, proactive launch of an Authorized Generic version of Testim (testosterone gel) in partnership with Prasco, LLC to position the Testim product franchise to compete in the increasingly crowded and challenging Testosterone Replacement Therapy gel market. Auxilium believes the launch enables broader market access for the Testim franchise and builds upon strategic efforts to manage the product as a mature brand.
• Progress for the commercial launches of STENDRA, the first drug entry into the erectile dysfunction market in nearly 10 years, and XIAFLEX in PD, the first and only FDA-approved treatment proven safe and effective for PD in men with a palpable plaque and a penile curvature deformity of 30 degrees or greater at the start of therapy.
• Submission by partner Swedish Orphan Biovitrum AB (publ) (Sobi) for an extension of the label for Xiapex^® (collagenase clostridium histolyticum) with the European Medicines Agency (EMA) to include the indication of PD. Marketing approval could be granted as early as the late first quarter of 2015.
• Submission by partner Asahi Kasei Pharma Corporation (Asahi Kasei) of a regulatory application to the Japanese Pharmaceutical and Medical Device Agency (PMDA) for XIAFLEX for the treatment of DC. Auxilium will receive a $10 million regulatory milestone payment from Asahi Kasei for the submission and the review by PMDA is expected to be completed by mid-2015.
• Data presentations at the American Urological Association (AUA) Meeting held in May 2014, including new analyses of data from the clinical program and pivotal IMPRESS (The Investigation for Maximal Peyronie's Reduction Efficacy and Safety Studies) trials, the Phase 3 studies that evaluated XIAFLEX for the treatment of PD, as well as data examining the onset of action of STENDRA in mild to severe erectile dysfunction presented by Auxilium's partner, VIVUS, Inc.

Second Quarter 2014 Financial Results:

• Total revenues for the three-month period ended June 30, 2014 were $83.0 million, compared to $100.5 million for the second quarter of 2013 – this 17 percent decrease was primarily due to a decrease in Testim and TESTOPEL revenues, offset by an increase in XIAFLEX and STENDRA revenues driven by the recent product launches in PD and erectile dysfunction, respectively. Product revenues for the second quarter included:
  • STENDRA U.S. net revenues of $6.1 million – initial product launch traction is positive with STENDRA gaining a 5.7 percent share of all new PDE5 prescriptions and a 3.2 percent share of total PDE5 prescriptions amongst Auxilium's target physician population, those doctors responsible for approximately 45 percent of all PDE5 prescriptions.
  • XIAFLEX U.S. net revenues (for PD and DC combined) of $26.3 million, representing a 75 percent increase from the second quarter of 2013 – initial launch momentum for XIAFLEX for PD is strong with 1,108 physicians REMS certified, 3,535 patients submitted to the Auxilium Advantage program for payer reimbursement for treatment and an estimated 3,350 product vials shipped to physicians through the end of June.
  • Edex U.S. net revenues of $7.5 million – with product market share reaching 52 percent.
  • TESTOPEL U.S. net revenues of $4.2 million, impacted by a $12 to $14 million product buy-in in March 2014 ahead of a 15 percent product price increase announced on March 1 and effective on April 1, 2014 and further destocking of inventory in the channel.
  • Testim franchise U.S. net revenues of $25.2 million – $11.9 million for the branded Testim product and $13.3 million for the Authorized Generic to Testim; the addition of the Authorized Generic to Testim has increased Auxilium's access to the testosterone replacement therapy gel market, which, combined with Testim, captured a two-year high total of 14 percent of New Prescriptions in July.
  • Other products acquired in the Actient transaction on April 26, 2013 totaled $9.7 million.
  • See Table 1 attached for further details on revenues
• Gross margin on net revenues was approximately 64 percent (non-GAAP basis) for the second quarter 2014 compared to 77 percent for the same period in 2013 – the decrease is primarily due to $9.3 million in charges recorded during the second quarter of 2014, the impact of a less profitable mix of product revenues, and a decrease in Testim net margin resulting from a lower net selling price. The $9.3 million in charges taken during the second quarter included:
  • $7.4 million related to the launch of the Testim Authorized Generic, specifically a $6.7 million inventory charge related to excess Testim branded inventory and $0.7 million in additional return reserves for Testim; and,
  • $1.9 million in additional return reserves related to various Actient products.
• R&D spending was $10.6 million (non-GAAP) compared to $12.9 million for the second quarter of 2013 – this decrease resulted principally from lower spending on XIAFLEX Phase 3 clinical trials in DC and PD and was partially offset by increased spending on the ongoing CCH Phase 2 trials for cellulite and Frozen Shoulder Syndrome.
• Selling, general and administrative costs were $58.9 million (non-GAAP) compared to $50.7 million for the second quarter of 2013 – this increase was primarily due to the added expenses of the acquired Actient operations and an increase in marketing and advertising spend related to the January 2014 launches of XIAFLEX for the treatment of PD and STENDRA.
• Net loss for the second quarter 2014 (non-GAAP) was $21.8 million, or $(0.44) per share (basic and fully diluted) compared to net income of $11.0 million or $0.22 per share (basic and fully diluted) for the second quarter of 2013 – this was primarily due to decreased Testim revenues, lower gross margin and increased selling, general and administrative costs. As of June 30, 2014, Auxilium had $44.7 million in cash, cash equivalents and short-term investments, compared to $76.7 million at March 31, 2014, and outstanding debt of $299.5 million ($350.0 million at par value) in 2018 convertible senior notes and $249.9 million ($258.6 million par value) in a secured term loan.

Update on Financial Guidance
As noted above, the Company incurred a significant charge to cost of goods sold in the second quarter, which, when combined with the mix of products sold, caused gross margin for the quarter to be significantly lower in the second quarter than anticipated. While the ongoing gross margin for the balance of 2014 is expected to be in the 78 to 80 percent range, we believe the impact of the second quarter's gross margin will result in a full year gross margin of 76 to 77 percent. Auxilium has also updated its expectations on spending levels throughout the organization and believes that SG&A expense for the full year will now be in a range of $245 to $250 million, rather than the previous guidance of $255 to $260 million. The Company is reaffirming all other aspects of 2014 guidance, including revenues ($380 to $420 million), non-GAAP R&D Expense ($40 to $45 million), non-GAAP net interest expense ($20 to $22 million) and non-GAAP net income (0 to ($15 million)). This guidance does not take into account the effect of the Company's proposed merger with QLT, Inc.