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Auxilium Pharma: Xiaflex Is The Real Growth Driver

 June 05, 2012 09:43 AM

(By Mani) Shares of Auxilium Pharmaceuticals Inc. (NASDAQ:AUXL) surged as much as 19 percent after a late-stage study in Peyronie's disease showed that Xiaflex met primary endpoints of both reduction in penile curvature and bother domain, with good overall safety.

Xiaflex is an injectable collagenase enzyme therapy in development for Dupuytren's contracture, Peyronie's disease, and frozen shoulder syndrome. The company plans to market Xiaflex itself in the U.S. and has partnered the European rights to Pfizer, Inc. (NYSE:PFE).

[Related -Three Stocks Set For FDA News In Early December]

The latest data increased the likelihood of a new indication coming to market and new value created from expanding indications, and Peyronie's could be an attractive growth driver for the company over the next few years.

In the commercial setting, men are likely to consider Xiaflex as an attractive option compared to nonapproved, ineffective topical/injectable agents or surgery. The company plans to file a supplemental biologic license application (sBLA) by the end of 2012 and approval could occur by year-end 2013.

Since, data is clinically meaningful and meets primary endpoints, this should get approved as a sBLA.

"We think the longer-term US market is probably $100M+ as the market would grow from the 5–6k patients currently receiving injections/surgery," RBC Capital Markets analyst Michael Yee wrote in a note to clients.

[Related -Pfizer Inc. (PFE) Q3 Earnings Preview: What To Watch?]

Moreover, Auxilium's portfolio could further attract an acquirer, who could reduce the company's high R&D expenses and enhance returns to shareholders.

"In our view, the company has more accretion and earnings potential under another company with a bigger commercial infrastructure at much more profitable levels than a small budget," Yee noted.

In addition, the company's Testim is likely to continue to grow nicely and is underappreciated and could boost long-term value.Testim is a topical testosterone replacement therapy gel for hypogonadism, and Yee values Testim at $10 per share, which is updated to reflect the likely delay in generic entry but risk of eroding market share long-term. The company copromotes Testim in the U.S. with GlaxoSmithKline.

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