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Executives

Will Sargent – VP, IR and Corporate Communications

Armando Anido – President and CEO

Tony DelConte – Chief Medical Officer

Roger Graham – EVP, Sales and Marketing

Jim Fickenscher – CFO

Analysts

Marshall Urist – Morgan Stanley

Salveen Kochnover – Collins Stewart

Eric Schmidt – Cowen and Company

Eun Yang – Jefferies

Kim Lee – Pacific Growth Equities

William Ho – Banc of America Securities

John Newman – Oppenheimer

Elizabeth Naldi – Piper Jaffray

Andy Schopick – Nutmeg Securities

Andrew Vaino – Roth Capitals

Auxilium Pharmaceuticals, Inc. (AUXL) Q3 2008 Earnings Call Transcript October 29, 2008 10:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2008 Auxilium Pharmaceuticals Conference Call. My name is Lorasen, and I will be your coordinator for today.

(Operator instructions) At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this call.

I would now like to turn the presentation over to your host for today's call, Mr. Will Sargent, Vice President of Investor Relations and Corporate Communications. Please proceed.

Will Sargent

Thank you, operator, and good morning everyone. With me today are Armando Anido, Chief Executive Officer and President of Auxilium; Jim Fickenscher, Auxilium's Chief Financial Officer; Roger Graham, Auxilium's Executive Vice President, Sales and Marketing; Dr. Jyrki Mattila, Auxilium's Executive Vice President of Business Development, Product Development and Technical Operations; Jennifer Evans Stacey, Executive Vice President, General Counsel, Human Resources and Secretary for Auxilium; and Dr. Tony DelConte, Auxilium's Chief Medical Officer.

Before we begin, I would like to remind you that we will make various remarks during this conference call that constitute forward-looking statements for the purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are all statements other than statements of historical fact, and generally may be identified by the words "believe," "may," "appear," "feel," “should,” "could," "will," "estimate," "continue," "anticipate," "see", "intend," "should," "plan," "hope," "potential" and "expect" and similar expressions.

Today our forward-looking statements will cover, among other things, our plans for what we believe to be the prospects for the company, including statements regarding the potential of XIAFLEX to revolutionize the treatment and change the current treatment paradigm for Dupuytren's contracture, timing of the filing of the Biologic License Application for XIAFLEX for Dupuytren's contracture and the timing of a final FDA decision on the XIAFLEX filing status, the interpretation of clinical data and significant data to Auxilium, potential market for XIAFLEX, XIAFLEX pre-commercialization activities and the timing of those activities, publication, presentation, of CORD I and II results, the timing and completion of the ongoing 12 month safety follow-up for at least 100 patients in the CORD I trial, the timing and completion of enrollment in the Phase IIb study for XIAFLEX for Peyronie's disease; the expected enrollment of sites and release of result there from, the impacts of our sales and marketing efforts on the growth of Testim revenues, the timing of launch of XIAFLEX for Dupuytren's contracture and the timing of the conclusion of our partner discussion for XIAFLEX in Europe.

Actual results may differ materially from those reflected in these forward-looking statements as a result of further evaluation of clinical market research, results of clinical trials, adverse events in our clinical trials, and market research changes in the regulatory requirements for our industry, as well as the various factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2007. Given these risks and uncertainties, you should not rely upon any such factors or forward-looking statements.

Forward-looking statements provide the Company's expectations, plans and forecasts for future events and views as of the date hereof. While the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. Also, today's call may not be reproduced in any form without our express written consent.

I am pleased to turn over the call to our Chief Executive Officer and President, Armando Anido.

Armando Anido

Thank you, Will, and thanks to all of you who are joining us this morning, I would like to start by reviewing the highlights from the third quarter of 2008. Tony will provide an update on XIAFLEX clinical trails, Roger will provide an update on XIAFLEX commercialization activities and Testim performance, Finally Jim will taker you through the financial results for the quarter and I will conclude with an update on our key priorities. We will then open up the call for your questions.

Before we get into the meat of the call, let me give you a high level summary of our accomplishments in the third quarter of 2008 which has been another successful quarter for Auxilium. We believe the XIAFLEX Dupuytren's biologic license application or BLA filing remains on tract to be submitted in early 2009. We are planning on asking the Food and Drug Administration for a priority review of the XIAFLEX BLA and expect a final FDA decision on the XIAFLEX filing status during the 60-day review period after our BLA filing. I want specifically give my thanks to our internal teams who have been working so diligently on preparing the BLA filing for XIAFLEX for the treatment of Dupuytren's contracture.

In September, we announced the initiation of XIAFLEX Phase IIb study for Peyronie's disease, a potential second indication for XIAFLEX. We believe we will complete enrollment in this study in the first quarter of 2009 and we expect to have the top line results of the trial by the end of 2009. Regarding the potential EU licensing of XIAFLEX for Dupuytren's contracture and Peyronie's disease, we continue to be satisfied with the progress of ongoing discussions with potential partners and we believe we have the end of the process in sight. We are also continuing to develop the commercial infrastructure that we believe will be needed to successfully support the launch of XIAFLEX in the US. Importantly, we completed renovations on our horse shoe manufacturing facility and are currently validating processes in preparation for the commercial production.

Testim once again achieved record net quarterly revenues of $32.6 million in the third quarter of 2008 up 24.2% versus the third quarter of 2007. Testim remains the fastest growing testosterone replacement therapy or TRT product in the United States and continues to be a driver and beneficiary of the expanding TRT market. This represents another strong performance from our commercial team.

As we announced with a press release on Friday, October 24, we received a notice from Upsher-Smith Laboratories Incorporated advising that they have filed an Abbreviated New Drug Application, ANDA, containing a Paragraph IV certification for testosterone gel. This Paragraph IV certification notice refers to CPEX's U.S. Patent No.7320968 which covers Testim has been licensed to Auxilium. The Paragraph IV certification notice also states that Upsher-Smith Laboratories does not believe that its ANDA infringes the '968 Patent which does not expire until January 2025. Auxilium and CPEX are currently reviewing the details of this notice from Upsher-Smith and intend to pursue all available legal and regulatory options in a vigorous defense of Testim including enforcement of our intellectual property rights and approved labeling. I expect that many of you will have questions about how we will move forward on this issue. Unfortunately, it is too early for us to speculate on the various twists and turns that this may take and we need to let our legal experts do their work in the coming weeks. Once we have completed our review and have a course of action, we will share it with you as appropriate. What I can tell you today is that we were prepared for this and we are confident that we have the right legal team in place.

Let me now turn the call over to Tony.

Tony DelConte

Thank you, Armando. As you know in June we announced outstanding top line results from the CORD I and II trials for XIAFLEX in Dupuytren's contracture. These results were recently presented at the American Society for Surgery of the Hand by Dr. Larry Hurst. The feedback that we received from surgeons attending this meeting was positive and the most frequently asked question was, “When will XIAFLEX be available for my patients?” We believe our CORD I and II results continue to demonstrate the potential for XIAFLEX to revolutionize the treatment of Dupuytren's contracture by offering a safe, effective, noninvasive alternative to surgery.

I wanted to update everyone on our continuing progress with XIAFLEX and our Phase III clinical trials for Dupuytren's contracture. All enrolled patients have completed all injections planned a cross study protocol as of October 20th. Across all Phase III Dupuytren's contracture studies, we believe the safety profile of XIAFLEX remains consistent with the safety profile that has been previously presented. We believe we remain on tract to complete our critical path items which includes following 100 Dupuytren's contracture patients for 12 months after first injection and over a 1000 cumulative patients who have received over 2600 injections. We believe these patients will contribute data into the integrated safety in efficacy summaries and expect to meet our goal of filing the BLA for XIAFLEX in early 2009.

Now moving on to Peyronie's disease, we are encouraged by earlier Phase II clinical trials Peyronie's disease which demonstrated a reduction in penile curvature with XIAFLEX and believe that the treatment of Peyronie’s remains an important second indication. The Phase IIb study that was recently initiated is a randomized double-blind placebo controlled study that is designed to assess the safety and efficacy of XIAFLEX when administered two times a week every six weeks for up to three treatment cycles in patients with Peyronie's disease. We expect that the study will enroll at least 120 patients at approximately 11 sites throughout the US and patients will monitor for 36 weeks following the first injection.

And as a reminder to qualify for the study, patients must have a penile contracture between 30º and 90º during erection. Patients will be stratified by the degree of penile curvature that is 30º to 60º versus greater than 60º and then randomized into four treatment groups to receive either XIAFLEX or placebo with or without modeling of the penile plaque. The modeling refers to massaging of the plaque after the second injection of a treatment series and is intended to maximize the enzymatic effect of the XIAFLEX injection on the plaque. Patients will be randomized in a 3 to 1 of XIAFLEX to placebo and a 1 to 1 ratio to receive penile plaque modeling or no modeling. This Phase IIb trial is also designed to validate a proprietary Peyronie's patient reported outcome’s questionnaire or PRO which was developed with help from outside consultants who also designed the International Index of Erectile Function or IIEF PRO that was used as the approvable endpoint for Viagra. Our team has spent a significant amount of time and effort to develop the Peyronie's PRO questionnaire and we expect to validate its use for our Phase III protocol where we expect it to be the primary endpoint. In our Peyronie's PRO, we will measure domains of patient’s sexual quality of life including penile pain, Peyronie's disease bother, intercourse discomfort, and intercourse constrain over a 36-week period.

Let me now turn it over to Roger.

Roger Graham

Thank you, Tony and good morning everyone. As we mentioned last quarter, we continue to be engaged in a number of pre-marketing efforts focusing on sales force sizing, pharmacoeconomic modeling, pricing and reimbursement, distribution, opinion leader development, and product positioning as part of our plan to be well prepared for anticipate launch of XIAFLEX in early 2010. Please visit handsurgerynews.com to review one of our first tactics to build a sustainable relationship with the hand surgery community. Handsurgery.com is an online portal designed for hand specialist. The website offers complimentary access to information such as a procedure line with on-demand video, news on the latest advancement in hand surgery, opinion pieces altered by peers and certain interviews with leaders in the field. Additionally, we continue to advance our publication strategy with the intention of the CORD I XIAFLEX study results to receive the most prominent place possible for optimal target position impact.

Moving on Testim, our performance in the third quarter of 2008 demonstrated solid progress in growing the brand. Testim quarterly net revenues were up 24.2% over the comparable quarter of 2007. According to NPA from IMS, the 136,800 total prescriptions that were reported in the third quarter of 2008 represent our highest quarterly level ever, up 24.7% versus the third quarter of 2007, while the overall gel market grew 16% seen in the third quarter of 2007.

Testim's prescription market share at the end of September 2008 was 22.2%, up 150 basis points compared to 20.7% in September of 2007. According to IMS exponent data, we had a market share of approximately 41.6% in September of 2008 with the highest prescribing urologists on whom we call, compared to 39.3% at the end of September 2007. We also continue to make strides with the highest prescribing primary care physicians on whom we call, with Testim market share achieving 30.3% in September of 2008, versus 26.9% in September of last year. We believe that growth in these areas is a direct result of the outstanding efforts our Testim commercial team thereby to be commended for a job well done.

With that I will turn it over to Jim.

Jim Fickenscher

Thank you, Roger. For the quarter ended September 30, 2008, Auxilium reported net revenues of $32.6 million, compared to net revenues of $26.2 million in the third quarter of 2007. Shipments of Testim to our ex-US partners in the third quarter of 2008 were $300,000 which is $200,000 less in the third quarter of 2007. The net loss for the third quarter of 2008 was $10.1 million, or $0.24 per share, compared to a net loss of $6.9 million, or $0.17 per share, reported for the third quarter of 2007.

Gross margin on net revenues was 76% for the quarter ended September 30, 2008 compared to 75.5% for the same period last year. Gross margin reflects the cost of product sold as well as royalty payments made to the company's licensor on the sales of Testim. The improvement in gross margin reflects the impact of year-over-year price increases and the decline in low margin international product shipments, partially offset by an increase in coupon usage.

Research and development spending for the quarter ended September 30, 2008 was $13.3 million, compared to $9.8 million in 2007. The increase in research and development costs was primarily due to increased spending for clinical development of XIAFLEX and preparing for the BLA filing through headcount additions.

Selling, general and administrative expenses totaled $21.9 million for the quarter ended September 30, 2008 compared with $18.2 million for the year-ago quarter. The increase was primarily due to higher investment in promotional spending for Testim, pre-launch investments in market research and incremental personnel for XIAFLEX, and higher stock-based compensation expense.

On September 30, 2008 Auxilium had $46.4 million in cash and cash equivalents, compared to $48.8 million on June 30, 2008. As of September 30, 2008, we had approximately 41.6 million shares of common stock outstanding, plus outstanding warrants to purchase approximately 1.9 million shares of our common stock and 4.5 million outstanding employee stock options.

Thank you very much for your attention, and I will turn the call back over to Armando.

Armando Anido

Thanks, Jim. I am proud of Auxilium’s accomplishments and progress in the third quarter. Reflecting on this hard work, I am pleased to announce that for the second year in a row, Auxilium has been nominated as one of the top ten finalist in Deloitte and Touche’s 2008 Technology Fast 50 Program for the greater Philadelphia area. This is a ranking of the region’s 50 fastest growing technology in life sciences companies by percentage of revenue growth. It is extremely gratifying to have our outstanding performance acknowledge by third party such as Deloitte.

Looking forward, we plan on focusing on the following priorities; one, vigorously depending Testim and continuing to support the brand; two, following of the XIAFLEX BLA for Dupuytren's contracture which we expect to achieve in early 2009; three, continuing our pre-launch commercialization efforts for an expected US launch of XIAFLEX in early 2010; four, continuing enrollment in the Peyronie's disease Phase IIb trial which we expect will be completed in the first quarter of 2009, and lastly, concluding our partnering discussions for XIAFLEX in Europe.

Let me thank our shareholders for your continued support. Additionally, I want to give a special thanks to our employees for their untiring energy, spirited enthusiasm, and relentless commitment to making Auxilium a success. We are truly excited about the prospects, opportunities, and potential for success in front of us. Thank you.

We are now going to open up the call for your questions. Operator, please review the procedures for questions from the audience.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Marshall Urist from Morgan Stanley. Please proceed.

Marshall Urist – Morgan Stanley

Yes. Hey, guys, good morning. Armando, I was interested, obviously, in your comments about having the end of the partnership process in sight, so if you could give us a little bit more detail there in terms of what, where things stand, what’s giving you that confidence; are we still on to hear something before the end of the year? Thanks.

Armando Anido

Yes, Marshall, in terms of the exact timing of when we will hear the end of it, I don’t know that I can give any more clarity at this particular point just as we haven’t given real clarity over the last six or seven months since we initiated the process; but I can tell you that we are not at the beginning of it anymore. We have moved it along fairly well, and we continue to have a fairly enthusiastic group of potential partners.

Marshall Urist – Morgan Stanley

Okay, great. And then just second question on Testim. There has obviously been a lot of discussion about, at the pressure – with pressure on the economy, that drugs that are more, call it, discretionary might need some pressure. Do you think – do you think Testim could fall into that category? And are you guys doing anything to try and offset that?

Jim Fickenscher

Marshall, I think that with the economy the way it is, I think that somewhat all pharmaceuticals may be under some pressure as patients try to make those hard decisions between “Do I get my next prescription filled or do I pay my mortgage?,” and I think that if I saw something that came out just yesterday that said that the industry may be under some pressure. We have not seen that pressure at this particular point. I think that the results that we just posted for the third quarter and our continued performance since that time point seems to indicate that Testim is still on a very strong track, and we still feel very good about our $120 million to $125 million outlook for this year. Hard to speculate on 2009 and beyond at this particular point, but this is a medication that does help men, help them tremendously; and hopefully, we won’t see any dramatic effects, if any, at this particular point.

Marshall Urist – Morgan Stanley

All right, great. Thanks, guys.

Armando Anido

Thanks.

Operator

Your next question comes from the line of Salveen Kochnover from Collins Stewart. Please proceed.

Salveen Kochnover – Collins Stewart

Thanks for taking my question. Just a follow-up question in terms of the partnership discussions for XIAFLEX in Europe. Just given that this – is there a cutoff point, I guess, at this stage where you’re about to file in Europe about 18 months from now? Is there a point at which you’re going to determine whether you’re going to take, go forward with this alone or partner the drug?

Armando Anido

Yes. I think, Salveen, I think that as we see the partnering discussions continue at this particular point that the end is not that far away. In our eyes, in terms of making that final determination, “Are we going with a partner or doing it on our own?” And I think that the more time that either ourselves or our partner has prior to the approval of a product of a product, I think will be better. So we are keenly aware of our timelines relative to the submission in Europe, and we believe that coming to a conclusion on the determination of which way we’re going to go is not too far away.

Salveen Kochnover – Collins Stewart

Great. And then I don’t know if you can provide clarity on this but just in terms of the Paragraph IV challenge which affects Testim. It seems like the ANDA was filed saying that the non-infringement of your patent. Does that mean that the formulation of the generic is different from Testim? And is this considered a new testosterone gel? I guess if we could just get a little bit more color of just your preliminary look at this?

Armando Anido

Yes. I think that right now, it’s – as we publicly stated in the press release on Friday that right now, our legal terms are evaluating what our options are. They’re evaluating what the Paragraph IV certification is, and it’s really too early to speculate on what the actual outcome will be and what path we will take. So what I do, I know that it’s frustrating on your side to want to have a step by step, but we need to have our legal teams really take a hard look and determine what options we may have and which way we’re going to go; so we will give you more clarity as we know it.

Salveen Kochnover – Collins Stewart

Sure. And then on Peyronie’s, could we see some data for XIAFLEX and Peyronie’s at six months, so in mid-’09?

Armando Anido

At this particular point, the study is designed for a 36-week trial; so we will be – if you heard me say that we are actually planning on finishing enrolment in the first quarter, by the end of the first quarter, that’s where when nine months from that, it would look to say we will have top line data available by the end of the year.

Salveen Kochnover – Collins Stewart

Okay.

Armando Anido

So I think that a six-month look is probably not something that is billed in at this point in the protocol.

Salveen Kochnover – Collins Stewart

Okay. And then just lastly, in the past and I think even today, you said that top line safety events in the Joint I and II and open-label extension study just look to be in line of what we’ve previously seen. This is – I mean, does this continue to be the case? Is there anything else that we have not seen in the previous studies in terms of safety?

Armando Anido

Yes, I can tell you that the data that we presented back in early June, we continue to see that we have consistent safety profile. We have not seen any new tendon ruptures. We have not seen any new DVT or CRPS, which we reported. We do have one case of a proliferation of disease that was reported to us from a position that is currently under investigation. We don’t know whether it was definitely related to drug or not.

Salveen Kochnover – Collins Stewart

Thank you.

Armando Anido

Good questions. Can we please try to limit to only one question? Going forward. Thank you.

Operator

Your next question comes from the line of Eric Schmidt from Cowen and Company. Please proceed.

Eric Schmidt – Cowen and Company

Good morning. Thanks for taking my question. It’s related to both your partnership discussions and financing thoughts. Do you get the sense, Jim or Armando, that your partners are using your balance sheet against you in these discussions in Europe? And I guess, if so, are there any plans to monetize alternative assets? You got a bunch of things you could do with Testim or royalty streams, etc, that might not involve a partnership?

Jim Fickenscher

Yes, so let me say this. I think that at this point, we have not seen any of the partners being involved using our balance sheet against us. I think that that is a significant danger when you’re down to one-party negotiation but as we have mentioned, we have multiple partners that are involved in the discussions at this point in time; and I think you hit it right on. I mean, we do believe that we have other options to finance the company. First and foremost, I’d say, obviously very reasonable cash earned in the third quarter of this year; and we have cash to last us into the third quarter of next year. So A, we have time on our side; B, I think there are other options that do remain for us to generate cash, so we’re going to continue to monitor that. If we get to the point that we think that it is becoming an issue in the negotiations then we may have to take a different strategy; but for now, we continue to have all of our options on the table for us.

Eric Schmidt – Cowen and Company

And just as a follow-up, why was the cash earned so low in Q3?

Armando Anido

Yes, it’s a couple of different issues. Number one is as Testim continues to grow, we generate incremental gross margin. In the third quarter, we also saw a reduction in our operating expenses; in particular, the cash operating expenses, so there is a significant expenses quarter for SFAS 123R. If you fact that out, our operating income on a cash basis was certainly much better than Auxilium have had in any of the other quarters.

There are two other items that I’ve mentioned as well. First, you may recall that when we signed the lease with our landlord for the Horsham manufacturing facility, we structured a tenant improvement allowance that allowed us to get reimbursed for the improvements that we made to the manufacturing facility. We received about $3.7 million in the third quarter from our landlord. I would just mention that we also struck a new deal with our landlord, which we think will help our cash position going forward. We now have an additional $5.25 million of tenant improvements that we can get reimbursement for going forward in the future, so that’s certainly a nice flow of asset for us. And finally, we do continue to get some cash as options are exercised and we get the strike price of the options; so all of those things came together to make it a very reasonable cash earned in the third quarter.

Eric Schmidt – Cowen and Company

Thanks.

Jim Fickenscher

Okay.

Operator

Your next question comes from the line of Eun Yang from Jefferies. Please proceed.

Eun Yang – Jefferies

Thank you. In the past, you mentioned that you plan to build about 75 to 100 sales force of sales reps in mid ’09, and I’m assuming that that’s under your assumption that XIAFLEX would get a standard review at the FDA. So the question is if you get a priority review from the FDA, how does that impact your plan? And also, could you comment on the addition or your assumption for additional costs of building the sales force? Thank you.

Armando Anido

Yes. Eun, very good questions. I think that at this particular point, we haven’t given any guidance on 2009 and what the expenses are; but what I can say to you is that our plan was that we should bring on our sales organization somewhat before we believe that we’re going to have a final approval, and that is potentially a two- to three-month window of when we anticipate approval. That would probably if we’re anticipating an early 2010 approval. That would mean probably a very limited amount in 2009 expenditures, predominantly fourth quarter for the vast majority of expenses. If we get a priority review, we anticipate that we will know within 60 days after we submit; and then we would probably move up those expenditures by probably a period of about four months because standard review is ten, priority review is six, and we would probably be looking to spend somewhat more in 2009 under a priority review scenario.

Eun Yang – Jefferies

Okay, thank you very much.

Armando Anido

Thank you, Eun.

Operator

Your next question comes from the line of Kim Lee from Pacific Growth Equities. Please proceed.

Kim Lee – Pacific Growth Equities

Good morning. Congratulations on a good quarter.

Armando Anido

Thanks, Kim.

Kim Lee – Pacific Growth Equities

A quick question on – I know you had mentioned that you have not seen any new adverse events as far as what has been reported before, such as tendon rupture and DVT; but have you seen any additional adverse events in the open-label study that have not been reported before?

Armando Anido

Yes. I think that actually, Kim, what I mentioned in one of the previous questions is that we have not seen any new tendon ruptures, no new CRPSs, no new DVTs that we reported as serious adverse events back in June. We have had one report of a proliferation of disease probably related to drug based on the investigator’s approach. We are now in the process of investigating that, and that is the only new event that we have seen.

Jim Fickenscher

And those events go across all trials that are open.

Armando Anido

All the studies.

Jim Fickenscher

So it’s not just the CORD I and II. It’s CORD I and II, Joint I and II.

Armando Anido

Yes, right.

Kim Lee – Pacific Growth Equities

Great. And one last question, if I may. What are the characteristics of the partnership that you’re looking for, as well as the characteristics of the type of partner that you’re looking for?

Armando Anido

Yes, I think that from a partnership standpoint, we are looking for first and foremost, somebody that is as committed to the long-term success of XIAFLEX in Europe as we are, that would love this brand as much as we love it, that would put the appropriate level of resourcing in order to make it the potential blockbuster that we think it can be. They should have a breadth of experience in regulatory development as well as very strong commercialization experience, have biologics experience as well, and really from a pricing and reimbursement which are key both here in the US and in Europe that they have that time of experience; so it’s a – we’re looking for a pretty strong partner.

Kim Lee – Pacific Growth Equities

Great. Thanks a lot.

Armando Anido

Thank you.

Operator

Your next question comes from the line of William Ho from Banc of America Securities. Please proceed.

William Ho – Banc of America Securities

Okay, can you hear me?

Armando Anido

Yes. Hey, Will, how are you?

William Ho – Banc of America Securities

Hey. Sorry, I don’t know. Something’s wrong with my phone. I guess I’d like to take my question. The first question, can you, I guess, clarify a little bit as to what is proliferation of disease? Are you – are those infections of what type of disease?

Armando Anido

Yes, it’s actually Dupuytren’s disease, so conceivably, and I’ll have Tony answer a little bit more about it. Tony?

Tony DelConte

Yes. I mean, what happen during the course of disease is some people, their disease gets worse. In other words, the palmar fascia that’s abnormal just continues to grow; and in this case, the investigator did think that this had some relation to the study drug. What the investigator described as growth of the disease around everywhere but the site of injection where was actually a notch there, so proliferation of disease is just a normal course of disease where the disease progresses on.

William Ho – Banc of America Securities

Okay, great. And then can you – I don’t know if I missed this. Can you talk a little bit about any discussions you’ve had with the ANDA about what’s required to gain approval in Europe?

Armando Anido

Yes. At this particular point, Will, as we’ve said, we are continuing to have conversations with the various EU Member States in order to understand what they may want in addition to the package that we believe the ANDA would be comfortable with. And those discussions in the stock (inaudible), so to give any additional clarity, I think, is difficult at this particular point until those are completed.

William Ho – Banc of America Securities

Are those the discussions that are key in order to complete the European partnership? Is that what’s the bottleneck, I guess, to getting a deal done?

Armando Anido

I think they’re running simultaneously, so I don’t think that one is slowing down the other.

William Ho – Banc of America Securities

Okay. And then finally, can you talk – I know that it’s a concern from a lot of investors and we still get a lot of questions, just about your current cash position. We know you have cash for the third quarter of next year, but it seems like the convert markets are closed. There are some concerns given the end of filing on Testim last week, and the stock prices come in pretty significantly. Can you talk about at what point do you become concerned about your cash and how do you, I guess, manage that cash position for the time being?

Jim Fickenscher

Yes. Well, I think – it’s Jim. I think that obviously, we follow very closely what’s happening with our cash position and what our options are. So I would say that we certainly have some options for spending that we can look at, but there are also options on the financing side of things; so we are constantly reevaluating the status of where we are with the European partnership. I think it’s too early right now to say if the end of filing takes off the table the concept of us (inaudible) on Testim. It probably makes another set of difficulties in getting something done, but I can’t say that we’re taking it off the table. It might affect the total dollar amount that we could raise, for example. And I think that that’s obvious we don’t like the price of our stock. We think it’s significantly undervalued today, but the equity market is certainly available to us as well as should we need to go that route; so we’re constantly evaluating of those in order to see when it’s the right time to make a decision to move forward with any one of them.

William Ho – Banc of America Securities

Great. Thank you.

Armando Anido

Okay. Thanks Will.

Operator

Your next question comes from the line of Mr. John Newman from Oppenheimer. Please proceed.

John Newman – Oppenheimer

Hey, guys. Thanks for taking the question. You mentioned you’re still planning on filing the BLA in early 2009. Given that the last patient that you would need for one-year safety follow-up was enrolled last December, do you think there’s a possibility that maybe we’ll see a filing first quarter 2009? Thanks.

Armando Anido

Yes, John, we have been very consistent since we reinitiated the trials, that our plan was to be able to file the BLA in early 2009, and we really have not given any further clarity other than saying early 2009; and I think that you can rest assured that we are trying everything that we can possibly can to do it as quickly as we can in ’09.

John Newman – Oppenheimer

Great. Thanks.

Operator

Your next question comes from the line of Elizabeth Naldi from Piper Jaffray. Please proceed.

Elizabeth Naldi – Piper Jaffray

Hi. Thanks for taking my call. I was just wondering if you could talk about plans for further subgroup analysis from CORD I and II, either joint severity or by joint in your upcoming meetings or journals?

Armando Anido

Yes. At this particular point, Elizabeth, we have not really disclosed the evaluations and when we would be disclosing additional data points on XIAFLEX, the CORD I/CORD II results. I think that we are still looking to get this published in a major peer-reviewed journal, and we do not want to have that be impacted by our evaluation or disclosure of any additional information at this particular point.

Elizabeth Naldi – Piper Jaffray

Okay, thanks.

Armando Anido

Thank you.

Operator

Your next question comes from the line of Andy Schopick from Nutmeg Securities. Please proceed.

Andy Schopick – Nutmeg Securities

Thank you. One quick question on Peyronie’s and then I’d like to move to XIAFLEX. Do you have any estimates for the trial costs associated with the moving forward with Peyronie’s over the next year?

Armando Anido

Yes, Andrew, we do not, as a matter of policy, give individual data points like that on the costs of individual trials; so at this point in time, we have our guidance for this year. With regard to R&D, at the next quarterly call that we do, we will certainly provide color and guidance for 2009.

Andy Schopick – Nutmeg Securities

Okay, if I could move on to XIAFLEX for just a minute. This is a condition that I’m familiar with because it runs in my family. My father has severe contracture that required a surgery, hand surgery, which I know is very uncomfortable for him when he was alive, and my brother and I both have some mild form of it in terms of nodules without any contraction. Is there any indication at this time that XIAFLEX would be effective in inhibiting the progression of this condition? Or is it right now really that shown to only be useful, if you may, for conditions that have progressed toward a meaningful contracture?

Armando Anido

Yes, Andy, I think that that’s a great question. At this particular point, our trials have been done in patients that have a contracture angle of 20 degrees up to as high as 100 degrees, so it is hard for us to speculate whether or not XIAFLEX would have an effect in patients that currently have nodules or earlier stage disease like that.

Andy Schopick – Nutmeg Securities

Will you be testing for that?

Armando Anido

I think that there are a number of potential life cycle management opportunities for us once the product gets approved, that I’m sure that that is probably one area that we will look to investigate in because many folks have speculated that there may be some potential benefit there.

Andy Schopick – Nutmeg Securities

Well, that would significantly expand your market opportunity if you can prove that it is useful in early stage conditions. Thank you.

Armando Anido

Thank you very much.

Operator

Your next question comes from the line of Andrew Vaino from Roth Capitals. Please proceed.

Andrew Vaino – Roth Capitals

Thanks. A quick question on this whole issue of proliferation of disease. Based on the mechanism of the actual drug, this just seems farfetched. Does the physician have any explanation as to how XIAFLEX could possibly cause a progression of Dupuytren?

Armando Anido

Well, I think that the one thing that is clear is that first and foremost, the enzyme did work in the coordinate lies; and then the disease started to come back and proliferated. What is uncertain and what we’re investigating at this particular point is what the actual potential cause would be, but I don’t think there is any theoretical basis for that happening.

Tony DelConte

There’s absolutely no biologic possibility for this occurring from what we know of the mechanism and the disease, and we’ll continue to evaluate it; but this is really the sole case of this that we’ve seen anywhere.

Andrew Vaino – Roth Capitals

Okay, so he didn’t actually see a correlation. He just saw that the disease then recurred after treatment is all he saw. Is that correct?

Tony DelConte

Well, he thought that the disease was progressing at a rapid pace more than you would normally see, and that’s his interpretation; and we haven’t had other investigators interpret this. So we’ll continue to look at this, but it’s not something that we believe is biologically possible as an effect.

Andrew Vaino – Roth Capitals

Okay, thank you.

Armando Anido

Great, thank you.

Operator

(Operator instructions) You have a follow-up question from the line of Eun Yang from Jefferies. Please proceed.

Eun Yang – Jefferies

Thanks very much. Earlier, you’ve mentioned that there are multiple discussions currently ongoing for XIAFLEX. I just want to ask you, are any of the discussions involve the US rights as well?

Armando Anido

At this particular point, Eun, the focus is on EU as the main focus, and the US is not on the table in those discussions.

Eun Yang – Jefferies

Thank you.

Armando Anido

Thank you.

Operator

At this time, there are no further questions in queue. I’d like to turn the call back over to Mr. Armando Anido, the Chief Executive Officer. Please proceed.

Armando Anido

Great. Thank you very much, Operator. And thank you very much to the investment community that participated this morning. We are very excited about where we are with XIAFLEX, as well as Testim right now on the progress we’ve made, and we look forward to updating you on our continued progress in the future. Thank you very much.

Operator

Thank you for your participation in today’s conference. This concludes our presentation. You may now disconnect. Good day.

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Source: Auxilium Pharmaceuticals, Inc. Q3 2008 Earnings Call Transcript
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