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Auxilium Pharmaceuticals (NASDAQ:AUXL)

Q1 2013 Earnings Call

April 29, 2013 8:30 am ET

Executives

Adrian Adams - Chief Executive Officer, President and Director

William Q. Sargent - Vice President of Investor Relations and Corporate Communications

James E. Fickenscher - Chief Financial Officer and Principal Accounting Officer

Analysts

Thomas Wei - Jefferies & Company, Inc., Research Division

Andrew Goldsmith

Eric Schmidt - Cowen and Company, LLC, Research Division

Ami Fadia - UBS Investment Bank, Research Division

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

David M. Steinberg - Deutsche Bank AG, Research Division

Gregory D. Fraser - BofA Merrill Lynch, Research Division

Joseph P. Schwartz - Leerink Swann LLC, Research Division

Sara Slifka - Morgan Stanley, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2013 Auxilium Pharmaceuticals Inc. Earnings and Announcement of Auxilium Transaction Conference Call. My name is Rachel and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Adrian Adams, Chief Executive Officer and President. Please proceed.

Adrian Adams

Good morning, everyone and thank you for joining us for Auxilium's webcast to discuss our first quarter 2013 financial results and purchase of Actient Holdings LLC. With me this morning, the Chief Financial Officer, Jim Fickenscher; Chief Medical Officer, James Tursi and Vice President of Investor Relations and Corporate Communications, Will Sargent.

Before I proceed, I would like to ask Will to read our forward-looking statements. Will?

William Q. Sargent

Thank you, Adrian. Before we get started, I would like to remind everyone that we have a slide presentation to accompany our conference call this morning, which can be viewed in our website at auxilium.com. If you are listening to this call on your telephone, you may access the synchronized slide deck on our website by choosing the link on our webcast page that says, click here to listen. This presentation contains a description of the non-GAAP calculations in reconciliation to the closest comparable GAAP measure, as well as the company's rationale for the utility to investors of the non-GAAP measures it is elected to report. The subscription of reconciliation can be found in the appendix accompanying the presentation.

The non-GAAP financial measures reported by the company should not be relied upon as an alternative to GAAP measures. This conference call and presentation contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, which convey the management's expectations and beliefs, plans and objectives regarding future financial and operational performance. These forward-looking statements are subject to a wide range of risks and uncertainties that could cause results to differ material respects, including those relating to our ability to effectively and efficiently integrate Actient's operations; the anticipated liabilities or costs associated with the Actient acquisition; the accuracy of our forecasts; our ability to the realized expected synergies and tax benefits from the Actient acquisition, revenues, expense, earnings and cash utilization expectation; product commercialization; product development; intellectual property rights; adverse litigation developments; competitive products; results and timing of clinical trials; success of marketing efforts; the need for additional research and testing; delays in manufacturing from the timing and content of decisions made by the regulatory authorities, including the U.S. Food and Drug Administration. Actual results could differ materially from those described in this conference call and presentation. Information on various factors that could affect Auxilium's results are detailed in the quarterly results with the Securities and Exchange Commission. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements. I encourage you to review the full safe harbor on Slide 1.

Now I'll turn the call back over to Adrian.

Adrian Adams

Thank you, Will. Today represents the start of a new and exciting era for Auxilium and one that begins with what is a transformation event. Through the acquisition of Actient that we announced this morning, we are opening a new chapter that we believe creates an exciting future for our patients, customers, employees and shareholders alike. I want to personally welcome all of the new employees into the Auxilium family, professionals who have been so instrumental in creating a strong, vibrant and successful company in Actient.

On Slide #2, you will find our agenda for this morning's call. We will begin with some remarks on Auxilium's first quarter 2013 results and then focus our discussion on the exciting news that we released this morning regarding our acquisition of Actient, in particular, the strategic rationale, background, financial considerations and significant opportunities that come with this acquisition and finally, we will open up the call for your valued questions.

Turning now to Slide #3. During the first quarter of 2013, Auxilium faced some significant challenges with our commercial franchises, resulting in lower than expected revenues. Within the quarter, we achieved total net revenues of $66.2 million, a decline of 10% versus the first quarter 2012. Global Testim revenues of $45.5 million declined 22% versus the same period last year, and although our global XIAFLEX revenue grew to $20.7 million or U.S. XIAFLEX revenue of $12 million declined 5% from the first quarter of last year. Our first quarter 2013 non-GAAP net loss of $2.3 million compares to $1.9 million of non-GAAP net income for the first quarter of 2012. Auxilium ended the first quarter with a cash balance of $467.8 million.

On the research and development front in March, we announced positive top line data from the XIAFLEX or CCH Frozen Shoulder Syndrome Phase IIa Study. We were pleased to see 2 doses within the study that demonstrated specifically significant improvements in range of motion and pain compared to an exercise on the arm and with a well-tolerated safety profile. We believe these results support progression into later-stage placebo-controlled studies, and expect to begin enrolling patients in the second half of this year. In addition, the results of our Phase III pivotal IMPRESS trial of XIAFLEX and Peyronie's disease were published online in the Journal of Urology and we expect to have more data from these trials presented at the American Urology Academy Meeting next week.

During the quarter, we also expanded our exclusive license for CCH to include the potential treatment for cellulite, and also plan to start Phase II placebo-controlled studies in the second half of the year. In January, we successfully issued $350 million of 1.5% convertible senior notes to strengthen our balance sheet and to support our strategic goals and corporate development and licensing and finally, this morning, we are delighted to announce the closing of the acquisition of Actient, which took place on Friday, April 26. To complete this transaction, we have entered into a $225 million term loan with the balance of the purchase price paid from the cash on our balance sheet.

Having summarized the quarter, I would now like to turn to more details on Testim's performance by referring to Slide #4. Without question, we were very disappointed with the results for Testim in the first quarter. We believe this underperformance was caused by a combination of slowing growth of the TRT market, moderate erosion of market share due to effects of increased competition and managed care challenges and the impact of managed care on our net realized selling price. In the first quarter of 2013, the testosterone replacement therapy or TRT general market grew at a slower rate than we have anticipated when planning for 2013. First quarter prescriptions in the market increased by only 11% versus the first quarter of 2012. This contrasts to the 27% growth we saw in the fourth quarter of 2012 versus the same period in 2011. As we mentioned on our fourth quarter call, we had anticipated based on the buyout trends throughout 2012 that the TRT general market will grow in the 15% to 20% range for 2013. So we did expect some slowdown in the TRT general market, but this quarter's slowdown was much larger than expected and very surprising. While the growth rates in the TRT market have always been subject to fluctuation, the reasons for this sudden slowdown in the market are not yet fully clear.

With this said, Testim U.S. prescriptions in the first quarter of 2013 declined to approximately 174,000 prescriptions versus the comparable period in 2012. Testim market share at the end of the first quarter of 2013 was 14.2% compared to 19% at the end of the first quarter of 2012. Although we remain encouraged by the slowing of Testim prescription share loss, as presented in the chart on the left side of this chart slide, competition in the TRT general market continues to increase for prescriptions and managed care plan access. Although there are wins and losses with managed care throughout any year, certain first quarter detrimental changes in Testim access were unanticipated and accounted for some portion of our drop in market share.

Testim now has access to approximately 71% of covered lives, down from 83% in the fourth quarter of 2012, and we believe much of the benefit from the price increase we took earlier this year will be lessened by the loss of access in previously non-contracted plans, which carry lower rebates. We continue to roll out new salesforce resource and tools that should assist physician offices improve managed care interactions when prescribing Testim and potentially regain share.

Finally, we've mentioned on our fourth quarter earnings call that we believe that there were some speculative buying in advance of our price increase, which may have resulted in an approximately $4 million to $5 million increase in channel inventories. During the first quarter, we believe that approximately $3 million to $4 million of de-stocking of these inventories may have occurred. As a result of these unanticipated market and competitive factors, we are reducing our guidance for Testim for the balance of the year and allowing for a wider range of possible outcomes.

Please now refer to Slide #5 where I will discuss the commercial performance of XIAFLEX. First quarter 2013 U.S. revenues for XIAFLEX of $12 million represents a 5% decline versus the first quarter of last year. X U.S., net revenues of $8.8 million were up 38% versus the same period in 2012. Please note that this includes approximately $7.4 million of amortization of Pfizer-deferred revenue. Despite an increase of 6.5% in vials shipped from our distributors to physicians from the same period in 2012, the revenue performance of XIAFLEX in the United States during the first quarter was challenging. We did see a reduction in inventory on hand in our distributors and wholesalers in the first quarter of approximately $2 million. On January 2, we instituted the first price increase on XIAFLEX since the launch of the product in March of 2010. We have seen that positions in this market are sensitive to reimbursement issues, and we believe that it is possible that until the ASP calculations reset, we could have some pressures on total volumes. Anecdotally, we have heard that physicians that overall patient visits were down in the first quarter. We have not yet seen full procedure data for the quarter so it is better to understand market dynamics. However, a market share of total procedures below is 30%, we feel that we should have been able to have a better performance than we had. We have reoriented our salesforce's focus and we expect to gain market share for the remainder of 2013, as we continue to drive XIAFLEX towards becoming the standard of care in the treatments of Dupuytren's contracture. Reassuringly, the number of Dupuytren’s procedures continue to rise through January, with a rolling 12-month increase of 5.1% versus the previous 12 months. Based on continuing procedure market rule, we believe that with anticipated continuing growth in market share gains, the opportunity for XIAFLEX to show growth remains intact, although we are bringing our full year guidance down as a result of the slow first quarter.

The graph on this slide shows vials purchased by physicians in the blue bars, and shows the number of unique sites that ordered XIAFLEX in any given quarter on the line chart. We continue to see improvement in the number of new sites with 121 first-time sites and 1,025 experienced sites using XIAFLEX in the first quarter. Since launch, over 2,136 sites have now used XIAFLEX for the treatment of Dupuytren's contracture patients with a palpable cord. We realize that continuing to add new sites and grow experienced sites utilization of XIAFLEX remains key to achieving all of XIAFLEX's goals for 2013.

Please now refer to Slide #6, which highlights our first quarter 2013 non-GAAP financial results. Total revenues for the quarter were $66.2 million, which is a decrease of 10%. Non-GAAP gross margin on net revenues was 77%, consistent with the level achieved in the first quarter of 2012. The benefit of the increased amortization of deferred Pfizer revenues in the first quarter of 2013 was offset by a decline in XIAFLEX's margins from higher costs due to lower production volumes and spending on manufacturing initiatives related to XIAFLEX.

Research and development spending was $11.2 million on a non-GAAP basis compared to $11.4 million in the same period last year. This decrease in expense results principally from the lower level of spending in 2013 on Peyronie's clinical trials, offset by increased spending on Frozen Shoulder Syndrome clinical trials. On a non-GAAP basis, selling, general and administrative costs were $41.3 million compared to $43.9 million in the same period last year. This decrease was primarily due to decreased spending for marketing and direct-to-consumer advertising in 2013 on XIAFLEX for Dupuytren, partially offset by increased marketing spend in preparation for the potential launch of XIAFLEX in Peyronie's and higher legal cost.

The non-GAAP net loss for the first quarter of 2013 was $2.3 million or $0.05 per share compared to net income of $1.9 million or $0.04 per share in the same period last year. We will continue to focus on strengthening Auxilium's performance and create value for our stockholders, and a very large part of that effort begins right now with the exciting transformative acquisition of Actient.

Beginning on Slide #7. I want to show you how the acquisition of Actient fits squarely within our strategic plans for 2013 and beyond. Auxilium has been executing on a strategy of growth and diversification that includes aggressively pursuing opportunities for expansion in specialty areas as we work to achieve our primary goal of driving short, medium and long-term shareholder value. I will focus on why we believe this transaction represents the right specialty opportunity to drive strong and sustainable planned onshore performance and supplement our portfolio of currently marketed products and our evolving pipeline opportunities. Urology, particularly men's health, has been a top therapeutic area for Auxilium for some time now. We believe that Actient meets our stated corporate development and licensing focus of finding commercial assets to generate meaningful revenue in 2013 and 2014 and leverage our current commercial knowledge, relationships and infrastructure.

Turning to Slide #8. We acquired Actient for $585 million for certain earn-outs, and want us to purchase 1.25 million shares of Auxilium common stock at an excise price of $17.80 per share. We received all regulatory approvals necessary for the merger, and as of Friday, April 26, Actient is a wholly owned subsidiary of Auxilium. With this transaction, Auxilium expects to receive a significant tax benefit with a net present value of approximately $60 million. Having covered the key transaction terms, let's turn now to Slide 9 and explore the compelling strategic rationale for this acquisition and why we are so excited about this combination and the new era it represents for Auxilium. With Actient, the new Auxilium will have a leading urology franchise with a strong growth profile and expanding operating margins. The transaction is immediately accretive, and we expect to generate return on invested capital in excess of our cost of capital by 2014. This is extremely compelling from a financial point of view. Together, we can leverage our U.S. salesforces more efficiently, which will reach an extensive network of more than 24,000 prescribing physicians. With Actient, we will enhance our buy-and-bill expertise, which should build value for our products today and for our future pipeline. Finally, with a broader portfolio, which now includes 11 products in specialty areas, including urology, orthopedics and respiratory, we will have a more diverse revenue stream, reducing our reliance on any single product. These are the reasons we believe this transaction to be strategically and financially compelling, and indeed transformative for Auxilium.

Turning now to Slide #10. I'd like to spend the next few minutes telling you a bit more about Actient and its attractive product portfolio. Actient was founded in 2009 by GTCR, a leading private equity firm. They have built a strong urology product portfolio through a series of acquisitions. Actient has approximately 165 employees, including 100 sales professionals in 2 focused field forces. Actient's urology portfolio includes 4 promoted products: Testopel, the only long-acting implantable testosterone replacement therapy; Edex, an injectable drug, which is the leading branded non-oral treatment for erectile dysfunction; Osbon ErecAid, a urology device for treating erectile dysfunction; and Striant, a buckle system for testosterone delivery. Actient also has a non-promoted respiratory franchise, including Theo-24 and Semprex-D, along with other non-promoted products. On an estimated pro forma basis, adjusted for certain transactions and events, Actient recorded 2012 revenue of approximately $125 million and EBITDA of $61 million. Jim go will go through important data regarding how we calculated estimated 2012 Actient revenue and EBITDA in a moment.

As you'll see on Slide #11, TESTOPEL is the only FDA-approved, long-acting, implantable testosterone replacement therapy proven to normalize testosterone levels for 3 to 6 months of treatment. The TRT ingestible market, which we believe is a proxy for the TRT implantable market, is growing rapidly and faster than any other segment in TRT and TESTOPEL is also growing strongly. First marketed in 2008, TESTOPEL is easily administered by subcutaneously implanting multiple pellets by a procedure that can be done in a doctor's office. TESTOPEL has a number of key differentiators that we believe make it an attractive product, with continued growth potential. This include the following key benefits. There is no risk of transference and no box warning for secondary exposure to testosterone associated with the drug. The long duration of effect gives 100% patient compliance over an extended period of time, and we believe TESTOPEL's buy-and-bill model and existing CPT code should represent a simple way for urologists to obtain reimbursement by the majority of insurance plans. With its unique position in the marketplace, we believe that TESTOPEL will have an attractive growth rate moving forward.

Turning now to Slide #12. Edex is another product we believe will enhance our urology product portfolio. It is a market-leading branded injectable erectile dysfunction option that has been on the market for more than 15 years to treat men who fail or who are not candidates for oral therapy. Edex is the only FDA-approved injectable erectile dysfunction product in a single unit of use format. We believe this, in addition to Edex's rapid onset of action, offers a significant convenience benefit for patients. Like TESTOPEL, Edex is uniquely situated in its existing market and is covered by a majority of insurance plans, and we believe the growth opportunity with Edex is significant.

With the addition of the Actient portfolio, we have the opportunity to leverage our combined U.S. salesforces more efficiently, which we highlight on Slide #13. Together, our salesforce will have multiple call points to reach an extensive network of over 24,000 target physicians across urology, orthopedics, endocrinology and rheumatology, including 1,000 high-prescribing primary care physicians. Specifically, we will increase our quality of relationships with the majority of urologists, and we will broaden our expertise to include devices. Importantly, by joining our 2 experienced sales and marketing teams with expertise in TRT and erectile dysfunction, as well as our collective experience with buy-and-build delivery models, we believe we have set the stage for a successful potential launch of XIAFLEX for the treatment of Peyronie's disease if approved by the FDA later this year. With new resources around physician education, reimbursement experience and contracting, we are confident that we'll be able to better serve our physician customers, and in turn, our shareholders.

Please refer now to Slide #14, which shows you a breakdown of our newly combined product portfolio. Starting today, the new Auxilium will have a more diverse revenue stream, enabling us to capture value across a broader spectrum of niche pharmaceutical products. From a therapeutic category point of view, urology remains our key area of focus, however, we are significantly reducing our dependence on any one product. As you can see from the pie charts on this slide, for Auxilium as a standalone entity, Testim currently contributes 78% of our net revenues. On an estimated pro forma basis for the combined company, Testim would have comprised only 55% of our net revenues for 2012. In a similar fashion, XIAFLEX for the treatment of Dupuytren would have comprised only 15% of our revenues in 2012 versus 22% today.

As we've said throughout today's call, this acquisition is a major and transformative step forward in our strategy to expand our specialty therapeutic offerings and Slide 15 highlights the new Auxilium overall portfolio. We now have 11 approved products with 4 core market products that will help drive revenue growth and support our continued efforts to develop and optimize our product pipeline. We are excited about our potential advancements in TRT, erectile dysfunction, Peyronie's disease, expansion of the Dupuytren's market, Frozen Shoulder and dermatology, and we believe that they presents long-term growth opportunities and potential shareholder value creation well into the future.

With that, I'm going to turn it over to Jim to talk about the financial aspects of the transaction.

James E. Fickenscher

Thank you, Adrian, and good morning, everyone. Let's move to Slide 16. The combined company will have a strong growth profile. On an estimated pro forma basis, the combined company's revenue for 2012 would have been approximately $429 million, 62% higher than the $264 million that Auxilium recorded in 2011. This compares favorably to the 15% year-over-year growth revenue growth that Auxilium recorded as a standalone company. I want to highlight the historical revenues for Actient, have been adjusted from the original GAAP presentation for certain pro forma adjustments and other events, including estimating revenue that would have been generated by TESTOPEL from October to December, 2012, to eliminate the effect of an out-of-stock situation with respect to TESTOPEL that occurred during this period. Please be sure to review the reconciliations included in the appendix to the slide deck for a more detailed description of the basis for our estimates of 2012 TESTOPEL revenue and information on other adjustments and assumptions that we have made.

We expect the transaction to generate cost synergies of approximately $20 million, and that the majority of these synergies should be achieved in 2014. We also expect to realize meaningful revenue synergies from cross-selling opportunities. As a result of these synergies and increased salesforce leverage, we expect to benefit from significant operating margin expansion over time.

Turning to Slide 17. The transaction is expected to be immediately accretive to Auxilium's non-GAAP adjusted net income guidance of $18 million to $23 million in 2013. We are anticipating strong fundamental returns, and expect our return on invested capital to exceed our cost of capital in 2014, both with and without synergies. With our broad portfolio and expanding margins, we expect to generate strong operating cash flow moving forward. In addition, we expect the significant tax benefit that will be created through this transaction. We expect that the structure of the transaction will allow us to get a step-up in basis, and therefore, exit out of a goodwill charge. The amortization of this tax asset over 15 years has a net present value to Auxilium of approximately $60 million, and we believe that it is important to consider this within the context of our net purchase price. Additionally, the profit generated by the combined business should allow Auxilium to accelerate the use of our substantial NOLs and tax credits, allowing us to keep a very high percentage of the cash generated in the early years. Finally, we anticipate that capital requirements for this business will remain relatively low. As a result of all these factors, we believe Auxilium should be able to delever quickly.

Slide 18 indicates our updated 2013 financial guidance, which reflects Auxilium's revised product guidance and the addition of Actient from April 26, 2013 through the end of the year. We expect global net revenues to be in the range of $360 million to $415 million; global Testim revenues in the range of $210 million to $240 million; U.s. XIAFLEX net revenues in the range of $55 million to $65 million; x-U.S. and deferred revenues for XIAFLEX in the range of $10 million to $15 million; and revenues for the products acquired in the Actient transaction in the range of $85 million to $95 million. Due to the simultaneous signing closed nature of this deal, we will not be providing specific updates to our operating expense or net income guidance at this time, other than to say, we anticipate this transaction will be accretive to our previously announced guidance for non-GAAP net income of $18 million to $23 million. We expect to be able to provide more wholesome guidance on expenses and net income no later than our second quarter call.

Turning to Slide 19. You can see that we expect substantial revenue growth in 2013 on a year-over-year basis. Also, on a non-GAAP basis, with only 8 months of Actient revenues, we are targeting approximately $387.5 million in revenues with our combined product portfolio at the midpoint of our guidance. This will represent a 27% increase in 2013 net revenues over 2012. As you can see, this acquisition and this combined portfolio of diverse products have us very excited about the financial benefits that we will strive to provide to our shareholders.

And with that, I'll turn the call back over to Adrian for some concluding remarks.

Adrian Adams

Thanks, Jim. Turning now to Slide 20, and returning to the compelling strategic rationale for the acquisition of Actient. This is a transformative day in the history of this company. With the acquisition, Auxilium is now well and better positioned for the future. We have expanded our TRT portfolio and added a new erectile dysfunction business and as a result, we have both strengthened our commitment to help urologists and their patients and enhance our growth trajectory.

Finally, ladies and gentlemen, on Slide #21, we have highlighted our near-term priorities for the new Auxilium. Our first area of focus is to integrate Actient to realize the value inherent in this exciting combination for our physician customers and our shareholders. With our attractive growth platform, we will continue to execute our strategy of maximizing the value of our current portfolio, including stabilizing and growing Testim market share and increasing unit sales, driving XIAFLEX as a standard of care for Dupuytren's and growing TESTOPEL, Edex, Osbon ErecAid and Striant for use with urologist. We will also focus on the successful launch of XIAFLEX for Peyronie's, if approved, which will further enhance our leading urology franchise. At the same time, we will continue to advance our exciting research and development pipeline, including CCH for Frozen Shoulder and CCH for cellulite. With the successful execution of our strategy, we are confident that the new Auxilium will be well-positioned to deliver strong and sustainable financial performance to drive shareholder value. I would now like to open up the call for your valued questions about the quarter and today's announced Actient transaction. Operator, can you please give the instructions?

Question-and-Answer Session

Operator

[Operator Instructions] First question comes from the line of Thomas Wei of Jefferies.

Thomas Wei - Jefferies & Company, Inc., Research Division

I had a couple of questions about Actient. Just if you could give for us what the revenues and the year-over-year revenue growth was in the first quarter of 2013 for the Actient franchise. And then maybe just for context, the EBITDA number was helpful, but could you help us understand how much is in cost of manufacturing versus R&D versus SG&A expenses for Actient itself?

James E. Fickenscher

Thomas, it's Jim. At this point, the only information that we're going to provide is what we have in the deck, which is the full-year EBITDA number and the summaries. As you can imagine, we're in a position where we've done this on a signing closed transaction. So I think that we'd like to take some time to fully develop the additional information that we're going to provide to the market in the coming couple of months.

Thomas Wei - Jefferies & Company, Inc., Research Division

Maybe a separate question then just on the market here. For TESTOPEL and Striant, it sounds like those products maybe has not been under the same sort of market pressures that Testim has faced recently. And then how should we be thinking about barriers to generic entry for their portfolio? And then I'll turn back in the queue.

Adrian Adams

Yes, very good questions. On the former point, I think we've made a reference in our presentation that you are absolutely correct that we believe that the kind of dynamics that operate in the implantable market are different in terms -- than the dynamics in the broader TRT market. I think of one looks at the comparative growth rates of the injectable market, which we believe is a good surrogate for the implantable market, they have been significantly stronger than the overall market, and therefore, we believe that the sustainability of the growth trajectory that we are seeing with TESTOPEL bodes well for the future. From a generic point of view, obviously, if one looks at this type of product, and clearly, we'll articulate a little bit more information, obviously, on our second quarter call, we believe that this is an asset, which is well protected over the long term in relation to any potential impact of a generic entry, and clearly, that reflected in our views and sentiments that we believe this is a very important asset in terms of giving us a urology sustainable franchise over the course of time.

Operator

Your next question comes from the line of Salveen Richter of Canaccord Genuity.

Andrew Goldsmith

This is Andrew, on the line for Salveen. And I just had a couple of questions. The first one is on the core business with Testim. It looks like you kind of had problems ever since the GSK partnership started last year. Can you talk a little bit about the aspects what that partnership might be causing you? And anything you can do to turn that around?

Adrian Adams

Yes, I think the point we tried to make within the call in the first quarter, clearly, the Testim performance was disappointing. But I don't think in any way that in our view that, that is reflected in any issues with the GSK partnership. They remain committed. I think a lot of the kind of dynamics that were in play were very surprising. And more, certainly, I think when we were existing 2012 with a fourth quarter growth of around about 27%, we had certainly not anticipated that during the first quarter that, that growth rate within what have been a very, very buoyant market during the course of 2012 would drop down to 11%. I think this has been noted by other companies in the space as well. So I think it was that dynamic. In particular, I think that drove the challenges in relation to Testim, together with challenges on the managed care side of the business, as we commented. I think in any course of any year, you get ups and downs from a managed care perspective, and clearly, we will be adopting an aggressive stance moving forward. But, again, to reinforce, I think from the partnership with GSK's perspective, we do not think that was a strong contributor to this performance. We think a lot of it was macro-market driven and also some challenges on the managed care front. Both issues that we referred to with the partnership during the early part of the partnership are behind us, and we've been operating efficiently and effectively since.

Andrew Goldsmith

Okay, great. And then maybe a follow-up there. For the Actient acquisition, we noticed that they have the respiratory sales for the respiratory products. What are your plans for that -- for this [indiscernible]?

Adrian Adams

Yes. I think, again, a good question, and this is obviously a market that I know quite well from my background. I think from past companies, I think Theo and Semprex are the -- they are nice assets. They're not promoted at this particular point in time, but obviously, seem to provide good predictable revenue. So as we follow the integration of the company, we're going to try and do that in a timely manner. I think we will assess the respiratory portfolio on a going forward basis. Meanwhile, we're very, very happy with the revenues we get from those assets and the strategic optionality it gives us.

Operator

Your next question comes from the line of Eric Schmidt of Cowen.

Eric Schmidt - Cowen and Company, LLC, Research Division

Jim, are you taking on any debt with the Actient transaction from Actient itself?

James E. Fickenscher

No. It's a cash-free, debt-free transaction so the only incremental debt is the $225 million term loan that we put in place.

Eric Schmidt - Cowen and Company, LLC, Research Division

And what's the rate on that loan?

James E. Fickenscher

It will be at LIBOR plus 3.75 so with a minimum of 1.25. So it's going to be about a 5% loan is the target. Obviously, we'll syndicate that in the coming weeks, and there could be some flex on that, but we're targeting around a 5% rate.

Eric Schmidt - Cowen and Company, LLC, Research Division

And is that what you're using in your cost of capital for the ROIC calculation?

James E. Fickenscher

No, of course, our cost of capital would be a combination of debt and equity, Eric. So certainly, it's -- our cost of capital's probably slightly higher than that, but it's certainly under the double-digit range. So I think an 8% to 9% range is probably a pretty reasonable cost of capital assumption for us.

Eric Schmidt - Cowen and Company, LLC, Research Division

Okay. Can you give us any thoughts on what the growth profile of this business should look like, Actient standalone or on a combined basis with the legacy products of Auxilium?

Adrian Adams

Not at this stage, but clearly, I think we've made reference to the fact that we feel this is a very exciting and potentially transformative event for the company. We did obviously show that on a pro forma basis, if one looks at the overall combined company, that on a pro forma basis, that the portfolio from Actient would have added around about $125 million in revenues during the course of 2012. We've clearly given some degree of guidance for this year, and we'll crystallize this a little bit more for our second quarter call. But more certainly, I think we see TESTOPEL, which is growing rapidly and Edex, which is also growing nicely, as being very important assets. And we do believe that this fulfills the goal that we articulated at the beginning of the year of acquiring companies or assets that add to our revenues in the short term, and by that, we mean 2013 and '14. And certainly, this transaction is accretive on a going-forward basis, and from that point of view, helps our goal of delivering sustainable revenue growth over the period of time.

James E. Fickenscher

And Eric, I'll just add 1 or 2 comments on that because, as we've mentioned today, the company, Actient, was created by GTCR through a series of acquisitions. So as a result, the year-over-year growth, when you look at a total company basis, it's a little more difficult to understand because different products and different assets were brought in at different times during the career or the life of the company. But kind of circling back a little bit to Thomas' message without getting overly specific, I think that, clearly, it is a business that has a different profitability profile than what Auxilium has had today. They've been run very efficiently, and gross margin, somewhere slightly north of what our gross margins are right now, is probably reasonable to assume on a go-forward basis. So just a little bit more detail without getting too specific.

Eric Schmidt - Cowen and Company, LLC, Research Division

In terms of what you guys were interested in when you started looking around for potential acquisitions, was growth a key factor, and is there a target for Auxilium to grow in, say, double-digit top line range over the next few years? I assume this is going to be essentially your major acquisition and you can't do any others.

Adrian Adams

Yes, I mean, well, certainly, when we were looking at our overall corporate development and licensing focus, I think that was within the context of a longer range plan for Auxilium, and particularly with a view to driving short, medium and long-term shareholder value creation. So most certainly, I think, when we were looking at Actient and we've been looking at the company for some time and we've been very impressed with what they've got. Clearly, we wanted to deliver on an ongoing basis, a strong growth profile, and we believe that against the checklist of things that we were assessing that drove a lot of our activities from a corporate development and licensing point of view that this met all the criteria that we outlined ourselves in relation to an attractive proposition, and we're very pleased with this. And we think over the course of time, as the understanding of this company and the understanding of this portfolio gets well-absorbed, I think you'll be impressed with what you see.

Eric Schmidt - Cowen and Company, LLC, Research Division

Okay. Last question, any guidance on how quickly you'll delever? I know that you, Adrian or Jim, mentioned relatively quick.

James E. Fickenscher

Yes, nothing specific on that right now. Obviously, we will be committing to using a certain percentage of our cash flow to delever, but -- and we recognize that in order to be able to have more flexibility that we will want to delever as quickly as possible. But I think that it's not unreasonable to assume, Eric, that, certainly, within the 2014, '15 timeframe that we'll be at levels that would be very, very comfortable that would allow us a lot of flexibility with respect to running the business.

Operator

Your next question comes from the line of Ami Fadia of UBS.

Ami Fadia - UBS Investment Bank, Research Division

Would you go back, and I know this question has been asked before, but for the products overall and you mentioned that TESTOPEL and other products are growing well. But total portfolio basis, can you give us a sense of which products are growing at high single digits, double digit range, that would be very helpful. Also from a salesforce perspective, it looks like you're getting a salesforce from them. How do you think about reorganizing your salesforce as you go forward as a combined company?

Adrian Adams

I'll address the second part of that question. Obviously, it's very early days in the integration. We have set up an integration team that's going to be looking at all the kind of organizational aspects involved in this. We've made reference within the call that we expect synergies going forward, and we expect to achieve all synergies by the end of 2014. And I think -- so within that, I think we've made certain assumptions, and clearly, we've thought through the kind of salesforce allocation components of that. But between now and obviously our second quarter, I think in addition to integrating the organization, we'll be able to crystallize those plans more fully. Obviously, when it comes down to our plans for XIAFLEX and Peyronie's disease, I think, which we hope to get approved by the fourth quarter of this year, obviously, with the acquisition of Actient, we're acquiring a very successful, strong, growing franchise there with the salesforce, but have adopted a very good buy-and-bill model. We believe that expertise, together with the enhancements from our side, will provide a very nice opportunity and platform for XIAFLEX in Peyronie's disease. Obviously, in situations like this, you look broadly at the organization and see with the overall synergies as to how we can make sure that we get significant improvement in our margins moving forward, and I think we're very confident in doing that. And as Jim mentioned, I think we'll be giving greater clarity on that in our second quarter, and we're hopeful by then that a lot of the integration will be proceeding very, very nicely. Jim?

James E. Fickenscher

And I mean, I would just say that when you look at the portfolio of products, 2 of the key products are TESTOPEL and Edex, and both in particular with TESTOPEL, TESTOPEL has been growing at a very high rate, double digits, but even very, very strong double-digit growth, and that's because the product was a relatively niche product. It was purchased several years ago by a company called Slate Pharmaceuticals, who really were the first ones to start to actually promote the product and put some effort behind it. So although the product's been on the market since 2008, it really started to just get some traction in the last couple of years. And certainly, when Actient acquired Slate, they put additional resources behind it and we saw very strong growth and we believe that, that is a product that can grow strongly into the future. We do think that by playing within the injectable, implantable space, it may not be subject to the exact same market forces that we've seen with the gels so that's certainly encouraging for us. Edex has seen very good growth in the last couple of years, and in particular as -- one of the key competitive products to Edex is Trimix, which is a product that has been compounded, and so with the issues around compounding pharmacies that happened last year, they were able to grow that business very nicely in 2012 versus 2011, and I think we believe that with additional effort behind Edex as well that we can continue to see some good growth into the future on that product too.

Operator

Your next question comes from the line of Michael Yee of RBC Capital Markets.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

First question's on Testim, actually. Obviously, there was a large miss there so maybe you can walk through specifically on the managed care front, a little more color what exactly is going on there? I mean, are other competitors basically getting more

preferred contracts? Or are the agreement prices not to your standards? So you are walking away from things? Obviously, the covered liabilities issues dropped a lot this quarter so I'm just trying to understand how -- what are the moving parts there, and how do I know Testim's going to regrow versus [indiscernible]?

Adrian Adams

Yes, I think -- I appreciate your question. Again, going back to -- obviously, while it's difficult to put percentages on impact on Testim in the first quarter. There is no doubt that one of the major impacts of the first quarter was the market growth rate itself. I think, obviously, to move from a situation where you have a 27% growth in the fourth quarter of last year and for that to drop down significantly to 11% during the first quarter was -- had a dramatic impact in relation to our Testim revenues. So just wanted to make sure that, that was well understood, but that was one of the major drivers in the performance. That said, you're absolutely right, and we've made this clear in our call that there has been a reduction in overall managed care coverage. It remains a very competitive arena, and clearly, as we assess our managed care plans moving forward, we always anticipate during the course of any 1 year, there are going to be some losses and some wins. But more certainly, as we move into the first quarter of this year, I think there were some unanticipated losses. That said, I think we have a very clear strategy moving forward from a managed care perspective. And we will take appropriate actions to enhance our position in the managed care area.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Okay. On Testopel, 2 things: one is can you describe the price of the product and how -- exactly, how this reimbursement process works for that; and secondly is better explained sort of the cross-selling efforts. In other words, you said they have about 100 sales reps, but where was their coverage across urology force and who were they covering versus, say, your existing? So where were there overlaps and no overlaps?

Adrian Adams

Yes, I think of their salesforce, around about 100 sales professionals. I think they're obviously in support of both Testopel and the 10 [ph] products of Edex and Osbon ErecAid. So I think, overall, the focus is on Testopel, there's a salesforce of around about 40 at this particular point in time. As Jim mentioned, I think as they move through the course of last year, they did invest more in salesforce resource, and that was responding with a very significant increase in overall sales of Testopel. So from our perspective, I think, given that kind of salesforce where they have the buy-and-bill salesforce, which clearly has implications for -- and potential opportunities for the XIAFLEX and Peyronie's disease opportunity, as you recall, I think we have plans for building a specific focused buy-and-bill salesforce. And clearly, this acquisition gives us an opportunity of starting from a much stronger platform perspective. So that remains a very attractive part of this overall transaction now. From an overall salesforce allocation perspective, I think with Testim, that we believe we'll continue to do well during the course of this year. We also believe that with the potential launch of XIAFLEX in Peyronie's and the opportunities that now come with Edex and with the Osbon ErecAid product, that it gives a lot more optionality in relation to our overall salesforce allocation. And that will form the best of our focus on integration efforts and organizing this company in a way which we can continue to deliver better margins and obviously a more attractive ratios moving forward and we have confidence in doing that.

Michael J. Yee - RBC Capital Markets, LLC, Research Division

Okay. The price versus Testim as well?

James E. Fickenscher

Yes, so it's a different way of pricing the product that has been established at this point. The current cost, we basically sell a single pellet for approximately $65, and then the question is exactly how many pellets will the physician use. So the label indicates that you can have up to 6 pellets per treatment cycle, and then there is some variability, depending on the patient, that can last for 3 months to 6 months. And we certainly know that there are some physicians, who, based on their experience and medical opinion, are implanting in excess of 6 pellets. So there's some variability on that but that's -- if you look at 6 pellets x $65, you're just under $400 for a treatment that would last anywhere for 3 to 6 months, compare that to Testim, which our wholesale acquisition cost is just slightly around $300, obviously, some rebates down there for a month's worth of supply. So that's the differences.

Operator

Your next question comes from the line of Annabel Samimy of Stifel.

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

I wanted to get a little bit of a better sense of the $20 million synergies. Is that a base figure that you're giving us just for the time being? And can you tell us the source of the synergies, is it primarily corporate functions or is it in salesforce integration? And then separately, the accretion, the level of accretion to 2013, '14 was noticeably missing. So I was wondering if you can help us understand some of the variables that would, I guess, prevent you from giving us what that accretion could be.

Adrian Adams

Yes, I'll tackle the first point, and Jim will tackle the second. Obviously, with the synergy number that we've articulated, those are kind of best assumptions with our knowledge of the business. Obviously, prior to the acquisition, we have confidence of achieving those synergies. But obviously, over the next few weeks, as we more fully absorb the operations, we're hopeful that we're going to be able to identify and be more specific on that, and that is why we referenced, but obviously, as it relates to the other aspects of the P&L of the combined company, that we would look to give more specific information on that during our second quarter. Meanwhile, we are very confident of the synergy numbers that we've outlined.

James E. Fickenscher

And I would -- so a couple of things I wanted that add to that, Annabel. First is just to make sure everybody realizes, the $20 million are cost synergies only. While we believe that there are some good opportunities for revenue synergies, there's no revenue synergy that's included in those numbers. The other thing I talked about is this is a bit of a unique transaction and that it is a sign and close transaction. So we've done -- we think the appropriate amount of diligence to understand exactly what synergies there will be, but typically, in a transaction where you announce a transaction on one day and close it 4 to 6, 8 weeks later, that you'll have time to really begin to understand the synergy profile post merger integration work. That work, while we have already underdone -- undertaken a lot of the analysis of the synergies and possibilities, we won't be able to start to work with the folks at Actient on the post-merger integration that will begin literally in the next day or 2. And I think that from that, we will have an even higher sense of confidence, and we'll be able to provide more details on, as I said, no later than the second quarter call.

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And maybe if I could follow up with a different question. Obviously, Testim and even XIAFLEX had a pretty difficult quarter. You talked a little bit about the Testim market. Is there -- is the fact that you have moved into, I guess, more sustainable products with less generic pressures or competition, is that a statement on where you think Testim's sustainability can go -- could be going forward? Are you seeing the possibility of maybe a greater stretch of the franchise. And also with regard to orthopedic, given your now increased focus in urology, is orthopedics going to be something that you're taking less of a focus on, given how XIAFLEX is doing in Dupuytren's?

Adrian Adams

Yes, I think, again, a very good questions. I think, again, it goes back to some of the very important parts of the strategic rationale behind this. And more certainly, I think, moving forward, this transaction and acquisition of Actient, a key driver of the rationale was obviously in terms of developing an even stronger urology franchise, and getting a situation where we have a more diversified product portfolio and with good, strong growth trajectory and financially very compelling. This is not a reflection of a view that Testim is going to become less of an important product. It's going to remain a very important part of our overall franchise. And clearly, with the right managed care strategy and in the event that we get some recovery in the growth rates in the overall market, we believe that Testim will continue to be a very nice product for the company. So it's not reflected in this transaction. What is reflected in this transaction is that we believe that in having a broader, more diversified portfolio, obviously, we're going to be active in the erectile dysfunction area. And clearly with Testopel, operating in a segment of the market that appears to be growing much stronger than the overall market, it's good diversification. And I think, clearly, it gives us more optionality moving forward, and I think it is certainly not a view that we are not continually committed to XIAFLEX and Dupuytren's. We do believe that there's growth, moving forward, with XIAFLEX in Dupuytren's, and we have the right portion kind of resources that will form part of the integration moving forward. So stronger diversification, less reliance on any single one product, we think strategically and financially, that is a very compelling rationale.

Operator

Next question comes from the line of David Steinberg of Deutsche Bank.

David M. Steinberg - Deutsche Bank AG, Research Division

Two questions on your acquisition. First, acknowledging you've only had 6 to 8 weeks to assess the portfolio, do you think these products that are on the market are priced appropriately? Or do you think there's an opportunity to grow via price increases? And then secondly, clearly, year one, it's accretive. I was just wondering in the second 12 months, do you also believe it will be substantially accretive, and if so, would you need revenue synergies and additional cost synergies to make it so?

Adrian Adams

Yes, I mean, on the former point, obviously, I think, as we give more information on the second quarter, I think there has been obviously some history in relation to price increase that have been taken with these assets. And as you well know, I think at any one point in time, when one looks at any opportunities that may be there for price increases, there's a lot of different dynamics that one considers. Do we believe that there is the potential for price flexibility moving forward? Yes, we do, but there are lot of market events that one takes into consideration when making those decisions. And clearly, we'll articulate those at the right time, and in the event that we do determine to move forward in that area. But, overall, I think, David, it gives us a lot more strategic and financial kind of flexibility moving forward. And on the second point?

James E. Fickenscher

Yes, so with respect to the 2014, we do believe that it will be substantially accretive over where we were on a stand-alone basis, David, and we will not be dependent upon revenue synergies for that to happen either. So I think the business that we're buying here is the business that has very strong cash flow and both net income and EBITDA levels on a pro forma basis, and we do not believe that we have to have revenue synergies there on top of additional benefit.

David M. Steinberg - Deutsche Bank AG, Research Division

Okay. Just a quick question on Testim, could you discuss what the incremental sales you achieved in the quarter from your GSK relationship?

Adrian Adams

I think we don't break that down in that particular form. We do look, as we assess the overall efforts, we look at kind of market share evolution in the target groups. Clearly, the way in which we manage the overall GSK partnership is -- going back to the rationale again behind that, is that we have Auxilium specific targets, which are very focused on high-prescribing, high gel product prescribers. And then we have an overlap in relation to, say, the urologists that -- where we have joint calling patterns, but then there are some specific GSK targets. A key part of the rationale was to look to see whether or not we could have greater penetration in the primary care physician population. So I think -- so we don't break down the kind of revenue, obviously, in relation to the GSK partnership. But going back to first principles, David, you may recall that, obviously, as part of this deal, I think it was relatively simply structured, and we've made referenced that this was at no risk to us and at risk for GSK, and what we meant by that is we had a baseline revenue forecast that we believe we could deliver ourselves over the course of time, 2012, '13, '14, '15, and obviously, GSK would share an incremental above that. Now, clearly, GSK and ourselves both are impacted by the market trends that I referred to in relation to the slowing down in growth in the first quarter, and we're hoping that, that trend will stabilize and reverse. And given an aggressive stance on managed care and moving forward, that the partnership will benefit.

David M. Steinberg - Deutsche Bank AG, Research Division

Just one quick follow-up on that. I know you've indicated, in part, Testim was weaker because of slowdown in market growth. But on the other hand, the market's still growing and all the other 3 products are still growing, including Androgel, which is a much larger product than Testim. I was just curious, with GSK, part of the reason for associating with them was their greater reach and share of voice, and yet, your scripts are still declining, while the others are increasing, yet you have a lot more feet on the ground. Just curious how that jives because it doesn't -- and therefore, would you consider potentially using another partner that could help do a better job with reach and share of voice?

Adrian Adams

Well, I think in relation to the partnership we currently have in place, as I mentioned earlier, I think we remain happy with the overall commitment and the resources that are being put to play. Now clearly, in terms of the kind of factors that we believe impacted the first quarter, I commented on the market growth impact, in particular, as it relates to the growth that we anticipated versus what we achieved and also managed care. Critical to, obviously, the partnership and being able to leverage that partnership and the resources, the combined resources that we have, is making sure that the execution aspects of that are on an increasingly productive managed care environment. We've had some managed care challenges. Some of those were surprising losses in the first part of this year, and we're going to remain very aggressive at obviously moving forward with not just retaining, but regaining some of the managed care plans. And we hope that the partnership, per se, will benefit from that, in addition to any improvements in overall macro or market events.

Operator

Your next question comes from the line of Greg Fraser of Bank of America.

Gregory D. Fraser - BofA Merrill Lynch, Research Division

On the Actient acquisition, can you comment on whether their process was a competitive one?

Adrian Adams

Yes, good question. I think, obviously, one of the aspects that we found very attractive with this, we've known this company for a while, and more certainly, 1 or 2 of us have known the principals involved for some time. I think one of the tremendous benefits of this is that I think -- and again, as we hope that as people understand the Actient portfolio, which is now Auxilium's portfolio and the strong performance within that, you'll see why we opened up discussions with them. And I don't want to comment as to whether or not it was competitive. Suffice to say that the strong relationships and the value creation that both of us saw in the combined company was sufficient for us to reach a successful conclusion of the transaction with Actient, and we believe that this is a very compelling transaction and we were very fortunate to acquire a company that has a very strong growth profile, a good portfolio of products and operating in areas that are very synergistic in line with our own therapeutic preference.

Gregory D. Fraser - BofA Merrill Lynch, Research Division

Yes, on the potential for cross-selling opportunity and revenue synergies, to what extent did revenue synergies factor into the determination of the purchase price, if at all?

Adrian Adams

Well, as Jim has mentioned, I think we've not built into those models as yet any revenue synergies clearly. I think as we move towards our second quarter, we would be hoping to give a little bit more granularity in terms of the integration and the impact in relation to our overall expense ratios and structures. So -- but obviously, I think in the event that the integration goes well, we clearly think there is opportunity for potential revenue synergies, but would see that as an upside against the best plan that we've put in place.

Gregory D. Fraser - BofA Merrill Lynch, Research Division

Okay. And the TRT market has been primarily a topical market for some time, that could change over the next several years as oral products could potentially get to market? I guess, now with the Actient acquisition, you're increasing your exposure to non-oral treatments, and I understand the rationale for this particular product. But I'm just wondering to hear your thoughts on how you see the market evolving over the next few years. And if you could comment specifically on Androxal, I think, could be the nearest to market of the oral products, that would be helpful.

Adrian Adams

Yes, I mean, most certainly, I think, we are well aware of, obviously, all the existing, but all the potential products and the make-up of the market up to beyond 2015. And we're well aware, all the developments of oral products, and certainly, we're well aware of the development of Androxal. And clearly, from our perspective, just stepping back to this acquisition, I think within that overall market, which we anticipate, will continue to be a very attractive market. The TRT markets best. We do believe that there are obviously going to be increased competition in the future. Obviously, both products have yet to be approved, and certainly, they will go through the FDA reviews. Meanwhile, we are focusing on those things that we can control, the kind of portfolio asset built over the course of time that we believe will add shareholder value and increase our competitive situation. One of the points we've made is if you look at the dynamics in the injectable and the implantable market, they have different dynamics than you would see in the broader market, per se. The injectable market, which we see as being a very good surrogate of the implantable market, I think, has been growing at a significantly stronger rate than the overall gel market, and we see operating in that market with Testopel, which itself is growing very, very strongly, is a diversification that strategically makes all the sense in the world, and I think will put us in an even better position to be able to compete effectively in tomorrow's market, not just today's market.

Operator

Your next question comes from the line of Joseph Schwartz of Leerink.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

I was wondering if you could describe the market opportunity for Testopel a little bit more, at least, qualitatively. What sort of adoption patterns are there when patients need this treatment option and what sort of patients are these typically?

Adrian Adams

Well, I mean, on the latter point, clearly, there -- within the overall TRT market, there's obviously a large patient population, and clearly, there are groups of patients that obviously have a desire and preference for treatments that's in compliance in relation to giving them longer treatment periods. And obviously, with Testopel, we see a product that obviously with -- by a relatively simple procedure in a doctor's office, you can have these implanted pellets that can get treatment for a 3- to 6-month period. And so I think for a segment of patients who -- that is an important characteristic, I think. Obviously, that is a very compelling proposition so -- and clearly, that is reflected in the very strong growth profile that Testopel is exhibiting at this point in time, and a profile which we believe will increase over the course of time. And obviously, as we develop this company, moving forward and integrate it, I think the kind of salesforce dynamics of that, and obviously, the way in which we continue to build on what is already a strong platform that we believe gives us a lot of opportunities for expanding that patient base, and clearly in a way which is very focused on the urologists community. And one of the hidden benefits of that, clearly, is the very strong relationships that we, and clearly, the Testopel reps have with the urologists community, we think, has very significant platform benefits as it relates to giving us a very strong platform for the potential launch of XIAFLEX in Peyronie's in the fourth quarter of this year. Jim, do you want to add anything to any of that?

James E. Fickenscher

I think that pretty much sums it up, yes.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

And then specifically, what sort of IP is there for Testopel?

James E. Fickenscher

Yes, so Testopel is a product that has been around for quite some time. So there's not specific patents that cover it. However, we do believe that the manufacturing technology that exists and some of the absorption characteristics, et cetera, will allow it to have a sufficient amount of life for us to be satisfied.

Adrian Adams

And then clearly, if one looks at analogues in this area or products like this and look at the kind of potential impact of generics on a going-forward basis, the dynamics in this market and because of the nature of the treatments and the device aspects of it, I think, are very different from what you would typically see.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

And who manufacturers Testopel for Actient?

James E. Fickenscher

Yes, it's now vertically integrated so we actually own the manufacturing facility for Testopel. It was a company called Bartor that used to own it, and that was a facility that was owned by the gentleman who created Testopel 9 years ago. So we have that manufacturing under our own house now.

Operator

[Operator Instructions] The next question comes from David Friedman of Morgan Stanley.

Sara Slifka - Morgan Stanley, Research Division

It's Sara for Dave. Just a couple of quick ones. First, you briefly talked about IP for Testopel, just what's the IP for the rest of the Actient products? And then you mentioned that these products have been growing pretty nicely, but if you look at IMS prescription data, the data suggests kind of flat to down trends? Or are most of these drugs just not tracked well?

James E. Fickenscher

Yes, so certainly, on Testopel, in particular, it's not included in IMS at this point in time. So we'll be trying to find ways to make sure that people understand exactly where the product is coming out on a regular basis.

Sara Slifka - Morgan Stanley, Research Division

And then the IP for the other products?

Adrian Adams

From an overall IP perspective, I think, and certainly, as it relates to Edex, again, similar to Testopel, there is no IP in place, I think. But we do believe if one looks at the dynamics of this and the fact that this is a very well-established product with a loyal customer base that we believe that, that is something we will be able to continue that trajectory moving forward. And again, we'll be giving more clear information on this in the second quarter of this year. But meanwhile, I think, stepping back, we think, overall, I think with this portfolio, I think it really does help us from an overall diversification point of view with products that will add significant revenues this year and next year moving forward, whilst also reinforcing our overall portfolio with our existing assets, and very importantly, the assets that we hope to have in Peyronie's, Frozen Shoulder and cellulite. So we're very excited about this.

So operator, I think we now need to conclude this call, and I'd like to thank everybody for joining us this morning, and we look forward to integrating Actient. We're very excited about this and updated you on the progress, and a little bit more information on this during the second quarter of this year. Thank you so much for attending this morning, and we look forward to speaking with you again in the very near future.

Operator

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

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