Auxilium Pharmaceuticals Q3 2007 Earnings Call Transcript

Auxilium Pharmaceuticals Inc. (AUXL)

Q3 2007 Earnings Call

October 31, 2007 10:00 am ET

Executives

Jennifer Evans Stacey - Executive Vice President, General Counsel, Human Resources and Secretary

Armando Anido - Chief Executive Officer and President of Auxillium Pharmaceuticals

Roger Graham - Executive Vice President of Sales and Marketing

Jim Fickenscher - Chief Financial Officer

Dr. Jyrki Mattila - Executive Vice President of Business Development and Technical Operations

Analysts

Matthew Renna - Soleil

Gregory Fraser - Merrill Lynch

Lucy Lu - Citigroup

Chris Holterhoff - ThinkEquity Partners

Elizabeth Naldi - Piper Jaffray

Greg Gust - Roth Capital Partners

Presentation

Operator

Good morning, ladies and gentlemen and welcome to the Auxillium Pharmaceuticals Third Quarter 2007 Earnings Conference Call. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode.

I will now turn the call over to Jennifer Evans Stacey, Executive Vice President, General Counsel, Human Resources and Secretary for Auxillium.

Jennifer Evans Stacey

Good morning, everyone. With me today is Armando Anido, Chief Executive Officer and President of Auxillium Pharmaceuticals. Roger Graham, Auxillium's Executive Vice President, Sales and Marketing, Jim Fickenscher, Chief Financial Officer, and Dr. Jyrki Mattila, Auxilium's Executive Vice President, Business Development and Technical Operations.

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 purposes of the Safe Harbor provisions of 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, could, will, estimate, continue, anticipate, see, intend, should, plan, hope, potential and expect.

Today, our forward-looking statements will cover among other things, our plans in what we believe to be the prospects for the company, including statements regarding the timing for enrollment of patients in clinical trials for XIAFLEX, clostridial collagenase for injection, the timing of our BLA conditions for XIAFLEX and related product approval, the development schedule for our product candidates, the anticipated manufacturing output of our facility in Horsham in 2007 and timing and effect of planned upgrades for such facility.

The interpretation of clinical results, the benefit to patients of XIAFLEX, our ability and opportunity to obtain regulatory approval and commercialize XIAFLEX outside the United States. Our ability to achieve our 2007 R&D milestones, the interpretation of market data, Testim sales and market growth and the factors underlying such growth.

Our ability to achieve Testim market growth and the focus of our future Testim sales force efforts and our anticipated financial performance during 2007 and the financial milestones we may achieve for 2007, including our 2007 net revenues, R&D spending, selling, general and administrative expenses and net loss and the benefits to be realized by the company as a result of recent additions to the management team.

Actual results may differ materially from those reflected in these forward-looking statements as a result of the delay of clinical trials for our product candidates, adverse events in our clinical trials, study results, changes in regulatory environments of the industry, our inability to compete effectively in our markets, our inability to manufacturer XIAFLEX, the failure of our third party manufacturers or supplier to say meet their contractual obligations as well as various factors discussed in our annual report on Form 10-K for the year ended December 31, 2006, and our quarterly report on Form 10-Q for the quarterly period ended June 30, 2007.

Given these risks and uncertainties, you should not rely on any such factors or forward-looking statements. Forward-looking statements provide the company's expectations, plans and forecasts for future events and viewed 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 the call over to our Chief Executive Officer and President, Armando Anido.

Armando Anido

Thank you, Jennifer. And thanks to all of you who are joining us on the phone or via webcast. The subject of today's call is to bring you up to date on our progress with our potentially company transforming, late-stage pipeline candidate XIAFLEX, discuss the record achievements of Testim, review our financial results for the third quarter 2007 and discuss our revised financial guidance for 2007.

I am thrilled with the terrific progress we are making with our two key assets, XIAFLEX and Testim. The major headlines for the quarter are, first, we believe that we will complete enrollment in both placebo-controlled Phase III studies of XIAFLEX in Dupuytren's contracture by the end of the year in line with our previous expectations.

As a result, we expect to have top-line results from these trials in second quarter 2008 and file the BLA in early 2009. The headline on the Testim front is that we achieved record net revenues of $26.2 million for the third quarter 2007, up 49% from the year-ago quarter, driven by strong growth in prescriptions and market share, but also aided by a modest increase in wholesaler inventories.

Based on these results and the outlook for the remainder of the year, we now anticipate that net revenues will be in the range of $92 million to $96 million instead of the previously announced range of $88 million to $92 million. Now let's take a deeper look at the progress we are making on XIAFLEX.

During the third quarter, we made excellent progress towards achieving our development objectives for XIAFLEX. After months of hard work, we filed a complete response letter to the FDA concerning the meltback issue that we experienced in late 2006.

And within 30 days of submitting the CRL, we received FDA clearance to initiate our Phase III clinical trials for XIAFLEX in the treatment of Dupuytren's contracture.

We also disclosed encouraging results from the Xiaflex trials that were suspended in late 2006 and saw that 14 of the 22 patients who received Xiaflex had clinical success while those who received placebo injections showed no success. Most of these patients, as you know, had only a single dose of Xiaflex.

In September, we announced that the first patients had been dosed in two Xiaflex Phase III studies, the U.S. Cord I and the Australian Cord II studies. Finally, we were very pleased that the peer review Journal of Hand Surgery published a comprehensive overview of the results of the initial pivotal Phase III trial of Xiaflex in Dupuytren's contracture.

We anticipate that we will complete enrollment in the Cord I and Cord II studies before the end of 2007. I would also like to note that the two open-label non-controlled safety and efficacy studies that round out our Phase III clinical program in Dupuytren's are also up and running as well. Inclusion and exclusion criteria, as well as the efficacy definition in these open-label studies, are the same as in the Cord I study.

Safety end points will be monitored in both open-label or adverse events. Clinical standard laboratory tests and vital signs, grip strength of the treated hand and immunogenicity. Thanks to the dedication of our manufacturing and quality teams, we have made tremendous progress in getting the Horsham manufacturing facility ready to be our commercial manufacturing site for the Xiaflex active pharmaceutical agreement or API.

We began manufacturing Xiaflex in Horsham late last year and by the end of December of this year, we expect to complete approximately 10 batches of XIaflex at Horsham, including the API required for our BLA batches. We're very pleased with the quality of the product being produced and the yields we are achieving.

Early next year, we plan to implement a facility shutdown in which enhancement to the facility, primarily expanding supporting utilities will be made to allow for efficient production of commercial volumes of Xiaflex. Finally, we have been making progress in the European Union with regard to the Dupuytren's indication.

As part of the Joint II open-label study, we plan to enroll patients in several different European countries. Two sites in Switzerland are expected to begin dosing soon. We recently received approval of clinical trial applications to commence dosing in Sweden and Denmark as well. Though we believe that our current clinical plans for Dupuytren's contracture provides us with a strong package for gaining approval of Xiaflex in Europe.

We are continuing to seek guidance on what additional information would be required for a full regulatory submission including whether it will be necessary to conduct any trials other than those which we have currently planned. Regarding Xiaflex in Peyronie's Disease, the in-life portion of the pre-clinical local tolerability study has been completed.

Xiaflex was dosed into four penile structures by using a dosing scheme mimicking the expected clinical use. Histopathology, toxicokinetic and immunogenicity data is currently being analyzed. We expect to submit the results of this to the FDA during the first half of 2008. Pending approval from the FDA regarding the animal study, we anticipate initiating a Phase IIb study in second quarter 2008.

Let me now turn the call over to Roger Graham, our Executive Vice President of Sales and Marketing. Roger will share with you the specifics of our accomplishments with Testim during the third quarter. Roger.

Roger Graham

Thank you, Armando. Our performance in the third quarter of 2007 demonstrates our continued excellent progress in growing the Testim brand. Testim quarterly net revenues reached an all-time high for Auxillium at $26.2million. In the third quarter, U.S. Testim total prescriptions grew by 33.4% over the comparable period of 2006, while the U.S. gel market grew 17% during the same period.

The 110,000 total prescriptions that were reported in the third quarter of 2007 by IMS represents our highest quarterly level ever. According to IMS, Testim's market share for the month of September increased to a record 20.7% of total prescriptions for the gel segment, up from 19.8% at the end of June 2007 and up from 18.2% at the end of September 2006.

According to IMS exponent data with the highest prescribing urologists we had a record market share of 38.8% in September. We believe this ongoing endorsement by our highest prescribing urologists speaks to the benefit that Testim can provide to patients versus our competitors.

In addition to continuing to gain share in the urology segment, we plan to focus future sales growth on attaining the same high share levels with our primary care and endocrinology audiences.

With our representatives' singular focus on selling Testim, we believe we can continue to utilize our resources to more effectively educate our customers on the advantages of Testim while increasing their screening for, and diagnosis of, low testosterone where appropriate.

For the balance of 2007, we will continue to focus on improving our execution against this plan as we believe this will allow us to maintain Testim as the fastest growing testosterone replacement therapy in the U.S.

Regarding Testim's patent coverage in the U.S., our current patent provides protections through June of 2008. In September, the USPTO issued a notice of allowance for certain claims from the pending application. We believe that the patent will issue at the end of 2007 or beginning of 2008.

Once issued, the patent should extend protection for Testim into 2025. In addition, we expect continuations and divisional applications will be filed shortly in order to potentially further broaden Testim's patent protection.

At this point I would like to turn the call over to, our Chief Financial Officer, Jim Fickenscher and ask him to take us through the financial details for the quarter. Jim?

Jim Fickenscher

Thank you, Roger. Good morning to everyone on the call. I will be focusing my comments today on the results for the quarter ended September 30, 2007, but I will be happy to address any issues regarding the year-to-date September 30 results in the Question and Answer Session.

For the quarter ended September 30, 2007, we reported record net revenues of $26.2 million compared to net revenues of $17.6 million in the third quarter of 2006, a 49% increase. The bulk of this increase can be attributed to the increase in prescription volumes and the price increase taken earlier this year.

As Armando mentioned in his discussion on Testim, we did see a modest rise in the number of day sales on hand in the wholesale channel inventory. We believe that this added approximately $800,000 in revenues during the quarter. In addition to the increased revenues from Testim in the U.S., revenue related to shipments to Ipsen in Europe and Paladin in Canada was approximately $400,000 higher than the third quarter of 2006.

Net loss for the third quarter was $6.9 million or $0.17 per share compared to a net loss of $11.8 million or $0.39 a share reported for the third quarter of 2006. Total stock based compensation expense was $1.6 million compared to $1 million for the third quarter of '06.

Our gross margin on net revenue was 75.5% for the third quarter of '07 and 74.6% for the third quarter of '06. Gross margin reflects cost of products sold as well as royalty payments made to our licensor on the sale of Testim. The improvement in gross margin reflects the impact of year-over-year price increases partially offset by increases in lower margin, international product shipments and coupon usage.

Research and development costs for the third quarter of 2007 were $9.8 million compared with $8.5 million for the comparable year ago period. The increase in R&D costs was primarily due to the increased spending for the development and manufacturing of Xiaflex.

Selling, general and administrative expenses totaled $18.2 million for the quarter ended September 30, '07, compared with $17.1 million for the year ago quarter. The cost for the third quarter of 2006 included a $1.8 million cost to terminate Auxillium's co-promotion agreement with Oscient pharmaceuticals. Including the termination cost from the base the increase was primarily due to higher investment in promotional spending on Testim including the costs of increasing our sales force.

Pre-launch marketing for Xiaflex, and higher stock-based compensation expense. At September 30, 2007, Auxillium had $82.5 million in cash, cash equivalents and short-term investments compared to $87.2 million at June 30, 2007. We believe that our cash balance at the end of the third quarter will take us into 2009.

As of September 30^th, we had approximately 40.3 million shares of common stock outstanding, plus outstanding warrants to purchase approximately 2.6 million shares of our common stock and 3.9 million additional outstanding employee stock options to purchase shares of common stock at varying prices.

Armando mentioned earlier in the call, that we have increased our guidance for full year revenue to say $92 million to $96 million from our previous guidance of $88 million to $92 million. We have also evaluated our spending patterns, and we believe that we may also spend a bit more in research and development this year than previously anticipated largely due to the earlier than anticipated initiation of the Phase III programs for Xiaflex. Therefore, for 2007, we expect that research and development spending will be in the range of $40 million to $44 million, up from our previously announced range of $38 million to $42 million.

We continue to believe that SG&A spending will be in the previously announced range of $74 million to $77 million, and the net effect of the changes in revenues in R&D spending results in a slightly little lower net loss, which we now anticipate will be in the range of $39 million to $43 million instead of the previously announced range of $40 million to $44 million.

Thank you very much for your attention. And I'll turn the call back over to Armando.

Armando Anido

Thank you, Jim and Roger. What a great quarter. In addition to the accomplishments we just described, we continue to add depth and experience to our team. I am pleased to announce four recent key personnel additions to Auxilium designed to help us continue driving Testim revenues and developing Xiaflex into a potential blockbuster product.

First, Bob DuFour joined Auxilium in the role of Vice President, Marketing reporting under Roger. Bob joined us from Wyeth and brings 20 years of experience to our marketing team. His most recent role was that of Vice President and Global Business Manager, Oncology, where he was responsible for leading and building a cross-functional team that prepared the organization for Wyeth's launch of Torisil.

Secondly, Nancy Fetrow joined Auxilium in the role of Vice President, Project Management, reporting to Jyrki Mattila, our head of R&D. Nancy brings over 20 years of experience to the role. Most recently from Astra Zeneca, where she held positions of increasing responsibility within the clinical drug development and project management departments.

Bill Groft joined Auxilium in the role of Senior Director, Manufacturing reporting in to Mike Cowen, our head of manufacturing. Bill comes to us from CollaGenex and has over 10 years of experience in the development and manufacture of small-molecule products inclusive of ointments, gels and solid dosage forms.

Finally, Dave Fetko joined Auxilium in the role of Senior Director, Engineering and Facilities. Prior to joining Auxilium, Dave was engineering director, Worldwide Engineering and Real Estate at Johnson and Johnson corporate. He has more than 20 years of pharmaceutical and biopharmaceutical experience in the areas of solid dosage, sterile and bioprocess engineering.

We welcome our new Auxilium team members and believe their breadth of experience will be invaluable to us as we continue to develop as an organization. I would also like to share some additional good news for us. Auxilium has recently been named as one of the 10 Best Places to Work in the greater Philadelphia area by the Philadelphia Business Journal.

A recognition much Auxilium's achievements in creating a positive work environment that attracts and retains employees through a combination of benefits, working conditions, and company culture. Also, Deloitte and Touche named Auxilium a rising star in its 2007 Technology Fast 50 program for the greater Philadelphia area, a ranking of the regions 50 fastest-growing technology and life sciences companies by percentage of revenue growth.

We have also been informed we're one of three finalists for the life sciences company of the year award in the Eastern Technology Council's 2007 Enterprise Awards. The Enterprise Awards recognize the achievements of the Philadelphia region's most outstanding technology and life sciences companies.

We're very pleased with the excellent progress in the third quarter toward achieving our development objectives for Xiaflex, and we believe we're on track to continue the recent momentum by completing enrollment by the end of 2007 in both the pivotal Phase III U.S. cord 1 study and the Australian cord 2 study.

Also, our record net revenues in the third quarter 2007 further demonstrate our tremendous progress in growing the Testim brand, and we are very happy to be increasing our revenue guidance for 2007.

In closing, let me first 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're truly excited about the prospects, opportunities, and potential for success in front of us.

Thank you. We're now going to open up the call for questions. Operator?

Questions-and-Answers Session

Operator

(Operator Instructions) Your first question comes from the line of Matt Renna with Soleil. Please proceed.

Matthew Renna - Soleil

Hi. Good morning, guys. Great quarter. My question relates to the Testim IP. You mentioned filing some additional information on Testim in the near term. Can you elaborate on that? And maybe comment on what your thoughts are on your ability get a 30-month stay on any paragraph III that may be filed already when you get the new patent issued? Thank you.

Armando Anido

Matt, there are multiple questions, I guess in your one question. And let me start with, you know, we continue to believe that we will have, post the allowance, should be able to get our issuance sometime before the end of the year, beginning of next year.

As we have stated previously, if you remember back to, I guess, in February when the USPTO asked us to break up the patent into three different pieces and actually to go forward with only one of them, we mentioned at that particular point that more than likely we would end up filing some divisional applications in order to pursue the composition of matter and the method to manufacture and that will happen shortly.

In addition, the claims that are being supported at this point with the current allowance, we believe that there is probably a few additional pieces to further broaden those claims that we believe we should go forward with some continuances.

And that is the subject of what we will plan to do in order to further broaden the expected issuance and then later on, hopefully broaden the patent protection with the divisional as well.

The last question, I think that you asked was relative to whether or not we will be able to get a 30-month stay, and if there is somebody that does file a Paragraph IV and we do believe that we do have significant protection with this patent once issued and that we do believe that, we have a potential to get the 30-month stay because we have not had any of them that have been filed against us.

No Paragraph IV is have been filed at this particular point and we do believe that we do have the ability to get the 30-month protection if somebody does file.

Matthew Renna - Soleil

Great. Thanks, guys.

Operator

Your next question comes from the line of Gregory Fraser with Merrill Lynch. Please proceed.

Gregory Fraser - Merrill Lynch

Thanks, good morning, guys.

Armando Anido

Good morning, Greg.

Gregory Fraser - Merrill Lynch

Can you tell us where Testim wholesaler inventory levels stood in number of days at the end of the quarter?

Roger Graham

You know, Greg, we have not ever disclosed the exact number of days. What we have always said and will continue to say is that we do have inventory management agreements in place with the three major wholesalers.

And that those IMAs do require them to remain under 30 days of inventory, but there is no bottom end to it. So what we did see this quarter is that we did see a modest number of days increased that represents about $800,000 in incremental revenue.

Gregory Fraser - Merrill Lynch

Are you still below the 30-day level maximum?

Roger Graham

We are within the IMA contracts at this point.

Gregory Fraser - Merrill Lynch

And can you break out the absolute dollars of international sales during the quarter?

Roger Graham

Yes. I think that we had a $400,000 increase quarter on quarter and the absolute number I think was in the neighborhood of --

Armando Anido

$600,000. And remember, Greg, that they comes from a couple different components. We have milestone recognition that's just about $200,000 per quarter, which is the amortization of previous cash payment that we've received and so then there was just slightly less than $500,000 in shipment to Ipsen and Paladin.

Gregory Fraser - Merrill Lynch

Okay and your R&D guidance apply a pretty wide range for 4Q. What are the important factors that we should consider that could influence spending so much? Is it primarily driven by the speed of enrollment in the Dupuytren's studies or are there other programs could start during the quarter?

Armando Anido

I think it's primarily, due to the speed of the enrollment and getting patients into the XIAFLEX. I mean, for the most part, that is a vast amount of our spend, as well as the manufacturing side of it as well.

Roger Graham

So, just a little more, I mean, obviously, not only the total number of patient get enrolled but also the total number of patients who received, who have already been enrolled but would like to receive a second injection and, or a third injections, things like that.

So, each injection along the way has a fee associated with that, and so it depends a little bit on the timing of when those come in. And then, as Armando mentioned, there is some items within the manufacturing that we're expecting to fall into the fourth quarter but the timing that far is always a little bit in the air as well, so that's why the range.

Gregory Fraser - Merrill Lynch

Okay. Thanks. I will get back in the queue.

Roger Graham

Great.

Armando Anido

Thanks, Greg.

Operator

Your next question comes from the line of Lucy Lu with Citigroup. Please proceed.

Lucy Lu - Citigroup

Good morning. Thank you.

Armando Anido

Good morning.

Lucy Lu - Citigroup

I am wondering, if you could just remind us the powering assumptions for the stipulated studies and so that...

Armando Anido

Okay. Lucy, can you repeat the question? We're having a hard time on this side hearing it.

Lucy Lu - Citigroup

Sure. I am wondering, if you would just go over the powering assumptions. Basically, what the primary end point is and how the studies are powered? What kind of benefit you're hoping to see in the Xiaflex pivotal study?

Armando Anido

I think that relative to the powering, if you go back to the original pivotal trial that we did with 35 patients and we saw 91% efficacy and zero for placebo. We obviously are significantly overpowered in a 216 patient study here in the United States with cord 1.

And, I think, that the powering assumptions, if you use the 91% and the zero, take you into the high 99-point something percent. And the intent was not to really take a look so much at the efficacy, but it was driven by the number of patients is driven by the FDA's requirement for a certain number of patients to be followed out for a twelve-month time period.

So the 216, assuming some folks don't make it out through a 12-month period for follow-up and some fallout, we had to get to that number in order to ultimately have that twelve-month time period.

Lucy Lu - Citigroup

Okay. Now, Armando, I'm not doubting, whether or not there is efficacy. I am just wondering, if you could just provide us that information before the study results get released? That's all I'm asking.

Armando Anido

I am trying to understand, Lucy. I don't know exactly what the question is, what are you…

Lucy Lu - Citigroup

I am just wondering in the pivotal study, is there an efficacy hurdle for the study to be positive? I mean, we obviously think the study should work. I am just wondering, if there is an efficacy hurdle that you have to meet?

Armando Anido

I think that one of the things that we have commented on previously, Lucy, is that we have built into this the power that would say that even if our efficacy were only 50% and placebo were to achieve 25%, that we still have more than sufficient power to win.

So, I am not sure that, that answers your question entirely, but hopefully that gives you a reasonable perspective on kind of -- I don't know that we have an absolute minimum number, minimum percent efficacy at this point in the trial design.

Lucy Lu - Citigroup

Okay. Thank you.

Operator

The next question comes from the line of Chris Holterhoff with ThinkEquity Partners. Please proceed.

Chris Holterhoff - ThinkEquity Partners

Hi, good morning, guys.

Armando Anido

Hey, how are you, Chris.

Chris Holterhoff - ThinkEquity Partners

Good, thanks. Just a question on Testim sales. Seems like the majority of the increase here is due to higher number of sales force targeting the highest-prescribing urologists. I guess, going forward-- just wondering how important you believe this switching study that you reference? How important that is and maybe you can comment, speculate what that study, the effect of that study on Testim sales might be, going forward?

Armando Anido

Okay. I won't speculate, but I am going to let Roger take the question on the focus with urology and primary care. We are pretty happy with the results of the independent trial that Larry Lipshultz performed, and we believe that it further supports that Testim is the better of the two brands, but Roger can talk a little bit about the focus in urology and primary care as well as I know.

Roger Graham

Good morning, Chris. Yeah. I think-- as Armando stated, we're obviously very pleased with the results that we're seeing in urology, and I think that's due to the long-term dedication we've had here at Auxillium with that audience and however, we do see an opportunity with the endocrinology and primary care groups. And you'll recall that last year, we completed the Oscient co-promotion deal and took over that portion of the responsibility here at Auxillium.

And we're really just now approaching a full year of having responsibility for those audiences, so we continue to see positive growth there. Certainly not to the extent that we do with the urologists, but we're going in a very positive direction with both audiences. And we expect that to continue, and, as a matter of fact, we feel that there is an opportunity to accelerate that, and that's what we want to try to do.

Chris Holterhoff - ThinkEquity Partners

Okay. Great. Thanks for taking the question and congratulations on all the progress.

Armando Anido

Great. Thanks a lot, Chris.

Operator

The next question comes from the line of Elizabeth Naldi with Piper Jaffray.

Elizabeth Naldi - Piper Jaffray

Hi, guys, thanks for taking my call. I was just wondering, if you could give any updates on when you might expect data from BioSpecifics for new indications for Xiaflex?

Armando Anido

At this particular point it’s really in the hands of the folks at BTC to provide us with any additional data and information about new indications. They have yet to provide us at this particular point with any new indications since the frozen shoulder indication back couple years ago.

Elizabeth Naldi - Piper Jaffray

Okay, great. Thanks.

Operator

(Operator Instructions) Your next question comes from the line of Greg Gust with Roth Capital Partners. Please proceed.

Greg Gust - Roth Capital Partners

Good morning. Congratulations on the quarter.

Armando Anido

Thank you, Greg.

Greg Gust - Roth Capital Partners

Yes. I just have one quick question, probably for Jim. I just wondered what gross-to-net factor that you used to account for discounts, rebates and coupons when coming to your net sales, I mean is there some number we should be using for that?

Jim Fickenscher

Yes, Greg, at this point we haven't disclosed the exact number. What I can say to you is that we think that it’s fairly normal for the industry, and it is, let's say, in the mid-teens type of arranged, but we don't want to get specific as the exact percentages.

Greg Gust - Roth Capital Partners

Okay. So mid-teens?

Jim Fickenscher

Yes.

Greg Gust - Roth Capital Partners

Yes, and also, for some reason, we had-- the OpEx came in considerably lower, materially lower, about $1.5 million to $2 million lower, than what we had modeled. Is this just an issue of the timing or is that something we should expect going forward or I mean, can you explain the discrepancy there?

Jim Fickenscher

It’s hard for me to say because I don't know exactly what you included in your model there. But, potentially, with the R&D, we only saw the first few centers enrolling patients in the third quarter, so maybe that's part of the reason we do see an acceleration of the R&D happening in the fourth quarter and that's with our guidance indicates.

I think that we're starting to get to the point now, Greg. On the SG&A where the big bolus of increase regarding Oscient-- The switch-over from Oscient to our own sales reps is going to diminish on a year-over-year basis in the quarter. In fact, in aggregate, there wasn't really all that much of a change this year. But we had the $1.8 million payment that we made in 2006 that made it look like there wasn't much of an increase, but we are still a growth company.

Our expectation is that we are going to continue to fill out the organization to prepare for what we think will be rapid success with Xiaflex and growth in the future. But we try very hard to control expenses and to invest our shareholders' money wisely, so I think that's about the best I can say with regard to the OpEx.

Greg Gust - Roth Capital Partners

That's great. Thank you.

Operator

There are no additional questions at this time. I would now like to turn the presentation back over to Armando Anido for closing remarks.

Armando Anido

Great. Thank you very much, operator. And thank you all to our shareholders and employees that are on the line. It has been a great quarter for Auxillium, and it has to do with the tremendous amount of energy and effort that our team has been putting behind it.

And we continue to see a very, very bright future for Auxillium, particularly on Xiaflex and Testim. So thank you all very much. Take care.

Operator

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

Copyright policy: All transcripts on this site are copyright Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.