Our BioPharma Catalyst Feature Pick: Auxilium Pharma

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Written by Kyle Dennis and Scott Matusow, Both Authors have a position in the company featured in this article.

We have found that strong management is one of the most important factors in determining how successful a company will be. Solid management knows how to drive shareholder value and be thrifty with the company's money. If done properly, management can turn a smaller developmental company into a full-fledged large pharmaceutical company. This sometimes can be fairly difficult, as it costs millions of dollars to run drug trials. However, management who knows how to properly leverage its assets has a better chance of running a successful business.

Auxilium Pharmaceuticals (AUXL) is one company that we feel has a strong chance to become a larger cap pharmaceutical. With several products in the pipeline already generating revenue, management is able to advance other products in the pipeline without diluting shareholders. We feel Auxilium has a validated history of excellent management and will continue to leverage its assets to bring even more products to the market.

CEO Adrian Adams

The most instrumental person in a management team is the Chief Executive Officer. Auxilium CEO Adrian Adams has built an impeccable track record by running and building successful biotech companies. Furthermore, bigger biotech pharmaceutical companies have bought three of the companies Adams has worked for.

Adams first started working at Sepracor. After a successful term as CEO, Sepracor was acquired by Dainippon Sumitomo. Adams next worked for Kos and Inspire, which werealso bought out by a larger pharmaceutical. Furthermore, Adams also worked at Novartis (NVS) and Amylin (also bought out). This history of turning small companies into revenue generating companies, as well as acquisition targets, bodes well for the future of Auxilium.

Auxilium management has proven itself by bringing several drugs to market and some for multiple indications. For example, one of the company's leading products termed Xiaflex is already approved for Dupuytren's Contracture (DC) and is also being studied for two other indications. Having a strong track record gives investors confidence that management is able to produce returns over the long term.

Peyronie's Disease and Xiaflex

Peyronie's Disease is fairly uncommon and unstudied. It is a disease that typically starts as an injury to the penis that causes it to be bent or arced while erect. The disorder can result in varying degrees of penile curvature deformity, which can cause sexual dysfunction, emotional distress, loss of self-esteem, and depression. Peyronie's Disease often involves the development of collagen plaque, or scar tissue, on the shaft of the penis that may harden and reduce flexibility, thus occasionally causing pain.

The estimated prevalence in adult men of Peyronie's Disease has been reported to be approximately 5%. However, since some people can be embarrassed by their condition, the disease is thought to be under diagnosed and under-treated. Based on U.S. historical medical claims data, it is estimated that between 65,000 and 120,000 patients are diagnosed every year, but only 5,000 to 6,500 patients are treated with injectables or surgery annually.

Auxilium had gotten together with the Men's Health Network to give the public an in-depth understanding of the disease and its effect of men who suffer from it. As mentioned, Peyronie's Disease is not well studied nor understood, and the company believes it's important to provide as much information as possible to the population of men who suffer from the disease. Men's Health Network has created a program known as "Ask About the Curve," which was developed to help men start the conversation about Peyronie's Disease. Here are some facts and statistics studied by MHN:

  • Men and their partners experience personal distress related to Peyronie's disease that for the most part does not appear to subside over time. When asked to consider whether personal distress related to PD has changed from diagnosis to today, 88 percent of men indicated that it has remained the same or worsened. 78 percent of partners indicated that their personal distress has remained the same or worsened.
  • There is a disparity between men and their partners when asked whether "functional" versus "psychological" aspects of Peyronie's disease cause the most bother. When asked which aspects of PD bothered them the most, men with PD selected functional aspects, such as curvature of the erect penis and performance anxiety, while partners selected psychological effects associated with PD, such as avoidance of intimacy and lowered self-esteem.
  • Peyronie's disease is characterized variously among men with PD and their partners, but the majority rank-order three terms most frequently. Of both the men with PD and partners polled, the three most common terms used to describe PD were: "embarrassment," "deformity" and "disease."
  • Men with Peyronie's disease may bear the burden alone, despite their relationships with a partner and with a doctor. 42 percent of men with PD responded that they have not talked to their partner about their condition and 22 percent have not spoken with anybody about their condition. Auxilium believes that bringing the discussion into the open with as many people as possible who suffer from the disease will consequently encourage more to seek help for their condition. Auxilium's product Xiaflex aims to treat this condition and has produced very encouraging data thus far. The company gives a very simple view of how Xiaflex works on Peyronie's Disease:

Picture, the kind of long balloon that a clown blows up. Now imagine that you put inflexible tape on one side of the balloon before you blow it up. When inflated, the balloon will deviate in one direction. That's Peyronie's Disease. With Xiaflex, you inject the drug - which is an enzyme that breaks down collagen - just under the skin into the plaque at the maximal point of curvature. The drug acts like an enzymatic scalpel, he said, and the goal is to just eat away enough of that tape so that the tape breaks in two pieces and the balloon becomes straighter.

Trial data so far has been very encouraging in treating this disease. Additionally, Peyronie's Disease is an unmet need and Xiaflex was granted orphan designation for this indication in 1996.

Excellent Top-Line Phase III Data Released

Xiaflex was studied in two pivotal Phase III trials for the treatment of Peyronie's Disease. Positive results were released at a conference in June of last year. Results were impressive and did show statistically significant improvement in the co-primary endpoints of penile curvature deformity and patient-reported bother versus placebo. The studies also showed a strong safety profile. CEO Adrian Adams stated:

We believe that XIAFLEX, if approved for the treatment of Peyronie's Disease, has the clinical profile to become a potential breakthrough procedure. With its current indication in Dupuytren's contracture, positive topline clinical results in Peyronie's Disease, and development ongoing in Frozen Shoulder syndrome and cellulite, XIAFLEX represents a pipeline in a product with potential applications in multiple therapeutic areas that currently have limited options.

From the data release, we can note several positive results. The average deformity of the penis at the beginning of IMPRESS I was 48.8 degrees. At the end of 52 weeks it was 31 degrees, or a 37.6% mean reduction in penile curvature. The average deformity of the penis at the beginning of IMPRESS II was 51.3 degrees. At the end of the 52 weeks it was 35.1 degrees, or a 30.5% mean reduction in penile curvature. Auxilium believes that these data should position Xiaflex well for approval. Currently there are also no non-surgical treatments for Peyronie's disease, and Xiaflex seems to be safe and effective.


Auxilium is expecting to receive notice from the FDA about approval of Xiaflex for Peyronie's Disease on September 6, 2013. In a press release the company stated:

The U.S. Food and Drug Administration (FDA) has accepted for filing and granted standard review status to its supplemental Biologics License Application (sBLA) for XIAFLEX® (collagenase clostridium histolyticum or CCH), a novel, in-office biologic therapy for the potential treatment of Peyronie's disease (PD). Under the Prescription Drug User Fee Act (PDUFA), the FDA is expected to take action on the application by September 6, 2013.

PDUFA catalyst trades normally provide the best price appreciation before the actual FDA decision.

Last year, Arena Pharma (ARNA) received FDA approval for its weight loss drug Belviq. While the company received a positive recommendation from an FDA advisory committee prior to approving the drug, the stock appreciated from $5.50 a share to nearly $8 on anticipation of the green light from the FDA. We like Arena's long-term prospects, although there might be choppy times ahead for the company before the company gains real traction with its earlier pipeline, which could unlock the company's real long term value.

Also, last year Amarin (AMRN) announced an FDA approval from its PDUFA for Vascepa, which is a drug designed as an adjunct to diet to reduce triglyceride (TG) levels in adult patients with severe (TG greater than or equal to 500mg/dL) hypertriglyceridemia (very high triglycerides). Amarin submitted the New Drug Application (NDA) for the use of Vascepa in this indication in September 2011, and received a PDUFA date shortly after.

Amarin's stock price really took off running into its PDUFA target date, appreciating from around $10 to $15. The stock had quite an impressive run before it was approved. However, management's lack of preparation in its business model, and a constant public declaration that it was for sale, helped to cause the stock to tank to where it trades today, around $5.85. We are skeptical whether or not Amarin can ultimately succeed as a business, mainly because we feel the company has poor management.

Estimated Market Size

There is no approved drug for Peyronie's Disease, so putting a market value on this indication is a little difficult. Since Xiaflex is already approved for Dupuytren's disease, we could come to a rough estimate on what this approval may be worth to Auxilium.

One dose comprises an intravenous shot of the drug is .58 mg (or .25 ml solution) and is the same for both patients with Peyronie's as well as patients being treated for Dupuytren's disease. Wholesale price for one dose of Xiaflex for Dupuytren's patients is approximately $3,250. In the Peyronie's trials, Auxilium found that patients did best on a regimen that dosed patients either 5 or 6 times.

Assuming a conservative estimate, we used $1,500 per dose. Multiply that by 5 doses per patient, and a rough estimate of 40,000 patients per year, we expect a minimum of about $300M market.

Auxilium Earnings and Financial Overview

Auxilium was expected by many to miss on revenues this last quarter. Declining sales of its leading product Xiaflex, as well as anticipation for generic versions to enter the marketplace in the near future, caused the stock to sell off since last October. Even with low analyst expectations, Auxilium actually set a record by surpassing $100 million in revenue for the first time ever.

Auxilium increased revenues 29% from the same quarter as last year, and beating increasing EPS 37.2% to .22 in the previous quarter versus EPS of .16.


Taking into consideration that Auxilium increased $8 on good Phase III data for Xiaflex, it's probably safe to assume Auxilium could run at least half of that in anticipation of approval up the PDUFA data, and maybe another $3-4 on approval. With only three weeks until PDUFA, coupled with the huge selloff that just occurred on overall market conditions, the stock seems significantly undervalued with a market cap coming in at $874.00MM, and should currently provide a good entry point to go long.

Disclosure: I am long AUXL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.