Auxilium Pharmaceuticals, Inc. (AUXL) recently entered into an agreement for the development, commercialization and supply of Xiaflex in Japan. The company is collaborating with Japan’s Asahi Kasei Pharma Corporation for Xiaflex for the treatment of Dupuytren’s Contracture and Peyronie’s disease. Asahi Kasei Pharma also has the right to first negotiation for the commercialization of Xiaflex for additional indications in Japan.
Terms of the Deal
Per the terms of the deal, Auxilium Pharma will receive an upfront payment of $15 million. The company stands to receive an additional $247 million based on the achievement of milestones. While $37 million could be received on the achievement of development and regulatory milestones, $210 million could become due on the achievement of sales milestones.
Auxilium Pharma will also be entitled to receive increasing tiered double-digit royalties on Xiaflex sales in Japan. The company will supply the product to Asahi Kasei Pharma at a predetermined cost.
Meanwhile, Asahi Kasei Pharma will be responsible for the development, approval and commercialization of Xiaflex in Japan. Xiaflex is scheduled to move into studies for the treatment of Dupuytren’s Contracture in Japan in 2012. Approval could come in 2014. Asahi Kasei Pharma should be a suitable partner for Auxilium Pharma given its presence in the urology and osteoporosis markets in Japan.
Xiaflex – the Future Growth Driver at Auxilium Pharma
Xiaflex is an injectable enzyme (clostridial collagenase for injection) that received approval in February 2010 from the US Food and Drug Administration (FDA) for the treatment of Dupuytren’s Contracture, a condition that affects the connective tissue in the palm known as palmar fascia. EU approval came in late Feb 2011. Auxilium Pharma has a strategic alliance for the development, commercialization and supply of Xiapex (EU trade name for Xiaflex) with Pfizer (PFE).
Xiaflex’ approval represents a major milestone for the company and we believe the product will put Auxilium Pharma squarely on the path to sustained profitability. There are currently no treatment options available for Dupuytren’s Contracture apart from surgery.
Xiaflex, which posted sales of $18.4 million in 2010, is expected to post $55 – $67 million in revenues in 2011. The product is currently in phase III studies for the treatment of Peyronie’s disease. Results are due in the first half of 2012.
Neutral on Auxilium Pharma
We currently have a Neutral recommendation on Auxilium Pharma supported by a Zacks #3 Rank (short-term “Hold” rating). Given the eventual slowdown in Testim growth, Auxilium Pharma’s future relies heavily on Xiaflex. While the initial ramp of Xiaflex was slower than expected, performance should improve with the implementation of the J-code.
The implementation of the CPT code, potentially in 2012, should boost sales further. Going forward, we expect investor focus to remain on the successful commercialization of Xiaflex/Xiapex and label expansion of the product for additional indications.
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