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Coverage Initiation: Auxilium Pharmaceuticals, Inc.
Auxilium Pharmaceuticals (AUXL) recently made its debut in The Value Line Investment Survey. Founded in 1999, the Pennsylvania-based biopharmaceuticals outfit was originally focused on urology and sexual health, but has broadened its focus over the years to include development and marketing of treatments that address other unmet medical needs. Its products are sold to specialists, such as urologists, endocrinologists, orthopedic, general, and plastic surgeons that perform hand surgeries, and rheumatologists, mostly within the United States.
At present, the company has two FDA-approved drug products on the market: Testim and XIAFLEX. Testim, approved by the FDA in November, 2002, is a topical testosterone gel that treats hypogonadism in adult males, or the deficiency of testosterone that leads to a variety of symptoms, such as low energy, loss of libido, adverse body changes, and irritability. The product is available in the United States and several European countries.
XIAFLEX, Auxilium’s other product, is an injectable collagenase enzyme that is used to treat Dupuytren’s contracture, a progressive condition in which nodules develop in the palm of a hand from the accumulation of collagen deposits and, with time, form a cord that connects the palm to the base of the fingers. The condition ultimately impairs hand movement and function. XIAFLEX provides a less-invasive alternative to surgery, which has been the standard treatment for correcting the hand deformity prior to the product’s approval in February, 2010. In February, 2011, Pfizer (PFE - Free Pfizer Stock Report), the company’s marketing partner, received clearance for the product in Europe, and is on track to roll it out in certain markets there later this year under the name XIAPEX.
The biotech company also has a promising R&D pipeline, whereby it is developing XIAFLEX for other indications besides Dupuytren’s contracture. In particular, the drug is undergoing Phase III testing for Peyronie’s disease, a condition in which a hard lump or thick scar tissue forms on the male reproductive organ. As well, the same drug is being explored in a Phase II study as a treatment for adhesive capsulitis (or more commonly referred to as “frozen shoulder syndrome”), a disorder characterized by limited range of motion in one or both shoulders, and typically occurs in people between the ages of 40-70. What’s more, the company is seeking to develop a host of urologic, pain, and hormone replacement products using its transmucosal drug delivery system—a patented technology that enables medication to be absorbed through a small film that adheres to the upper gum.
Growth prospects for Auxiliam are quite encouraging, given the serious health problems that are often associated with aging and the underserved patient markets targeted. According to industry data, about 3% to 6% of the Caucasian population, or between six million and 11 million adults in the U.S. (mostly of northern European descent), suffer from Dupuytren’s contracture. The company estimates that roughly 300,000 individuals are diagnosed with the debilitating hand condition every year, and that based on the number of vials of XIAFLEX sold and used in 2010, its market share represents about 6% of the 70,000 cases that require surgery, suggesting ample room for expansion. Sales should be further buoyed by international growth, once the product becomes available in Europe.
Meanwhile, based on prescription trends, the company’s Testim product controls about 22% of the overall gel market. And that figure is likely to rise, considering the growth opportunities in the testosterone replacement therapy market. Indeed, U.S. census data for last year indicate that there are nearly 59 million men aged 45 and older that are afflicted with hypogonadism.
And assuming clinical studies of XIAFLEX are successful, growth opportunities seem worthwhile in the Peyronie’s disease and “frozen shoulder” areas, too, where there is an estimated 5% of the adult male population living with the reproductive organ condition and approximately 3% of adults with the shoulder disorder.
Despite this biotech drugmaker’s appealing growth (and share-price) potential, investors should be aware of the inherent risks here, including failure of clinical trials, regulatory delays, and competition, all of which can hurt the stock’s performance. Still, for those willing to tolerate some risk and seeking exposure in the biotech sector, Auxilium Pharmaceuticals is worth a look.
At the time of this writing, the author did not have any positions in any of the companies mentioned.