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| AUXL > SEC Filings for AUXL > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
The following discussion is qualified in its entirety by, and should be read in conjunction with, the more detailed information set forth in the consolidated financial statements and the notes thereto appearing elsewhere in this report.
Special Note Regarding Forward-Looking Statements
Certain statements in this quarterly report are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements made with respect to our strategy, progress and timing of development
programs and related trials, the timing of actions to be taken by regulatory
authorities, the efficacy of our product candidates, the commercial benefits
available to us as a result of our agreements with third parties, future
operations, financial position, future revenues, projected costs, the size of
addressable markets, prospects, plans and objectives of management and other
statements regarding matters that are not historical facts. Forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance, achievements or prospects to be
materially different from any future results, performance, achievements or prospects expressed in or implied by such forward-looking statements. In some cases you can identify forward-looking statements by terminology such as "may," "will," "should," "would," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "seem," "seek," "future," "continue," or "appear" or the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to a number of risks and uncertainties including, among other things:
growth in sales of Testimฎ, our only marketed product;
growth of the overall androgen market;
the availability of and ability to obtain additional funds through public or private offerings of debt or equity securities;
achieving market acceptance of Testim by physicians and patients and competing effectively with other Testosterone Replacement Therapy ("TRT") products;
obtaining and maintaining all necessary patents or licenses;
purchasing ingredients and supplies necessary to manufacture Testim and our product candidates at acceptable terms to us;
obtaining and maintaining third-party payor coverage and reimbursement for Testim and our product candidates;
the costs associated with acquiring and the ability to acquire additional product candidates or approved products;
the completion of the review of the Biologics License Application ("BLA") for XIAFLEX (collagenase clostridium histolyticum) ("XIAFLEX") for the treatment of Dupuytren's contracture ("Dupuytren's") by the U.S. Food and Drug Administration ("FDA") and the outcome of that review;
preparedness for, and timing of, the U.S. launch of XIAFLEX for Dupuytren's, if the BLA is approved by the FDA;
the ability to enroll patients in clinical trials for XIAFLEX in the expected timeframes;
the ability to obtain authorization from FDA or other regulatory authority to initiate clinical trials of XIAFLEX within the expected timeframes;
demonstrating the safety and efficacy of product candidates at each stage of development;
the size of addressable markets for our product candidates;
results of clinical trials;
meeting applicable regulatory standards, filing for and receiving required regulatory approvals;
complying with the terms of our licenses and other agreements;
the ability to manufacture or have manufactured Testim, XIAFLEX and other product candidates in commercial quantities at reasonable costs and compete successfully against other products and companies;
changes in industry practice; and
one-time events.
These risks are not exhaustive. For a more detailed discussion of risks and uncertainties, see "Item 1A - Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008 and "Item 1A - Risk Factors" of this quarterly report. Other
sections of this quarterly report and in our other Securities and Exchange Commission ("SEC") filings, verbal or written statements and presentations may include additional factors which could materially and adversely impact our future results, performance, achievements and prospects. Moreover, we operate in a very competitive and rapidly changing environment. Given these risks and uncertainties, we cannot guarantee that the future results, performance, achievements and prospects reflected in forward-looking statements will be achieved or occur. Therefore, you should not place undue reliance on forward-looking statements. We undertake no obligation to update publicly any forward-looking statement other than as required under the federal securities laws. We qualify all forward-looking statements by these cautionary statements.
As used herein, the terms "Company," "Auxilium," "we," "us," or "our" refer to Auxilium Pharmaceuticals, Inc, and its subsidiaries.
Overview
We are a specialty biopharmaceutical company with a focus on developing and marketing products to urologists, endocrinologists, orthopedists and select primary care physicians. We currently have approximately 440 employees, including a sales and marketing organization of approximately 230 people. Our only marketed product, Testim, is a proprietary, topical 1% testosterone once-a-day gel indicated for the treatment of hypogonadism. Hypogonadism is defined as reduced or absent secretion of testosterone which can lead to symptoms such as low energy, loss of libido, adverse changes in body composition, irritability and poor concentration.
Our current product pipeline includes:
Phase III:
XIAFLEX for the treatment of Dupuytren's. The efficacy of XIAFLEX has been demonstrated in multiple controlled Phase III clinical trials. The most common adverse events in these studies were consistent with those reported in previous XIAFLEX trials and included pain, swelling, bruising and pruritus at the injection site and transient lymph node swelling and pain. In over 2,600 XIAFLEX injections administered in 1,082 patients, there were nine subjects with 10 serious adverse events considered related to treatment.
Phase II:
XIAFLEX for the treatment of Peyronie's disease ("Peyronie's"). We completed patient enrollment for the phase IIb trial in January 2009 with over 120 subjects and expect to release top line results in December 2009.
XIAFLEX for the treatment of Adhesive Capsulitis ("Frozen Shoulder syndrome").
Phase I:
AA4010, treatment for overactive bladder using our transmucosal film delivery system.
A Fentanyl pain product using our transmucosal film delivery system.
In addition to the above, we have the rights to develop other compounds for the treatment of pain using our transmucosal film delivery system and other products using our transmucosal film technology for treatment of urologic disease and for hormone replacement. We also have the option to license additional indications for XIAFLEX other than dermal products for topical administration.
We have never been profitable and have incurred an accumulated deficit of $312.0 million as of September 30, 2009. We anticipate that commercialization expenses, development costs, and in-licensing milestone payments related to existing and new product candidates and costs related to enhancing our core technologies will continue to increase in the near term. In particular, we expect to incur increased costs for selling and marketing as we continue to market Testim and commercialize XIAFLEX (if approved), and to incur additional development and pre-commercialization costs for existing and new product opportunities,
acquisition costs for new product opportunities and general and administration expense to support the infrastructure required for operational growth. We expect that quarterly and annual results of operations will fluctuate for the foreseeable future due to several factors, including the overall growth of the androgen market, the commercial launch of XIAFLEX (if approved), patient and insurer response to current economic conditions, the timing and extent of research and development efforts and the outcome and extent of clinical trial activities. Our limited operating history makes accurate prediction of future operating results difficult.
Third Quarter Developments
On August 4, 2009, we entered into a two year revolving credit agreement ("Revolving Line of Credit Agreement"), with Silicon Valley Bank ("SVB"). The Revolving Line of Credit Agreement provides a credit commitment to us of up to $30.0 million, subject to certain limitations discussed in the Liquidity and Capital Resources section below, and provides SVB with a first priority lien of all our assets as security for borrowings.
On September 2, 2009, we announced that The New England Journal of Medicine published in its September 3rd edition, data from our pivotal CORD I Phase III clinical trial of XIAFLEX for the treatment of Dupuytren's.
On September 16, 2009, we announced that the Arthritis Advisory Committee appointed by the FDA recommended by a unanimous vote of 12 to 0 that XIAFLEX for the treatment of Dupuytren's be granted marketing approval by the FDA. The Advisory Committee's recommendation, although not binding, will be considered by the FDA in its review of the BLA. The original target Prescription Drug User Fee ("PDUFA") action date for the FDA's decision as to whether to grant marketing approval for XIAFLEX was August 28, 2009. The FDA has not updated the target PDUFA action date.
On September 30, 2009, we completed the sale of 3,450,000 shares of common stock in an underwritten public offering. We received proceeds, net of offering expenses and underwriting discounts and commissions, of approximately $115.7 million. We offered the shares of common stock sold in the offering pursuant to a Registration Statement on Form S-3 (Reg. No. 333-133477) filed with the SEC on August 27, 2007 and declared effective on September 19, 2007. We expect to use the net proceeds from the offering for general corporate purposes, including working capital, product development and capital expenditures. Pending use of such proceeds, we intend to invest the proceeds in short term interest-bearing securities.
Results of Operations
Three Months Ended September 30, 2009 and 2008
Net revenues.Net revenues increased $9.6 million, or 29.3%, to $42.1 million for the quarter ended September 30, 2009 from $32.6 million for the comparable 2008 period. Sales of Testim in the U.S. for the third quarter of 2009 were $40.2 million, a 25.1% increase over the $32.1 million recognized in the third quarter of 2008. This increase in revenues resulted primarily from growth in Testim demand resulting from increased prescriptions and increases in pricing, net of discounts, rebates and coupons. According to National Prescription Audit ("NPA") data from IMS Health ("IMS"), a pharmaceutical market research firm, Testim total prescriptions for the third quarter of 2009 grew 17.3% over the comparable period of 2008. We believe that Testim prescription growth in the 2009 period over the 2008 period was driven by the overall gel market growth, physician and patient acceptance that Testim provides better patient outcomes, the shift in prescriptions away from the testosterone patch product to Testim, and the continued focus of our sales force on the promotion of Testim to urologists, endocrinologists and select primary care physicians. Net revenues for the third quarter of 2009 benefited from price increases having a cumulative impact of 11% over the comparable 2008
period, which was partially offset by increased utilization of coupons that are provided to new patients. Net revenues for the third quarter of 2009 and 2008 include $0.2 million of international product shipments of Testim and $0.9 million and $0.3 million, respectively, of revenues related to Testim up-front and milestone payments. Net revenues for the third quarter of 2009 also include $0.9 million of amortization of the deferred revenue resulting from our collaboration agreement with Pfizer, Inc. ("Pfizer") (the "Pfizer Agreement"). Total product sales allowances for the third quarter of 2009 and 2008 amounted to 23.9% and 20.0%, respectively, of total sales of Testim in the U.S. The increase in this percentage for the 2009 period over the comparable period in 2008 results primarily from increases in coupon usage for new patients and from an increase in accrued rebates and allowances resulting from a change in estimate in the third quarter of 2009.
Cost of goods sold. Cost of goods sold was $9.5 million and $7.8 million for the three months ended September 30, 2009 and 2008, respectively. Cost of goods sold reflects the cost of product sold and royalty obligations due to the Company's licensor on the sales of Testim, and the amortization of the deferred costs associated with the Pfizer Agreement. The increase in cost of goods sold for the three months ended September 30, 2009 over the comparable period in 2008 was principally attributable to the increase in Testim units sold. Gross margin on our net revenues was 77.4% in the third quarter of 2009 compared to 76.0% in the comparable 2008 period. The increase in the gross margin rate is the result of the impact of year-over-year price increases on U.S. Testim revenues and the increase in amortization of upfront and milestone payments, partially offset by higher coupon usage in 2009.
Research and development expenses. Research and development spending for the quarter ended September 30, 2009 was $12.8 million, compared to $13.3 million for 2008. The decline in spending results from a reduction in clinical development costs primarily related to the completion of XIAFLEX clinical trials that were conducted in 2008, offset by increases in regulatory costs for XIAFLEX and costs at our Horsham manufacturing facility.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $34.7 million for the quarter ended September 30, 2009 compared with $21.9 million for the year-ago quarter. The increase was primarily due to investments in preparing for the potential U.S. launch of XIAFLEX and increases in stock compensation costs.
Interest income. Interest income was $0.1 million and $0.3 million for the three months ended September 30, 2009 and 2008, respectively. Interest income relates primarily to interest earned on cash, cash equivalents and short-term investments.
Interest expense. Interest expense in 2009 represents the costs associated with our Revolving Line of Credit Agreement.
Provision for income taxes. The provision for income taxes for the third quarter of 2009 is based on our estimated annual effective tax rate of 1.5 percent. This income tax provision relates to the Federal alternative minimum tax and various state income taxes, resulting primarily from the inclusion of the $75 million received under the Pfizer Agreement in 2009 tax return income. Prior to 2009, the Company did not incur Federal or state income taxes due to its history of taxable losses.
Nine Months Ended September 30, 2009 and 2008
Net revenues. Net revenues increased $25.4 million, or 28.0%, to $116.0 million for the nine months ended September 30, 2009 from $90.6 million for the comparable 2008 period. Sales of Testim in the U.S. for the first nine months of 2009 were $109.7 million, a 22.7% increase over the $89.4 million recognized in the comparable period of 2008. This increase in revenues for the first nine months of 2009 compared to the comparable 2008 period resulted primarily from growth in Testim demand resulting from increased prescriptions and increases in pricing, net of discounts, rebates and coupons. According to NPA data from IMS, Testim total
prescriptions for the first nine months of 2009 grew 15.5% over the comparable period of 2008. We believe that Testim prescription growth in the 2009 period over the 2008 period was driven by the overall gel market growth, physician and patient acceptance that Testim provides better patient outcomes, the shift in prescriptions away from the testosterone patch product and the other gel product to Testim, and the continued focus of our sales force on the promotion of Testim to urologists, endocrinologists and select primary care physicians. Net revenues for the first nine months of 2009 benefited from price increases having a cumulative impact of 10% over the comparable 2008 period, which was partially offset by increased utilization of coupons that are provided to new patients. Net revenues for the nine months ended September 30, 2009 and 2008 include $1.1 million and $0.7 million, respectively, of international product shipments of Testim and $2.6 million and $0.5 million, respectively, of revenues related to Testim up-front and milestone payments. Net revenues for the first nine months of 2009 also include $2.7 million of amortization of the deferred revenue resulting from the Pfizer Agreement. Total product sales allowances for the first nine months of 2009 and 2008 amounted to 22.5% and 20.2%, respectively, of total sales of Testim in the U.S. The increase in this 2009 period over the comparable period in 2008 results primarily from an increase in coupon usage for new patients.
Cost of goods sold. Cost of goods sold was $26.7 million and $21.2 million for the nine months ended September 30, 2009 and 2008, respectively. Cost of goods sold reflects the cost of product sold and royalty obligations due to the Company's licensor on the sales of Testim, and the amortization of the deferred costs associated with the Pfizer Agreement. The increase in cost of goods sold for the nine months ended September 30, 2009 over the comparable period in 2008 was principally attributable to the increase in Testim units sold. Gross margin on our net revenues was 77.0% in the first nine months of 2009 compared to 76.6% in the comparable 2008 period. The increase in the gross margin rate is the result of the impact of year-over-year price increases on U.S. Testim revenues and the increase in amortization of up-front and milestone payments, partially offset by a 2008 one-time manufacturing fee rebate and higher coupon usage in 2009.
Research and development expenses. Research and development costs for the first nine months of 2009 were $40.0 million compared with $39.9 million for the comparable year-ago period. Although the overall spending was comparable year over year, there was a reduction in clinical development costs primarily related to the completion of XIAFLEX clinical trials that were conducted in 2008, offset by increases in regulatory costs for XIAFLEX and costs at our Horsham manufacturing facility.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $90.5 million for the nine months ended September 30, 2009 compared with $65.1 million for the comparable year-ago period. The increase was primarily due to investments in preparing for the potential U.S. launch of XIAFLEX, costs incurred in 2009 in defense of our Testim intellectual property and increases in stock compensation costs.
Interest income. Interest income was $0.4 million and $1.5 million for the nine months ended September 30, 2009 and 2008, respectively. Interest income relates primarily to interest earned on cash, cash equivalents and short-term investments.
Interest expense. Interest expense in 2009 represents the costs associated with our Revolving Line of Credit Agreement.
Provision for income taxes. The provision for income taxes of $0.6 million for the first nine months of 2009 is based on our estimated annual effective tax rate of 1.5 percent. This income tax provision relates to the Federal alternative minimum tax and various state income taxes, resulting primarily from the inclusion of the $75 million received under the Pfizer Agreement in 2009 tax return income. Prior to 2009, the Company did not incur Federal or state income taxes due to its history of taxable losses.
Liquidity and Capital Resources
Since inception through September 30, 2009, we have financed our product development, operations and capital expenditures primarily from private and public sales of equity securities. Since inception through September 30, 2009, we received net proceeds of approximately $402.8 million from private and public sales of equity securities and the exercise of stock options, including our offering of 3,450,000 shares of common stock completed on September 30, 2009 for which we received net proceeds of approximately $115.7 million. We had $192.3 million and $113.9 million in cash and cash equivalents as of September 30, 2009 and December 31, 2008, respectively.
On August 4, 2009, we entered into the Revolving Line of Credit Agreement with SVB which provides us a credit commitment of up to $30.0 million, subject to certain limitations discussed below, and provides SVB with a first priority lien on all our assets as security for borrowings. It also provides for a one-time increase in the amount of the credit commitment of up to $10.0 million upon mutual agreement of the parties. As of September 30, 2009, we had no outstanding borrowing under this agreement.
The financial covenants contained in the Revolving Line of Credit Agreement are
a quarterly and cumulative profitability and loss restriction, and a minimum
liquidity ratio ("Minimum Quick Ratio"), defined as the ratio of unrestricted
cash and cash equivalents, plus net accounts receivable, divided by current
liabilities plus, without duplication, all outstanding credit extensions owed to
SVB, but excluding deferred revenue and deferred rent. We must not (x) exceed a
quarterly maximum net loss of between $10 million and $30 million, depending on
the quarter at issue, during the initial portion of the term of the agreement,
(y) fall below a quarterly minimum net income of between $5 million and $10
million, depending on the quarter at issue, during the later portion of the term
of the agreement, or (z) fail to maintain a monthly and quarterly Minimum Quick
Ratio of between 0.80:1.00 and 1.25:1.00, depending on the month or quarter at
issue. If such financial covenants are not maintained, SVB will have a number of
remedies under the agreement including, but not limited to, restricting further
borrowing, declaring all amounts outstanding due and payable, and exercising
remedies with respect to the collateral. Further, when "Net Liquidity", defined
as unrestricted cash and cash equivalents at SVB less borrowings from SVB, is
greater than $15.0 million there are no restrictions on the amount which may be
borrowed under the credit facility. When Net Liquidity is less than $15.0
million, the amount which may be borrowed under the credit facility is limited
to specified percentages of certain customer accounts receivables.
We believe that our current financial resources and sources of liquidity, including potential milestone payments to us, will be adequate to fund our anticipated operations until such time that the Company reaches profitability. We may, however, elect to raise additional funds prior to this time in order to enhance our sales and marketing efforts for additional products we may acquire, commercialize any product candidates that receive regulatory approval, acquire or in-license approved products or product candidates or technologies for development and to maintain adequate cash reserves to minimize financial market fundraising risks. Insufficient funds may cause us to delay, reduce the scope of, or eliminate one or more of our development, commercialization or expansion activities. Our future capital needs and the adequacy of our available funds will depend on many factors, including:
Testim market acceptance and sales growth;
our ability to realize sales efficiency and effectiveness of our sales force;
our collaboration agreement with Pfizer, Inc.;
third-party payor coverage and reimbursement for Testim;
the cost of manufacturing, distributing, marketing and selling Testim;
the scope, rate of progress and cost of our product development activities;
future clinical trial results;
the terms and timing of any future collaborative, licensing, co-promotion and other arrangements that we may establish;
the cost and timing of regulatory approvals;
acquisition or in-licensing costs;
the effect of competing technological and market developments;
changes to the regulatory approval process for product candidates in those jurisdictions, including the U.S., in which we may be seeking approval for our product candidates;
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including costs associated with the matter of Auxilium Pharmaceuticals, Inc. and CPEX Pharmaceuticals, Inc. vs. Upsher-Smith Laboratories, Inc. filed on December 4, 2008 in the United States District Court for the District of Delaware and the outcome thereof; and
the extent to which we acquire or invest in businesses and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.
If additional funds are required, we may raise such funds from time to time through public or private sales of equity or debt securities or from borrowings under the Revolving Line of Credit Agreement, or other loans. However, current economic conditions and disruptions in the financial markets have increased the cost and significantly reduced the availability of debt and equity financing, which may continue or worsen in the future. As a result, there is a higher than usual risk that we may be unable to raise additional funds on acceptable terms or at all, which may affect our decisions regarding the timing and size of financings. Our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition or results of operations. Additional equity financing, if available, may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants that restrict our ability to operate our business.
Sources and Uses of Cash
Cash used in operations was $31.9 million and $21.0 million for the nine months ended September 30, 2009 and 2008, respectively. Cash used in operations for the nine months ended September 30, 2009 resulted primarily from operating losses and the payment of costs accrued in 2008, including $6.4 million to BioSpecifics . . .
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