Auxilium Pharmaceuticals’ net revenues increase $125.9M to 56%

Auxilium Pharmaceuticals, Inc. (NASDAQ: AUXL), a fully integrated specialty biopharmaceutical company, today announced financial results for the fourth quarter and full year ending December 31, 2013. The Company also highlighted select commercial, regulatory and clinical development progress and future goals and provided financial guidance for 2014.

"2013 was a transformative year for Auxilium, marked by the expansion and diversification of our product portfolio from two to 12 products and characterized by robust revenue growth," said Adrian Adams, Chief Executive Officer and President of Auxilium. "We believe we have established a leadership position in the men's healthcare area while also broadening our product portfolio and advancing our R&D pipeline in orthopedics and dermatology. With five growth products, including two exciting new products, STENDRA™ for erectile dysfunction and XIAFLEX^® for Peyronie's disease, launched in January 2014, we believe we are strongly positioned to deliver value to our shareholders and important treatment options to patients this year and beyond."

Key Fourth Quarter Financial Highlights & Corporate Milestones:

• Net revenues for the quarter were $125.9 million, a 56 percent increase compared to non-GAAP net revenue of $80.5 million during the same period in 2012^[1]
  • Testim^® U.S. net revenues decreased to $57.1 million, XIAFLEX U.S. net revenues increased to $19.7 million, TESTOPEL^® net revenues were $25.0 million and Edex^® net revenues were $8.9 million in the fourth quarter
• Non-GAAP net income increased to $13.4 million, or $0.27 earnings per share (EPS fully diluted), a 26 percent increase compared to $10.6 million, or $0.21 per share (fully diluted), in the same period in 2012
• FDA approval for XIAFLEX in Peyronie's disease (PD), the first and only approved treatment proven safe and effective for PD in men with a palpable plaque and a curvature deformity of 30 degrees or greater at the start of therapy
• License agreement with VIVUS, Inc. for U.S. and Canadian marketing rights to STENDRA, a PDE5 inhibitor and the first new drug entry for erectile dysfunction in 10 years
• Phase 2a study in cellulite and Phase 2b study in Frozen Shoulder Syndrome initiated for collagenase clostridium histolyticum (CCH)
• Positive MULTICORD study results announced and sBLA filed for the concurrent treatment of multiple cords with XIAFLEX for Dupuytren's contracture (DC)

Key Full Year 2013 Financial Highlights & Corporate Milestones:

• Net revenues increased 32 percent to $400.7 million, compared to non-GAAP net revenues of $303.3 million for 2012
• Non-GAAP net income increased to $30.9 million, or a non-GAAP EPS of $0.62 per share (fully diluted), an 80 percent increase compared to $17.2 million, or $0.35 per share (fully diluted), in 2012
• Secured $625 million through the issuance of $350 million of convertible senior notes, $225 million credit facility and an additional $50 million incremental credit facility to fund corporate development and licensing activities  
• Successful acquisition and continuing integration of Actient Holdings LLC (Actient), resulting in nine new products added to the Auxilium portfolio; on track to realize $20 million in cost synergies by the end of 2014
• Collaboration agreement for 71 Eurasian and African countries with Swedish Orphan Biovitrum AB (SOBI) for XIAPEX® in PD and DC
• Positive data presented at key medical meetings, including American Society for Surgery of the Hand (ASSH) Annual Meeting and the Fall Scientific Meeting of the Sexual Medicine Society of North America (SMSNA)

Fourth Quarter Financial Details:
Total revenues for the three-month period ended December 31, 2013 were $125.9 million, compared to $80.5 million recorded in the fourth quarter of 2012^[2]. This increase in net revenues was due to increases in XIAFLEX U.S. sales and the addition of the Actient products, offset by lower U.S. Testim revenues. For the fourth quarter of 2013, Testim U.S. net revenues decreased by 2 percent to $57.1 million and XIAFLEX U.S. net revenues increased by 13 percent to $19.7 million over the comparable 2012 period. Revenues from Auxilium's acquired subsidiary, Actient, resulted in net revenues of $43.7 million for the fourth quarter of 2013. This included TESTOPEL net revenues of $25.0 million and Edex net revenues of $8.9 million for the fourth quarter of 2013. See Table 1 attached for further details on revenues.

On a non-GAAP basis, gross margin on net revenues was 73 percent for the quarter ended December 31, 2013, compared to 75 percent for the comparable period in 2012. The decrease in the gross margin rate is primarily due to costs related to XIAFLEX manufacturing initiatives offset in part by the inclusion of the acquired higher-margin Actient product revenues in 2013.

On a non-GAAP basis, research and development spending for the quarter ended December 31, 2013 was $12.2 million, compared to $12.3 million for the same period in 2012.

On a non-GAAP basis, selling, general and administrative costs for the quarter ended December 31, 2013 were $61.1 million, compared to $37.7 million in the comparable 2012 period. This increase was primarily due to the added expenses of the acquired Actient operations and an increase in pre-launch marketing and advertising spend related to XIAFLEX for the treatment of PD and STENDRA.  

The non-GAAP net income for the fourth quarter of 2013 was $13.4 million, or $0.27 per share (basic and fully diluted) compared to $10.6 million or $0.22 per share (basic) and $0.21 per share (fully diluted) for the fourth quarter of 2012.

As of December 31, 2013, Auxilium had $71.2 million in cash, cash equivalents and short-term investments, compared to $121.4 million at September 30, 2013, and outstanding debt of $293.7 million ($350.0 million at par value) in 2018 convertible senior notes and $255.1 million ($265.4 million par value) in a senior secured term loan.

Full Year 2013 Financial Details:
Total revenues for the twelve-month period ended December 31, 2013 were $400.7 million, compared to $303.3 million recorded in 2012^[3]. This increase in net revenues was due to increases in XIAFLEX U.S. sales and the addition of the Actient products, offset by lower U.S. Testim revenues. For the full year 2013, U.S. Testim revenue decreased by 12 percent compared to 2012 to $206.2 million, while XIAFLEX U.S. net revenues increased by 13 percent over 2012 to $62.5 million. Revenues from Auxilium's acquired subsidiary, Actient Holdings LLC, resulted in net revenues of $109.3 million for the full year 2013 – this included TESTOPEL net revenues of $60.0 million and Edex net revenues of $21.9 million for the full year 2013. See Table 1 attached for further details on revenues.

On a non-GAAP basis, gross margin on net revenues was 75 percent for the full year 2013, compared to 77 percent for the full year 2012. The decrease in the gross margin rate is primarily due to costs related to XIAFLEX manufacturing initiatives offset in part by the inclusion of the acquired higher margin Actient product revenues in 2013.

On a non-GAAP basis, research and development spending for the full year 2013 was $47.5 million, compared to $43.0 million for 2012. This increase in expense results principally from spending on the XIAFLEX multiple cord Phase 3 clinical trial for DC, partially offset by lower spending on XIAFLEX clinical trials for the treatment of PD.

On a non-GAAP basis, selling, general and administrative costs for the full year 2013 were $208.2 million, compared to $173.5 million in 2012. This increase was primarily due to the added expenses of the acquired Actient operations and an increase in pre-launch, marketing and advertising spend related to XIAFLEX for the treatment of PD and STENDRA, partially offset by lower advertising spending for XIAFLEX for the treatment of DC.  

The non-GAAP net income for the full year 2013 was $30.9 million, or $0.63 per share (basic) and $0.62 per share (fully diluted) compared to $17.2 million, or $0.35 per share (basic and fully diluted) in 2012.

Purchase Accounting Revision:
Our acquisition of Actient constituted a "business combination" under the relevant standards of the Financial Accounting Standards Board. One of the consequences of this designation is that we are required under Generally Accepted Accounting Principles ("GAAP") to estimate the deferred tax liabilities acquired as a result of the business combination accounting. The deferred tax liability position has been updated at December 31, 2013 based upon completion of interim tax returns and other information made available subsequent to the filing of earlier quarterly reports on Form 10-Q and prior to the time the 2013 annual financial statements for Auxilium were prepared. The level of deferred tax liabilities recorded results in a release of the valuation allowance for Auxilium's deferred tax assets in the quarter of acquisition. The release of this valuation reserve was recorded as an income tax benefit on the income statement. As a result of this update, we are required by GAAP to adjust the amount of income tax benefit we recorded in the second quarter 2013 and the income tax expense recorded in the third quarter of 2013. In accordance with GAAP, these required adjustments to the purchase accounting entries are recorded retroactively in the quarter originally recorded. Please see Table 4 attached for a quantification of these revisions on the income statement and earnings per share in the relevant periods and Table 5 for unaudited quarterly financial information (GAAP basis). Please see Table 6 for a quantification of these revisions on the non-GAAP income statement and earnings per share in the third quarter 2013 and Table 7 for a summary of the unaudited quarterly financial information (non-GAAP basis). 

2014 Financial Guidance:
The following outlines Auxilium's current financial expectations for the twelve months ending December 31, 2014:

• Global net revenues expected to be in the range of $450 to $490 million
• Research and development spending on a non-GAAP basis expected be in the range of $50 to $55 million
• Selling, general and administrative expenses on a non-GAAP basis expected to be in the range of $255 to $265 million
• Net interest expense on a non-GAAP basis expected to be in the range of $20 to $22 million
• Net income on a non-GAAP basis expected to be in the range of $45 to $50 million
• Gross margin expected to be in the range of 79 to 80 percent

Use of Non-GAAP Financial Measures
The foregoing descriptions of our Fourth Quarter Financial Details, Full Year 2013 Financial Details and our 2014 Financial Guidance contain non-GAAP financial measures. Non-GAAP financial measures should not be relied upon as an alternative to GAAP measures. A description of the non-GAAP calculations and reconciliation to the closest comparable GAAP measure, as well as the Company's rationale for the utility to investors of the non-GAAP measures it has elected to report, is provided in the accompanying Tables 2 and 3.