Auxilium Pharmaceuticals Inc. (AUXL) is a specialty pharmaceutical company focused on treating diseases and conditions that accompany aging. The company's only approved product is Testim, a 1% testosterone gel indicated for the treatment of hypogonadism. Auxilium also possesses a clinical stage candidate in Xiaflex, under development for Dupuytren's Contracture, Peyronie's Disease, and Frozen Shoulder Syndrome.
The most advanced indication is for Dupuytren's Contracture in two phase III trials. Sales of Testim are performing above expectations and commercialization of Xiaflex represents significant upside to the investment story.
However, the overall size of the testosterone-replacement market remains only around $500 million in our view, so significant growth for Testim beyond 40% market share is unlikely. This puts peak sales around the $200 million level. Given the eventual slowdown in Testim, the future of Auxilium relies heavily on the development of Xiaflex. Upside to our Xiaflex forecasts could come from positive development in Peyronie's Disease or Frozen Shoulder Syndrome, and the potential to sign a lucrative European partnership during the second half of the year.
We model Auxilium reaching profitability in 2011. The stock looks expensive at this level based on future earnings and the current price / sales [P/S] ratio. The biotech average P/S is between 7-8x, whereas Auxilium currently trades at nearly 9x. Based on our 2011 EPS forecast of $1.20 (un-taxed), the stock is trading at 22.3x earnings. That's a premium to the peer group, which currently trades at only 12.5x 2011 EPS.
The fundamentals at Auxilium are solid, but the lofty valuation keeps us from recommending the name. We rate the stock a Hold with a six-month price target of $29.
Read the full analyst report on AUXL.
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.