Auxilium Pharmaceuticals got clearance from the FDA last night to launch its second drug,  Xiaflex, a product that is set to become the first non-surgical treatment for Dupuytren's contracture, a painful thickening of the connective tissue in the hands. 

The news prompted shares in the US company to jump 11% in early trade today, clearing $31, and with good reason; consensus for sales in 2014 currently sits at $386m, ranking the drug as potentially one of the biggest new launches that 2010 will see (Which of 2010's launches will be future blockbusters?, January 19, 2010). However, with the product’s value now fully reflected in Auxilium’s share price, investors will be keeping a close eye on the progress of the launch this year, which some analysts have cautioned could be slower than expected.  

Risk strategy

Xiaflex has been approved to treat adult Dupuytren's contracture patients with a palpable cord of tissue under the skin on the palm of the hand. Over time, the thickening of this cord can cause one or more fingers to bend towards the palm, so that they cannot be straightened.  Xiaflex is injected into the cord, helping to break it down. The drug is formed of  collagenase, an enzyme that breaks down collagen. 

The FDA has required a risk evaluation and mitigation strategy (REMS) which consists of a communication plan and a medication guide, designed to mitigate and inform patients about known risks and inform healthcare providers about how to properly inject the drug and perform finger extension procedures. 

This means the drug can probably only be administered by hand surgeons, but this is unlikely to limit uptake as most Dupuytren’s patients would be referred to such a specialist. However, first of all they need training, which could contribute to a slower ramp up in sales than some are expecting, analysts have cautioned. 

Another issue that needs overcoming is reimbursement. RBC Capital Markets pointed out today that the product had only been assigned a miscellaneous J-code, which is manually processed and may have more challenges with various payers, although they noted that a specific J-code should be granted by 2011. 

Fully valued

Auxilium plans to start shipping Xiaflex to distribution partners in early March, for launch later in the month. The product will be sold through a 111-strong sales, reimbursement and medical liaison team, and expectations for first year sales range from $34m to a lofty looking $72m.  

In Europe, where the drug will be sold by Pfizer, regulators commenced their own review of the drug late January, so approval could theoretically be granted before the end of the year. Analysts covering Pfizer have pencilled in sales of $51m by 2014, whereas those covering Auxilium are forecasting royalties that year of $45m, highlighting a typical disparity in the opinions of analysts covering large and small companies.  

These sales forecasts value Xiaflex at $959m, according to  EvaluatePharma’s NPV Analyzer. Together with Auxilium’s other marketed drug, Testim, these two products are valued at $1.36bn. 

At $31 a share, the company has a market value of $1.46bn. With generic concerns already weighing on the future of  Testim, investors will not want to see initial sales heading towards the low end of for this year. If they do, this market valuation will be hard to justify.