Barron’s Analyst Mark Veverka likes Auxilium: A rub-on gel for boosting tA rub-on gel for boosting testosterone is reason enough to buy this biotech. But it’s adding even more muscle.

a. The Pennsylvania-based biotech concern (ticker: AUXL) is the maker of Testim, a testosterone-based gel designed to help men lead longer, more energetic lives. In fact, it is the fastest growing testosterone-replacement therapy on the market.

b. This is a growing market, and it’s very safe,” says John Mulhall, director of sexual medicine at Memorial Sloan-Kettering Cancer Center in New York.  Testim, available only by prescription, already pulls in about $120 million in revenues a year, and sales are expected to increase by about 20% annually.

c. Tantalizing as the gel may be, it is not the only reason that Auxilium merits a look. Xiaflex, in trials, is aimed at treating a kind of hand disorder suffered by hundreds of thousands. Barring any delays in government approval, Xiaflex could launch by late 2009 and become a $200 million business by 2011

d. Auxilium, founded in 1999, has yet to turn a profit. It lost more than $40 million in each of the past two years. But that could soon change.  The Testim business could be worth more than $1 billion. That assumes the business is worth about five times its expected sales three years from now — a conservative valuation for a biotech concern. Xiaflex business could be worth about $3 billion.

e. The company has been actively seeking a European partner to distribute Xiaflex. Ideally, Auxilium would like to team with a company that is willing to infuse it with cash because it has a burn rate of about $55 million a year and had only $49 million in cash at the end of the second quarter.

f. Testim could disappoint those seeking a cure-all to “male menopause” — a supposed disease of forty- and fifty-somethings that’s marked by fatigue, depression, irritability, lack of concentration and more.

CONCLUSION: Testosterone is reason enough to buy this biotech.

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