Auxilium Pharmaceuticals said it will cut “approximately 30%” of its workforce—almost 200 jobs—in a restructuring expected to save the drug developer at least $75 million in annual operating expenses, as it prepares for a $345 million tax-slicing “inversion” merger with Canadian drug developer QLT.

Adrian Adams, Auxilium’s CEO and president, blamed the restructuring on “significant challenges this year, in particular a dramatic decline in the testosterone replacement therapy market” reflected in slumping sales of the company’s testosterone replacement gel Testim, indicated for the topical treatment of hypogonadism.

Sales of Testim plunged 62% during the first half of this year, falling to $37.9 million from $99.9 million in the first six months of 2013. That includes sales of an authorized generic version of Testim that Auxilium markets with partner Prasco. The generic was launched in June and outsold branded Testim in the second quarter, $13.3 million to $11.9 million.

While Auxilium’s total Testim sales still fell in Q2 from a year ago, the decline was reduced to 28.3%. The company credited the generic with increasing its access to the testosterone replacement therapy gel market, based on capturing a two-year high total of 14% of new prescriptions in July when combined with Testim.

“We are making difficult but necessary changes at the operational level to strengthen our balance sheet, reinforce our competitive position and, we believe, drive shareholder value,” Adams said in a statement issued yesterday. “We are confident that these steps will make us a leaner, more efficient and more competitive company and, after our anticipated merger with Canadian biotechnology company QLT, Inc., will provide a stronger platform to accelerate our growth and transformation.”

Auxililum had 635 employees as of June 30, the company disclosed in the 10-Q regulatory filing of its second-quarter results, filed August 7 with the U.S. Securities and Exchange Commission. That number included approximately 366 employees in the company’s commercial organization, 135 in manufacturing and quality positions, 65 in R&D positions and 69 administrative support staffers.

A 30% cut would reduce the reported total workforce by 191 positions.

The company said most of the job cuts will be immediate, and will include consolidating from three into two sales forces, improving manufacturing efficiency, enhancing inventory management; and focusing R&D efforts and expenditures on projects likely to generate short-term returns.

Auxilium identified two such projects—the development of treatments for cellulite and Frozen Shoulder Syndrome. The company said last month it has Phase IIb trials ongoing in both programs, with the cellulite program expected to generate data in the fourth quarter and the Frozen Shoulder Syndrome program, in the first quarter of 2015.

Auxilium said it anticipates “substantial completion” of the restructuring by the end of this year, with the full $75 million in annual savings to be achieved by the middle of 2015.

Going forward, it said, Auxilium would focus on a handful of products. They include: 

  • Testopel® (testosterone pellets),  the long-acting implantable testosterone replacement therapy;
  • Xiaflex® (collagenase clostridium histolyticum or CCH), launched during the second quarter for Peyronie's Disease and also indicated for Dupuytren's contracture;
  • Stendra® (avanafil), an oral erectile dysfunction therapy also launched during Q2 as the first drug entry into the ED market in nearly a decade;
  • edex®, (alprostadil for injection), an injectable treatment for erectile dysfunction

Auxilium said it expects to take up to $20 million in charges associated with the restructuring, primarily due to severance and contract-related expenses.

Auxilium’s restructuring, announced yesterday, comes more than two months after the company revealed plans to merge with QLT, in a $345 million stock deal designed to create a larger specialty biotech domiciled in lower-tax Canada.

The combined company would be domiciled in Canada’s province of British Columbia—QLT is based in Vancouver, BC—but maintain its operating headquarters Stateside in Chesterbrook, PA. At a high of 26.5%, Canada’s corporate taxes are less than the U.S. high of 40%.

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