AUXILIUM PHARMACEUTICALS INC (Form: 10-Q, Received: 08/08/2008 11:02:01)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-50855

Auxilium Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware

23-3016883

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

40 Valley Stream Parkway, Malvern, PA 19355

(Address of principal executive offices) (Zip Code)

(484) 321-5900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of August 1, 2008, the number of shares outstanding of the issuer’s common stock, $0.01 par value, was 41,510,674.


PART I FINANCIAL INFORMATION			3

	Item 1.	Financial Statements	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Operations	4
		Consolidated Statements of Cash Flows	5
		Consolidated Statement of Stockholders’ Equity	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
	Item 4.	Controls and Procedures	20

PART II OTHER INFORMATION			21

	Item 1A.	Risk Factors	21
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	21
	Item 4	Submission of Matters to a Vote of Security Holders	22
	Item 6.	Exhibits	23

SIGNATURES			24

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)


	June 30, 2008			December 31, 2007
Assets
Current assets:
Cash and cash equivalents	$	48,822		$	70,290
Short-term investments		—			5,800
Accounts receivable, trade, net		12,787			11,678
Accounts receivable, other		1,060			619
Inventories		8,518			5,142
Prepaid expenses and other current assets		3,190			3,129

Total current assets		74,377			96,658
Property and equipment, net		14,152			7,903
Long-term investments		3,940			—
Other assets		2,388			2,418

Total assets	$	94,857		$	106,979

Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable	$	—		$	5
Accounts payable		2,011			3,944
Accrued expenses		33,166			26,742
Deferred revenue, current portion		729			748
Deferred rent, current portion		333			358

Total current liabilities		36,239			31,797

Deferred revenue, long-term portion		9,166			9,500

Deferred rent, long-term portion		1,819			1,666

Commitments and contingencies		—			—
Stockholders’ equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $0.01 par value per share; authorized 120,000,000 shares; issued 41,442,877 and 40,768,809 shares at June 30, 2008 and December 31, 2007, respectively		414			408
Additional paid-in capital		296,592			288,122
Accumulated deficit		(248,208	)		(224,168	)
Treasury stock at cost: 31,187 and 26,276 shares at June 30, 2008 and December 31, 2007, respectively		(485	)		(322	)
Accumulated other comprehensive income		(680	)		(24	)

Total stockholders’ equity		47,633			64,016

Total liabilities and stockholders’ equity	$	94,857		$	106,979

See accompanying notes to consolidated financial statements.

AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net revenues	$	30,901		$	23,340		$	58,019		$	41,760

Operating expenses:
Cost of goods sold		7,409			5,872			13,409			10,950
Research and development*		13,435			9,711			26,628			18,422
Selling, general and administrative*		22,173			18,503			43,193			35,709

Total operating expenses		43,017			34,086			83,230			65,081

Loss from operations		(12,116	)		(10,746	)		(25,211	)		(23,321	)
Interest income (expense), net		390			724			1,171			1,426
Other income (expense), net		—			—			—			(3	)

Net loss	$	(11,726	)	$	(10,022	)	$	(24,040	)	$	(21,898	)

Basic and diluted net loss per common share	$	(0.29	)	$	(0.27	)	$	(0.59	)	$	(0.60	)

Weighted average common shares outstanding		41,050,599			36,724,292			40,888,477			36,253,591

* includes the following amounts of stock-based compensation expense:
Research and development	$	648		$	272		$	1,164		$	494
Selling, general and administrative		2,128			1,187			3,725			2,146

See accompanying notes to consolidated financial statements.

AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2008			2007
Cash flows from operating activities:
Net loss	$	(24,040	)	$	(21,898	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		4,889			2,640
Depreciation and amortization		915			624
Changes in operating assets and liabilities:
Increase in accounts receivable, trade and other		(1,551	)		(937	)
Increase in inventories		(3,376	)		(453	)
Increase in prepaid expenses and other current assets		(68	)		(362	)
Increase in accounts payable and accrued expenses		4,722			2,420
Decrease in deferred revenue		(352	)		(357	)
Increase in deferred rent		128			152

Net cash used in operating activities		(18,733	)		(18,171	)

Cash flows from investing activities:
Redemptions of short-term investments		2,400			15,811
Purchases of short-term investments		(2,400	)		(10,902	)
Redemptions of long-term investments		1,200			—
Purchases of property and equipment		(7,361	)		(2,588	)

Net cash (used) provided by investing activities		(6,161	)		2,321

Cash flows from financing activities:
Proceeds from common stock offering, net of transaction costs		66			49,866
Payments on debt financings		(5	)		(30	)
Employee Stock Purchase Plan purchases		653			272
Proceeds from exercise of common stock options		2,774			3,170
Common stock issued in payment of Board fees		95			—
Purchase of treasury shares		(163	)		(14	)

Net cash provided by financing activities		3,420			53,264

Effect of exchange rate changes on cash		6			(3	)

Increase (decrease) in cash and cash equivalents		(21,468	)		37,411
Cash and cash equivalents, beginning of period		70,290			44,835

Cash and cash equivalents, end of period	$	48,822		$	82,246

See accompanying notes to consolidated financial statements.

AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2008

(In thousands, except share amounts)

(Unaudited)


	Common stock			Additional paid-in capital			Accumulated deficit			Treasury Stock				Accumulated other comprehensive loss
	Shares	Amount		Additional paid-in capital			Accumulated deficit			Shares	Cost			Accumulated other comprehensive loss
Balance, January 1, 2008	40,768,809	$	408	$	288,122		$	(224,168	)	26,276	$	(322	)	$	(24	)
Exercise of common stock options	355,436		4		2,770			—		—		—			—
Cashless exercise of common stock warrants	287,227		3		(3	)		—		—		—			—
Employee Stock Purchase Plan purchase	25,602		—		653			—		—		—			—
Issuance of restricted stock	2,750		—		—			—		—		—			—
Issuance in payment of Board fees	3,053		—		95			—		—		—			—
Stock-based compensation	—		—		4,889			—		—		—			—
Adjustment of financing transactions costs	—		—		66			—		—		—			—
Treasury stock acquisition	—		—		—			—		4,911		(163	)		—
Unrealized loss on long-term investments	—		—		—			—		—		—			(660	)
Foreign currency translation adjustment	—		—		—			—		—		—			4
Net loss	—		—		—			(24,040	)	—		—			—

Balance, June 30, 2008	41,442,877	$	414	$	296,592		$	(248,208	)	31,187	$	(485	)	$	(680	)

See accompanying notes to consolidated financial statements.

AUXILIUM PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2008

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Auxilium Pharmaceuticals, Inc. and its wholly owned subsidiaries (the Company), and have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) pertaining to Form 10-Q. Certain disclosures required for complete annual financial statements are not included herein. All significant intercompany accounts and transactions have been eliminated in consolidation. The information at June 30, 2008 and for the three and six month periods ended June 30, 2008 and 2007 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of the Company’s management, are necessary to state fairly the financial information set forth herein. The December 31, 2007 balance sheet amounts and disclosures included herein have been derived from the Company’s December 31, 2007 audited consolidated financial statements. The interim results are not necessarily indicative of results to be expected for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and information contained in the Company’s current reports on Form 8-K and quarterly reports on Form 10-Q filed since the filing of the 2007 Annual Report.

(b) Net Loss Per Common Share

Net loss per common share is calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share . Under the provisions of SFAS No. 128, basic net loss per common share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period reduced, where applicable, for unvested outstanding restricted shares.

The following table sets forth the computation of basic and diluted net loss per common share (in thousands, except share and per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Numerator:
Net loss	$	(11,726	)	$	(10,022	)	$	(24,040	)	$	(21,898	)

Denominator:
Weighted-average common shares outstanding		41,239,958			36,968,299			41,053,945			36,492,976
Weighted-average unvested restricted common shares subject to forfeiture		(189,359	)		(244,007	)		(165,468	)		(239,385	)

Shares used in calculating net loss per common share		41,050,599			36,724,292			40,888,477			36,253,591

Basic and diluted net loss per common share	$	(0.29	)	$	(0.27	)	$	(0.59	)	$	(0.60	)

Diluted net loss per common share is computed giving effect to all potentially dilutive securities, including stock options and warrants. Diluted net loss per common share for all periods presented is the same as basic net loss per common share because the potential common stock is anti-dilutive.

(c) New Accounting Pronouncements

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, “ Fair Value Measurements ”, on January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement is applicable to other accounting literature that requires fair value measurement and does not require any new fair value measurements. On February 12, 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157 , which amends SFAS No. 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Therefore, beginning on January 1, 2008, this statement applies prospectively to new fair value measurements of financial instruments and recurring fair value measurements of non-financial assets and non-financial liabilities. On January 1, 2009 the standard will also apply to all other fair value measurements. While the adoption of the statement did not materially impact its results of operation or financial position, the Company is required to provide additional disclosures as part of its financial statements.

SFAS No. 157 establishes a three-tier value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developed assumptions) in which little or no market data exists.

As of June 30, 2008, the Company held certain investments classified as “available for sale” under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities , that are required to be measured at fair value on a recurring basis. These are investments in cash equivalents and auction-rate securities (ARS). In accordance with SFAS No. 157, the following table represents the Company’s fair value hierarchy for these financial assets as of June 30, 2008 (in thousands):


	June 30, 2008
	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	$	48,669	$	48,669	$	—	$	—
Long-term investments:
Auction rate securities		3,940				—		3,940

Total financial assets	$	52,609	$	48,669	$	—	$	3,940

The following table summarizes the changes in the financial assets measured at fair value using Level 3 inputs for the three and six month periods ended June 30, 2008 (in thousands):


	Long-term Investments
Beginning balance	$	—
Transfers into Level 3		5,800
Settlements		(1,200	)
Unrealized loss- included in other comprehensive income		(660	)

Ending balance	$	3,940

Further, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” . SFAS No. 159 provides companies the option to measure at fair value many financial instruments and certain other assets and liabilities on an instrument-by-instrument basis. The Company has not elected the fair value option for any of its financial assets or liabilities.

2. INVENTORIES

Inventories consist of the following (in thousands):


	June 30, 2008		December 31, 2007
Raw materials	$	2,677	$	2,371
Work-in-process		715		1,508
Finished goods		5,126		1,263

	$	8,518	$	5,142

3. LONG-TERM INVESTMENTS

As of June 30, 2008, the Company held $4,600,000 (par value) of ARS which have an estimated fair value of $3,940,000. These investments are private placement securities with long-term stated maturities for which interest rates are reset through a “Dutch” auction every 28 or 35 days. They carry AAA/Aaa ratings and are backed by student loans which carry guarantees as provided under the Federal Family Education Loan Program of the U.S. Department of Education. The Dutch auction mechanism, which allows investors to sell or hold the securities at par, had in the past provided a liquid market for these types of securities. Given this liquidity, the Company had prior to 2008 classified investments in ARS as current and reported them as “Short-term investments” in its Consolidated Balance Sheet. However, with

liquidity issues experienced in global credit and capital markets, the auctions for these securities have failed since February 10, 2008. Since the Company is unable to predict when the market for these securities will recover, these investments have been classified as non-current and are reported as “Long-term investments” in the unaudited Consolidated Balance Sheet at June 30, 2008.

At June 30, 2008, the estimated fair value of ARS was determined based on a valuation performed by a third-party valuation specialist since observable ARS market information was unavailable. The $660,000 decline in the reported value of ARS compared to their cost (par value) is recorded as an unrealized loss in accumulated other comprehensive income.

4. ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):


	June 30, 2008		December 31, 2007
Payroll and related expenses	$	6,181	$	6,757
Royalty expenses		3,745		3,236
Research and development expenses		5,397		5,121
Sales and marketing expenses		2,903		1,564
Testim rebates, discounts and returns accrual		10,341		7,430
Other expenses		4,599		2,634

	$	33,166	$	26,742

5. EMPLOYEE STOCK BENEFIT PLANS

Under the Company’s 2006 Employee Stock Purchase Plan, as approved by the stockholders of the Company, employees may purchase shares of the Company’s common stock at a 15% discount through payroll deductions. In June 2008, employees purchased 25,602 shares of common stock at a price of $25.4915 per share, representing 85% of the closing price of the common stock on December 31, 2007, the purchase price for the first day of the purchase period. At June 30, 2008, there were 167,947 shares available for future grants under the plan.

Under the Company’s 2004 Equity Compensation Plan (the 2004 Plan), as approved by the stockholders of the Company, qualified and non-qualified stock options and stock awards may be granted to employees, non-employee directors and consultants and advisors who provide services to the Company. As of June 30, 2008, the Company has granted non-qualified stock options and restricted stock under this plan. In addition, beginning in 2008, the members of the Board of Directors may annually elect to receive all, or a designated portion, of their fees in the form of common stock instead of cash. The shares issued pursuant to such elections by Board members are issued under the 2004 Plan. During the six months ended June 30, 2008, such issuances amounted to 3,053 shares having an aggregate fair value of $95,000 on the dates of issuance. At June 30, 2008, there were 1,267,778 shares available for future grants under the 2004 Plan.

(a) Stock Option Information

During the six months ended June 30, 2008, the Company granted 1,179,436 standard non-qualified stock options and 180,000 performance-based non-qualified stock options to employees to purchase shares of the Company’s common stock pursuant to the 2004 Plan. The options expire ten years from date of grant and their exercise prices represent the closing price of the common stock of the Company on the

respective dates that the options were granted. The standard non-qualified stock options vest no later than four years from the grant date, assuming continued employment of the grantee. The performance-based options were awarded to certain officers. The ultimate amount of performance options that will accrue to these grantees is dependent upon attainment of one of the defined levels of performance related to the submission of a Biologic License Application (the BLA) for XIAFLEX™ (clostridial collagenase for injection), formerly referred to as AA4500, for the treatment of Dupuytren’s contracture to the U.S. Food & Drug Administration (FDA), or the timing of a change in control of the Company prior to July 1, 2009. The full amount of the performance award is earned if the BLA is submitted to the FDA on or before March 31, 2009 and the FDA has granted an expedited review for the BLA. Two-thirds of the performance award is earned if the BLA is submitted on or before March 31, 2009 and the FDA did not grant an expedited review, or if there is a change in control of the Company on or before March 31, 2009. One-third of the performance award is earned if the BLA is submitted, or if there is a change in control of the Company, during the period from April 1, 2009 to June 30, 2009. None of the performance award is earned if the BLA is filed, or there is a change in control, after June 30, 2009. Each performance-based option has an exercise price of $32.72 and vests 33-1/3% on each 10 month anniversary of the date the performance goal is met. If the performance goal has been met and there is a change in control of the Company while the grantee is employed by, or providing service to the Company, any portion of the option that has not yet become exercisable shall automatically become immediately exercisable in full.

The following tables summarize stock option activity for the six month period ended June 30, 2008:


	Six Months Ended June 30, 2008
Stock options	Shares		Weighted average exercise price		Weighted average remaining contractual life (in years)	Aggregate intrinsic value
Options outstanding:
Outstanding at December 31, 2007	3,776,105		$	10.28
Granted	1,359,436			32.67
Exercised	(355,586	)		7.80
Canceled	(65,621	)		17.17

Outstanding at June 30, 2008	4,714,334			16.83	8.44	$	79,518,542

Exercisable at June 30, 2008	1,403,461			8.78	7.43		34,858,370

During the six months ended June 30, 2008, total intrinsic value of options exercised was $8,787,756. The aggregate intrinsic values in the preceding table represent the total pre-tax intrinsic value, based on the Company’s stock closing price of $33.62 as of June 30, 2008, that would have been received by the option holders had all option holders exercised their options as of that date. All 1,403,461 exercisable options as of June 30, 2008 were in-the-money.

(b) Restricted Stock Information

The compensation cost of restricted stock awards is determined by their intrinsic value on the grant date. The following table summarizes the restricted stock activity for the six month period ended June 30, 2008:


	Shares		Weighted average grant-date fair value
Nonvested at December 31, 2007	198,072		$	7.92
Granted	2,750			32.67
Vested	(18,822	)		10.67

Nonvested at June 30, 2008	182,000			8.01

(c) Valuation Assumptions and Expense Information

The fair value of each share-based award was estimated on the date of grant using the Black-Scholes model and applying the assumptions in the following table.


	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Weighted average assumptions:
Expected life of options (in years)	5.85		5.69		6.16		6.06
Risk-free interest rate	3.57	%	5.05	%	3.19	%	4.66	%
Expected volatility	46.81	%	50.15	%	47.82	%	50.75	%
Expected dividend yield	0.00	%	0.00	%	0.00	%	0.00	%

During the six months ended June 30, 2008, the weighted-average grant-date fair value of options granted was $16.46 and the total fair value of options vested was $3,967,263.

Through June 30, 2008, no expense has been recognized for the 180,000 performance-based non-qualified stock options described above since it was not then probable that any of the performance conditions will be met. As of June 30, 2008, there was approximately $27,222,000 of total unrecognized stock-based compensation cost related to all share-based payments that will be recognized over the weighted-average period of years.

6. SUPPLY AGREEMENT

On June 26, 2008, the Company entered into a supply agreement (the Supply Agreement) with Hollister-Stier Laboratories LLC (Hollister-Stier), pursuant to which Hollister-Stier will manufacture commercial batches of XIAFLEX. The Supply Agreement sets forth specifications, specific services, timelines, pricing, and responsibilities of the parties. The Supply Agreement is effective for an initial term of three years, unless terminated earlier for cause, and is automatically renewed thereafter for subsequent two year terms, unless or until either party provides notification prior to expiration of the then current of the contract.

The Company is required to purchase a specified percentage of its total forecasted volume of the Product from Hollister-Stier each year. This purchase obligation is only relieved in the event that Hollister-Stier is not able to supply the Product within the timeframe established under such forecasts. In

the event the Company does not order forecasted batches, it is responsible for the aggregate amounts of components and raw materials purchased by Hollister-Stier to manufacture the Product for the first twelve (12) months in each forecast, unless Hollister-Stier is unable to supply the Product in a timely manner. The Supply Agreement provides for cross-indemnification of the parties with Hollister-Stier’s indemnification obligation to the Company for third party claims being limited to $5 million.

In contemplation of the Supply Agreement, the Company paid $840,000 to Hollister-Stier pursuant to an agreement to secure manufacturing slots for the production of the Product during the period from April 2009 to March 2010 (the Reservation Fee). The Reservation Fee is included in “Prepaid expenses and other current assets” in the unaudited Consolidated Balance Sheet at June 30, 2008. It will be applied to the purchase price of Products scheduled for purchase by the Company under the Supply Agreement during this period and is subject to forfeiture up to a maximum amount of $300,000 if the scheduled purchases are not made.

7. OTHER COMPREHENSIVE LOSS

Total comprehensive loss was as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Net loss	$	(11,726	)	$	(10,022	)	$	(24,040	)	$	(21,898	)
Other comprehensive loss:
Unrealized loss on available for sale securities		(660	)		—			(660	)		—
Foreign currency translation		(3	)		(1	)		4			(6	)

Comprehensive loss	$	(12,389	)	$	(10,023	)	$	(24,696	)	$	(21,904	)

The unrealized loss on available for sale securities relates to the Company’s long-term investments. The foreign currency translation amounts relate to the Company’s foreign subsidiary.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is qualified in its entirety by, and should be read in conjunction with, the more detailed information set forth in the consolidated financial statements and the notes thereto appearing elsewhere in this report.

Certain statements in this quarterly report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements made with respect to our strategy, progress and timing of development programs and related trials, the efficacy of our product candidates, the commercial benefits available to us as a result of our agreements with third parties, future operations, financial position, future revenues, projected costs, the size of addressable markets, prospects, plans and objectives of management and other statements regarding matters that are not historical facts and involve predictions. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed in or implied by such forward-looking statements. In some cases you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “would,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “seem,” “seek,” “future,” “continue,” or “appear” or the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to a number of risks and uncertainties including, among other things:

•

growth in sales of Testim ^® , our only marketed product;

•

growth of the overall androgen market;

•

the availability of and ability to obtain additional funds through public or private offerings of debt or equity securities;

•

achieving market acceptance of Testim by physicians and patients and competing effectively with other Testosterone Replacement Therapy (TRT) products;

•

obtaining and maintaining all necessary patents or licenses;

•

purchasing ingredients and supplies necessary to manufacture Testim and our product candidates at acceptable terms to us;

•

obtaining and maintaining third-party payor coverage and reimbursement for Testim and our product candidates;

•

the costs associated with acquiring and the ability to acquire additional product candidates or approved products;

•

the ability to enroll patients in clinical trials for XIAFLEX in the expected timeframes;

•

the ability to obtain authorization from FDA or other regulatory authority to initiate clinical trials of XIAFLEX within the expected timeframes;

•

demonstrating the safety and efficacy of product candidates at each stage of development;

•

the size of addressable markets for our product candidates;

•

results of clinical trials;

•

meeting applicable regulatory standards, filing for and receiving required regulatory approvals;

•

complying with the terms of our license and other agreements;

•

the ability to manufacture or have manufactured Testim, XIAFLEX and other product candidates in commercial quantities at reasonable costs and compete successfully against other products and companies;

•

changes in industry practice; and

•

one-time events.

These risks are not exhaustive. For a more detailed discussion of risks and uncertainties, see “Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 and “Item 1A – Risk Factors” of this quarterly report. Other sections of this quarterly report and in our other SEC filings, verbal or written statements and presentations may include additional factors which could materially and adversely impact our future results, performance, achievements and prospects. Moreover, we operate in a very competitive and rapidly changing environment. Given these risks and uncertainties, we cannot guarantee that the future results, performance, achievements and prospects reflected therein will be achieved or occur. Therefore, you should not place undue reliance on forward-looking statements. We undertake no obligation to update publicly any forward-looking statement other than as required under the federal securities laws. We qualify all forward-looking statements by these cautionary statements.

Overview

We are a specialty biopharmaceutical company with a focus on developing and marketing products to urologists, endocrinologists, orthopedists and select primary care physicians. We currently have approximately 340 employees. Our only marketed product, Testim ^® , is a proprietary, topical 1% testosterone once-a-day gel indicated for the treatment of hypogonadism. Hypogonadism is defined as reduced or absent secretion of testosterone which can lead to symptoms such as low energy, loss of libido, adverse changes in body composition, irritability and poor concentration.

Our current product pipeline includes:

Phase III:

XIAFLEX for the treatment of Dupuytren’s contracture

Phase II:

XIAFLEX for the treatment of Peyronie’s disease

XIAFLEX for the treatment of Frozen Shoulder syndrome, or Adhesive Capsulitis

Phase I:

AA4010, treatment for overactive bladder using our transmucosal film delivery system

Fentanyl Transmucosal Film, a pain management product using our transmucosal film delivery system.

In addition to the above, we have the rights to develop seven other compounds for the treatment of pain using our transmucosal film technology and other products using our transmucosal film delivery system for treatment of urological disease and for hormone replacement therapy. We also have the option to license other indications for XIAFLEX other than dermal products for topical administration.

In June 2008, we announced positive top-line efficacy and safety results from our CORD I and II phase III clinical trials for XIAFLEX in the treatment of Dupuytren’s contracture. Sixty-four percent of patients in the pivotal CORD I trial successfully met the primary endpoint, a reduction in the angle of the patient’s primary joint contracture to less than or equal to 5 degrees of normal, as measured by digital goniometry, 30 days after the last injection. By comparison only 6.8% of patients who were randomized to placebo achieved this endpoint (p<0.001).

The Company also announced in June 2008 that its 16 patient pharmacokinetic study demonstrated that XIAFLEX does not result in systemic exposure, since no measurable levels of XIAFLEX were detected in patients’ plasma from 5 minutes through 30 days after injection of XIAFLEX into a Dupuytren’s cord.

With regard to the development of XIAFLEX for the treatment of Peyronie’s disease, the Company received feedback from the U.S. Food and Drug Administration (FDA) on the phase IIb trial protocol for XIAFLEX in Peyronie’s disease and expects to dose the first patient in the third quarter of 2008.

The Company has signed a supply agreement with Hollister-Stier Laboratories LLC to complete fill-finish for commercial batches of XIAFLEX. The Company is required to purchase a specified percentage of its total forecasted need from Hollister-Stier each year. This purchase obligation is only relieved in the event that Hollister-Stier is not able to meet the timeframe established under such forecasts. In the event the Company does not order forecasted batches, it is responsible for the aggregate amounts of components and raw materials purchased by Hollister-Stier to manufacture the Product for the first twelve (12) months in each forecast, unless Hollister-Stier is unable to supply the Product in a timely manner. In contemplation of the supply agreement, the Company paid a reservation fee of $840,000 to Hollister-Stier to secure manufacturing slots for the production of XIAFLEX during the period from April 2009 to March 2010. This reservation fee is included in “Prepaid expenses and other current assets” in the unaudited Consolidated Balance Sheet at June 30, 2008. It will be applied to purchases under the supply agreement during this period and is subject to forfeiture up to a maximum amount of $300,000 if the scheduled purchases are not made.

Auxilium received a written communication from the FDA that confirmed that XIAFLEX material manufactured in the Company’s Horsham facility is considered to be comparable to the material produced by the Company’s former development partner, Cobra Biologics Ltd., a subsidiary of Cobra Biomanufacturing Plc., located in the United Kingdom. XIAFLEX material manufactured by Cobra was used in the double-blind stage of the CORD I and II clinical trials.

We continue to explore partnering opportunities for XIAFLEX as part of our ongoing evaluation of options to maximize the product’s potential in Europe.

With regard to Fentanyl Transmucosal Film, the Company initiated a phase I pharmacokinetic study.

We have never been profitable and have incurred an accumulated deficit of $248 million as of June 30, 2008. We expect to incur significant operating losses for the foreseeable future. We anticipate that commercialization expenses, development costs, and in-licensing milestone payments related to existing and new product candidates and to enhance our core technologies will continue to increase in the near term. In particular, we expect to incur increased costs for selling and marketing as we continue to market Testim and additional development and pre-commercialization costs for:

•

existing and new product opportunities;

•

acquisition costs for new product opportunities; and

•

increased general and administration expense to support the infrastructure required to grow and operate as a public company.

We will need to generate significant revenues to achieve profitability.

We expect that quarterly and annual results of operations will fluctuate for the foreseeable future due to several factors including:

•

the overall growth of the androgen market;

•

the timing and extent of research and development efforts; and

•

the outcome and extent of clinical trial activities.

Our limited operating history makes accurate prediction of future operating results difficult.

Results of Operations

Three Months Ended June 30, 2008 and 2007

Net revenues. Net revenues increased $7.6 million, or 32%, to $30.9 million for the quarter ended June 30, 2008 from $23.3 million for the comparable 2007 period. The increase in net revenues for the second quarter of 2008 compared to the comparable 2007 period resulted primarily from substantial growth in Testim demand resulting from increased prescriptions and increases in pricing, net of discounts, rebates and coupons. According to National Prescription Audit (NPA) data from IMS Health (IMS), a pharmaceutical market research firm, Testim total prescriptions for the second quarter of 2008 grew 26.0% over the comparable period of 2007. We believe that Testim prescription growth in the 2008 period over the 2007 period was driven by the overall gel market growth, physician and patient acceptance that Testim provides better patient outcomes, the shift in prescriptions away from the testosterone patch product to Testim, and the continued focus of our sales force on the promotion of Testim to urologists, endocrinologists and select primary care physicians. Net revenues for the second quarter of 2008 benefited from price increases having a cumulative impact of 8% over the comparable 2007 period, which was partially offset by increased utilization of coupons that are provided to new patients. Revenue from international licensing agreements, representing the amortization of upfront and milestone payments and related product shipments, in the second quarter of 2008 and 2007 amounted to $0.6 million and $0.8 million, respectively. Total product sales allowances for the second quarter of 2008 and 2007 amounted to 20.5% and 18.8%, respectively, of total gross revenue with increases in the percentages for product rebates and coupons usage for new patients partially offset by declines in the percentages for fee for service and returns and allowances.

Cost of goods sold. Cost of goods sold was $7.4 million and $5.9 million for the three months ended June 30, 2008 and 2007, respectively. The increase in cost of goods sold for the three months ended June 30, 2008 over the comparable period in 2007 was principally attributable to the increase in Testim unit sales in the U.S. Gross margin on our net revenues was 76.0% in the second quarter of 2008 compared to 74.8% in the comparable 2007 period. Gross margin reflects the cost of product sold as well as royalty payments made to the Company’s licensor on the sales of Testim. The improvement in gross margin reflects the impact of year-over-year price increases and the decline in lower margin international product shipments.

Research and development expenses. Research and development costs for the second quarter of 2008 were $13.4 million compared with $9.7 million for the comparable year-ago period. The increase in research and development costs was primarily due to the increased spending for clinical development of XIAFLEX and preparing for the BLA filing through headcount additions.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled $22.2 million for the quarter ended June 30, 2008 compared with $18.5 million for the year-ago quarter. The increase was primarily due to higher investment in promotional spending for Testim, pre-launch investments for XIAFLEX, and higher stock-based compensation expense.

Interest income (expense), net. Interest income, net was $0.4 million and $0.7 million for the three months ended June 30, 2008 and 2007, respectively. Net interest income relates primarily to interest earned on cash, cash equivalents and short-term investments.

Six Months Ended June 30, 2008 and 2007

Net revenues. Net revenues increased $16.3 million, or 39%, to $58.0 million for the six months ended June 30, 2008 from $41.8 million for the comparable 2006 period. The increase in net revenues for the first six months of 2008 compared to the comparable 2007 period resulted primarily from substantial

growth in Testim demand resulting from increased prescriptions and increases in pricing, net of discounts, rebates and coupons. According to National Prescription Audit (NPA) data from IMS Health (IMS), a pharmaceutical market research firm, Testim total prescriptions for the first six months of 2008 grew 28.5% over the comparable period of 2007. We believe that Testim prescription growth in the 2008 period over the 2007 period was driven by the overall gel market growth, physician and patient acceptance that Testim provides better patient outcomes, the shift in prescriptions away from the testosterone patch product and the other gel product to Testim, and the continued focus of our sales force on the promotion of Testim to urologists, endocrinologists and select primary care physicians. Net revenues for the first six months of 2008 benefited from price increases having a cumulative impact of 9% over the comparable 2007 period, which was partially offset by increased utilization of coupons that are provided to new patients. Revenue from international licensing agreements, representing the amortization of upfront and milestone payments and related product shipments, in the first six months of 2008 and 2007 amounted to $0.8 million and $1.2 million, respectively. Total product sales allowances for the second quarter of 2008 and 2007 amounted to 20.2% and 19.1%, respectively, of total gross revenue with increases in the percentages for product rebates and coupons usage for new patients partially offset by declines in the percentages for fee for service and returns and allowances.

Cost of goods sold. Cost of goods sold was $13.4 million and $10.9 million for the six months ended June 30, 2008 and 2007, respectively. The increase in cost of goods sold for the six months ended June 30, 2008 over the comparable period in 2007 was principally attributable to the increase in Testim unit sales in the U.S. Gross margin on our net revenues was 76.9% in the first six months of 2008 compared to 73.8% in the comparable 2007 period. Gross margin reflects the cost of product sold as well as royalty payments made to the Company’s licensor on the sales of Testim. The increase in gross margin reflects the impact of year-over-year price increases, the decline in low margin international product shipments, the benefit of a one-time manufacturing fee rebate and the lack of expenses related to Testim manufacturing and quality improvement programs carried out in the 2007 period.

Research and development expenses. Research and development costs for the first six months of 2008 were $26.6 million compared with $18.4 million for the comparable year-ago period. The increase in research and development costs was primarily due to the increased spending for clinical development of XIAFLEX and preparing for the BLA filing through headcount additions.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled $43.2 million for the six months ended June 30, 2008 compared with $35.7 million for the comparable year-ago period. The increase was primarily due to higher investment in promotional spending for Testim, pre-launch investments for XIAFLEX, and higher stock-based compensation expense.

Interest income (expense), net. Interest income, net was $1.2 million and $1.4 million for the six months ended June 30, 2008 and 2007, respectively. Net interest income relates primarily to interest earned on cash, cash equivalents and short-term investments.

Liquidity and Capital Resources

Since inception through June 30, 2008, we have financed our product development, operations and capital expenditures primarily from private and public sales of equity securities. Since inception through June 30, 2008, we received net proceeds of approximately $279.5 million from private and public sales of equity securities and the exercise of stock options. We had $48.8 million and $70.3 million in cash and cash equivalents as of June 30, 2008 and December 31, 2007, respectively. In addition, we held $3.9 million and $5.8 million of ARS as of June 30, 2008 and December 31, 2007, respectively. Prior to 2008, we classified investments in ARS as current and reported them as “Short-term investments” in our Consolidated Balance Sheet. However, with liquidity issues experienced in global credit and capital markets, the auctions for these securities have failed since February 10, 2008. During the six months ended June 30, 2008, $1.2 million of ARS have been redeemed by the issuer. Since we are unable to predict when the market for these securities will recover, these investments have been classified as non- current and are reported as “Long-term investments” in the unaudited Consolidated Balance Sheet at June 30, 2008.

We believe that our current financial resources and sources of liquidity will be adequate to fund our anticipated operations into the third quarter of 2009. We may, however, need to raise additional funds prior to this time because of a number of factors, including:

•

Testim market acceptance and sales growth;

•

our ability to realize sales efficiency and effectiveness of our sales force;

•

third-party payor coverage and reimbursement for Testim;

•

the cost of manufacturing, distributing, marketing and selling Testim;

•

the scope, rate of progress and cost of our product development activities;

•

future clinical trial results;

•

the terms and timing of any future collaborative, licensing, co-promotion and other arrangements that we may establish;

•

the cost and timing of regulatory approvals;

•

the costs of supplying and commercializing XIAFLEX and any of our product candidates;

•

acquisition or in-licensing costs;

•

the effect of competing technological and market developments;

•

changes to the regulatory approval process for product candidates in those jurisdictions, including the U.S., in which we may be seeking approval for our product candidates;

•

the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

•

the extent to which we acquire or invest in businesses and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

Insufficient funds may cause us to delay, reduce the scope of, or eliminate one or more of our development, commercialization or expansion activities. If additional funds are required, we may raise such funds from time to time through public or private sales of equity or debt securities or from bank or other loans. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition or results of operations. Additional equity financing, if available, may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants that restrict our ability to operate our business.

Sources and Uses of Cash

Cash used in operations was $18.7 million and $18.2 million for the six months ended June 30, 2008 and 2007, respectively. In both periods, cash used in operations resulted primarily from operating losses.

Cash used by investing activities was $6.2 million for the six months ended June 30, 2008 compared to cash provided by investing activities of $2.3 million for the six months ended June 30, 2007. Investing activities in both periods represent primarily the net effect of purchases and redemptions of investment securities, together with our investments in property and equipment. These investments in property and equipment relate primarily to the improvements being made to our Horsham biological manufacturing facility in preparation for the future production of XIAFLEX.

Cash provided by financing activities was $3.4 million and $53.3 million for the six months ended June 30, 2008 and 2007, respectively. Cash provided by financing activities for the 2008 period results primarily from cash receipts from stock option exercises and Employee Stock Purchase Plan. Cash provided by financing activities in the 2007 period results primarily from the $49.9 million in net proceeds we received in the June 2007 registered direct offering and the cash receipts from stock option exercises and employee stock purchases.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a) (4) of Regulation S-K.

New Accounting Pronouncements

See Note 1(c) - New Accounting Pronouncements to the Company’s Consolidated Financial Statements contained in this Report.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

We are subject to market risks in the normal course of our business, including changes in interest rates and exchange rates. There have been no significant changes in our exposure to market risks since December 31, 2007. Refer to “Item 7 A. Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2007 for additional information.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their respective evaluations as of the end of the period covered by this Report, that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report are effective to provide reasonable assurance that the information required to be disclosed in the reports we file under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. A controls system cannot provide absolute assurances, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting.

There was no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A.

Risk Factors.

In addition to the other information contained in this Report, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 in evaluating our business, financial position, future results and prospects. Although there have been no material changes to the risk factors described in such Annual Report on Form 10-K, the risks described therein are not the only risks facing our company. Additional risks that we do not presently know or that we currently believe are immaterial could also materially and adversely affect our business, financial position, future results and prospects.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

The following table summarizes the Company’s purchases of its common stock for the three months ended June 30, 2008:


Period	Total Number of Shares (or Units) Purchased		Average Price Paid Per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 1, 2008 to April 30, 2008	None			Not applicable	Not applicable	Not applicable
May 1, 2008 to May 31, 2008	None			Not applicable	Not applicable	Not applicable
June 1, 2008 to June 30, 2008	4,008	⁽¹⁾	$	35.06	Not applicable	Not applicable

Total	4,008	⁽¹⁾	$	35.06	Not applicable	Not applicable

(1)

Represents 2,608, 1,186 and 214 shares purchased from James E. Fickenscher, Chief Financial Officer, Jyrki Mattila, M.D., Ph.D., an Executive Vice President of the Company and various other employees, respectively, pursuant to the Company’s 2004 Equity Compensation Plan to satisfy such individuals’ tax liability with respect to the vesting of restricted stock issued in accordance with Rule 16 b-3 of the Securities Exchange Act of 1934.

Unregistered Sale of Equity Securities

None.

Use of Proceeds

None.

Item 4.

Submission of Matters to a Vote of Security Holders.

Our 2008 Annual Meeting of Stockholders (the Annual Meeting) was held on June 12, 2008 in accordance with the Notice of Annual Meeting of Stockholders sent on or about April 29, 2008 to all stockholders of record at the close of business on April 16, 2008. The tables below present the voting results of the matters voted upon by our stockholders at the Annual Meeting:

Proposal 1: To elect nine directors to serve until the Company’s 2009 Annual Meeting of Stockholders or until their respective successors have been duly elected and qualified.

At the Annual Meeting, each of the nominees listed below was elected to our Board of Directors to serve as director until the Company’s 2009 Annual Meeting and received the votes set forth after their respective names below.


Name of Nominee	For	Withheld
Al Altomari	29,037,789	5,900,178
Armando Anido	29,045,402	5,892,565
Rolf A. Classon	28,886,695	6,051,272
Edwin A. Bescherer, Jr.	29,045,102	5,892,865
Philippe O. Chambon, M.D., Ph.D.	29,037,819	5,900,148
Oliver S. Fetzer, Ph.D.	29,045,402	5,892,565
Renato Fuchs, Ph.D.	29,100,596	5,837,371
Dennis Langer, M.D., J.D.	28,951,629	5,986,338
Dennis J. Purcell	22,028,595	12,909,372

Proposal 2: To ratify the selection by the Audit and Compliance Committee of the Company’s Board of Directors of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008.

At the Annual Meeting, our stockholders ratified by the vote set forth below the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008.


For	Against	Abstain	Broker Non-Votes
34,934,913	2,475	579	0

Item 6.

Exhibits.


Exhibit No.		Description of Exhibit
10.1 ^*		Supply Agreement, dated June 26, 2008, between the Registrant and Hollister-Stier Laboratories LLC.

31.1		Certification of Armando Anido, the Registrant’s Principal Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a).

31.2		Certification of James E. Fickenscher, the Registrant’s Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a).

32		Certification of Armando Anido, the Registrant’s Principal Executive Officer, and James E. Fickenscher, the Registrant’s Principal Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

^*	Certain information in this exhibit has been omitted and has been filed separately with the Securities and Exchange Commission pursuant to an application for confidential treatment.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


				AUXILIUM PHARMACEUTICALS, INC.

Date: August 8, 2008				/s/ Armando Anido
				Armando Anido
				Chief Executive Officer and President
				(Principal Executive Officer)

Date: August 8, 2008				/s/ James E. Fickenscher
				James E. Fickenscher
				Chief Financial Officer
				(Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit No.		Description
10.1 ^*		Supply Agreement, dated June 26, 2008, between the Registrant and Hollister-Stier Laboratories LLC.

31.1		Certification of Armando Anido, the Registrant’s Principal Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a).

31.2		Certification of James E. Fickenscher, the Registrant’s Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a).

32		Certification of Armando Anido, the Registrant’s Principal Executive Officer, and James E. Fickenscher, the Registrant’s Principal Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

^*	Certain information in this exhibit has been omitted and has been filed separately with the Securities and Exchange Commission pursuant to an application for confidential treatment.

Exhibit 10.1

SUPPLY AGREEMENT

This Agreement is made and entered into as of the last day signed below (the “Effective Date”) by and between Hollister-Stier Laboratories LLC, having a principal place of business at 3525 North Regal Street, Spokane, Washington, 99207-5788 (“Hollister-Stier”) and Auxilium Pharmaceuticals, Inc., having a principal place of business at 40 Valley Stream Parkway, Malvern, Pennsylvania 19355 (“Auxilium”). Both Hollister-Stier and Auxilium are referred to herein individually as “Party” and collectively as the “Parties.”

WITNESSETH THAT:

WHEREAS, Auxilium has a commercial interest in the manufacture of the Product (as hereafter defined) and requests the services of Hollister-Stier in the manufacturing of the Product pursuant with the terms and conditions contained herein, and Hollister-Stier desires to manufacture the Product on behalf of Auxilium pursuant to the terms and conditions contained herein;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

1.	Certain terms are defined in the text of this Agreement. In addition, as used in this Agreement, the following definitions shall apply:

1.1.

“Act” shall mean the U.S. Food, Drug and Cosmetics Act of 1934 (21 U.S. C. § 301 et seq.) and the regulations promulgated thereunder, as the same may be amended from time to time, as well as all similar applicable laws, orders and regulations of members of the European Union.

1.2.

“Active Pharmaceutical Ingredient” or “API” shall mean the active pharmaceutical ingredient of the Product, specifically clostridial collagenase.

1.3.

“Affiliate” shall mean any individual, firm, corporation or other legal entity that directly or indirectly controls, is controlled by, or is under common control with, a Party. As used in the preceding sentence, “control” means possession, whether direct or indirect, of the power to direct or cause the direction of the management and policies of such entity, whether pursuant to the ownership of voting securities, by contract or otherwise.

1.4.

“Auxilium’s Technology Package” shall mean the technical information supplied by Auxilium to Hollister-Stier to enable Hollister-Stier to carry out its obligations hereunder. Items which may be included in Auxilium’s Technology Package include, but are not limited to, the Specifications, raw material and manufacturing component specifications, intermediate Product specifications, analytical and microbiological method validation reports, analytical method transfer protocols, filter validation reports, and storage specifications.

1.5.

“Batch” or “Lot” shall mean each separate and distinct quantity of Product processed under continuous conditions and designated by Hollister-Stier with a batch or lot number.

1.6.

“cGMP Regulations” means the applicable current Good Manufacturing Practices as promulgated by the FDA from time to time under the Act, as presently codified in 21 CFR Parts 210 and 211, as well as members of the European Union.

1.7.

“Certificate of Analysis” or “COA” shall mean a document executed by Hollister-Stier to certify that a Batch or Lot of Product meets the Specifications as agreed to by Hollister-Stier and Auxilium.

1.8.

“Confidential Information” shall mean any nonpublic information of Hollister-Stier or Auxilium including without limitation, trade secrets, business methods, operating procedures, manufacturing methods and processes, prices, and customer information, whether of a written, oral, or visual nature.

1.9.

“Delivery Date” shall mean the date of delivery set forth in Auxilium’s purchase order and shall be the date by which each Batch of Product shall be delivered to Auxilium, accompanied by a Certificate of Analysis signed by a duly authorized representative of Hollister-Stier.

1.10.

“FDA” shall mean the United States Food and Drug Administration.

1.11.

“Fill Date” shall mean the date the Product is scheduled to be filled at Hollister-Stier.

1.12.

“Intellectual Property” shall mean patents, copyrights, trademarks, trade names, service marks, licenses and other intellectual property rights of a Party.

1.13.

“Manufacturing Date” shall mean the same thing as Fill Date—the date the Product is scheduled to be filled at Hollister-Stier.

1.14.

“Master Batch Record” shall mean a written description of the procedure to be followed by Hollister-Stier in processing of a Batch or Lot of Product, which description shall include, but not be limited to, a complete list of all active and inactive ingredients, components, weights and measures used in processing the Product within the meaning of 21 CFR part 211.186, or its successor as in effect from time to time.

1.15.

“Product” shall mean Auxilium’s pharmaceutical product Xiaflex™ (clostridial collagenase for injection) in a 3ml vial, currently in development, formerly referred to as AA4500, and a sterile diluent.

1.16.

“Quality Technical Agreement” or “QTA” shall mean an agreement in the form attached as Exhibit A , to be executed by the Parties simultaneously with the execution of this Agreement. The terms and conditions of the QTA are incorporated in this Agreement as if set forth herein at length.

1.17.

“Regulatory Authority” shall mean any federal, state, local, or international regulatory agency, department, bureau, or other governmental agency.

1.18.

“Third Party” shall mean any party other than Auxilium or Hollister-Stier and their respective Affiliates.

1.19.

“Specifications” shall mean the specifications for the Product established by Auxilium and agreed to by Hollister-Stier and attached hereto as Exhibit B.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

2.	The Parties agree to the following representations and warranties:

2.1

Each Party represents and warrants to the other as follows:

2.1.1.

It has full power and authority to enter into this Agreement and perform its obligations hereunder.

2.1.2.

Subject to Section 3.2 of this Agreement, it has such permits, licenses, and authorizations of Regulatory Authorities, including, with respect to Auxilium, Regulatory Authorities with jurisdiction over the Product, as are necessary to own its respective properties, conduct its business and perform its obligations hereunder.

2.1.3.

It is not currently debarred, suspended, or otherwise excluded by the FDA or any other Regulatory Authority from conducting business and shall not knowingly use in connection with this Agreement the services of any person debarred by the FDA.

2.2.

Hollister-Stier represents and warrants to Auxilium as follows:

2.2.1

Hollister-Stier shall process the Product in compliance in all material respects with the Specifications, Quality Technical Agreement, the Master Batch Record, the Act and the cGMP Regulations.

2.2.2

The Product when delivered shall comply in all respects with the Specifications and release testing; provided, however, that Hollister-Stier shall have no liability to Auxilium or any Third Party for any breach of the foregoing representation and warranty to the extent that any such breach is caused in whole or in part by Auxilium or by any materials provided by Auxilium.

2.2.3

The manufacturing facilities for the Product shall conform in all respects to the standards of those Regulatory Authorities with jurisdiction over such facilities, including, but not limited to, those set forth in the cGMP Regulations.

2.3

Auxilium represents and warrants to Hollister-Stier as follows:

2.3.1

Neither Auxilium’s Technology Package, nor the use thereof by Hollister-Stier, shall infringe, violate nor misappropriate the rights of any Third Party.

2.3.2

Auxilium has all necessary rights to enable Hollister-Stier to process the Product for Auxilium in accordance with the terms and conditions of this Agreement.

2.3.3

All laboratory, scientific, technical and/or other data submitted by or on behalf of Auxilium (including Auxilium’s Technology Package) relating to the Product shall be complete and correct and shall not contain any falsification, misrepresentation or omission.

2.3.4

All materials supplied by or on behalf of Auxilium for use in processing the Product shall conform to the Specifications.

2.4 THE WARRANTIES SET FORTH IN THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO THOSE SET FORTH IN SECTION 3.3 AND 4.2, ARE THE SOLE AND EXCLUSIVE WARRANTIES MADE BY EITHER PARTY UNDER THIS AGREEMENT, AND NEITHER PARTY MAKES ANY OTHER WARRANTIES EXPRESS OR IMPLIED OR ARISING BY LAW, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR ARISING FROM THE COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE.

2.5 EXCEPT AS NECESSARY TO SATISFY A THIRD PARTY CLAIM INDEMNIFIED UNDER ARTICLE 6 OF THIS AGREEMENT, AUXILIUM’S SOLE AND EXCLUSIVE REMEDY, AND HOLLISTER-STIER’S SOLE AND EXCLUSIVE LIABILITY AND OBLIGATION FOR ANY BREACH OF A REPRESENTATION AND WARRANTY SET FORTH IN SECTION 2.2 SHALL BE FOR HOLLISTER-STIER TO PERFORM ITS OBLIGATIONS UNDER SECTIONS 4.1 AND 4.2 OR UNDER SECTION 4.4, AS THE CASE MAY BE.

2.6 EXCEPT AS NECESSARY TO SATISFY A THIRD PARTY CLAIM INDEMNIFIED UNDER ARTICLE 6 OF THIS AGREEMENT, SECTION 3.3 AND SECTION 4.2 AND/OR IN THE EVENT OF A BREACH OF THE CONFIDENTIALITY OBLIGATIONS SET FORTH IN ARTICLE 9 OF THIS AGREEMENT, UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER UNDER ANY CONTRACT, TORT, STRICT LIABILITY, NEGLIGENCE OR OTHER LEGAL OR EQUITABLE THEORY, FOR THE COST OF COVER OR FOR ANY INDIRECT, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE PRODUCT OR ANY SERVICES PROVIDED IN CONNECTION WITH THE PRODUCT, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

2.7 EXCEPT AS NECESSARY TO SATISFY A THIRD PARTY CLAIM INDEMNIFIED UNDER ARTICLE 6 OF THIS AGREEMENT, SECTION 3.3, SECTION 4.2 AND/OR IN THE EVENT OF A BREACH OF ITS CONFIDENTIALITY OBLIGATIONS SET FORTH IN ARTICLE 9 OF THIS AGREEMENT, UNDER NO CIRCUMSTANCES SHALL HOLLISTER-STIER’S TOTAL LIABILITY TO AUXILIUM IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE PRODUCT OR ANY SERVICES PROVIDED IN CONNECTION WITH THE PRODUCT, EXCEED THE TOTAL AMOUNT PAID BY AUXILIUM TO HOLLISTER-STIER UNDER THIS AGREEMENT.

ARTICLE 3

SUPPLY AND PROCESSING OF PRODUCT; FORECASTS,

PURCHASE ORDERS AND PAYMENT

3.	The Parties agree to the following supply and processing provisions:

3.1.

Subject to the terms and conditions of this Agreement, and upon completion of the process development program, Hollister-Stier shall use commercially reasonable efforts to produce and supply to Auxilium, and Auxilium shall purchase from Hollister-Stier Product in accordance with Section 3.10 below.

3.2.

Except as set forth in the following sentence, Auxilium shall be solely responsible for obtaining and maintaining all permits, licenses, and authorizations necessary for Hollister-Stier to ship Product. Hollister-Stier shall be solely responsible for securing and maintaining approval of Hollister-Stier’s facility as a registered FDA facility, and Hollister-Stier shall be solely responsible for securing and maintaining any and all permits and approvals required by the state of Washington, as well as members of the European Union.

3.3.

API:

3.3.1.

Auxilium will supply, at its expense, sufficient quantities of API to Hollister-Stier’s facility prior to the Delivery Date set forth in any purchase order to enable Hollister-Stier to meet its obligations hereunder. All such API shall conform to the Specifications agreed to by Hollister-Stier and Auxilium. Title to API shall remain at all times with Auxilium. Except as expressly provided otherwise in Sections 3.3.2 through 3.3.5, risk of loss of the API shall remain at all times with Auxilium.

3.3.2.

Prior to Processing. If API is lost or damaged prior to processing as a result of Hollister-Stier’s negligent acts or omissions, [**]. For example, if Auxilium has provided Hollister-Stier with sufficient API to process [**] Batches, and such API is lost or damaged prior to processing as a result of Hollister-Stier’s negligent acts or omissions, [**].

3.3.3.

In Processing. If API is lost or damaged in processing as a result of Hollister-Stier’s negligent acts or omissions, Hollister-Stier will process a replacement Batch (or Batches if applicable) at no additional cost to Auxilium for that number of Batches for which API was lost or damaged as its sole liability and Auxilium’s sole remedy (except that Auxilium shall provide replacement API at Auxilium’s expense).

3.3.4.

Gross Negligence. In the event any loss or damage of API is caused by the gross negligence or willful misconduct of Hollister-Stier, as Hollister-Stier’s sole liability and Auxilium’s sole remedy with respect to such gross negligence or willful misconduct Hollister-Stier, at Auxilium’s option, shall (i) [**], or (ii) [**].

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

3.3.5.

Notwithstanding Sections 3.3.2 through 3.3.4, Hollister-Stier shall have no obligations under such sections if and to the extent Hollister-Stier assigns to Auxilium any insurance proceeds it receives that are intended to compensate for lost or damaged API.

3.4.

In accordance with the QTA, Auxilium shall be responsible for release of Product for sale or distribution.

3.5.

In accordance with the QTA, Auxilium, with Hollister-Stier’s involvement, shall be responsible for any stability testing program for the Product required by the Act and the cGMP Regulations.

3.6.

In accordance with the QTA, Hollister-Stier shall be responsible for maintaining any retention samples of the Product (including vials, stoppers, etc.) required by the Act and the cGMP Regulations.

3.7.

In accordance with the QTA, Auxilium shall have the right, upon reasonable advance notice to Hollister-Stier, to conduct an annual audit to observe and inspect Hollister-Stier’s facilities and procedures for processing Product. Such annual inspections will be made by no more than four (4) Auxilium representatives, who, if they are not Auxilium employees subject to the existing confidentiality obligations, shall execute confidentiality agreements as requested by Hollister-Stier. Each annual inspection shall last no more than two (2) business days. During such inspection, Auxilium’s representatives shall (a) be accompanied by a representative of Hollister-Stier, (b) follow such security and facility access procedures as are reasonably requested by Hollister-Stier, and (c) use good faith efforts to avoid disrupting Hollister-Stier’s operations.

3.8.

Regulatory Support: Auxilium plans to file with the FDA a Biologics License Application (“BLA”) for the Product in early 2009 or as soon as possible thereafter, and applications for marketing approvals in other countries as well. Hollister-Stier agrees to provide assistance and cooperation to Auxilium for its regulatory filings related to the Product. Specifically, Hollister-Stier shall use commercially reasonable efforts to assist Auxilium in completing, submitting and supplementing applications for marketing approval by promptly providing required information related to the manufacturing process and the facilities used at Hollister-Stier for the manufacture of Product and responding to inquiries from regulatory authorities regarding the manufacture of the Product at Hollister-Stier. Any additional regulatory effort on the part of Hollister-Stier beyond commercially reasonable efforts shall be priced accordingly at the time of Auxilium’s request.

3.9.

Unless specifically requested otherwise by Auxilium in writing, Hollister-Stier will be responsible for purchase or manufacture of reasonable quantities of components and raw materials (other than API, which will be supplied by Auxilium in accordance with Section 3.3), based on the estimates set forth in the Forecast (as defined below). If the quantity of Product set forth in any purchase order deviates from the estimate set forth in the immediately preceding Forecast, and Hollister-Stier’s reliance thereon causes obsolescence of any such components or raw materials, Auxilium shall reimburse Hollister-Stier for its out-of-pocket costs incurred in association therewith (including, but not limited to, any out-of-pocket costs related to returning such component or raw materials to the vendor or otherwise disposing thereof).

3.10.

Forecasts, Purchase Orders, Price, Terms of Payment:

3.10.1.

Forecasts: At least 90 days in advance of Auxilium’s first purchase order for Product, Auxilium shall supply Hollister-Stier with a written, rolling eighteen (18) month forecast of Auxilium’s estimated requirements for Product from Hollister-Stier during such 18 month period (the “Initial Forecast”). Every 90 days thereafter, Auxilium will update and extend the forecast to cover the 18 months beginning with the date of such updated forecast (the “Forecast”). Each Forecast shall include an estimated number of Batches and requested delivery dates for the 18 months covered by such Forecast. Auxilium shall be responsible for aggregate amounts of components and raw materials purchased by Hollister-Stier for the first 12 months in each Forecast pursuant to Section 8.5.1 below. Amounts set forth for months 13 through 18 in each Forecast are estimates, to be used for planning purposes only, and components and raw materials purchased by Hollister-Stier for months 13 through 18 in each Forecast shall not be binding on Auxilium.

3.10.2.

Purchase Orders: Auxilium will provide Hollister-Stier with a firm purchase order at least ninety (90) days prior to the Fill Date specified in such purchase order. All purchase orders will be sent by facsimile or electronic mail to the address specified by Hollister-Stier.


3.10.2.1.	Each purchase order and any acknowledgment thereof shall be governed by the terms of this Agreement. In the event a Party uses forms or documents to place or accept purchase orders that contain terms and conditions that are in addition to or contrary to those in this Agreement, the Parties agree and acknowledge that such forms or documents will be used for convenience only, and that no terms or conditions set forth therein, except with respect to quantity, shall be of any force or effect. Hollister-Stier shall be deemed to have accepted a purchase order unless it objects within ten business days after receiving a purchase order. If Hollister-Stier’s objection is based on its belief that it cannot accommodate the amount or Delivery Date requested in the purchase order (an Inability to Supply), then Sections 3.10.3 and 8.4 shall apply. Once a purchase order is accepted or deemed accepted by Hollister-Stier, Hollister-Stier will be required to use commercially reasonable efforts to produce the quantity of Product set forth in the purchase order for delivery on the Delivery Date(s) set forth in such purchase order. Within twenty business days after receiving each purchase order, Hollister-Stier shall provide Auxilium with a Fill Date in writing.

3.10.2.2.	Auxilium reserves the right to cancel or postpone any purchase order after acceptance by Hollister-Stier under the following terms:

	3.10.2.2.1.1.	Should Auxilium cancel or postpone any purchase order within fourteen (14) calendar days prior to the scheduled Fill Date, Auxilium shall pay Hollister-Stier a fee equivalent to [**] price for the postponed or cancelled purchase order.

	3.10.2.2.1.2.	Should Auxilium cancel a firm batch 15 – 90 calendar days before the scheduled Fill Date, Hollister-Stier will impose a cancellation fee equivalent to [**].

	3.10.2.2.1.3.	Should Auxilium cancel a firm batch greater than 90 calendar days before the scheduled Fill Date, Hollister-Stier will impose no cancellation fee.

	3.10.2.2.1.4.	Should Auxilium request postponement of a purchase order 15 to 90 calendar days before the scheduled Manufacturing Date, [**].

3.10.3.

Inability to Supply. If Hollister-Stier is unable to supply the full amount of Product in a Forecast or an accepted purchase order in the time agreed (hereinafter an “Inability to Supply”), Hollister-Stier shall notify Auxilium within 5 business days and Hollister-Stier shall endeavor to remedy the Inability to Supply as quickly as possible.


		3.10.3.1.		While an Inability to Supply persists, Auxilium may purchase Product from other sources, and Auxilium shall be relieved of its firm 12 month supply requirement obligation (Section 3.10.1 above).

		3.10.3.2.		In the event the Inability to Supply continues for more than ninety (90) days after the Delivery Date in the purchase order, Auxilium may purchase Product from other sources, Auxilium shall be relieved of its firm 12 month supply requirement obligation (Section 3.10.1 above), and Auxilium may, at its option, terminate this Agreement in accordance with Section 8.4.

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

3.10.4.

Price and Shipping: Auxilium shall pay Hollister-Stier, in U.S. dollars, the price specified in Exhibit C annexed hereto. The price excludes all taxes, duties, shipping, insurance and other expenses. Beginning on October 1, 2009, and on October 1 of each succeeding year during the term of this Agreement, the then current price shall be increased by the annual percentage increase, if any, for the most recent twelve (12) month period for which figures are available in the “Producer Price Index—Pharmaceutical Preparations” (code PCU2834) (the “ PPI ”) published by the U.S. Bureau of Labor Statistics (the “ BLS ”) or, if the same is no longer published, the successor index published by the BLS that is most similar thereto. If the PPI is discontinued and not replaced with a corresponding or similar index, then the Parties shall, in good faith, agree upon a replacement PPI. Price increases shall be effective for all new purchase orders placed after the applicable anniversary. Product shall be delivered FOB Hollister-Stier’s facility, Spokane, Washington, either freight collect or freight prepaid, and Hollister-Stier will ship Product to the destination, and via the carrier, that Auxilium specifies in the purchase order. Risk of loss shall pass to Auxilium when the Product is tendered to the carrier for shipment. Shipment and insurance of Product shall be arranged by Auxilium and the price and liability of such shipment shall be borne by Auxilium.

3.10.5.

Auxilium agrees to provide Hollister-Stier with not less than [**] ([**]%) of the total forecasted volume for Product, as long as Hollister-Stier has not entered into a situation where it is unable to supply Product to Auxilium per sections 3.10.3 and 8.4.

3.10.6.

Terms of Payment: Invoices shall be payable to Hollister-Stier within thirty (30) calendar days after Auxilium’s acceptance or deemed acceptance of Product as set forth in Article 4. All amounts not paid when due shall bear interest from the due date at the rate of one and one-half percent (1.5%) per month.

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

ARTICLE 4

INSPECTION AND REJECTION OF PRODUCT; QUALITY CONTROL

4.	Subject to the terms of the QTA, the Parties agree to the following provisions for acceptance or rejection of Product and certain matters relating to quality control:

4.1.

Each Batch of Product delivered to Auxilium hereunder shall be accompanied by a Certificate of Analysis signed by a duly authorized representative of Hollister-Stier. Auxilium shall have 30 days from the date of receipt of Product and Certificate of Analysis to inspect and reject acceptance by written notice to Hollister-Stier; provided, however, that any such notice shall set forth Auxilium’s reasons for rejection in reasonable detail and provided, further, that Auxilium may reject Product only if: (i) Auxilium claims a material breach of Hollister-Stier’s representations and warranties in Section 2.2 of this Agreement with respect to such Product; or (ii) Hollister-Stier has failed to deliver a Certificate of Analysis for such Product or (iii) if Auxilium determines that the Product does not meet the Specifications, despite an accompanying Certificate of Analysis. If Hollister-Stier does not receive Auxilium’s written notice of rejection within such 30 day period, Auxilium shall be deemed to have accepted Product.

4.2.

In the event Auxilium provides Hollister-Stier with a timely notice of rejection as set forth in Section 4.1, Auxilium shall return the rejected Product to Hollister-Stier at Hollister-Stier’s expense. Hollister-Stier shall have 30 days following receipt of rejected Product in which to test such Product. If Hollister-Stier does not dispute a rejection, Hollister-Stier shall [**] and [**] shall constitute Auxilium’s exclusive remedy and Hollister-Stier’s sole liability with respect to such rejection (unless Sections 3.3.2 through 3.3.5 apply, in which case, Auxilium shall have the remedy set forth therein). If Hollister-Stier disputes a rejection, Hollister-Stier shall provide Auxilium with written notice of such dispute within 10 business days after receiving the returned Product, and the Parties shall use commercially reasonable efforts to resolve the dispute amicably and promptly. If the Parties are unable to reach a resolution within 30 days after Auxilium’s notice of rejection, the returned Product shall be submitted to any independent laboratory or consultant mutually acceptable to the Parties, whose decision as to the conformity of such Product with the Specifications shall be final and binding for the purpose of determining (1) which party shall pay the laboratory or consultant, and (2) whether or not Hollister-Stier shall replace the rejected Product. (The decision of the laboratory or consultant shall not supersede Auxilium’s authority to release the Product.) The Party against whom the dispute is decided shall pay any charges for such laboratory or consultant. If the laboratory or consultant determines that the returned Product did not conform to the Specifications, Hollister-Stier shall replace the rejected Product at no charge to Auxilium (except that Auxilium shall provide replacement API at Auxilium’s expense), and such replacement shall constitute Auxilium’s exclusive remedy and Hollister-Stier’s sole liability with respect to such rejected Product (unless Sections 3.3.2 through 3.3.5 apply, in which case, Auxilium shall have the remedy set forth therein).

4.3.

In addition to any safety requirements set forth in the QTA or the Master Batch Record, Hollister-Stier shall develop, adopt and enforce safety procedures for processing Product in compliance in all material respects with the Act and the cGMP Regulations. Hollister-Stier shall be responsible for treating and/or disposing, in compliance with the Act and the cGMP Regulations in all material respects, all waste generated as a result of such processing, and for maintaining required records related thereto.

4.4.

In the event (a) any Regulatory Authority issues a request, directive or order that any of the Product be recalled, withdrawn, or corrected, (b) a court of competent jurisdiction orders such an action, or (c) either Party reasonably determines that any Product should be recalled, withdrawn or corrected, the Parties shall take all appropriate corrective actions as they reasonably mutually determine, and shall cooperate in any governmental investigations relating to the Product. As between Hollister-Stier and Auxilium, Auxilium shall be solely responsible for initiating, conducting, and managing any recall, withdrawal or correction effort. Auxilium shall be solely responsible for all related expenses, except that Hollister-Stier shall be liable for such expenses to the extent that the recall, withdrawal or correction resulted from a breach by Hollister-Stier of any of its representation and warranties set forth in Section 2.2 of this Agreement.

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

4.5.

Auxilium shall provide to Hollister-Stier copies of all material regulatory submissions that relate to Hollister-Stier’s services under this Agreement, which copies shall be provided reasonably in advance of submission. Hollister-Stier shall consult with Auxilium in responding to questions from the Regulatory Authorities regarding processing of the Product. Each Party shall notify the other promptly after receipt of any notice of any Regulatory Authority inspection, investigation or other inquiry involving the Product. The Parties shall cooperate with each other during any such inspection, investigation or other inquiry including, but not limited to, allowing, upon reasonable request, a representative of the other to participate during such inspection, investigation or other inquiry, and providing copies of all relevant documents.

4.6.

The Parties agree to the following provisions regarding adverse events and complaints:

4.6.1.

Auxilium shall be responsible to (a) report adverse events involving the Product to the FDA and other Regulatory Authorities, and (b) respond to quality complaints and medical and technical inquiries, respecting the Product. Note that depending on the nature of the complaint, Hollister-Stier may need to assist in the complaint investigation.

4.6.2.

In the event Hollister-Stier (a) receives information regarding any adverse event relating to the Product, (b) receives any complaints relating to the Product, (c) receives any medical or technical inquiry relating to the Product, or (d) discovers or is notified of any material defect in the Product, it shall (i) promptly notify Auxilium and (ii) conduct an investigation in accordance with its normal procedures for complaints, inquiries or discoveries of that nature and promptly report the results of such investigation to Auxilium. The Parties shall reasonably cooperate with and assist each other, at Auxilium’s cost, in connection with any such matter.

ARTICLE 5

INTELLECTUAL PROPERTY RIGHTS

5.	The Parties agree to the following provisions regarding Intellectual Property:

5.1.

License Grant: Auxilium hereby grants Hollister-Stier a nonexclusive, worldwide, royalty-free license during the term of this Agreement to use Auxilium’s Technology Package and Auxilium’s Intellectual Property rights solely in the performance of Hollister-Stier’s obligations under this Agreement.

5.2.

Limitation of Use: Except as expressly stated in this Agreement, no Intellectual Property rights of any kind or nature are conveyed by this Agreement and except as set forth in Section 5.1, neither Party shall have any right, title or interest in or to the other Party’s Intellectual Property rights for any purpose whatsoever without such other Party’s prior written consent. Upon termination of this Agreement for whatever reason, neither party shall use or exploit in any manner whatsoever any Intellectual Property rights of the other Party.

5.3.

During the initial term and any renewal terms and for five (5) years thereafter, neither Hollister-Stier nor any of its Affiliates shall directly or indirectly develop or manufacture any competing product which for the purposes of this Agreement shall mean any product containing collagenase for injection which would compete with the indications of the Product.

ARTICLE 6

INDEMNIFICATION FOR THIRD PARTY CLAIMS

6.	The Parties agree to the following clauses regarding indemnification for Third Party claims:

6.1.

Indemnification by Auxilium: Auxilium shall indemnify, defend and hold Hollister-Stier, its Affiliates and their respective directors, officers, employees, agents, successors and assigns harmless from and against any damages, losses, judgments, claims, suits, actions, liabilities, costs and expenses (including,

but not limited to, reasonable attorneys’ fees) (collectively, “Liabilities”) resulting from any Third Party claims or suits arising out of (1) the ownership, use, handling, distribution, marketing or sale of the Product, (2) Auxilium’s breach of any of its warranties or representations, or failure to perform any of its obligations, hereunder, or (3) Auxilium’s negligent acts or omissions or willful misconduct.

6.2.

Indemnification by Hollister-Stier: Hollister-Stier shall indemnify, defend and hold Auxilium, its Affiliates and their respective directors, officers, employees, agents, successors and assigns harmless from and against any Liabilities resulting from any Third Party claims arising out of (1) Hollister-Stier’s services in manufacturing, processing or assembling the Product,(2) Hollister-Stier’s breach of any of its warranties or representations, or failure to perform any of its obligations, hereunder or (3) Hollister-Stier’s negligent acts or omissions or willful misconduct.

6.3.

Indemnification Procedures:

6.3.1.

Any Party hereto seeking indemnification hereunder (in this context the “Indemnified Party”) shall notify the other Party (in this context the “Indemnifying Party”) in writing reasonably promptly after the assertion against the Indemnified Party any claim by a Third Party (a “Third Party Claim”) in respect of which the Indemnified Party intends to base a claim for indemnification hereunder.

6.3.2.

(1) The Indemnifying Party shall have the right, upon written notice given to the Indemnified Party within thirty (30) calendar days after receipt of the notice from the Indemnified Party of any Third Party Claim, to assume the defense and handling of such Third Party Claim, at the Indemnifying Party’s sole expense, in which case the provisions of Section 6.3.2(2) below shall govern.

(2) The Indemnifying Party shall select counsel reasonably acceptable to the Indemnified Party in connection with conducting the defense and handling of such Third Party Claim, and the Indemnifying Party shall defend or handle the same in consultation with the Indemnified Party, and shall keep the Indemnified Party apprised of the status of the Third Party Claim. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party, which consent will not be unreasonably withheld, agree to a settlement of any Third Party Claim that could directly or indirectly lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder. The Indemnified Party shall cooperate with the Indemnifying Party and shall be entitled to participate in the defense or handling of such Third Party Claim with its own counsel at its own expense.

6.3.3.

(1) If the Indemnifying Party does not give written notice to the Indemnified Party, within thirty (30) calendar days after receipt of the notice from the Indemnified Party of any Third Party Claim, of the Indemnifying Party’s election to assume the defense or handling of such Third Party Claim, the provisions of Section 6.3.3(2) below shall govern.

(2) The Indemnified Party may, at the Indemnifying Party’s expense, select counsel in connection with conducting the defense or handling of such Third Party Claim and defend or handle such Third Party Claim in such manner as it may deem appropriate, provided, however, that the Indemnified Party shall keep the Indemnifying Party timely appraised of the status of such Third Party Claim and shall not settle such Third Party Claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. If the Indemnified Party defends or handles such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party and shall be entitled to participate in the defense or handling of such Third Party Claim with its own counsel and at its own expense.

6.3.4.

The indemnification remedies in this Article 6 shall constitute the sole and exclusive remedies of the Parties with respect to any Third Party Claims arising under or relating to this Agreement.

6.4.

Limitation of Liability: Notwithstanding any other provisions of this Agreement, Hollister-Stier’s aggregate indemnification liability to Auxilium and its Affiliates for Third Party Claims pursuant to this Article 6 shall not exceed [**] United States Dollars (US $[**]).

ARTICLE 7

INSURANCE

Each of Auxilium and Hollister-Stier shall obtain and maintain, either itself or through one or more of its Affiliates, with reputable carriers, product liability insurance with limits of not less than Ten Million United States Dollars (US $10,000,000) per claim/annual aggregate by no later than the scheduled delivery date for the first Batch of Product delivered under this Agreement. Upon request, each Party shall furnish the other Party with a certificate that such insurance is in force. In the event of any proposed cancellation, non-renewal, or material adverse change in such coverage, the other Party hereto shall be given at least thirty (30) calendar day’s advance written notice thereof.

ARTICLE 8

TERM AND TERMINATION

8.	The Parties agree to the following clauses regarding the term and termination of this Agreement:

8.1.

Term: This Agreement shall remain in full force and effect for an initial term of three (3) years following the Effective Date, unless terminated earlier in accordance with 8.2, 8.3 or 8.4. After the initial three (3) year term, this Agreement shall automatically renew for subsequent two (2) year terms, unless or until either party notifies the other at least 180 days before the expiration of the current term that it does not wish to renew.

8.2.

Termination for Default: This Agreement may be terminated by either Party in the event of material breach or default by the other Party of the terms and conditions hereof; provided, however, the other Party shall first give to the defaulting Party written notice of the proposed termination or cancellation of this Agreement, specifying the grounds therefor. Upon receipt of such notice, with respect to such defaults as are capable of being cured, the defaulting Party shall have thirty (30) calendar days to respond by curing such default. If the breaching Party does not respond or fails to work diligently and to cure such breach within such thirty (30) day period, then the other Party may terminate this Agreement.

8.3.

Bankruptcy or Insolvency:

8.3.1.

Either Party may terminate this Agreement upon the occurrence of any of the following with respect to the other Party:


		8.3.1.1.		The filing of an involuntary petition under the U.S. Bankruptcy Code, or any other similar law, which is not dismissed within sixty (60) days after the filing date;

		8.3.1.2.		The filing of a voluntary petition by such other Party for relief under the U.S. Bankruptcy Code or other similar law; or

		8.3.1.3.		The failure of such other Party to pay its debts when they become due.

8.4

Inability to Supply. Auxilium may, at its option, terminate this Agreement effective immediately upon written notice to Hollister-Stier, if an Inability to Supply continues for more than ninety (90) days after the Delivery Date in a purchase order.

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

8.5

Rights and Duties Upon Termination:

8.5.1

Termination of this Agreement for whatever reason, shall not affect the surviving obligations of either Party, including payment of obligations which have accrued prior to such termination. Upon termination of this Agreement, other than due to an uncured breach of this Agreement by Hollister-Stier, Auxilium shall purchase from Hollister-Stier, at the out-of-pocket cost to Hollister-Stier, any components and raw materials purchased for the Product which Hollister-Stier has purchased based upon the first 12 months in the current Forecast. Hollister-Stier shall ship such components and raw materials to Auxilium at Auxilium’s expense and in accordance with Auxilium’s instructions promptly after receiving such payment. Articles 1 and 2, Sections 3.9.3, 5.3 and 8.5, and Articles 6, 9, 10, 11 and 12, and all other provisions that may reasonably be construed as surviving the termination of this Agreement shall survive the termination.

ARTICLE 9

CONFIDENTIALITY

9.	In carrying out their respective obligations under this Agreement, it is recognized by Hollister-Stier and Auxilium that each may disclose to the other Confidential Information of the disclosing Party, and they hereby agree as follows with respect to any such disclosure:

9.1.

Form of Disclosure: Confidential Information may be disclosed in oral, written or electronic form.

9.2.

Obligations: The receiving Party shall hold Confidential Information in confidence and use it only for the purpose of performing its obligations under this Agreement. Except as provided below, the receiving Party shall not disclose, disseminate or distribute any such Confidential Information to any Third Party unless prior written authorization has been obtained from the disclosing Party. These obligations shall not apply to:

9.2.1.

Information which, at the time of disclosure, is generally known to the public;

9.2.2.

Information which, after disclosure, becomes generally known to the public by publication or otherwise, except by breach of this Agreement by the receiving Party;

9.2.3.

Information which the receiving Party can demonstrate by its written records was in the receiving Party’s possession at the time of the disclosure, and which was not acquired directly or indirectly, from the disclosing Party under an obligation of confidentiality;

9.2.4.

Information which is lawfully disclosed to the receiving Party on a non-confidential basis by a Third Party who is not obligated to the disclosing Party or any other Third Party to retain such information in confidence;

9.2.5.

Information which results from independent research and development by the receiving Party, as shown by competent evidence; or

9.2.6.

Information which is required to be disclosed by legal process; provided that the Party so disclosing such Confidential Information timely informs the other Party and uses commercially reasonable efforts to limit the disclosure, maintain its confidentiality to the extent possible, and permit the other Party to attempt by appropriate legal means to limit such disclosure. The parties acknowledge that the financial terms of this Agreement and the product specifications are confidential information and they will seek confidential treatment of such information in the event this Agreement must be filed with the SEC or any other securities regulatory authority.

9.3.

Each Party covenants and agrees that it has and shall use commercially reasonable efforts to prevent the unauthorized use, disclosure, copying, dissemination or distribution of Confidential Information. Without limiting the foregoing, the receiving Party shall make Confidential Information of the other Party available only to those of its employees, agents and other representatives who have a need to know the same for the purpose carrying out this Agreement, who have been informed that the Confidential Information belongs to the disclosing Party and is subject to this Agreement, and who have agreed or are otherwise obligated to comply with the confidentiality provisions of this Agreement.

ARTICLE 10

FORCE MAJEURE/DISPUTE RESOLUTION

10.	The Parties agree to the following:

10.1.

Effect of Force Majeure: Neither Party shall be held liable or responsible for any loss or damages resulting from any failure or delay in its performance due hereunder (other than payment of money) caused by force majeure. As used herein, force majeure shall be deemed to include any condition beyond the reasonable control of the affected Party including, without limitation, strikes or other labor disputes, war, riot, earthquake, tornado, hurricane, flood or other natural disasters, fire, civil disorder, explosion, sabotage, inability to obtain adequate fuel, power, labor, containers, transportation, compliance with governmental requests, laws, rules, regulations, orders or actions; inability despite good faith efforts to renew operating permits or licenses from local, state or federal governmental authorities; breakage or failure of machinery or apparatus; national defense requirements; or supplier strike, lockout or injunction.

10.2.

Notice of Force Majeure: In the event either Party is delayed or rendered unable to perform due to force majeure, the affected Party shall give notice of the same and its expected duration to the other Party promptly after the occurrence of the cause relied upon, and upon the giving of such notice the obligations of the Party giving the notice will be suspended during the continuance of the force majeure; provided, however, such Party shall take commercially reasonable steps to remedy or mitigate the force majeure with all reasonable dispatch. The requirement that force majeure be remedied with all reasonable dispatch shall not require the settlement of strikes or labor controversies by acceding to the demands of the opposing party.

10.3.

Nothing in the preceding Force Majeure provisions shall restrict or limit Auxilium’s rights and remedies under Section 3.10.3 et seq. (Inability to Supply).

10.4.

Dispute Resolution: The Parties hereto agree to perform the terms of this Agreement in good faith, and to attempt to resolve any controversy, dispute or claim arising hereunder in good faith. Either Party may initiate such informal dispute resolution by sending written notice of the dispute to the other Party, and within ten (10) business days after such notice appropriate representatives of the Parties shall meet for attempted resolutions by good faith negotiations. If they are unable to resolve the dispute within thirty (30) days of initiating such negotiations, the Parties agree first to submit the dispute to non-binding mediation before resorting to litigation or other mutually agreed dispute resolution mechanism. The dispute resolution procedures set forth herein shall not limit a party from seeking or a court from granting a temporary restraining order or a preliminary injunction in order to preserve the status quo of the Parties pending mediation, arbitration or litigation. Further, in the event of a dispute under Section 4.2, the Parties shall comply with the dispute resolution provisions set forth in Article 4. In the event that the parties are unable to resolve the dispute through mediation or arbitration and they proceed through litigation, the substantially prevailing Party shall be entitled, in addition to any other rights and remedies it may have, to reimbursement for its expenses incurred thereby, including court cost and reasonable attorneys’ fees, from the substantially non-prevailing Party.

ARTICLE 11

NOTICES

Except as otherwise specifically set forth in Section 3.9.2 with respect to purchase orders, all notices and other communications provided herein shall be in writing and shall be deemed to be delivered when deposited in the United States mail, postage prepaid and certified, or hand-delivered, or sent by facsimile, or express service courier, charges prepaid, to the address of the other Party designated below:


Auxilium		Hollister-Stier

Auxilium Pharmaceuticals, Inc.		Hollister-Stier Laboratories LLC
40 Valley Stream Parkway		3525 North Regal Street
Malvern, PA 19355		Spokane, WA 99207
Attention: VP, Manufacturing		Attention: Anthony D. Bonanzino, Ph.D.
CC: General Counsel		FAX: (509) 482-3543

The addresses and persons provided above may be changed by either Party by providing the other Party with written notice of such change.

ARTICLE 12

MISCELLANEOUS

12.	The Parties agree to the following miscellaneous clauses:

12.1.

Entire Agreement: This Agreement, along with the Quotation/Supply Proposal No. 677-3-23 dated March 31, 2008 (attached hereto as Exhibit D) and the attached exhibits contain the entire understanding between the Parties with respect to the subject matter hereof, and may be modified only by a written instrument duly executed by each Party’s authorized representative. To the extent there is any term or condition in the Quotation/Supply Proposal No. 677-3-23 dated March 31, 2008 that is not consistent with the terms and conditions herein, this Agreement shall control.

12.2.

Independent Contractors: The Parties are independent contractors and nothing contained in this Agreement shall be construed to place them in the relationship of partners, principal and agent, employer/employee or joint venturers. Neither Party shall have power or right to bind or obligate the other, nor hold itself out as having such authority.

12.3.

Publicity: Except as explicitly set forth below in Section 12.4, any press release, publicity or other form of public written disclosure related to this Agreement prepared by one Party shall be submitted to the other party prior to release for written approval, which approval shall not be unreasonably withheld or delayed by such other Party.

12.4.

Use of Party’s Name: Except as expressly provided or contemplated hereunder and except as otherwise required by applicable law, no right is granted pursuant to this Agreement to either Party to use in any manner the trademarks or name of the other Party, or any other trade name, service mark, or trademark owned by or licensed to the other Party in connection with the performance of the Agreement. To the extent required by applicable law, the Parties shall be permitted to use the other Party’s name and disclose the existence and terms of this Agreement in connection with required public regulatory filings, public securities filings and private placement memoranda and documentation, using reasonable commercial efforts to protect the confidentiality of the terms of this Agreement.

12.5.

Severability: If any provision of this Agreement or any Exhibit is held to be invalid or unenforceable to any extent, then (a) such provision shall be interpreted, construed or reformed to the extent reasonably

required to render it valid, enforceable and consistent with the Parties’ original intent underlying such provision and (b) such invalidity or unenforceability shall not affect any other provision of this Agreement or any other agreement between the Parties.

12.6.

Assignment: This Agreement may not be assigned or otherwise transferred by either Party without the prior written consent of the other Party; provided, however, either Party may, without such consent, assign this Agreement

(a)

in connection with the transfer or sale of all or substantially all of the assets of such Party or the line of business of which this Agreement forms a part, or

(b)

in the event of a merger or consolidation of a Party, or

(c)

to an Affiliate

Any purported assignment in violation of the preceding shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement. No assignment shall relieve either Party of responsibility for the performance of any obligation which accrued prior to the effective date of such assignment.

12.7.

Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the state of Washington, irrespective of any conflicts of law rule which may direct or refer such determination of applicable law to any other state, and if this Agreement were performed wholly within the state of Washington.

12.8.

Headings: Paragraph headings and captions used herein are for convenience of reference only and shall not be used in the construction or interpretation of this Agreement.

12.9.

Waiver: Neither Party’s waiver of any breach or failure to enforce any of the terms and conditions of this Agreement at any time, shall in any way affect, limit or waive such Party’s right thereafter to enforce and compel strict compliance with every term and condition of this Agreement. Any such waiver shall be made in writing.

12.10.

Construction: This Agreement has been jointly prepared on the basis of the mutual understanding of the Parties and shall not be construed against either Party by reason of such Party’s being the drafter hereof or thereof.

12.11.

Exhibits: Any and all exhibits referred to herein form an integral part of this Agreement and are incorporated into this Agreement by this reference.

12.12.

Counterparts: This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute a single instrument.

IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the Effective Date.


FOR: H OLLISTER -S TIER L ABORATORIES LLC				FOR: A UXILIUM P HARMACEUTICALS , INC.

/s/ Rick Lapointe				/s/ Armando Anido
Signature				Signature

Rick Lapointe				Armando Anido
Printed Name				Printed Name

President Contract Business Unit				Chief Executive Officer and President
Title				Title

6/24/08				6/26/08
Date Signed				Date Signed

E XHIBIT A

Q UALITY S YSTEMS A GREEMENT

QUALITY TECHNICAL AGREEMENT

Between

AUXILIUM PHARMACEUTICALS, Inc.

And

HOLLISTER-STIER LABORATORIES LLC

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Review Frequency: Annual

Page 1 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

This Quality Technical Agreement between Auxilium Pharmaceuticals, Inc. , hereinafter “ Auxilium ” (located at the following address: Auxilium Pharmaceuticals, Inc, 40 Valley Stream Parkway, Malvern, PA 19355.), and Hollister-Stier Laboratories LLC , hereinafter “Hollister-Stier” (located at the following address: 3525 North Regal Street, Spokane, Washington, USA 99207-5788), defines the quality responsibilities as they are related to the product(s) and service(s) listed below, (hereinafter known as the “Product”).


		Product		Service provided by Hollister-Stier

		AA4500		Fill/Finish/Testing/Stability/Validation

		Sterile Diluent		Manufacturing/Fill/Finish/Testing/Stability/Validation

It is the intention of the parties that this agreement is read in conjunction with the applicable Development and Supply Agreement.

Any changes to the Quality Technical Agreements may be made solely by an amendment in writing signed by both parties. In the event that the Development and Supply Agreement is terminated for any reason, the Quality Systems Agreement shall be amended to define the Quality responsibilities that remain in effect.

Approvals:

This Quality Technical Agreement is approved by:


/s/ Benjamin J. DelTito, Jr. 21 Feb 2008				/s/ Charles H. Moore 28 Feb 2008
Benjamin Del Tito Jr., PhD. Date				Charles H. Moore Date

Sr. Vice President, Quality and Regulatory Affairs				Director, QU and Development
Auxilium Pharmaceuticals, Inc.				Hollister-Stier Laboratories LLC
40 Valley Stream Parkway Malvern, PA 19355 USA				3525 North Regal Street Spokane, Washington 99207-5788 USA

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 2 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

T ABLE OF C ONTENTS


1.	Definitions	5

2.	General Information	6

2.1	Regulatory Compliance Requirements	6

2.2	Notification of Regulatory Agencies and Regulatory Submissions	6

2.3	Responsibilities	6

3.	Quality Assurance	7

3.1	Auxilium Oversight in Facility	7

3.2	Annual Product Review	7

3.3	Quality Audits and Regulatory Inspections	7

3.4	Internal Audits	8

3.5	Process Qualification/Validation	8

3.6	Training and Qualification	8

3.7	Supplier Qualification	9

3.8	Deviations/Investigations/Out-of-Trend (OOT) Material	9

3.9	Nonconforming or Rejected Material	10

3.10	Buildings and Facilities / Utilities	10

3.11	Equipment	11

3.12	Environmental Controls	11

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 3 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT



3.13	Control of Components, Intermediates, Labeling and Packaging Materials	11

3.14	Production and Process Controls	12

3.15	Laboratory Methods and Controls	12

3.16	Reference Standards	13

3.17	Product Testing and Release	13

3.18	Product Storage and Shipping	14

3.19	Returned Goods	14

3.20	Stability Activities	14

3.21	Retention Samples	14

3.22	Documentation	15

3.23	Change Control	15

3.24	Quality Records	16

3.25	Record Retention	16

3.26	Product Complaints and Adverse Drug Events	16

3.27	Recall of Marketed Product and Withdrawal of Clinical Material	16

A PPENDIX A – Q UALITY S YSTEMS C ONTACT L IST		17

A PPENDIX B - R ESPONSIBILITIES : P RODUCT – AA4500 & S TERILE D ILUENT		18

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 4 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

1.	Definitions

Manufacturing – All operations of receipt of materials, production, packaging, repackaging labeling, relabeling, quality control, release, storage and shipping of drug products.

Out-of-Specification (OOS) – A test result that does not meet pre-determined specifications or standards and must be investigated in accordance with internal procedures (e.g. Non-Conforming Materials Report (NCMR)) that comply with applicable Regulatory Agency regulations.

Qualification – Action of proving and documenting that equipment, materials, systems and suppliers satisfy predetermined conditions or requirements and are fit for their purpose.

Regulatory Agencies – Regulatory Agencies having jurisdiction over the manufacture or sale of the Products.

Change Control – A system to ensure changes are reviewed, recorded, evaluated for impact, justified, and approved by the appropriate parties, prior to implementation.

Component – Means any ingredient intended for use in the manufacture of a drug product including those that may not appear in the final Product.

Significant Changes – Any changes that may affect the safety, efficacy, identity, strength, purity or quality of the Products or may affect any regulatory submissions for the Products, agreed to by both parties.

Deviations – Any excursions or nonconformities from processes, specifications, quality systems that may affect the safety, efficacy, identity, strength, purity, or quality of Products or any regulatory submissions for the Products.

Atypical Events – Any incident or event identified during manufacturing and/or testing of a drug product, which is considered a non-conformance (e.g. Quality Assurance Message (QAM) or Environmental Investigation) to procedures, operations, batch instructions or validated parameters.

Out-of-Trend (OOT) – a result that is not an out-of-specification, but is showing an unusual trend toward the lower or higher end of a specification range.

Third Party Subcontractor – a company, individual or other entity contracted by Hollister-Stier to provide services in the manufacture, testing, packaging, labeling and/or storage of components or the Products that directly impacts the Products.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 5 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

2.	General Information

This Quality Systems Agreement applies to Clinical, Development and Commercial Product Manufacturing.

Main contact points at Auxilium and Hollister-Stier are listed in the attached Quality Systems Contact List. See Appendix A. Appendix A is subject to change without the need to re-sign this agreement and assign a new version number.

2.1

Regulatory Compliance Requirements

Auxilium and Hollister-Stier shall be in compliance with the following regulations and guidelines. The parties agree to work together in good faith to resolve any differences in interpretation of the regulations.

a)	21 CFR 210 Current Good Manufacturing Practice in Manufacturing, Processing, Packing, or Holding of Drugs; General and 21 CFR 211 Current Good Manufacturing Practice for Finished Pharmaceuticals.

b)	Current Guide to Good Manufacturing Practice for Medicinal Products. The Rules Governing Medicinal Products in the European Community.

c)	Health Products and Food Branch Inspectorate Guidelines, current Good Manufacturing Practices, Health Canada.

d)	MHRA Orange Guide – Rules and Guidelines for Pharmaceutical Manufacturers & Distributors

Auxilium and Hollister-Stier shall ensure that the manufacture, labeling, packaging, testing, storage and shipping of the Products are in compliance with the above regulations and guidelines or equivalent standards defined in regulatory submissions for Worldwide Marketing Authorizations.

2.2

Notification of Regulatory Agencies and Regulatory Submissions

Auxilium shall be responsible for all communication with Regulatory Agencies including notification of process/ product changes and the submission of Annual Reports.

2.3

Responsibilities

Responsibilities concerning specific product activities for both Auxilium and Hollister-Stier are outlined in Appendix B, Responsibility Matrix.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 6 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

3.	Quality Assurance

3.1

Auxilium Oversight in Facility

Auxilium will be allowed up to 2 individuals present in Hollister-Stier’s facilities to observe manufacturing of Product(s). The individuals must observe Hollister-Stier work rules and may require training. Auxilium personnel are in the plant to observe the manufacture of products and provide both technical and quality oversight, as needed.

3.2

Annual Product Review

Hollister-Stier shall provide Auxilium with the required information to perform Annual Product Reviews including information from Third Party Subcontractors. Such information shall contain, but not be limited to, the following: batch production summary, environmental monitoring results, OOS and deviation reports, critical process parameter trending data and change controls summary, document revisions and any FDA audit responses that are specific to the Product.

3.3

Quality Audits and Regulatory Inspections

Auxilium may perform scheduled Quality audits of Hollister-Stier up to 2 times per calendar year to assess ongoing cGMP compliance. Adequate prior notification (minimum 2 weeks) shall be provided by Auxilium to Hollister-Stier. Such audits to be limited to no more than three individuals and no more than three days.

Auxilium shall have the right to perform reasonable “for cause” audits in addition to any scheduled annual audit(s). The specific goals of the audit, the proposed date of such audit, and the names of the individuals who will conduct the audit shall be provided by Auxilium to Hollister-Stier.

Hollister-Stier shall notify Auxilium in advance of any pending Regulatory Authority inspections to be performed at the facility. Auxilium representatives may be present when any Regulatory Agency inspects Hollister-Stier and such inspection directly relates to the Products. Auxilium representation shall be limited to two individuals. Direct participation in the audit shall be limited to Product or Process specific questions. Auxilium reserves the right to organize and participate in a mock Pre-Approval Inspection (PAI) utilizing Auxilium personnel or Auxilium approved consultants. For a PAI associated with Auxilium’s Biologics License Application (BLA), Auxilium representation shall be limited to four individuals. During the PAI, at least two individuals (one Manufacturing and one Quality) shall be present in the inspection room(s) during the inspection if/when questions related to Product and process (i.e. non-fill/lyophilization related) are requested by the inspecting Regulatory Authorities.

Hollister-Stier shall provide Auxilium with copies of any inspection reports from any Regulatory Agencies that may impact the Products within 30 business days of receipt. Proprietary and confidential information for other customer products shall be redacted at Hollister-Stier’s discretion.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 7 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

Hollister-Stier shall obtain Auxilium’s written approval when preparing responses to Regulatory Agencies, when the responses are directly related to the Products.

Hollister-Stier will promptly notify Auxilium of any regulatory action resulting in:

Mandatory removal of Product, or

The closing of the facility for the Product

3.4

Internal Audits

Hollister-Stier shall have a documented program and procedure for conducting internal quality audits (self-inspections). These audits shall be performed according to Hollister-Stier SOP. Internal audits are available for review during annual audits.

3.5

Process Qualification/Validation

Hollister-Stier shall perform process validation according to protocols and a validation master plan jointly approved by Auxilium and Hollister-Stier.

Hollister-Stier shall perform cleaning validation and provide appropriate documentation to Auxilium.

Hollister-Stier shall be responsible for performing container-closure microbial integrity validation on the container-closure system specified by Auxilium.

Hollister-Stier shall maintain original copies of all relevant documentation verifying such validation and provide “exact copy” duplicate copies to Auxilium.

Auxilium shall be responsible for filter compatibility testing of production filters. A copy of the report shall be provided to Hollister-Stier.

Hollister-Stier shall validate and/or qualify computer systems and associate software used in processing Product.

Hollister-Stier will addresses the integrity, archival, retrieval and destruction of electronic data related to process of product to the extent required for compliance with all applicable regulations. Hollister-Stier will also provide documentation of such validation and/or qualification during annual audits.

3.6

Training and Qualification

Hollister-Stier shall ensure that all personnel performing the functions to support the systems outlined in this agreement are trained according to Hollister-Stier SOP. Training program documents are available for review during annual audits.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 8 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

Hollister-Stier will provide personnel qualified and trained to perform and supervise operations related to the Product. Hollister-Stier will also provide written job descriptions for positions responsible for processing the Product.

3.7

Supplier Qualification

Hollister-Stier shall be responsible for the qualification of the suppliers of components, containers, labeling and packaging materials provided by Hollister-Stier.

Auxilium shall be responsible for the qualification of the suppliers of any material(s) supplied to Hollister-Stier by Auxilium.

Upon request, Hollister-Stier or Auxilium, as the case may be, shall provide the requesting party with documented evidence describing the qualifications of applicable suppliers and contractors used to provide components, containers, testing services, labeling and packaging materials used for Auxilium products. Hollister-Stier shall provide this information to Auxilium for regulatory filings (e.g., BLA filing).

Hollister-Stier shall provide a list of approved suppliers associated with Auxilium’s product(s) and process. Hollister-Stier shall ensure that any component vendors and third party subcontract manufacturers/packagers or testing laboratories used by Hollister-Stier are qualified and in compliance with current GMPs or equivalent standards defined in regulatory submissions for Worldwide Marketing Authorizations.

Auxilium has the right to request the use of a vendor or subcontractor that is not currently qualified by Hollister-Stier. Upon such requests, Auxilium will be responsible for qualifying and approving the new entity. Likewise, Auxilium and Hollister-Stier may work together to qualify the new entity in order to add them to Hollister-Stier’s approved vendor/subcontractor list.

Upon Auxilium’s request, Hollister-Stier shall provide Auxilium with documented evidence describing the qualifications of third party subcontractors used by Hollister-Stier for performing outsourced testing.

3.8

Deviations/Investigations/Out-of-Trend (OOT) Material

Hollister-Stier shall notify Auxilium in writing (by fax or e-mail), within one business day of the detection of all deviations, OOTs and atypical events (e.g., QAMs), and of any OOS results during the Manufacture and control testing of the Products, intermediates and qualifications.

Auxilium shall notify Hollister-Stier in writing of the detection of any deviation which is discovered following delivery of any Products and/or samples to Auxilium, or to a Auxilium designee, which may affect or impact the safety, identity, strength, purity or quality of the Products or any regulatory submissions related to the Products within 3 business days following the discovery.

Hollister-Stier shall have a controlled system to document, investigate and assess the impact of all deviations and atypical events, including OOSs and OOTs, relating to the Products.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 9 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

Hollister-Stier shall obtain Auxilium’s written approval prior to implementing any Manufacturing changes, as a result of a deviation/atypical event that impact Auxilium products or processes.

For OOS investigations, Hollister-Stier shall provide Auxilium with a copy of the initial laboratory assessment of the OOS. Hollister-Stier shall obtain Auxilium’s written approval prior to retesting or, resampling, as part of a full-scale failure investigation.

Auxilium shall review any deviations/atypical events, and the results of Hollister-Stier’s investigations that occur during the Manufacture and testing of the Products. Auxilium shall provide its approval or disapproval of the investigation results to Hollister-Stier in writing (within 10 business days) before the disposition of the batch has been determined and approved.

Hollister-Stier shall undertake reasonable corrective actions to correct deviations/atypical events and investigations and provide Auxilium with documented evidence that the corrective actions have been completed. Hollister-Stier shall monitor such corrective actions for effectiveness and Auxilium may verify corrective actions during the scheduled Quality audits and/or during onsite production oversight.

3.9

Nonconforming or Rejected Material

Hollister-Stier shall notify Auxilium upon discovery of every nonconformity that may affect the safety, integrity, strength, purity and quality of the Product or intermediate. Hollister-Stier shall investigate these nonconformities and shall provide Auxilium with documentation of the nonconformity and investigation findings.

Auxilium shall determine the product impact and the disposition of nonconforming material through its Material Review Board (MRB) process and provide direction to Hollister-Stier.

Hollister-Stier shall not perform any reprocessing or rework of the Products without prior written approval by Auxilium.

3.10

Buildings and Facilities / Utilities

Hollister-Stier shall perform qualification/validation, monitoring, calibration and maintenance (preventative and corrective) for all plant utility systems, including, but not limited to, Water for Injection, HVAC, steam and compressed air, such work to be conducted within an established timeframe appropriate to the significance of the system and documented. Documentation of such work shall be available for review during scheduled Quality audits and upon request. Re-qualifications shall be established by Hollister-Stier according to Hollister-Stier’s Standard Operating Procedure (SOP). Documentation of such work shall be available for review during scheduled Quality audits and upon request.

Hollister-Stier will notify Auxilium within five (5) business days of any calibration failures which have an adverse impact on Product already supplied to Auxilium.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 10 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

Hollister-Stier shall maintain a pest control program for the manufacturing, storage and handling areas used for Product.

3.11

Equipment

Hollister-Stier shall perform qualification/validation, monitoring, calibration and maintenance (preventative and corrective) for all Manufacturing and QC equipment, such work to be conducted within an established timeframe appropriate to the significance of the equipment and documented. Documentation of such work shall be available for review during scheduled Quality audits and upon request. Re-qualifications shall be established by Hollister-Stier according to Hollister-Stier’s Standard Operating Procedure (SOP). Documentation of such work shall be available for review during scheduled Quality audits and upon request.

Hollister-Stier shall also perform cleaning validation for Manufacturing equipment used for the Products. For non-dedicated equipment, this shall include a product impact assessment of other products that utilize the same equipment. Documentation of such work shall be available for review during scheduled Quality audits and upon request.

3.12

Environmental Controls

Hollister-Stier shall be responsible for routine environmental monitoring (EM) activities as well as related records. Lot specific EM data (static, dynamic, and personnel) shall be provided to Auxilium in the batch record.

3.13

Control of Components, Intermediates, Labeling and Packaging Materials

Hollister-Stier shall purchase components, labeling and packaging materials, perform testing, and release of such components and materials according to the components and material specifications mutually agreed to by Auxilium and Hollister-Stier. Hollister-Stier shall store components, labeling and packaging materials under the appropriate environmental conditions as stated in the specifications. Hollister-Stier shall use only those specifications for components, containers and packaging material for the Manufacture of the Products that are acceptable to Auxilium.

Any changes to these materials shall go through Hollister-Stier’s change control system and shall be subject to Auxilium approval.

Hollister-Stier and Auxilium shall comply with the requirements in the current CPMP/CVMP Note for Guidance on Minimizing the Risk of Transmitting Animal Spongiform Encephalopathy Agents Via Human and Veterinary Medicinal Products (EMEA/410/01) when manufacturing Sterile Diluent or AA4500 Drug Product for Auxilium.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 11 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

3.14

Production and Process Controls

Hollister-Stier shall generate the master batch production record, labeling and packaging procedures for the Manufacture of the Product based on the information supplied by Auxilium. The master batch production record(s) and subsequent revisions shall be subject to the approval of Hollister-Stier and Auxilium, and will contain a summary of any change(s) with appropriate justification(s) for change(s). Each batch shall be Manufactured in accordance with a batch production record, which is a uniquely identified copy of the master batch production record.

3.15

Laboratory Methods and Controls

Hollister-Stier shall generate Standard Operating Procedures (SOPs) for Sterility testing and submit them to Auxilium for approval prior to use. The qualification of the Sterility test shall conform to current USP and EP. A summary report of the qualification shall be prepared and provided to Auxilium. This summary report shall contain copies of the raw data that support the conclusions of the qualification tests.

The copies of raw data of results of final product Sterility test shall be subject to Auxilium approval.

The Sterility Test media used for Product testing shall conform to the growth promotion methods in current USP and EP. Records of media preparation, testing, and release shall be available for review during scheduled Quality audits.

Hollister-Stier shall provide to Auxilium summary reports of any Sterility test failure investigations conducted on products filled in the same area as AA4500.

SOPs that support the environmental monitoring, water for injection, clean steam, and clean compressed air monitoring and their associated method qualifications shall be available for review during audits. Trend analysis reports shall be available for review during scheduled Quality audits.

Hollister-Stier shall generate Product specific analytical methods based on Auxilium’s analytical methods and submit them to Auxilium for approval prior to use. When validation is required, Auxilium shall provide documentation of validation, from which Hollister-Stier will produce a method transfer protocol and the final report.

For methods that Hollister-Stier has developed, Hollister-Stier shall produce an assay qualification/validation (in-process/release testing) protocol and the final report, when validation is required.

Full analytical validation, in accordance with ICH guidelines, is required for in-process and product release analytical methods.

Hollister-Stier and Auxilium shall approve all Product specific analytical method validation/transfer protocols and reports that are developed by Hollister-Stier.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 12 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

The laboratory conducting the protocol shall retain the original of such reports and raw data. A copy of each such report shall be supplied to the other party.

3.16

Reference Standards

Auxilium shall provide Hollister-Stier with an adequate supply (and upon request) of Product reference standards and qualification documents stating the expiry or retest date of such reference standards. Hollister-Stier is responsible for requesting the supply of reference standards as required with reasonable notice. Hollister-Stier is responsible for storing and maintaining the reference standards according to instructions supplied by Auxilium and shall ensure the appropriate use of the reference standards.

The responsible parties outlined in Appendix B shall qualify reference standards.

3.17

Product Testing and Release

Hollister-Stier shall initiate sterility testing and ship batch samples for release testing (not performed by Hollister-Stier) to Auxilium or specified outside testing laboratory within 3 business days from the end of lyophilization. Shipping preparations will occur according to procedures provided to Hollister-Stier by Auxilium.

Hollister-Stier shall review and approve all batch production, labeling and control records. Hollister-Stier shall complete all batch documentation and forward all documentation to Auxilium for review within 28 business days from the end of lyophilization. Closure of any outstanding investigations, deviations, OOSs, etc. beyond 28 business days, will be closed within a timeframe agreed upon by both Hollister-Stier and Auxilium. If it is not possible for Hollister-Stier to provide a response within 28 business days, Hollister-Stier shall notify Auxilium in writing of the revised timeline for responding with appropriate justification for revised timeline.

Hollister-Stier shall provide Auxilium with a copy of the reviewed and approved production, labeling and control records, including deviation/atypical event/OOS reports, QC raw data (e.g. sterility) associated with the batch. A copy of the Certificate of Manufacturing shall also be provided.

Auxilium shall submit any questions regarding the batch production and control records to Hollister-Stier in writing within 15 business days of the receipt of the final batch record. If it is not possible for Auxilium to submit questions within 15 business days, Auxilium shall notify Hollister-Stier in writing of the revised timeline for responding with appropriate justification for revised timeline. Hollister-Stier shall provide written responses within 3-5 business days. If it is not possible for Hollister-Stier to provide a response within 3-5 business days, Hollister-Stier shall notify Auxilium in writing of the revised timeline for responding with appropriate justification for revised timeline.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 13 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

Hollister-Stier shall provide Auxilium with samples required for special testing upon Auxilium’s written request. Such samples shall be shipped to Auxilium under appropriate conditions as specified in the written sample request.

Auxilium shall be responsible for disposition of the final lot.

3.18

Product Storage and Shipping

Hollister-Stier shall store and ship the Product and all components under appropriate environmental conditions as stated in the specifications.

Hollister-Stier shall not ship the Product or transfer it to another facility without prior written approval of Auxilium. Product and sample shipping shall be performed following client-specific Hollister-Stier SOP (approved by Auxilium). Shipment under Quarantine prior to Product release may only be undertaken on written approval of Auxilium.

3.19

Returned Goods

This section was intentionally deleted.

3.20

Stability Activities

Hollister-Stier shall provide Auxilium or its designee with samples of the Product, when required, for stability testing upon request in writing. Samples must arrive at Auxilium or its designee within 5 business days after Hollister-Stier’s receipt of Auxilium’s written request for release and stability samples or completion of the Manufacture of the Products, whichever is later. Sample shipping shall be performed following client-specific Hollister-Stier SOP (approved by Auxilium).

For stability testing performed at Hollister-Stier, pull dates shall be provided to Auxilium, and testing shall be initiated within five (5) business days of actual pull dates.

Auxilium shall inform Hollister-Stier of the sample quantities required for stability testing prior to production as well as an appropriate Shipping Notification for shipment of such samples. Such Shipping Notifications may be part of the initial Purchase Order.

3.21

Retention Samples

The responsible parties as outlined in Appendix B shall perform maintenance of the retention sample of the products. Shipment of retention samples to Auxilium or its designee will occur according to procedures provided to Hollister-Stier by Auxilium.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 14 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

3.22

Documentation

Upon revision, Auxilium and Hollister-Stier shall provide each other with copies of all applicable Product specific quality documents and SOP’s pertaining to Product Manufacturing.

Hollister-Stier shall supply essential documents in support of the Chemistry, Manufacturing and Control (“CMC”) section of Auxilium’s supplemental regulatory filing in the U.S. or the equivalent in other jurisdictions.

Auxilium shall provide Hollister-Stier with a copy of the relevant CMC section (i.e., Product Manufactured), prior to submission, of the relevant regulatory submissions for Hollister-Stier review and comment. (e.g. IND or NDA). Hollister-Stier shall provide any comments to Auxilium within 5 business days.

3.23

Change Control

Hollister-Stier will maintain a change control system for equipment, processes, document, etc. That is compliant with current cGMP requirements. Hollister-Stier Quality and Regulatory personnel will be required to review change requests to determine if clients should be notified or if client approval is needed before the change is executed.

When it is determined that a proposed change has potential impact on Auxilium regulatory files or product Auxilium will review and approve the change prior to Hollister-Stier making the change. Changes that Auxilium will approve include, but are not limited to,

Documents previously approved by Auxilium such as Batch Production Records (BPR’s), test methods, specifications, labels.

Processes validated specifically for Auxilium such as lyophilization cycles.

Third Party Contractors approved by Auxilium such as testing laboratories.

Critical components or suppliers of critical components such as vials, stoppers and excipients.

Changes made to the fill line, lyophilizer and capper that directly impact the production of the Product.

Auxilium shall notify Hollister-Stier in writing of any significant changes to the Product, its specification and testing requirements where the changes affect the activities at Hollister-Stier, prior to the implementation of the change. Written notification shall be provided to Hollister-Stier.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 15 of 18

CONFIDENTIAL

QUALITY TECHNICAL AGREEMENT

3.24

Quality Records

Hollister-Stier shall maintain original records related to the Manufacture, labeling, packaging, storage and testing of the Products in a limited access area and shall treat such records in accordance with the confidentiality requirements in the Development and Supply Agreement. Access to these records shall be restricted to personnel authorized by Hollister-Stier. Hollister-Stier shall ensure that these records are available to Auxilium upon request within a mutually agreed timeframe.

Upon receiving a written request from Auxilium, Hollister-Stier shall transfer to Auxilium copies of all Auxilium -Product related records including but not limited to records relating to critical processes and inspection. If such records have been provided previously, i.e. BPR’s, then an appropriate administrative charge shall apply.

Except as required by law, Hollister-Stier shall not release documents for the Products to a third party without the written approval of Auxilium’s QA and Regulatory Departments.

3.25

Record Retention

Hollister-Stier shall ensure that all quality documents and records including those related to critical processes specific to or affecting Auxilium Products are retained until Auxilium provides Hollister-Stier with written authorization for their disposition.

3.26

Product Complaints and Adverse Drug Events

Auxilium shall notify Hollister-Stier of all complaints related to the Products that occur after release and transportation if the complaint is deemed to be directly related to the Manufacture of the Products including, but not limited to, Product testing, batch record review, procedure assessment or examination of retention samples. Hollister-Stier shall provide the necessary information to assist any investigations required by Auxilium as a result of a Product complaint or adverse event.

3.27

Recall of Marketed Product and Withdrawal of Clinical Material

Auxilium shall be responsible for all recall and clinical withdrawal activities related to the Products and for reporting to Regulatory Authorities according to Auxilium’s written procedures. Hollister-Stier shall provide the necessary information to assist any investigations required by Auxilium as a result of a potential recall or withdrawal.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 16 of 18

CONFIDENTIAL

QUALITY SYSTEMS AGREEMENT

A PPENDIX A – Q UALITY S YSTEMS C ONTACT L IST


A REA	A UXILIUM C ONTACT	H OLLISTER -S TIER C ONTACT
Quality Systems Agreements, Revisions, Updates	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

General Quality Assurance	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

Audit Scheduling/Issues	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

Regulatory	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

Product Complaint	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

Project Management	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 17 of 18

CONFIDENTIAL

QUALITY SYSTEMS AGREEMENT

A PPENDIX B - R ESPONSIBILITIES : P RODUCT – AA4500 D RUG P RODUCT (AA4500) AND S TERILE D ILUENT


R ESPONSIBILITY	A UXILIUM	H OLLISTER -S TIER
Approve suppliers of components, vials, stoppers, closures, labeling and packaging materials	X

Receipt, sampling, testing and release of components, vials, stoppers, closures, labeling and packaging materials		X

Reference standard qualification	X

Manufacture AA4500 Drug Substance (N/A for Sterile Diluent)	X

Filling and Lyophilization of AA4500 Drug Product (N/A for Sterile Diluent)		X

Packaging/Labeling of AA4500 Drug Product/Sterile Diluent	X	X

Sampling of release and stability samples		X

Sterility testing of AA4500 Drug Product/Sterile Diluent		X

Release testing of AA450 Drug Product/Sterile Diluent	X	X

Disposition of AA4500 Drug Product/Sterile Diluent	X

Stability testing of AA4500 Drug Product/Sterile Diluent	X

Storage of retention samples of AA4500 Drug Product/Sterile Diluent	X

Storage of retention samples of components		X

Approve third party subcontractors for the testing of AA4500 Drug Product/Sterile Diluent	X

Auxilium Document Number: QTA-001

Version: 1.0

Effective Date:

Page 18 of 18

CONFIDENTIAL

E XHIBIT B

SPECIFICATIONS

********** FOR REFERENCE ONLY **********

LOGO

FINISHED PRODUCT RELEASE SPECIFICATION – CLINICAL


Property/Test		Test Reference		Specification

[**]

Specification Number: HFPD.001.00

Effective Date: 28 Jan 2008

CONFIDENTIAL

Page 1 of 1

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

*********** FOR REFERENCE ONLY **********

LOGO

FINISHED PRODUCT RELEASE SPECIFICATION – CLINICAL


Property/Test		Test Reference		Specification

[**]

Specification Number: HFPD.002.00

Effective Date: 11 Feb 2008

CONFIDENTIAL

Page 1 of 1

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

E XHIBIT C

PRICE

LOGO

June 25, 2008

Mr. Greg Sabatino

Biotechnology Manager

Auxilium Pharmaceuticals, Inc.

40 Valley Stream Parkway

Malvern, PA 19355

Quotation No.: 677-1-21 Revision No. 2: Proposed 2008 Commercial Pricing for AA4500 Active

Dear Mr. Sabatino:

Hollister-Stier Laboratories LLC (Hollister-Stier) is pleased to provide the following 2008 commercial pricing for AA4500 Active.

AA4500 A CTIVE C GMP P RODUCTION B ATCH ([**]-L ITER )*

cGMP batch including: compounding, in-process testing, filtration, filling, freeze-drying, oversealing, final container testing, visual inspection, bulk packaging (no label, bulk/tray pack off only)

•

1 ^st [**] Lots (Lots 1 thru [**] per calendar year)

•

$[**]/Unit (minimum batch price $[**])

•

Lots [**] and higher (Beginning with Lot [**] per calendar year)

•

$[**]/Unit (minimum batch price $[**])

•

Pricing is applicable to the [**]-liter batch scale, which yields approximately [**] units

•

Pricing does not include final product labeling and packaging requirements

*	Prices subject to annual increase based upon increases published in the Producer Price Index (PPI)

•

Pricing is exclusive of final product packaging requirements which have not yet been finalized. Cost of packaging (labor and materials) will be provided to Auxilium once known.

•

All charges are subject to applicable taxes.

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

Mr. Sabatino

June 25, 2008

Page 2

Pricing for increased batch sizes (for example the proposed [**]-liter scale) will be negotiated in the future and is not covered by this document.

This quotation and the services herein are subject to the Quality Systems Agreement between Hollister-Stier and Auxilium dated December 20, 2006 and the terms and conditions contained in the Revised Quotation for Manufacture of AA4500 (Active) Registration Lots and Validation Support (Quotation 667-1-4- Revision No. 2) between Hollister-Stier and Auxilium dated October 26, 2006, both of which are incorporated herein by reference.

Sincerely,

/s/ Peggy Sowers

Peggy Sowers

Senior Manager, Business Development

PWS:lec

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

LOGO

September 19, 2007

Mr. Greg Sabatino

Biotechnology Manager

Auxilium Pharmaceuticals, Inc.

40 Valley Stream Parkway

Malvern, PA 19355

Quotation No.: 677-2-22 Revision No. 0: Proposed 2008 Commercial Pricing for AA4500 Diluent

Dear Mr. Sabatino:

Hollister-Stier Laboratories LLC (Hollister-Stier) is pleased to provide the following 2008 commercial pricing for AA4500 Diluent.

AA4500 D ILUENT C GMP P RODUCTION B ATCH *

cGMP batch including: compounding, in-process testing, filtration, filling, terminal sterilization, oversealing, final container testing, visual inspection, bulk packaging (no label, bulk/tray pack off only)

•

$[**]/Unit (minimum batch price—$[**]/batch)

•

Maximum batch size [**] units

•

Pricing does not include final product labeling and packaging requirements

*	Prices subject to annual increase based upon increases published in the Producer Price Index (PPI)

•

Pricing is exclusive of final product packaging requirements which have not yet been finalized. Cost of packaging (labor and materials) will be provided to Auxilium once known.

•

Pricing is exclusive of routine stability studies. Cost for service will be determined once commercial product testing matrix is determined/finalized.

All charges are subject to applicable taxes. This quotation and the services herein are subject to the Quality Systems Agreement between Hollister-Stier and Auxilium dated December 20, 2006 and the terms and conditions contained in the Revised Quotation for Manufacture of AA4500 (Active) Registration Lots and Validation Support (Quotation 667-1-4- Revision No. 2) between Hollister-Stier and Auxilium dated October 26, 2006, both of which are incorporated herein by reference.

Sincerely,

/s/ Peggy Sowers

Peggy Sowers

Senior Manager, Business Development

PWS:lkb

** CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

E XHIBIT D

Q UOTATION / SUPPLY PROPOSAL DATED MARCH 31, 2008

LOGO

March 27, 2008

Mr. Greg Sabatino

Biotechnology Manager

Auxilium Pharmaceuticals, Inc.

40 Valley Stream Parkway

Malvern, PA 19355

Quotation No.: 677-3-23 Revision No.3: Reservation for AA4500 Active and Diluent in 2009 Manufacturing Schedule

Valid Until April 17, 2008

Dear Mr. Sabatino:

Hollister-Stier Laboratories LLC (Hollister-Stier) is pleased to provide the following revised quotation for reservation of manufacturing slots in the 2009 schedule. This proposal is applicable to both the AA4500 Active and Diluent products.

Project Assumptions

1.	Auxilium has provided Hollister-Stier with a forecast for April 2009 through March 2010. Using this forecast, Hollister-Stier will reserve manufacturing slots in SVP’s Line 1 schedule corresponding to the month listed in the forecast (May through September 2009 only).

1.1.

A copy of the forecast is included as Attachment 1 of this proposal.

2.	Reservation fees are based upon a minimum batch price of $[**]/lot (active and diluent).

2.1.

Reservation fees will be 25% of the minimum batch price ($[**] per batch).

2.1.1.

For each batch that is produced, Hollister-Stier will credit Auxilium $[**] off the actual price for filling services.

2.2.

Reservation fees do not include final product labeling and packaging activities.

2.3.

The reservation fee is due upon execution of the proposal and issuance of a Purchase Order.

3.	Three months (90 days) prior to the scheduled manufacturing month (date), Hollister-Stier will consider all orders placed as firm orders.

To accommodate the magnitude of manufacturing slots to be reserved for Auxilium products, and compensate Hollister-Stier for possible adverse business impact should a significant delay in FDA approval occur, a portion of each reservation fee will be nonrefundable (up to $300,000) as described in Attachment 2.

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

Mr. Sabatino

March 27, 2008

Page 2

5.	Cancellation fees:

5.1.

If Auxilium cancels a batch more than ninety (90) days before the scheduled manufacturing month, Hollister-Stier will issue Auxilium a credit ($[**]) from each cancelled lot’s reservation fee (refer Attachment 2).

5.2.

If Auxilium requests rescheduling (postponement) of a firm batch 15 to 90 calendar days before the scheduled manufacturing date/month, Hollister-Stier will impose no rescheduling/cancellation fee.

5.3.

If Auxilium cancels a firm batch 15 to 90 calendar days before the scheduled manufacturing date, Auxilium will forfeit the $[**] reservation fee for the batch(es) which are cancelled.

5.4.

If Auxilium requests rescheduling or cancellation of a firm batch within 14 calendar days of the scheduled manufacturing date, Hollister-Stier will impose a rescheduling/cancellation fee equivalent to 25% of the minimum batch charge for that lot (in addition to 25% reservation fee already paid).

O NE -T IME P ROJECT C OSTS :


Description	A MOUNT USD ($)
• Reservation Fees (Active)
^¡ [**] manufacturing slots May 2009 through September 2009	$	[	**]
^¡ [**] manufacturing slots October 2009 through March 2010

• Reservation Fees (Diluent)
^¡ [**] manufacturing slots May 2009 through September 2009	$	[	**]
^¡ [**] manufacturing slots October 2009 through March 2010
Total Reservation Fee	$	[	**]

•	Payment terms are net 30 days from date of invoice

This Quotation and the services herein are subject to the Quality Technical Agreement (QTA) between Hollister-Stier and Auxilium dated February 28, 2008.

This Quotation/Proposal is subject to and contingent upon the parties executing a final Commercial Supply Agreement (“Supply Agreement”). Language within this document will be incorporated into the Supply Agreement. Once the Supply Agreement is signed by both Auxilium and Hollister-Stier, the Supply Agreement will supersede this Quotation/Proposal. In the event the parties do not execute a Supply Agreement, all reservation fees paid will be refunded.

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

Mr. Sabatino

March 27, 2008

Page 3

Please indicate acceptance of the quotation and payment terms by signing in the designated location below and providing a Purchase Order to reserve manufacturing slots as indicated in this document. Please feel free to contact me if you have any questions.


Sincerely,				A CCEPTED AND A GREED U PON :
				Auxilium Pharmaceuticals, Inc.

/s/ Peggy Sowers				Armando Anido
Peggy Sowers				Name
Senior Manager, Business Development

				/s/ Armando Anido
				Signature

PWS:lec				3/31/08
				Date
Attachment (2)
				H1494
				P.O. Number

A TTACHMENT 1 – 2009/2010 M ANUFACTURING S CHEDULE FOR

AA4500 A CTIVE AND D ILUENT

[**]

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

A TTACHMENT 2 –

S CHEDULE FOR R ESERVATION F EES (N ON -R EFUNDABLE )

[**]

**	CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST.

Exhibit 31.1

CERTIFICATION

I, Armando Anido, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Auxilium Pharmaceuticals, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 8, 2008		/s/ Armando Anido
		Armando Anido
		Chief Executive Officer and President

Exhibit 31.2

CERTIFICATION

I, James E. Fickenscher, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Auxilium Pharmaceuticals, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 8, 2008		/s/ James E. Fickenscher
		James E. Fickenscher
		Chief Financial Officer

Exhibit 32

CERTIFICATION

Pursuant to the requirement set forth in Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Armando Anido, the Chief Executive Officer and President of Auxilium Pharmaceuticals, Inc. (the “registrant”), and James E. Fickenscher, the Chief Financial Officer of the registrant, each hereby certifies that, to his knowledge:

1.	The registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2008, to which this Certification is attached as Exhibit 32 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2.	The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the registrant at the end of the period covered by the Periodic Report and results of operations of the registrant for the period covered by the Periodic Report.

These certifications accompany the Periodic Report to which they relate, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Periodic Report), irrespective of any general incorporation language contained in such filing.

Date: August 8, 2008


/s/ Armando Anido				/s/ James E. Fickenscher
Armando Anido				James E. Fickenscher
Chief Executive Officer and President				Chief Financial Officer


A REA	A UXILIUM C ONTACT	H OLLISTER -S TIER C ONTACT
Quality Systems Agreements, Revisions, Updates	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

General Quality Assurance	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

Audit Scheduling/Issues	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

Regulatory	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

Product Complaint	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

Project Management	Name: [] Telephone: [] Fax: [**]	[] Telephone: [] Fax: [**]

Invoices shall be sent to the following address:

Auxilium Pharmaceuticals, Inc,

Attention: Accounts Payable

Address: 40 Valley Stream Parkway

Address: Malvern, PA 19366

All payments due hereunder to Hollister-Stier shall be sent by wire transfer of funds via the Federal Reserve Wire Transfer System to:

ACH ABA# 323070380

WIRE ABA# 026009593

Beneficiary: Hollister-Stier Laboratories LLC

Account # 004850802409

Swift Code BOFAUS3N

Or by mail to:

Hollister-Stier Laboratories LLC

14110 Collections Center Drive

Chicago, IL 60693-4110