Salix Pharmaceuticals, Ltd. (SLXP) posted first quarter earnings of 34 cents per share, well above the Zacks Consensus Estimate of 18 cents. Salix had reported a loss of 33 cents in the year-ago quarter. Higher revenues drove results.
Although first quarter revenues increased 140.3% to $105.9 million, revenues fell short of the Zacks Consensus Estimate of $110 million. However, revenues exceed the company’s guidance of $100 million.
Quarter in Detail
Salix’ first quarter performance was driven by its key product Xifaxan, which posted sales of $80.7 million, up 170% from the year-ago period. Salix took a 5% and 10% price increase on Xifaxan 550 mg and 200 mg, respectively, in March 2011.
Prescriptions grew 99% during the quarter. Growth was driven by the launch of Xifaxan 550 mg, which gained US Food and Drug Administration (FDA) approval in March 2010 for hepatic encephalopathy. Strong formulary coverage should help drive Xifaxan 550 sales further.
Salix reported that Xifaxan 550 mg has formulary coverage for nearly 90% of covered pharmacy lives in the US with two-thirds of total covered lives enjoying access without restriction. While Salix has co-pay assistance programs for patients with unusually high co-pays, the company also has an online reimbursement helpline in place for overt hepatic encephalopathy patients subject to “Prior Authorization.”
Positive phase III data on Xifaxan 550 showing a 58% reduction in the risk of experiencing a breakthrough overt HE (hepatic encephalopathy) episode and a 50% reduction in the risk of experiencing HE-related hospitalization should help drive sales.
Salix’ bowel cleansing franchise, consisting of MoviPrep and OsmoPrep generated revenues of $12 million. Apriso scrips increased 10% during the quarter with sales coming in at $10 million.
While research and development expenses increased 4.9% to $20.3 million during the quarter, Salix recorded a 28.1% increase in selling, general and administrative expenses which came in at $43.8 million.
2011 Guidance
Salix still expects to deliver product revenue of approximately $520 million in 2011, representing year-over-year growth of 54%. The Zacks Consensus Estimate for 2011 currently stands well above the company’s guidance at $538 million.
Revenue guidance includes Xifaxan sales of $350 million (up from $312 million), bowel cleansing product revenues of approximately $107 million (up from $101 million), Apriso revenues of $57 million (up from $50 million) and other product sales of $13 million. Second quarter sales are expected to come in at $130 million.
While the company maintained its total R&D and SG&A guidance of $276 million, Salix now expects to spend more on R&D and less on SG&A. The company expects to spend $109 million towards its research and development efforts instead of $98 million.
The increase reflects the rapid patient enrollment in the phase III study with Relistor. SG&A spend has been cut from $178 million to $167 million.
Salix expects to generate revenues of $1 billion in 2013 even without a non-constipation irritable bowel syndrome (non-C IBS) indication for Xifaxan 550 mg. The company estimates that combined peak sales of Xifaxan 550 mg, MoviPrep, OsmoPrep and Apriso could exceed $1.2 billion.
Meanwhile, combined peak annual sales of candidates like Relistor, crofelemer, budesonide foam and Lumacan are estimated to exceed $1.8 billion.
Pipeline Update
Salix suffered a huge regulatory setback in March 2011 when it received a Complete Response Letter (CRL) for its supplemental New Drug Application (sNDA) for Xifaxan (rifaximin) 550 mg. Salix is looking to get Xifaxan 550 mg approved for the treatment of non-constipation irritable bowel syndrome (non-C IBS) and IBS-related bloating.
The FDA indicated that it will need re-treatment information on the candidate. Depending on the FDA’s requirements, the approval of Xifaxan 550 mg for the IBS indication could be pushed out by more than a year. We expect to gain more visibility on the agency’s requirements once Salix meets with the FDA on June 20.
The delay in Xifaxan 550 mg’s approval for the IBS indication is disappointing for Salix. Xifaxan has become the company’s primary growth driver following the introduction of generic versions of Colazal in December 2007 by three players, including Mylan (MYL).
The timely approval of Xifaxan 550 mg for the IBS indication would have been a major boost for the company — the IBS indication represents significant commercial opportunity.
As far as pipeline candidate crofelemer is concerned, Salix reported positive top-line data from a phase III study (ADVENT) in November 2010. The company conducted a pre-new drug application (NDA) meeting with the FDA in Jan 2011 and is looking to file for approval in 2011. However, Salix recently announced that it is being sued by its partner Napo Pharmaceutical. Napo is claiming that Salix has violated its commitments under their agreement for the development of crofelemer.
Salix also expects to file a supplemental new drug application (sNDA) seeking approval for the use of Relistor in chronic non-malignant pain patients with opioid-induced constipation. Moreover, Salix has plans to bring an oral formulation of Relistor to market. The oral formulation is currently in phase III studies in patients with chronic, non-cancer pain. Enrolment is running ahead of schedule with the company expecting to finish enrolling patients by Sep 2011.
Neutral on Salix
We currently have a Neutral recommendation on Salix, which carries a Zacks #3 Rank (short-term “Hold” rating). The company’s failure to gain approval for Xifaxan 550 mg for the IBS indication was a major disappointment. Until we gain more visibility on the FDA’s requirements for granting approval for the IBS indication, we prefer to remain on the sidelines.
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