Following the release of first quarter 2011 results, we are maintaining our Neutral recommendation on specialty pharmaceutical company Salix Pharmaceuticals, Ltd. (SLXP). Salix 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. Salix expects product revenues to increase 54% to approximately $520 million in 2011.
Xifaxan (rifaximin) has taken over the role of primary growth driver following the entry of generic versions of Colazal in December 2007. While Xifaxan 200 mg (rifaximin) is indicated for the treatment of traveler’s diarrhea, Xifaxan 550 mg is approved for the reduction of the risk of the recurrence of overt hepatic encephalopathy (HE) in adult patients.
Price increases together with presentation of additional data on Xifaxan at upcoming medical conferences should help drive growth going forward. Xifaxan sales came in at $250.5 million in 2010, up 112%. We expect Xifaxan sales to reach $350 million in 2011.
Salix has been working on expanding its product portfolio over the past few years through acquisitions and in-licensing of candidates in late stage clinical development. Promising candidates include crofelemer, which is being developed for the treatment of chronic diarrhea in HIV patients.
The successful development and approval of crofelemer could allow Salix to establish a strong position in the HIV-associated diarrhea market which could represent incremental opportunity in the range of $150 – $200 million. The company held a pre-new drug application (NDA) meeting with the FDA in January 2011 and intends to file for approval this year.
Salix boosted its portfolio in February 2011 with the acquisition of worldwide (excluding Japan) rights to Relistor, a subcutaneous injection approved for the treatment of opioid-induced constipation (OIC) in patients with advanced illness who are receiving palliative care, when response to laxative therapy has not been sufficient.
Although Salix has been working on expanding its product portfolio, the company has faced its share of pipeline and regulatory setbacks. The company first faced a setback in 2008 when the FDA did not grant approval to Giazo, Salix’ tablet formulation of Colazal (1100mg).
Salix received another complete response letter for Giazo in April 2010. Another candidate, vapreotide acetate, received a disappointing feedback from an FDA advisory panel that voted against approving the product for the treatment of acute esophageal variceal bleeding (EVB).
The company faced a major setback in March 2011 when it received a complete response letter from the FDA for non-constipation irritable bowel syndrome (IBS) for Xifaxan 550. The IBS opportunity represents significant commercial potential and the delay in gaining approval for this indication is a big disappointment. Salix intends to meet with the FDA on June 20 to discuss its requirements for approval. Salix is looking to present retrospective re-treatment data to the FDA. However, given the tough regulatory scenario, the data might not be enough to gain approval and the agency will most likely ask for new data.
With Colazal facing generics, the company’s pipeline needs to deliver in order to drive long-term growth. Moreover, we believe the company needs to diversify its portfolio and reduce its dependence on Xifaxan for growth. While the Relistor deal could help drive long-term growth at Salix, we remain concerned that achievement of the peak sales estimate for the candidate depends on the company’s ability to expand the label and gain approval for the oral formulation.
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