Salix Pharmaceuticals, Ltd. (SLXP) posted second quarter earnings of 79 cents per share, well above the Zacks Consensus Estimate of 47 cents and the year-ago earnings of 54 cents. Second quarter revenues, which increased 35.9% to $181.0 million, was just shy of the Zacks Consensus Estimate of $182.0 million. Results were above the company’s earnings and revenue guidance of 51 cents per share and $180 million, respectively.
Quarter in Detail
Salix’s second quarter performance was driven by its key product Xifaxan, which posted sales of $116.7 million, up 34% from the year-ago period. Prescriptions grew 22% during the quarter. Growth was driven by Xifaxan 550 mg, which gained FDA approval in March 2010 for hepatic encephalopathy. Strong formulary coverage and encouraging data should help drive Xifaxan 550 sales further.
Salix is working on the development of a next generation rifaximin. The company is working on moving its next generation rifaximin candidate(s) into clinical studies by year end.
Salix’s bowel cleansing franchise, consisting of MoviPrep and OsmoPrep, generated revenues of $20.9 million. Apriso scrips increased 27% during the quarter with sales coming in at $21.8 million, up 45% from the year-ago period.
Recently launched products like Relistor, Solesta and Deflux contributed $19.2 million to second quarter 2012 revenue.
Salix’s sales force is promoting Relistor 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. Relistor scrips increased 89% from the prior-year quarter. Relistor sales came in at about $10.8 million.
Solesta and Deflux were launched in March 2012. While Deflux sales were $7.9 million, Solesta sales were slightly above $0.5 million.
While research and development expenses declined 4.3% to $25.8 million during the quarter, Salix recorded a 47.9% increase in selling, general and administrative expenses which came in at $59.7 million. The increase in SG&A spend reflected higher personnel costs related to the company’s institutional sales force and office-based sales force expansions and increased marketing expenses related to Relistor and Solesta.
Pipeline Update
Salix is conducting a re-treatment study, TARGET 3, with Xifaxan 550 mg for the treatment of irritable bowel syndrome (IBS) with diarrhea. The company had received a Complete Response Letter (CRL) from the US Food and Drug Administration (FDA) for its supplemental New Drug Application (sNDA) for Xifaxan 550 in March 2011. With the TARGET 3 study commencing in Feb 2012, it could take 2 years for Salix to gain approval for the IBS indication.
The delay in Xifaxan 550 mg’s approval for the IBS diarrhea indication is disappointing for Salix. Xifaxan is the company’s primary growth driver.
The timely approval of Xifaxan 550 mg for the IBS diarrhea indication would have been a major boost for the company — the IBS diarrhea indication represents significant commercial opportunity.
Salix and Progenics Pharmaceuticals (PGNX) faced a setback recently when the FDA issued a CRL for their sNDA for Relistor. Salix was looking to gain approval for the subcutaneous use of Relistor for the treatment of OIC in adult patients with chronic, non-cancer pain. The FDA has asked the company to provide additional clinical data. Salix is seeking an End-of-Review meeting with the Division of Gastroenterology and Inborn Errors Products in order to get a better understanding of the CRL.
Meanwhile, a response on the NDA for crofelemer (control and symptomatic relief of diarrhea in HIV/AIDS patients on anti-retroviral therapy) should be out by September 5, 2012.
Salix has plans to bring an oral formulation of Relistor to market. The company presented positive phase III data and expects to file for FDA approval by September 2012.
EPS Guidance Up
Salix updated its financial guidance for 2012 to reflect the impact of the CRL for Relistor’s label expansion, the effect of the March 16, 2012 placement of $690 million of convertible senior notes and other adjustments. Salix’ previous guidance had included revenues as well as costs associated with the potential launch of Relistor for an additional indication.
While Salix continues to expect product revenue of $735 million in 2012, representing year-over-year growth of 36%, earnings are now expected to come in at $2.86 per share (old guidance: $2.59 per share). Revenue guidance includes Xifaxan sales of about $468 million, bowel cleansing product revenues of approximately $94 million, Apriso revenues of $73 million, Relistor US revenues of $25 million and other product sales of $41 million.
The company cut its R&D and SG&A guidance for 2012. While Salix expects R&D spend of $129 million (down from previous guidance of $135 million), SG&A spend is expected to be $236 million (down from previous guidance of $251 million). Salix expects R&D spend to ramp up in the third quarter. SG&A spend is expected to remain flat on a sequential basis.
While revenue guidance was below the pre-earnings Zacks Consensus Estimate of $748 million, earnings guidance was well above the pre-earnings Zacks Consensus Estimate of $2.56 per share.
Salix expects third quarter earnings of 69 cents per share on revenues of approximately $185 million. The Zacks Consensus Estimate of 62 cents for the third quarter of 2012 is below the company’s guidance.
We expect investor focus to remain on the outcome of the company’s End-of-Review meeting regarding the Relistor CRL.
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