We recently downgraded
Salix Pharmaceuticals, Ltd.
) to a Neutral recommendation with a target price of $51.00.
Although Salix' fourth quarter 2011 results exceeded expectations
with higher revenues boosting performance, the company provided
mixed guidance for 2012. While revenue guidance was above the Zacks
Consensus Estimate of $697 million, earnings guidance was well
below the Zacks Consensus Estimate of $2.63 per share. As a result,
the Zacks Consensus Estimate for 2012 declined by 33 cents to $2.30
per share. The company carries a Zacks #3 Rank (short-term 'Hold'
We expect Xifaxan (rifaximin), Salix' lead product, to continue
driving the top line. Xifaxan sales came in at $371.7 million in
2011, up 48.4%. We expect Xifaxan sales to exceed $420 million in
2012. We are pleased to see that Salix is working on developing new
indications for Xifaxan 550. We are also encouraged by Salix' plans
to develop a next generation rifaximin.
Salix has also been working on expanding its product portfolio
over the past few years through acquisitions and in-licensing of
candidates in late stage clinical development. The company has an
important regulatory event coming up later this month (April 27)
with the FDA expected to respond on the company's supplemental new
drug application (sNDA) for the use of Relistor in chronic
non-cancer pain patients with opioid-induced constipation.
Salix has plans to bring an oral formulation of Relistor to
market. The company presented impressive phase III data from a
study conducted in patients with chronic, non-cancer pain and
expects to file for approval in the third quarter of 2012. Salix
has an exclusive agreement with
Progenics Pharmaceuticals, Inc.
) for the worldwide (excluding Japan) rights to Relistor.
While we are encouraged by Salix' efforts to expand Xifaxan
550's label, we note that the company faced a major setback in its
efforts to get Xifaxan 550 approved for non-constipation irritable
bowel syndrome with diarrhea (IBS-D). The company received a
complete response letter from the FDA in March 2011. The IBS-D
indication represents significant commercial potential and the
delay in gaining approval for this indication is a big
disappointment. In keeping with the requirements of the FDA, Salix
is conducting a phase III study (TARGET 3) with Xifaxan 550 for the
IBS-D indication. With the study expected to be conducted over a
two-year period, approval for the IBS-D indication is not likely to
come before late 2014/early 2015. We expect investor focus to
remain on development updates for the IBS-D indication.
Moreover, we are concerned that generic companies could seek to
market generic versions of Xifaxan, Salix' main growth driver. With
Xifaxan contributing more than 65% to 2011 revenues, the entry of
generic versions of Xifaxan would be devastating for Salix. Salix
has already faced a major setback with the genericization of
Colazal, which resulted in the company losing a major part of its
revenues and earnings. Another product, Pepcid, started facing
generic competition in 2010.
PROGENICS PHARM (
): Free Stock Analysis Report
SALIX PHARM-LTD (
): Free Stock Analysis Report
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