Salix Beats; Ups EPS Outlook - Analyst Blog


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Salix Pharmaceuticals, Ltd. ( SLXP ) posted first quarter earnings of 67 cents per share, well above the Zacks Consensus Estimate of 54 cents and the year-ago earnings of 34 cents. First quarter revenues, which increased 61.6% to $171.1 million, exceeded the Zacks Consensus Estimate of $168 million. Results were above the company's earnings and revenue guidance of 52 cents and $170 million, respectively.

Quarter in Detail

Salix's first quarter performance was driven by its key product Xifaxan, which posted sales of $112.9 million, up 40% from the year-ago period. Prescriptions grew 27% during the quarter. Growth was driven by Xifaxan 550 mg, which gained US Food and Drug Administration (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 $22.4 million. Apriso scrips increased 36% during the quarter with sales coming in at $15.1 million.

Recently launched products like Relistor, Solesta and Deflux also contributed to revenue growth.

Salix's sales force is promoting Relistor for the treatment of opioid-induced constipation in patients with advanced illness who are receiving palliative care, when response to laxative therapy has not been sufficient to physicians. Relistor sales came in at about $12.2 million.

Solesta and Deflux were launched in March 2012. While Deflux sales were $7.4 million, Solesta sales were slightly above $200,000.

While research and development expenses increased 25.9% to $25.6 million during the quarter, Salix recorded a 27.4% increase in selling, general and administrative expenses which came in at $55.9 million.

EPS Guidance Revised

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 $2.59 per share (old guidance: $2.45 per share). Revenue guidance includes Xifaxan sales of about $442 million (up from $371.7 million in 2011), bowel cleansing product revenues of approximately $104 million, Apriso revenues of $71 million, Relistor US revenues of $28 million and other product sales of $44 million.

Expenses are expected to increase significantly in 2012. While the company expects R&D spend of $135 million (up from $104.4 million in 2011), SG&A spend is expected to be $251 million (up from $187 million in 2011). Salix's SG&A guidance reflects the company's plans to increase its gastroenterology sales force from 160 reps to 192 reps over the over the next few months. The company has already expanded its institutional sales force from 25 key account managers (KAMs) to 40 KAMs.

The expanded sales force will continue focusing on gastroenterologists, colorectal surgeons and hepatologists. While half the sales force will promote Xifaxan 550, Relistor and Apriso, the remainder will promote Solesta, Xifaxan 550, Moviprep/Osmoprep and Apriso.

Both revenue and earnings guidance were above the Zacks Consensus Estimate of $746 million and $2.40 per share, respectively.

Salix expects second quarter earnings of 51 cents per share on revenues of approximately $180 million. The pre-earnings Zacks Consensus Revenue and Earnings Estimates were $181 million and 58 cents per share, respectively. The company expects second quarter expenses to increase.

Pipeline Update

Salix initiated a re-treatment study, TARGET 3, in Feb. 2012 with Xifaxan 550 mg for the treatment of irritable bowel syndrome (IBS) with diarrhea. The company had received a Complete Response Letter (CRL) 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 is also facing regulatory delays for two other candidates. Salix and Progenics Pharmaceuticals ( PGNX ) recently announced a three-month extension of the review period for the use of Relistor in chronic non-cancer pain patients with opioid-induced constipation.

With the FDA extending the review period by three months, a response on Relistor's label expansion should be out by July 27, 2012. If approved, Salix will most likely launch Relistor for the new indication in early 2013.

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 instead of June 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 in the third quarter of 2012.

Salix expects to achieve $1 billion in sales in 2013, provided it gains approval for Relistor for OIC in chronic, non-cancer pain.

Neutral on Salix

We currently have a Neutral recommendation on Salix, which carries a Zacks #3 Rank (short-term 'Hold' rating).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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