Salix Misses On Q3 Earnings; To Buy Santarus - Analyst Blog


Salix Pharmaceuticals, Ltd. ( SLXP ) posted third quarter 2013 earnings of 80 cents per share, above the year-ago earnings of 69 cents. Excluding the impact of stock-based compensation expense, the company reported third quarter earnings of 89 cents per share, up 15.6% from the year-ago quarter. Third quarter earnings missed the Zacks Consensus Estimate of 95 cents.

Third quarter revenues increased 29% to $238.2 million, in-line with the Zacks Consensus Estimate.

Quarter in Detail

Key product Xifaxan (rifaximin) posted sales of $165.9 million, up 20% from the year-ago period. Growth was driven by Xifaxan 550 mg, which gained FDA approval in Mar 2010 for hepatic encephalopathy. Scrips grew 24% from the year-ago period. Strong formulary coverage and encouraging data should help drive Xifaxan 550 sales further.

Salix is working on the development of a next generation rifaximin - rifaximin soluble solid dispersion (SSD). A phase II, double-blind, placebo-controlled, dose-ranging study was initiated in Jun 2013 for the prevention of complications of early decompensated liver cirrhosis.

Salix is also looking to develop an extended intestinal release (EIR) version of rifaximin for Crohn's disease. Patient enrolment in two phase III studies is expected to commence by year end.

Salix' purgatives, MoviPrep and OsmoPrep, generated revenues of $19.2 million. Apriso delivered sales of $38.1 million, up 93% from the year-ago period. Apriso scrips increased 53% during the quarter.

Relistor scrips increased 28% from the prior-year quarter with sales coming in at $4.3 million. Solesta and Deflux sales were $1.8 million and $6.6 million, respectively.

While research and development expenses increased 16.5% to $38.2 million during the quarter, Salix recorded a 9.3% increase in selling, general and administrative expenses which came in at $67.2 million. The increase in SG&A spend reflected higher personnel costs and higher legal costs.

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 FDA for its supplemental New Drug Application (sNDA) for Xifaxan 550 in Mar 2011. With the TARGET 3 study commencing in Feb 2012, Salix could gain approval for the IBS indication in the second half of 2014.

Meanwhile, an FDA advisory panel will review Salix and Progenics Pharmaceuticals' ( PGNX ) supplemental new drug application (sNDA) for Relistor for opioid-induced constipation (OIC) in patients with chronic pain on Mar 10-11 2014. The FDA will act within 30 days of receiving an opinion from the panel. Salix and Progenics had received a CRL for their sNDA for Relistor last year for the chronic, non-cancer pain indication.

Salix is looking to seek FDA approval for budesonide foam for the treatment of active mild to moderate ulcerative proctitis or proctosigmoiditis by year end.

To Acquire Santarus

Apart from announcing third quarter results, Salix announced its intention to acquire specialty biopharmaceutical company, Santarus, Inc. ( SNTS ). The companies have signed a definitive merger agreement under which Salix will acquire all the outstanding common stock of Santarus for $32.00 per share in cash (without interest). This represents a 36% premium to Santarus' closing price on Nov 6. The deal, valued at approximately $2.6 billion, is slated to close in the first quarter of 2014.

This acquisition will expand Salix' product portfolio as well as pipeline and strengthen its position in the gastrointestinal market. With the addition of marketed products like Uceris, Glumetza and Zegerid to its portfolio, Salix' product offering and revenue base will be diversified.

The Santarus acquisition is expected to be significantly accretive in 2014. Additional synergies will lead to higher EPS accretion in 2015.

Salix provided preliminary guidance for 2014 and expects earnings of $5.00 per share without taking into consideration revenue synergies, product launches or label expansions. The Zacks Consensus Estimate for 2014 is currently $4.01 per share.

2013 Guidance

Salix maintained its 2013 revenue and earnings guidance at $920 million and $3.20 per share respectively. The Zacks Consensus Estimate is currently $3.46 per share, well above the company's guidance.

Going by the current annualized run rate, Xifaxan, Moviprep/Osmoprep, Apriso, Relistor and other product sales are expected to be about $630 million (old guidance: $597 million), $106 million (old guidance: $93 million), $128 million (unchanged), $46 million (old guidance: $45 million) and $48 million (old guidance: $49 million), respectively.

Fourth quarter 2013 earnings are expected to be about 90 cents per share on product revenues of $243.8 million. The current Zacks Consensus Estimate is much higher at $1.06 per share.

Salix currently carries a Zacks Rank #2 (Buy). We expect investor focus to remain on updates on Relistor, data from TARGET-3 and the Santarus acquisition. The Santarus acquisition will not only be accretive, it will also help Salix strengthen its position in the gastrointestinal market. Shares of both Salix and Santarus were up in after-hours trading.

Companies that currently look well-positioned include Shire ( SHPG ), a Zacks Rank #1 (Strong Buy) stock.

PROGENICS PHARM (PGNX): Free Stock Analysis Report

SHIRE PLC-ADR (SHPG): Free Stock Analysis Report

SALIX PHARM-LTD (SLXP): Free Stock Analysis Report

SANTARUS INC (SNTS): Free Stock Analysis Report

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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 The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: CRL , PGNX , SHPG , SLXP , SSD

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