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Mixed Quarter from Salix - Analyst Blog

Posted
11/12/2012 11:20:00 AM
By: Zacks.com
Referenced Stocks:CRL;PGNX;SLXP

Salix Pharmaceuticals, Ltd. ( SLXP ) posted third quarter earnings of 95 cents per share, well above the Zacks Consensus Estimate of 64 cents, the year-ago earnings of 77 cents and the company's earnings guidance of 69 cents per share. Third quarter revenues increased 27% to $185 million, missing the Zacks Consensus Estimate of $188 million, but in line with the company's guidance.

Quarter in Detail

Salix's third quarter performance was driven by its key product Xifaxan (rifaximin), which posted sales of $137.9 million, up 43% from the year-ago period. Prescriptions grew 20% 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 in the first half of 2013.

Salix's bowel cleansing franchise, consisting of MoviPrep and OsmoPrep, generated revenues of $13.3 million. Apriso scrips increased 24% during the quarter with sales coming in at $19.7 million, up 31% from the year-ago period.

Recently launched products like Relistor, Solesta and Deflux contributed $12.1 million to third 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 $4.9 million.

Solesta and Deflux were launched in March 2012. While Deflux sales were $7 million, Solesta sales were about $0.6 million.

While research and development expenses increased 40.8% to $31.4 million during the quarter, Salix recorded a 49.3% increase in selling, general and administrative expenses which came in at $55.7 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 Xifaxan 550 and Solesta. R&D expenses increased due to the company's investment in the phase III retreatment study of Xifaxan 550 for irritable bowel syndrome with diarrhea.

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 March 2011. With the TARGET 3 study commencing in February 2012, Salix could gain approval for the IBS indication in the first half of 2014.

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.

Meanwhile, there continues to be uncertainty regarding the path forward for the subcutaneous use of Relistor for the treatment of OIC in adult patients with chronic, non-cancer pain. Salix and Progenics Pharmaceuticals ( PGNX ) had received a CRL for their sNDA for Relistor earlier this year for the chronic, non-cancer pain indication. Salix had an end of review meeting in October in order to gain a better understanding of the CRL. Given concerns regarding a risk associated with the chronic use of new opioid antagonists in patients taking opioids for chronic pain, the company may be required to conduct a very large, well-controlled chronic administration trial.

According to Salix, currently available post-marketing, clinical and preclinical data could be enough to gain approval. We expect to hear more on the path forward in 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 in the first quarter of 2013.

EPS Guidance Up

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 $3.13 per share (old guidance: $2.86 per share). Revenue guidance includes Xifaxan sales of about $495 million, bowel cleansing product revenues of approximately $108 million, Apriso revenues of $87 million, Relistor US revenues of $32 million and other product sales of $48 million.

Salix expects third quarter earnings of 72 cents per share on revenues of approximately $198 million.

Neutral on Salix

We currently have a Neutral recommendation on Salix, which carries a Zacks #3 Rank (short-term 'Hold' rating). Xifaxan continues to perform well and should keep driving growth. We believe Salix will continue seeking suitable in-licensing opportunities in order to grow revenues. However, we still have low visibility on the path forward for Relistor's label expansion. We expect investor focus to remain on the company's plans for Relistor.



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