Salix Beats on Earnings - Analyst Blog

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Salix Pharmaceuticals, Ltd. ( SLXP ) posted first quarter earnings of 56 cents per share, above the Zacks Consensus Estimate of 55 cents and the year-ago earnings of 42 cents. Excluding the impact of stock-based compensation expense, the company reported first quarter earnings of 63 cents per share, up 37% from the year-ago quarter.

First quarter revenues increased 18% to $202.6 million. However, revenues were below the Zacks Consensus Estimate of $208 million.

Quarter in Detail

Key product Xifaxan (rifaximin) posted sales of $153.3 million, up 36% from the year-ago period. Prescriptions grew 26% during the quarter. Growth was driven by Xifaxan 550 mg, which gained FDA approval in Mar 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 this candidate into a phase II dose-ranging study in the second quarter of 2013.

Salix is also looking to develop an extended intestinal release (EIR) version of rifaximin for Crohn's disease. The company and its partner, Alfa Wassermann, have been meeting with regulatory agencies across the world to determine the regulatory path for the candidate.

The FDA is currently evaluating the endpoints for studies that will be conducted for the Crohn's disease indication. Salix expects to reach at an agreement with the FDA on the endpoints and commence two phase III studies in the second half of 2013.

Salix's purgatives, MoviPrep and OsmoPrep, generated revenues of $14.1 million, down 37.3% from the year-ago period. Inflammatory bowel disease products - Colazal/Apriso/Giazo - generated sales of $18.5 million, up 19.2% from the year-ago period. Apriso accounted for a major part of inflammatory bowel disease product sales. Apriso scrips increased 11% during the quarter.

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 52% from the prior-year quarter with sales coming in at about $7.6 million.

Salix is also promoting Solesta to physicians as an option to treat fecal incontinence in adult patients who have failed conservative therapy. The company is preparing for the launch of Fulyzaq which will take place once the release specifications are finalized.

While research and development expenses increased 13.5% to $30.3 million during the quarter, Salix recorded a 26.3% increase in selling, general and administrative expenses which came in at $76.3 million. The increase in SG&A spend reflected higher personnel costs and increased marketing expenses related to Solesta Fulyzaq and Deflux 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 mid-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 last year for the chronic, non-cancer pain indication.

Salix had an end of review meeting in Oct 2012 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.

Salix has submitted an appeal to the FDA. 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.

Salix expects top-line phase III data from two studies on budesonide foam by the end of this month. The company is looking to seek FDA approval for budesonide foam for the treatment of moderate ulcerative proctitis or proctosigmoiditis by late Sep 2013.

Maintains 2013 Guidance

Salix continues to guide towards earnings of $3.37 per share on product revenues of $920 million in 2013. Going by the current annualized run rate, Xifaxan, Moviprep/Osmoprep, Apriso, Relistor and other product sales are expected to be about $572 million, $111 million, $93 million, $44 million and $47 million, respectively. The company expects SG&A spend of about $267 million in 2013.

Second quarter 2013 earnings are expected to be about 78 cents per share on product revenues of $228 million.

Salix currently carries a Zacks Rank #4 (Sell). Companies that look better-positioned include Catalyst Pharmaceuticals Partners Inc. ( CPRX ) and Santarus, Inc. ( SNTS ). Both are Zacks Rank #1 (Strong Buy) stocks.

CATALYST PHARMA (CPRX): Free Stock Analysis Report

PROGENICS PHARM (PGNX): 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 Nasdaq, Inc.

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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