Salix Beats, Provides Mixed Guidance - Analyst Blog

Salix Pharmaceuticals, Ltd. ( SLXP ) posted fourth quarter earnings of $1.18 per share, well above the Zacks Consensus Estimate of 97 cents and the year-ago earnings of 63 cents. Fourth quarter revenues, which increased 31% to $155.2 million, exceeded the Zacks Consensus Estimate of $152 million.

Full-year earnings came in at $2.82 per share, well above the year ago earnings of 75 cents and the Zacks Consensus Estimate of $2.30 per share. Full-year revenues increased 60% to $540.5 million, above the Zacks Consensus Estimate of $537 million. Revenues also exceeded the company's guidance of $535 million.

Quarter in Detail

Salix's fourth quarter performance was driven by its key product Xifaxan, which posted sales of $107.2 million, up 29% from the year-ago period. Prescriptions grew 34% during the quarter. Growth was driven by the launch of 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 $21.3 million. Apriso scrips increased 41% during the quarter with sales coming in at $11.3 million.

Salix's sales force is also 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 $8.5 million. Scrips grew 18% sequentially.

While research and development expenses increased 61.9% to $19.1 million during the quarter, Salix recorded a 37.6% increase in selling, general and administrative expenses which came in at $54.2 million.

Mixed Guidance for 2012

Salix expects to deliver product revenue of $735 million in 2012, representing year-over-year growth of 36%. Earnings are expected to come in at $2.45 per share. Revenue guidance includes Xifaxan sales of $422 million (up from $371.7 million in 2011), bowel cleansing product revenues of approximately $101 million, Apriso revenues of $70 million, Relistor US revenues of $19 million and other product sales of $12 million.

Expenses are expected to increase significantly in 2012. While the company expects R&D spend of $136 million (up from $104.4 million in 2011), SG&A spend is expected to be $253 million (up from $187 million in 2011).

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.

Salix expects first quarter earnings of 52 cents per share on revenues of approximately $170 million. First quarter guidance was also mixed with the Zacks Consensus Revenue and Earnings Estimates standing at $159 million and 60 cents per share, respectively.

Salix intends to launch Solesta (the treatment of fecal incontinence) and Deflux (the treatment of vesicoureteral reflux), both of which became a part of the company's portfolio following the Oceana acquisition, in late March 2012. While the company's specialty sales forces will promote Solesta to gastroenterologists and colorectal surgeons, Salix's institutional sales force will promote Deflux.

Pipeline Update

Salix suffered a huge regulatory setback in March 2011 when it received a Complete Response Letter ( CRL ) for its supplemental New Drug Application (sNDA) for Xifaxan (rifaximin) 550 mg. Salix is looking to get Xifaxan 550 mg approved for the treatment of non-constipation irritable bowel syndrome (non-C IBS) and IBS-related bloating.

Per the requirements of the FDA, Salix initiated a re-treatment study in Feb. 2012. There could well be a 2-year delay in gaining approval for the IBS indication.

The delay in Xifaxan 550 mg's approval for the IBS indication is disappointing for Salix. Xifaxan is the company's primary growth driver.

The timely approval of Xifaxan 550 mg for the IBS indication would have been a major boost for the company -- the IBS indication represents significant commercial opportunity.

Salix filed a sNDA) in late August seeking approval for the use of Relistor in non-cancer pain patients with opioid-induced constipation. A response should be out by April 27, 2012. Moreover, Salix has plans to bring an oral formulation of Relistor to market. The company presented positive phase III data (the treatment of opioid-induced constipation in chronic, non-cancer pain) and expects to file for FDA approval in the third quarter of 2012.

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 June 5, 2012.

The company intends to commence an exploratory clinical study with Lumacan in 2013. Lumacan has the potential to be used for the early detection and diagnosis of colon cancer.

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

Combined peak annual sales of candidates like Xifaxan for IBS, Relistor (subcutaneous injection and oral Relistor for chronic, non-cancer pain), crofelemer, budesonide foam and Lumacan are estimated to total $4 billion.

Outperform on Salix

We currently have an Outperform recommendation on Salix, which carries a Zacks #2 Rank (short-term "Buy" rating).

SALIX PHARM-LTD ( SLXP ): 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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