Salix Pharmaceuticals, Ltd. (SLXP) swung to a profit in the second quarter of 2010 with earnings coming in at 13 cents per share, 3 cents above the Zacks Consensus Estimate and the guidance provided by the company. Salix had reported a loss of 32 cents in the year-ago quarter. Higher revenues helped the company swing to a profit in the reported quarter.
Second quarter revenues increased a whopping 79.5% to $93.8 million, mainly due to strong Xifaxan sales. While revenues were slightly above the company’s guidance of $93 million, they missed the Zacks Consensus Estimate of $95 million.
Quarter in Detail
Salix’ second quarter performance was driven by key product Xifaxan, which posted sales of $72.4 million, up from $26.3 million reported in the year-ago period. Prescriptions grew 47% in June 2010.
Xifaxan sales were boosted by inventory stocking of Xifaxan 550 mg, which gained US Food and Drug Administration (FDA) approval in March 2010 for hepatic encephalopathy. While product shipment to wholesalers commenced in late April 2010, the product was launched to physicians on May 24.
Salix reported a positive response from physicians and payors regarding Xifaxan 550. Salix said that the 4,300 physicians prescribed the product within the first 11 weeks of the launch. Xifaxan 550 has gained formulary coverage across all 50 Medicaid programs and is also covered by several private managed care organizations.
The company’s 96-member Integra sales force and 64-member Futura sales force are promoting Xifaxan 550. Positive phase III data on Xifaxan 550 showing a 58% reduction in the risk of experiencing a breakthrough overt HE (hepatic encephalopathy) episode and a 50% reduction in the risk of experiencing HE-related hospitalization should help drive sales.
Salix’ bowel cleansing franchise, consisting of MoviPrep, OsmoPrep and Visicol generated revenues of $6.1 million, down 63.1%. OsmoPrep prescriptions declined 25% mainly due to the boxed label warning announced by the FDA in late 2008.
Meanwhile, inflammatory bowel disease products Colazal and Apriso delivered sales of $12.6 million in the second quarter. Ulcerative colitis treatment Apriso recorded a 41% increase in prescriptions on a sequential basis. Salix expects to launch Giazo, a tablet formulation of Colazal that is currently under FDA review, later this year on approval.
While research and development expenses remained almost flat at $23 million during the quarter, Salix recorded a 40.7% increase in selling, general and administrative expenses which came in at $40.8 million.
2010 Guidance Maintained
Salix maintained its financial guidance for 2010. The company expects to earn 4 cents per share on product revenue of approximately $334 million in 2010.
Revenues should be driven by continued growth of currently marketed products, new product launches, and label expansions for Xifaxan. While the 2010 Zacks Consensus Earnings Estimate is a penny below the guidance provided by Salix at 3 cents, the 2010 Zacks Consensus Revenue Estimate is slightly above the company’s guidance at $337 million.
Revenue guidance includes Xifaxan sales in the range of $232 million, bowel cleansing product revenues of approximately $88 million, Apriso revenues of $32 million and other product sales of $25 million. We note that Salix has increased its guidance for Xifaxan and Apriso. Meanwhile, guidance for bowel cleansing products and other products have been reduced by $1 million and $10 million, respectively.
Salix expects to spend approximately $100 million towards its research and development efforts. SG&A spend is expected in the range of $153 million.
Salix is currently seeking approval for the use of Xifaxan 550 for the treatment of non-constipation irritable bowel syndrome and IBS-related bloating. The FDA has granted the company priority review status and a response should be out by Dec 7, 2010.
As far as pipeline candidates crofelemer and budesonide foam are concerned, Salix said that it has finished enrolling patients for the crofelemer phase III study (ADVENT). The company is looking to file a new drug application (NDA) for the candidate in the first quarter of 2011. This represents a slight delay from the company’s earlier plans to file an NDA by year-end 2010. Meanwhile, patient enrolment for two phase III studies with budesonide foam is currently ongoing.
Salix also provided guidance for the third quarter of 2010. The company expects to post a loss of 13 cents on revenues of $73 million. Salix expects revenues to decline on a sequential basis as second quarter sales were boosted by the initial stocking of Xifaxan 550mg.
Our Take
We currently have a Neutral recommendation on Salix, which is supported by a Zacks #3 Rank (Hold). We were pleased to see Xifaxan gain approval for the hepatic encephalopathy indication as we believe that the main potential for Salix lies in gaining approval for additional indications for Xifaxan. The promotion of Apriso and Metozolv ODT will also be a high priority for the company.
We believe Salix will also seek suitable in-licensing opportunities in order to grow revenues. In the meantime, we remain concerned about the possibility of a generic company initiating a patent challenge for Xifaxan.
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