Shares of Salix Pharmaceuticals, Ltd. (SLXP) slumped more than 23% when the company announced that it expects the US Food and Drug Administration (FDA) to issue a complete response letter (CRL) for the company’s 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.

Announcement Based on Conversation with the FDA

Salix’ announcement was based on a telephone conversation with the FDA which indicated that the agency will issue a CRL on or before the FDA action date of March 7. While the company said that it is not aware of the contents of the CRL, the FDA indicated that it may need re-treatment information on the candidate.

We note that the FDA had earlier pushed back the action date for Xifaxan 550 mg for the IBS indication by three months.

Potential Delay in Approval Disappointing

The delay in Xifaxan 550 mg’s approval for the IBS indication is disappointing for the company. Xifaxan has become the company’s primary growth driver following the introduction of generic versions of Colazal in December 2007 by three players, including Mylan Inc. (MYL).

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. Depending on the FDA’s requirements, the approval of Xifaxan 550 mg for the IBS indication could be pushed out by more than a year.

Salix has been working on new indications of Xifaxan to help drive long-term growth. Xifaxan 550 mg was launched in 2010 for the reduction of the risk of the recurrence of overt hepatic encephalopathy (HE) in adult patients. The HE indication should have excellent incremental potential.

Salix enjoys orphan drug designation for the HE indication, which means that Xifaxan 550 mg should enjoy 7 years of marketing exclusivity. The company estimates that the product may be able to grab $200 million – $300 million of this market.

We currently have a Neutral recommendation on Salix, which is supported by a Zacks #3 Rank (short-term Hold rating).

 
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