Salix Pharmaceuticals, Ltd. (SLXP) posted fourth quarter earnings of 66 cents per share, well above the Zacks Consensus Estimate of 50 cents. Salix had reported a loss of 13 cents in the year-ago quarter. Higher revenues and lower research and development costs helped improve earnings.
Although fourth quarter revenues increased 68.7% to $118.5 million, revenues fell short of the Zacks Consensus Estimate of $120 million.
Meanwhile, full year 2010 earnings came in at 54 cents per share, well above the year-ago loss of 88 cents and the Zacks Consensus Estimate of 30 cents. Revenues increased 44.7% to $337 million, short of the Zacks Consensus Estimate of $339 million. Revenues, however, exceeded the company’s guidance of $334 million.
Quarter in Detail
Salix’ fourth quarter performance was driven by its key product Xifaxan, which posted sales of $83 million, up significantly from the year-ago revenue of $24.9 million.
Prescriptions grew 81% during the fourth 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 should help drive Xifaxan 550 sales further.
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 and OsmoPrep generated revenues of $20.3 million, down 33.2%. Apriso sales increased 94.7% to $14.8 million.
While research and development expenses declined 40.7% to $11.8 million during the quarter, Salix recorded an 8.2% increase in selling, general and administrative expenses which came in at $39.4 million.
2011 Guidance
Salix expects to deliver product revenue of approximately $520 million in 2011, including $100 million in the first quarter of 2011. While the revenue guidance indicates year-over-year growth of 54%, we note that the guidance is below the current Zacks Consensus Revenue Estimate of $540 million.
Revenue guidance includes Xifaxan sales in the range of $312 million, bowel cleansing product revenues of approximately $101 million, Apriso revenues of $50 million and other product sales of $13 million.
Salix expects to spend approximately $98 million towards its research and development efforts. SG&A spend is expected in the range of $178 million.
Pipeline Update
Salix suffered a huge regulatory setback recently when it was informed by the FDA that the agency will 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.
The FDA has indicated that it will issue a CRL on or before the 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.
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 for the company. 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.
As far as pipeline candidates crofelemer and budesonide foam are concerned, Salix reported positive top-line data from the crofelemer phase III study (ADVENT) in November 2010. The company conducted a pre-new drug application (NDA) meeting with the FDA in Jan 2011 and is looking to file for approval by mid-2011.
Salix also expects to file a supplemental new drug application (sNDA) seeking approval for the use of Relistor in chronic non-malignant pain patients with opioid-induced constipation.
Moreover, Salix has plans to bring an oral formulation of Relistor to market. The oral formulation is currently in phase III studies in patients with chronic, non-cancer pain. Enrolment for this study is scheduled to complete by year end and results should be available in the latter half of 2012.
Neutral on Salix
We currently have a Neutral recommendation on Salix, which is supported by a Zacks #3 rank (short-term Hold rating). We expect investor focus to remain on the CRL for Xifaxan 550 mg and the regulatory path for the candidate.
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