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Salix Pharmaceuticals Beats on Q2 Earnings, Cuts Guidance

Zacks Equity Research

The share price of Salix Pharmaceuticals, Ltd. (SLXP) fell 3.9% after the company announced its second-quarter results on Aug 7. Although share prices have recovered slightly, the stock is still down 3.6%.

Salix posted second quarter 2014 earnings of $1.44 per share, above the Zacks Consensus Estimate of $1.28 and the year-ago earnings of 47 cents per share. Excluding the impact of depreciation and stock-based compensation expense, the company reported second quarter earnings of $1.59 per share, up 109% from the year-ago quarter.

Second quarter revenues increased 62% to $382 million. Results were positively impacted by the Santarus acquisition.

Quarter in Detail

Xifaxan (rifaximin) posted sales of $140.5 million, down 6.7% from the year-ago period. Scrips for Xifaxan 550, which gained FDA approval in Mar 2010 for hepatic encephalopathy, grew 23% from the year-ago period.

Salix reported that Xifaxan 550 sales lagged scrip demand due to inventory destocking in the wholesale channel during the reported quarter. The company expects Xifaxan 550 sales to continue to be affected by destocking though to a lesser extent in the third quarter of 2014. Sales are expected to normalize from the fourth quarter.

Salix is working on the development of a next generation rifaximin - rifaximin soluble solid dispersion (SSD). The company is enrolling subjects for a phase II, double-blind, placebo-controlled, dose-ranging study for the prevention of complications of early decompensated liver cirrhosis. Enrollment is scheduled to complete by year end.

Salix is also looking to develop a delayed release version of rifaximin for Crohn's disease. The company has initiated patient enrollment for the 52-week phase III study.

Salix's purgatives, MoviPrep and OsmoPrep, generated revenues of $9.1 million. Apriso sales were $30.8 million, while scrips increased 25% during the quarter. Here too sales were affected by inventory destocking.

In the second quarter, the company implemented an 8% price increase on Apriso. Relistor sales were $9 million. Deflux sales were $ $6 million.

Santarus products like Uceris, Glumetza, Zegerid and Cycloset posted sales of $42.5 million, $102.7 million, $27.2 million and $7.5 million, respectively.

While research and development expenses decreased 13.2% to $39.2 million during the quarter, Salix recorded a 55.5% increase in selling, general and administrative expenses which came in at $124.9 million. The inclusion of additional personnel and marketing costs and transaction and integration costs related to the Santarus acquisition led to higher SG&A spend.

Pipeline/Product Portfolio Update

The FDA is expected to render a decision on Salix and Progenics Pharmaceuticals' (PGNX) supplemental new drug application (sNDA) for Relistor for opioid-induced constipation (:OIC) in patients with chronic non-cancer pain by Sep 29, 2014.

Salix is seeking FDA approval for Uceris rectal foam for the treatment of active mild to moderate ulcerative proctitis or proctosigmoiditis – a response should be out by Sep 15, 2014.

Meanwhile, on Jul 16, 2014, the FDA approved Ruconest for the treatment of acute angioedema attacks in patients (adult and adolescent) suffering from hereditary angioedema (HAE). The company plans to launch the drug in the fourth quarter of 2014.

In Jul 2014, the company announced encouraging data from the TARGET 3 phase III study on Xifaxan 550 mg for the treatment of irritable bowel syndrome (:IBS) with diarrhea.

Meanwhile, the company’s merger agreement with Cosmo Technologies Ltd. is expected to close in early-to-mid November. The transaction is expected to be modestly accretive in 2016 and increasingly accretive beyond 2016 (read more: Salix-Cosmo to Merge in Tax-Saving Deal).

2014 Guidance

Salix expects 2014 revenues and earnings of $1.6 billion and $6.16 per share, respectively. Although the revenue guidance remained unchanged, the company has cut its earnings guidance due to a higher number of fully diluted shares. The Zacks Consensus Estimate for revenues and earnings is at $1.6 billion and $3.37, respectively.

Going by the current annualized run rate, Xifaxan, Uceris, Apriso, Glumetza, Zegerid, Moviprep/Osmoprep, Relistor and other product sales are expected to be about $712 million, $124 million, $159 million, $227 million, $108 million, $99 million, $45 million and $76 million, respectively.

Third quarter 2014 earnings are expected to be about $1.53 per share on product revenues of $395 million.

Salix is a Zacks Rank #2 (Buy) stock. Other well-ranked stocks in the health care sector include Endo International (ENDP) and Anacor Pharmaceuticals, Inc. (ANAC). While Endo sports a Zacks Rank #1 (Strong Buy), Anacor Pharma is a Zacks Rank #2 (Buy) stock.

Read the Full Research Report on ENDP
Read the Full Research Report on PGNX
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