Why Salix Pharmaceuticals Ltd. Stock Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Salix Pharmaceuticals (NASDAQ: SLXP  ) , a globally diversified pharmaceutical company focused primarily on treating gastrointestinal diseases, rocketed higher by as much as 13% after reporting positive late-stage data for rifaximin (known better as Xifaxan) as a repeat treatment for patients with irritable bowel syndrome with diarrhea, or IBS-D.

So what: According to results from the TARGET 3 study where Xifaxan was administered three-times daily for 14 days to patients, "a statistically significant greater proportion of rifaximin treated subjects (as compared to placebo) responded to repeat treatment as assessed by the composite primary endpoint of IBS-related abdominal pain and stool consistency during the 4 week treatment-free follow-up period (Primary Evaluation Period, or PEP) in the Double Blind Repeat Treatment Phase." Xifaxan was also considered well-tolerated and safe in the study which confirmed the efficacy exhibited in TARGET 1 and TARGET 2. Salix believes these results pave the way for a supplemental new drug filing.

In response to this study, research firm Sterne Agee, commented that it should serve as a means to get Xifaxan approved to treat IBS-D and projected Salix's share price could hit $180. That's close to 50% additional upside from yesterday's close.

Now what: In addition to this positive news, Salix also has a big catalyst coming up in two weeks involving the Food and Drug Administration's decision on ruconest, a hereditary angioedema drug that it acquired when it purchased Santarus for $2.6 billion in cash. Chances are probably better than 50-50 that it will be approved as well (at least in my opinion). Things are certainly hitting on all cylinders for Salix. Despite today's run higher, the company's forward P/E still sits at a minuscule 19, which isn't unreasonable considering its annual sales growth estimate over the next five years is near 20%. This is a specialty pharmaceuticals company that very well could continue to rise and I'd have no qualms about you adding it to your watchlist.

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