Why Salix Pharmaceuticals' Good Data Wasn't Great

Salix was short on specifics but word of a successful IBS-D study should calm some nervous stomachs among investors

Jul 2, 2014 at 9:30AM

Investors in Salix Pharmaceuticals (NASDAQ:SLXP) might have had some upset stomachs in the days leading up to today's announcement of positive results from the TARGET-3 study of Xifaxan in IBS-D. Although a medical journal review from mid-2012 had suggested that Xifaxan would pass this study of long-term retreatment, there are hundreds of millions of high-margin incremental sales riding on Salix ultimately securing FDA approval for a drug that has had a tough route to approval for this large indication.

A little background
Xifaxan is Salix's biggest drug and likely to make up about 50% of normalized sales this year. The drug is already approved for hepatic encephalopathy and traveler's diarrhea and the FDA has laid out challenging clinical endpoint requirements for bioequivalence (adding another layer of defense to future generic competition).

Xifaxan has been shown to be effective in reducing the symptoms of IBS-D, an undertreated condition characterized by pain, bloaing, discomfort, and diarrhea (another form, referred to as IBS-C, causes constipation). IBS patients have a suicide rate that is two to four times the norm, and this is thought to be due in part to a lack of effective treatments – Novartis withdrew Zelnorm from the market in 2007 at the FDA's request and Lotronex (originally marketed by Glaxo, now owned by Prometheus Labs was pulled in 2000 before being reintroduced in 2002 on a highly restricted basis.

Analysts believe that as much as 25% to 50% of Xifaxan's sales may be for off-label use in IBS-D, but formal FDA approval would allow the company to actively market the drug for that indication and would improve the reimbursement process significantly. All told, FDA approval could potentially add $400 million to $700 million in incremental annual sales and allow Salix to leverage the primary care sales force acquired with Santarus even more effectively.

The data
I'd love to say that the TARGET-3 data were great and support not only clear-cut FDA approval but a strong competitive profile against would-be competitor Furiex Pharmaceuticals and its drug eluxadoline (and Forest Labs (NYSE:FRX) is acquiring Furiex). I'd love to say that, but I cannot as the company provided virtually no data at all.

What Salix said today was that the study was a success and that the drug showed a statistically significant response (versus placebo) in a 14-day retreatment period for IBS-D patients. Combined with the earlier TARGET-1 and TARGET-2 studies, this should answer the FDA's questions and support approval.

I would expect more data at the company's July 9th investor/analyst day, including guidance on the regulatory process from here. The company could likely file a supplemental NDA within a couple of months, allowing for approval in 2015. Once approved, I expect Salix to move quickly on the marketing side to maximize the value of this new indication.

Insofar as competition with eluxadoline goes, I would note that a critical factor in the competitive profile of eluxadoline is how the FDA schedules the drug (it is mu and delta opioid receptor agonist). More restrictive scheduling (treating the drug like a controlled substance) would create some limitations and obstacles with prescribing physicians and pharmacists and would help Salix gain share.

The bottom line
Salix shares had been moving up nicely in April, in part I believe on expectations for this clinical update and a desire to get long ahead of it. As the 13% move after the news suggests, though, not all of the optimism was fully in the shares. There is some risk that the actual data will disappoint and certainly a risk that the FDA will find a new quibble, but Xifaxan looks to be in good shape as a labeled drug for IBS-D and an incremental high-margin growth opportunity for Salix in 2015.

Leaked: This coming blockbuster could make every biotech -- including Salix -- jealous
The best biotech investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool’s new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Stephen D. Simpson, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers