Can Anything Derail Salix Pharmaceuticals?

I promise that I don't have a contract that specifies a minimum number of Salix Pharmaceuticals (NASDAQ: SLXP  ) articles, but sometimes the news flow just seems to run that way. After a vague announcement of positive phase 3 data on Xifaxan in IBS-D on July 1 and the announcement of a tax inversion M&A transaction with Cosmo Tech on July 9, management has now announced a successful appeal to the FDA and the approval of sub-q Relistor for opioid-induced constipation (or OIC) in patients with chronic pain unrelated to cancer.

A challenging process to get there
Getting to the point of approval for the injected form of Relistor hasn't been a walk in the park. The FDA has been particularly concerned about potential cardiovascular risks associated with the drug, and that served as the basis for a rejection some time ago. Salix pursued an appeals process and there was an additional panel meeting in June of this year to review the safety risks of the drug. Though I'm not a doctor or statistician, I would note that with three CV events out of more than 4,000 patients, the risks of Relistor seem fairly theoretical at this point.

Even with this label extension (Relistor was previously approved for cancer pain-related OIC), Salix's work is not done. This new approval comes with the requirement of a phase 4 post-marketing cohort study to assess the relative incidence of cardiovascular events for patients taking Relistor versus other OIC treatments.

What this means
This is a nice-to-have approval, but not a game-changer for Relistor. Salix licensed the drug from Progenics (NASDAQ: PGNX  ) in 2011, but it has been a disappointment so far with under $40 million in revenue in 2013. With this expanded approval, Salix has a fair chance of hitting the current average revenue estimate for injected Relistor of $150 million in 2020, but again that is not a terribly significant product opportunity.

The bigger opportunity for Salix is the phase 3 oral version of Relistor. Trials have been encouraging, though OIC trials have a reputation for being a little more "noisy" than average. So far, studies done to date suggest that oral Relistor has similar efficacy to the injected version with no serious incremental safety issues. Patent coverage could be an issue for this drug, but the revenue opportunity post-approval exceeds $1 billion.

Success here is by no means guaranteed. Alkermes abandoned its OIC candidate back in 2012 after disappointing trial results, and Cubist is in phase 3 studies of its drug bevenopran. Nektar (NASDAQ: NKTR  ) and AstraZeneca are even further along with Movantik (naloxegol), a once-daily oral treatment that showed an 11% to 15% placebo-adjusted improvement in bowel movements (p=0.001 and p=0.021) in two phase 3 studies. The FDA accepted Astra's NDA filing on Movantik in November of 2013 and approval within the next two months seems probable (the PDUFA date is September 16, 2014).

The bottom line
Expanded approval for injected Relistor is a "nice to have" and perhaps more of a binary outcome that other products in the company's pipeline – had the FDA panel meeting in June gone against the industry and the FDA insisted upon cardiovascular outcomes studies, Salix would likely have abandoned this indication. As it is, an extra $100 million in revenue (or rather, a de-risked future contribution in the model) is a nice boost, though small relative to the impact of FDA approval for Xifaxan in IBS-D or oral Relistor in OIC.

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Stephen D.

I'm an ex-Wall Street sell-side and buy-side analyst who has spent most of the last 10 years writing on a wide range of industries and investment ideas.

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