Salix Pharmaceuticals Shares Popped: What You Need to Know

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 drugmaker Salix Pharmaceuticals (Nasdaq: SLXP) climbed as high as 10.5% on Tuesday after the company reported positive phase-3 data for an oral version of its constipation treatment, Relistor.

So what: While exact numbers weren't given, the "highly statistically significant" results increase the odds that the treatment will become a game-changer for Salix and especially for its much smaller partner Progenics Pharmaceuticals (Nasdaq: PGNX). In fact, a Jefferies analyst estimated that an oral form of Relistor could drive annual revenues of $500 million-$800 million a year.

Now what: I wouldn't be so quick to ride Salix's momentum. Management plans to submit the New Drug Application for oral Relistor in mid-2012, but judging from the stock's 65% price surge over just the past three months and its current P/E of 35, Mr. Market already seems to have baked in much of the upside. In fact, at the time of this writing, the stock is up only 5%, so investors might be starting to "sell the news."  

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