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What: Shares of gastrointestinal-focused drug and medical device company Salix Pharmaceuticals (NASDAQ: SLXP) rose as much as 12% today after the company reported much better-than-expected third-quarter earnings results.

So what: For the quarter, Salix reported a 27% increase in total revenue to $185.1 million and a profit of $0.95 per share. Revenue came in slightly below the Wall Street consensus of $187.2 million, but absolutely trounced EPS estimates by $0.26. One of the big reasons for that beat are sales of Xifaxan, a treatment for travelers diarrhea and overt hepatic encephalopathy, which rose 43% over the previous year to $137.9 million. Not everything was peachy, however, as research firm Brean Capital pointed out when it lowered its price target on Salix to $44 from $53 and noted that higher costs and the possibility of additional trials for Relistor due to concerns from the FDA could hamper results.

Now what: It's pretty hard to argue against a $0.26 earnings beat, but it's a tad bit worrisome that 75% of Salix's revenue is tied solely to Xifaxan. As long as Xifaxan is on a roll, Salix should be as well, but I'd really like to see its three newer drugs -- Relistor for opioid-induced constipation, Deflux for the treatment of vesicoureteral reflux, and Solesta for the treatment of fecal incontinence -- step up to the plate and diversify Salix's product offerings. In the meantime, I'm happy adding Salix Pharmaceuticals to My Watchlist.

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