Event - AdCom to put Xifaxan back on track in IBS

Analysis

After the crushing disappointment of an FDA complete response letter earlier this year, Xifaxan’s route to market in its most lucrative setting should soon be back on track. An advisory committee will gather next week to consider how to properly design a trial for Salix Pharmaceuticals’ drug for the treatment for irritable bowel syndrome (IBS) with diarrhoea, which was rejected by the regulator due to a lack of long-term and re-treatment data (Bad news on Xifaxan gives Salix investors indigestion, February 24, 2011).

With a healthy cash pile, a stable of marketed products boosted by the addition of two new ones from the recent $300m purchase of Oceana Therapeutics, Salix is reasonably positioned to endure the two years it expects it will take to complete a new trial and finally gain regulatory approval. However, with half of Xifaxan’s forecast blockbuster sales still expected to come from use in IBS, Salix needs good news on the regulatory front and will be keen to see the expert panel pass without any more nasty surprises.

Product Xifaxan
Company Salix Pharmaceuticals
Market cap $2.17bn
Product NPV $2.02bn
% of market cap 93%
Event type FDA advisory committee
Indication IBS with diarrhoea
Date November 16, 2011

Unmet need

The fact that the FDA convened a hearing of the Gastrointestinal Drugs Advisory Committee to discuss trial design can probably be taken as a positive sign that the agency is keen to bring new therapeutic products to market given the lack of alternatives in this setting.

Some 10-20% of the population in developed countries is estimated to suffer from IBS in general, and many of the top-selling treatments are old, with Takeda and Sucampo’s Amitiza the most recent entry in the space, and then only for the IBS with constipation (IBS-C) indication (Sure-footed Sucampo delivers again, May 1, 2008).

Ironwood Pharmaceuticals and Forest Laboratories recently announced their IBS-C drug linaclotide was accepted for FDA review, with an estimated PDUFA date in June 2012. However, that leaves the non-constipation IBS population underserved, and thus there is likely interest in how best to bring Xifaxan, already approved in hepatic encephalopathy, to market.

Remedial work

Salix has signalled in the months following the FDA rejection that it has been in talks with the agency over how best to demonstrate the durability of response with repeated treatment. The pivotal Target 1 and 2 studies showed that IBS patients had significantly greater relief from symptoms in a 12-week study period, that included two weeks of treatment and ten weeks of follow-up.

But since the proportion of patients who reported adequate relief declined during the 10-week follow-up, the agency was concerned that patients will be returning for repeat treatments, and in order for approval Salix would need to demonstrate that it was still safe and effective if used repeatedly.

In its third-quarter earnings statement on Tuesday, Carolyn Logan, Salix chief executive, said retrospective data analysis indicates that Xifaxan is effective if used repeatedly, and that a study design agreed by both agency staff and the company will be presented to the adcom next week. Staff comments on study design could be available as early as today and likely no later than early Monday.

Assuming a positive adcom review, patient recruitment could begin by the end of 2011, and approval would be another 24 months off.

Ready for the long haul

Shares in the company have quietly crept up in recent weeks, and can be expected to lift more following a positive adcom. After hitting an 18-month low of $26.18 in late September, shares closed at $36.72 yesterday following news that Salix had acquired privately-held Oceana Therapeutics.

That transaction brings on board two gastrointestinal products that have the potential to fit well in the Salix armoury: Solesta, a recently approved faecal incontinence injection, and Deflux, a treatment for vesicoureteral reflux, a malformation of the urinary bladder that can result in severe infections of the kidneys and irreversible kidney damage. UBS analysts estimate that sales of both products will reach $34m next year and $40m in 2013.

The company held $498m in cash as of September 30, so the $300m purchase price for Oceana will have put a significant dent in its cash pile, but will still leave it with a fair amount for further partnership or M&A activity, if necessary. Salix recorded nine-month sales of $385m, and raised its guidance for total sales to $535m in 2011, 59% growth over 2010.

Thus the company appears to be able to handle the long road toward Xifaxan approval in IBS. But given its importance to long-term sales growth and profitability, Salix really needs to the experts to agree with its new plans for the product.

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