Salix's surprise IBS data fuels shares

It is hard to decide whether it was the unexpected positive results from Salix Pharmaceuticals' lead drug Xifaxan (rifaximin) in the new indication of non-constipation irritable bowl syndrome (non-C IBS), or the fact that the company was put forward as a potential takeover target for Forest Laboratories, that caused its shares to rise an impressive 49% last week, touching an almost four-year high of $20.22 on Wednesday.

While the takeover speculation may have less substance, the non-C IBS data was not only very solid but firmly caught analysts on the hop. A Cinderella-like indication, many had largely disregarded the drug in non-C IBS, focusing their attention instead on the drug’s potential in hepatic encephalopathy (HE). But with the share price rising so much on the news, analysts are almost certain to be scrabbling around to upgrade forecasts for the drug that are currently sitting at $198m for 2014.

The next question will be whether Salix, which has successfully carved out a niche in the gastro-intestinal space, will decide to add to its already growing sales force of about 150 reps to market the drug itself, or partner with another company with a large primary healthcare sales force. With analysts estimating that the group will need 300-400 extra reps, partnering discussions seem the most likely option and could provide another boost to the shares.

Big opportunity

IBS is estimated to be a $2.2bn market according to Salix and if the drug captures even a small slice it would be a significant profit contributor. The data will also cement Xifaxan’s position as the biggest growth driver at the company over the next six years. The drug, a gastrointestinal-specific oral antibiotic, is already approved in a lower dose for travellers’ diarrhoea, but opening it up to non-C IBS will significantly accelerate sales, given 15% of adults in the US are thought to suffer from the disorder.

What appears to have surprised the market is the strength of the IBS data. The indication is notorious for producing high placebo response rates and many were predicting unconvincing data from Xifaxan in IBS. Additionally, as pointed out by EP Vantage the area of IBS has been notoriously underserved despite the large potential population (Therapeutic focus – IBS needs more shots on goal, May 15, 2009).

Analysts had also been expecting the data later in the year, but despite this the company is sticking to its plan to file the drug in the middle of 2010, meaning a launch in the second half of 2011.

Future catalysts

The data from Xifaxan, which also comes hot on the heels of approval for the group’s GERD treatment Metozolv earlier this month, could be the springboard needed to get Salix back on the radar and stay there, with other catalysts on the horizon.

The next scheduled event is the PDUFA data for Xifaxan in HE on December 24, but given the date and the fact that the FDA has timetabled an advisory committee for the drug in this indication for February 2010, approval is almost certainly not going to happen until the end of the first quarter of next year.

HE is caused by severe liver impairments where toxic substances normally removed by the liver accumulate in the blood where they can enter and damage the brain, leading to hepatic comas, bleeding into the brain, and death.

Currently the only forms of treatment for the disorder are poorly tolerated generic products, as such if the drug is approved in HE it will have orphan status, something that will extend the patent out to 2016. Caris and Co are estimating that Xifaxan in HE could have peak sales of $300m. 

More upside

Although some of this is already reflected in the share price given the widespread off label use in HE, approval, combined with the unexpected data from non-C IBS, are likely to spark another round of upgrades. The stock has needed a few wins since it received a complete response letter for ulcerative colitis treatment, balsalazide, in December (Notable regulatory events over the Christmas period, January 5, 2000) and Xifaxan lost patent protection in travellers’ diarrhoea in May.

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