Salix Scores on Rifaximin Data

Shares of Salix Pharmaceuticals (SLXP) jumped 51% yesterday after the company announced positive results from two pivotal phase III trials of rifaximin for the treatment of non-constipation irritable bowel syndrome (IBS). Two randomized, double-blind, placebo-controlled, multicenter trials, TARGET 1 and TARGET 2, were conducted to evaluate the efficacy and safety of rifaximin 550 mg. Patients treated with rifaximin saw statistically significant improvement in the primary endpoint compared with placebo. Rifaximin also achieved statistical significance in the key secondary endpoint of providing relief from IBS-related bloating. Positive data from these studies is a major positive for the company. Rifaximin has become the company's primary growth driver following the introduction of generic versions of Colazal in December 2007 by three players including Mylan Inc. (MYL). Salix has been working on new indications of rifaximin, which should help in driving long-term growth. Rifaximin is currently marketed for the treatment of patients, aged 12 years or more, with travelers diarrhea caused by non-invasive strains of E coli. We believe the IBS indication represents huge commercial opportunity for the company. IBS is one of the most common chronic conditions and affects about 15% of adults in the United States. According to the company, the non-constipation IBS market could represent commercial opportunity in the range of approximately $2.2 billion. Salix plans to submit data from these two studies to support its New Drug Application (NDA) for the non-constipation IBS syndrome. The NDA filing is scheduled to occur in the first half of 2010. Meanwhile, Salix recently received priority review status from the US Food and Drug Administration for another indication, hepatic encephalopathy (HE), for which rifaximin enjoys orphan drug status. While we believe that the IBS indication represents significant commercial opportunity for the company, the HE indication should also have excellent incremental potential. Apart from the IBS and HE indications, Salix is also studying rifaximin for C. difficile-associated diarrhea and the prevention of traveler's diarrhea. We have a Neutral rating on Salix.

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