BioWorld Today Contributing Writer

Salix Pharmaceuticals Ltd. delivered bad news to investors Thursday morning. Based on a phone call with the FDA Wednesday evening, the Raleigh, N.C.-based company now expects to receive a complete response letter (CRL) on its supplemental new drug application (sNDA) for Xifaxan (rifaximin) 550-mg tablets for the treatment of non-constipation irritable bowel syndrome (non-CIBS) and IBS-related bloating.

The company has a PDUFA data of March 7 for the sNDA.

The news was an unwelcome surprise to the company and to investors, and the stock took a pounding in response. Shares of Salix (NASDAQ:SLXP) closed at $31.61, down $9.84, or nearly 24 percent, on 17 times average trading volume.

Since the company has not yet received the CRL, details are sketchy. However, Salix President and CEO Carolyn Logan acknowledged, in a conference call with investors, that the FDA disclosed "a newly expressed need for retreatment information" about Xifaxan 550 for IBS during its conversation with the company.

"This is obviously a huge setback as our earnings forecasts and our valuation had high expectations for the IBS indication," Jefferies & Co. analyst Corey Davis wrote afterward in a research update. "It's difficult to predict what it will take to satisfy FDA's need for more information regarding retreatment. For now, our best guess is that Salix will have to run an additional Phase III trial, one that likely pushes out a formal IBS indication until the late 2013/2014 time frame."

Rifaximin is a gut-selective antibiotic with negligible systemic absorption and broad-spectrum activity in vitro against both Gram-positive and Gram-negative pathogens. The drug has been used in Italy for more than two decades and is approved in 33 countries. Salix acquired rights to market rifaximin in North America from Alfa Wassermann SpA, of Bologna, Italy.

Xifaxan 550 is approved by the FDA for the smaller indications of traveler's diarrhea and overt hepatic encephalopathy (HE), but its much-anticipated use in IBS would be a big win. In the company's Phase III IBS studies, the drug provided acute and sustained relief, and its tolerability profile was similar to that of placebo. (See BioWorld Today, May 5, 2010.)

The approval of Xifaxan for IBS seemed on track, with "no obvious red flags on the existing efficacy and safety data," Davis wrote. "Our guess is that during labeling discussions, the issue of when exactly a patient should re-dose became an issue."

Logan tried to put the best spin on the FDA news, but could offer little solace to investors and did not take questions during the conference call, which lasted little more than seven minutes. "This development was unexpected and disappointing to the company, as we imagine it will be to our employees and stockholders," she said.

What Salix will do next with respect to the IBS indication for Xifaxan 550 is anyone's guess. The company will not consider next steps until it receives the CRL, according to Logan.

Ironically, last year the FDA raised endpoint concerns about Salix's study of Xifaxan 550 as a maintenance therapy for the remission of HE before approving it for the indication a month later and granting orphan drug status. (See BioWorld Today, Feb. 23, 2010, and March 26, 2010.)

But providing the FDA with retreatment information for IBS would require a new trial that would take years, Davis wrote in his research update. Logan appeared to leave all options on the table, including the prospect of abandoning the Xifaxan program for IBS, when she noted that Salix expects to continue generating revenue growth from existing and new product lines "beyond Xifaxan for non-CIBS."

Despite the setback, Salix "remains committed to its longstanding mission" of licensing, developing and marketing products to treat gastrointestinal disorders, Logan maintained. "Xifaxan 550 continues to be a strong brand, and the hepatic encephalopathy launch is progressing well," she said.

Salix has a considerable portfolio of marketed products, continues to develop products in house and to license new candidates for gastrointestinal disease. Earlier this month, the company inked a deal with Progenics Pharmaceuticals Inc., of Tarrytown, N.Y., for the exclusive rights to Relistor (methylnaltrexone bromide), an opioid-induced constipation drug for patients with advanced disease. Salix secured exclusive worldwide rights, with the exception of Japan, plus intellectual property, including patents and applications, for the drug. (See BioWorld Today, Feb. 8, 2011.)

During the conference call, Logan predicted that Relistor could lead to peak-year sales of $1 billion if the company achieves approval of an oral formulation and approval in a broader market for chronic, nonmalignant pain. Should that occur, the company plans to build Relistor's base business among gastroenterologists and then expand the number of users by marketing to primary care physicians.

Brean Murray Carret & Co. analyst Jonathan Aschoff expects the Xifaxan non-CIBS news to be incrementally positive to Progenics.

"We view Salix as more dependent on Relistor than before today," Aschoff wrote in a research update. "Thus Salix should be expected to market Relistor with increased force starting in April when Pfizer (the prior Relistor marketing partner) hands over the Relistor rights."

For now, Jefferies & Co. is maintaining its "buy" rating for Salix and a price target of $53, noting that the company plans to report fourth quarter and full-year 2010 results and provide 2011 guidance on Feb. 28.

"The stock is trading in the low $30s today on the news, a level that we think is fair – at least until we learn more on next steps with Xifaxan in IBS," Davis wrote.