Notable Calls

Salix Pharma (NASDAQ:SLXP) no stranger to Notable Calls, should be on fire today after reporting surprisingly stong results last night. The analysts? The analysts love it:

- Piper Jaffray is raising their price target to $60 (prev. $58) while reiterating Overweight rating.

Firm says night, Salix reported adjusted 3Q10 EPS of $0.05, well ahead of the Street net loss per share estimate of ($0.15), with Xifaxan sales well ahead of expectations. Management is now guiding to 2010 net income of around $20M, implying 4Q10 net income of at least $34M and 4Q10 diluted EPS of at least $0.52. With Xifaxan demand continuing to grow, plus a label expansion in non-constipation irritable bowel syndrome (IBS) coming in March 2011, they continue to believe that 2011 EPS in excess of $2.00 is a realistic target (the Street is only at $1.48). Piper continues to believe that SLXP is the most compelling emerging growth story in specialty pharma. They reiterate their Overweight rating and are raising their PT to $60 from $58 (mainly due to a decrease in the discounting period).

Significant 3Q upside for Xifaxan. Xifaxan sales of $65M were well ahead of the Street estimate of near $40M. Importantly, sales were not meaningfully impacted by wholesaler destocking. Though this might come as a surprise to the Street, PJ notes that pharmacies were carrying roughly 1-2 bottles of Xifaxan550 (which contain 60 pills), and in an environment with growing demand (particularly a per mg basis), pharmacies have to re-stock when a prescription (Rx) is filled (one Rx for Xifaxan550 is close to a full bottle). Further, the upside is also not all that surprising given that hospital demand (mainly for patients with hepatic encephalopathy) accounts for a meaningful chunk of the mix (30% of sales for the 200 mg dose, and 15% of sales for Xifaxan550 and growing). Hospital demand is not reflected in weekly IMS retail Rx audits, a key reason why they believe the Street has been underestimating Xifaxan's growth trajectory.

Diluted EPS north of $2.00 in 2011 looks highly achievable to Piper. SLXP is guiding to 4Q10 Xifaxan demand of around $80M, and is guiding to 2010 net income of $20M. With a cumulative net loss for 1Q-3Q10 of $14M, this implies a 4Q10 net income target of $34M, pointing to EPS range of $0.52 to $0.60 (depending on the diluted share count). Also, SLXP is now expecting 2010 R&D expenses of $85M, down from its previous expectation of $100M. With Xifaxan already annualizing at over $300M (without the impact of the IBS expansion), coupled with expanding margins, they believe 2011 diluted EPS in excess of $2.00 is realistic (PJCO estimate is $2.69).

Xifaxan approval in IBS in March 2011 still looks likely. Judging from SLXP commentary last night, it still looks like a panel meeting is not likely, and given the strength of the data, Piper does not see why a panel would be necessary.


- Jefferies, the Axe in Salix is also out positive on the name reiterating their Buy and $53 price target on the name.

Firm notes their bullish stance on SLXP rests primarily on the growth opportunity that Xifaxan offers. While investors have been spooked by wkly prescription data that suggests Xifaxan's launch is slowing, they think yesterday's strong 3Q print illustrates just perfectly why placing too much emphasis on this data can often be misleading.

Xifaxan delivers. With the market anxious about 1) the past several months' weekly IMS prescription data for Xifaxan (which implied a slowdown in growth) and 2) the expected but unquantifiable impact of wholesaler destocking for Xifaxan, SLXP absolutely crushed 3Q numbers, reporting $65MM (+53%) in Xifaxan rev, handily beating our est ($38MM), consensus ($41MM), and a recent upbeat est of $50MM. While the 3Q Xifaxan result was in itself impressive, perhaps even more comforting was 4Q Xifaxan rev guidance of $80MM. Based on this, Jeffco remains comfortable with, and maintain their prior 4Q Xifaxan estimate of $89MM, and notes that by annualizing this, they're already running ahead of their current full-yr 2011 Xifaxan forecast of $352MM.

Notablecalls: Xifaxan beat (and I mean beat!) estimates.

Stock has been weak on heels of IMS data but the bears should be out of ammo now.

Stock should move higher today. I would not be surprised to see $39+ levels today.