Market Overview

Salix Submits New NDA, Investors Hope for New Stock Price Runs

Today, Salix Pharmaceuticals (NASDAQ: SLXP) announced that it had submitted an NDA to the FDA for its HIV induced diarrhea drug Crofelemer. The agency has 60 days to review the application and decide whether it will enter its review process. Salix is currently researching various medication possibilities of the drug, including the treatment of irritable bowel syndrome. The company originally acquired those rights from Napo back in 2008.

Benzinga initially notified its subscribers to this news in real time this morning. Check it out here.

The two companies had originally collaborated over the development of Crofelemer, but Napo terminated the agreement last month, citing Salix's failure to advance the drug quickly in a short time frame. The termination happened a year after Salix announced positive results from its Phase 3 trial, as Napo expected the NDA to already have been filed by then. While Napo has claimed it has the right to look for a new partner, Salix has disputed this claim, and added credibility to it by submitting the NDA now.

The agreement originally cost Salix a $4.5 million down payment, as well as a $500K investment in Napo equity. The companies also negotiated a royalty agreement in which Napo could receive up to $300 million in payments. The market for the drug is somewhat small as it is limited exclusively to HIV patients, however, it is estimated that nearly 15% of HIV patients suffer from diarrhea symptoms. The FDA has recognized the need for such a drug as it designated Salix's trials with fast track and special protocol status, allowing Crofelemer to receive approval if all of the FDA's preconditions are met.

The license gives Salix the right to market Crofelemer in North America and most European countries once approval is granted. Analysts have projected that the drug could generate up to $10 million in 2013 sales and peaking at $150 - $200 million per year.

Salix Pharmaceuticals has seen tremendous success over the past five years, as the stock price is currently trading at seven times of its 2008 lows. The company's size also means that Crofelemer's success or failure will only have a small impact on its bottom line, given its robust pipeline. However, HIV patients and long term investors have reason to be optimistic, given the company's recent run of success.

ACTION ITEMS:

Bullish:
Traders who believe that Crofelemer will obtain FDA approval will want to consider the following trades:

  • Buy shares in Salix. The company could see increased revenue if it can successfully market Crofelemer.
  • Purchase call options in Salix. For investors who want to hedge their risk, call options could provide a lower risk, higher reward proposition.

Bearish:
Traders who believe that Crofelemer will receive a CRL for the drug should consider these trades:

  • Short shares of Salix. The company is currently trading near its 2011 highs and could see some downside upon receipt of a CRL.
  • Consider put options in Salix. Any spike downward in the stock's price could provide upside for a put options trader.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: News Guidance Contracts FDA Legal Events Best of Benzinga

 

Related Articles (SLXP)

Around the Web, We're Loving...

Partner Network

Get Benzinga's Newsletters