Monday, Credit Suisse upgraded Salix Pharmaceuticals Ltd. (SLXP) shares to Outperform from Neutral and increased its price target to $14 from $11. The brokerage widened its 2009 loss per share estimate to $0.71 from $0.65. The brokerage increased its 2010 EPS estimate to $0.30 from $0.25, its 2011 estimate to $0.90 from $0.61, and its 2012 estimate to $1.39 from $0.78.
Analyst Hirsch upgraded the stock to Outperform and increased its price target to $14 based on discounted cash flow which reflects a 13x P/E multiple of his 2011 cash EPS of $1.06. The analyst has updated his 2009 loss per share estimate to reflect sales force expansion which moves his 2009 estimate from a loss of $0.65 to loss $0.71. However, the analyst increased estimates all largely based on Xifaxan growth for the HE (Hepatic Encephalopathy) indication.
While not a new product, Xifaxan for HE is a new product story with Orphan drug status offering 7 years of exclusivity. The analyst expects the usage paradigm and managed care coverage to expand with the indication which could drive revenues from roughly $100 million to over $300 million.
The analyst said that while this is still mostly a one-product story, the bowel cleansing line, new products including Apriso and Metozolv, and a growing niche gastroenterology salesforce combine with Xifaxan to make an attractive specialty pharma asset.
Xifaxan for the IBS indication is one-step further away, but a big market opportunity. The analyst is comfortable with the valuation from HE growth alone to get him aggressive, making IBS a relatively free option for the stock.
Salix has been a bit of a roller coaster over the last year as the company was in transition following the generic loss of its previous lead product Colazal in December 2007. Since then, it's been a balancing act and the analyst weighed a lot of moving numbers and the generic risk to Xifaxan with potential upside from new indications in HE and IBS.
With strong PIII data now out, a sNDA filing expected shortly, less generic risk, and IBS data expected year-end, the analyst believes positive catalysts and revenue growth makes the risk / return profile attractive.
Currently, SLXP is up $0.24 or 2.43% and trading at $10.11.
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