Salix Pharmaceuticals (SLXP)

Salix Pharmaceuticals (SLXP) is a specialty pharmaceutical company engaged in acquiring, developing and commercializing prescription drugs used in the treatment of a variety of gastrointestinal diseases.

The company suffered a major setback in December 2007 when the FDA granted approval to three generic versions of its lead product, Colazal. This is devastating news for Salix, as Colazal was a significant contributor to both the top-and bottom-line. Moreover, Salix failed to receive approval for its tablet version of Colazal in December 2008.

We expect the coming quarters to be challenging for the company. While new product launches and new indications for Xifaxan should support a recovery in revenues in 2009, we do not expect earnings to recover prior to 2010. We maintain a Sell rating with a target price of $5.