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Salix Pharmaceuticals (NASDAQ:SLXP)

Q1 2013 Earnings Call

May 09, 2013 5:00 pm ET

Executives

G. Michael Freeman - Associate Vice President of Investor Relations & Corporate Communications

Adam C. Derbyshire - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Finance & Administration

Carolyn J. Logan - Chief Executive Officer, President and Director

William P. Forbes - Chief Development Officer and Executive Vice President of Research & Development

Analysts

Ami Fadia - UBS Investment Bank, Research Division

Andrew Finkelstein - Susquehanna Financial Group, LLLP, Research Division

David Amsellem - Piper Jaffray Companies, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Tim Lugo - William Blair & Company L.L.C., Research Division

John L. Newman - JMP Securities LLC, Research Division

Operator

Good afternoon. My name is Jarrod, and I will be your conference operator today. At this time, I would like to welcome everyone to the Salix Pharmaceuticals First Quarter 2013 Earnings Conference Call. [Operator Instructions]

Mr. Freeman, you may begin.

G. Michael Freeman

Good afternoon. Thank you for joining us today. I am Mike Freeman, Associate Vice President of Investor Relations and Corporate Communications for Salix Pharmaceuticals. With me today are Carolyn Logan, President and Chief Executive Officer; Adam Derbyshire, Executive Vice President and Chief Financial Officer; and Bill Forbes, Executive Vice President, Medical and Research and Development, and chief Development Officer. Adam will begin the presentation with a review of the financial results for first quarter 2013. Carolyn then will review operations to complete the formal segment of today’s call. At the conclusion of these comments, management will respond to appropriate questions.

Various remarks that management might make during this conference call about future expectations, plans and prospects for the company constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results might differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our press releases and SEC filings, including our Form 10-K for 2012. Specifically, the information in this conference call related to projections, development plans and other forward-looking statements is subject to this Safe Harbor.

I now will turn the call over to Adam.

Adam C. Derbyshire

Thank you, Mike. Total product revenue was $202.6 million for the first quarter of 2013, an 18% increase compared to $171.1 million for the first quarter of 2012. XIFAXAN revenue for the first quarter of 2013 was $153.3 million, a 36% increase compared to $112.9 million for the first quarter of 2012. Total cost of products sold was $33.1 million for the first quarter of 2013 compared to $34.2 million for the first quarter of 2012.

Gross margin on total products revenue was 83.7% for the first quarter of 2013 compared to 80% for the first quarter of 2012. Research and development expenses were $30.3 million for the first quarter of 2013 compared to $26.7 million for the first quarter of 2012.

Selling, general and administrative expenses were $76.3 million for the first quarter of 2013 compared to $60.4 million for the first quarter of 2012. The increase in selling, general and administrative expenses for the first quarter of 2013 compared to the first quarter of 2012 is due primarily to increased personnel cost, increased marketing expenses related to FULYZAQ, SOLESTA and DEFLUX and increased legal expenses. The $2.5 million charge in acquisition-related contingent consideration during a 3-month period ended March 31, 2013, was a result of the reduction of the discount period due to the passage of time. The company reported GAAP net income of $22.4 million or $0.35 per share fully diluted for the first quarter of 2013.

For the 3-month period ended March 31, 2013, earnings before interest, taxes, depreciation, stock-based compensation expense and amortization, excluding the non-cash charge and acquisition-related contingent consideration and non-cash loss on extinguishment of debt, known as EBITDA, was $69.7 million, and adjusted non-GAAP net income was $40.1 million or $0.63 per share fully diluted. This represents a 37% increase over the first quarter of 2012. Adjusted non-GAAP income is comprised of EBITDA adjusted for cash interest expense and interest income and a provision for income taxes based on adjusted non-GAAP income before tax.

For the 3-month period ended March 31, 2013, adjusted non-GAAP net income, with income taxes provided on a cash basis, was $46 million or $0.73 per share fully diluted. We believe these non-GAAP measures might provide investors additional relevant information in part for purposes of historical comparison. In addition, we use these non-GAAP measures to analyze our performance in more detail and with better historical comparability.

However, you should be aware that non-GAAP measures are not superior to nor substitute for the comparable GAAP measures, and these non-GAAP measures might not be comparable to similar named measures disclosed by other companies. We have provided a table in our earnings press release issued earlier this afternoon that reconciles actual results and future guidance for these non-GAAP measures to the most closely related GAAP measures.

Cash and cash equivalents were $960.3 million as of March 31, 2013. During the quarter, our XIFAXAN 550 prescription business demonstrated impressive growth of 26% compared to the first quarter of 2012. APRISO also demonstrated a strong prescription year-over-year growth of 11% for the first quarter of 2013 compared to the first quarter of 2012. RELISTOR prescriptions increased 52% year-over-year for the first quarter of 2013 compared to the first quarter of 2012.

We continue to believe total company revenue for 2013 will be approximately $920 million, representing 25% growth over 2012 revenue. We believe we will be able to generate EBITDA for 2013 of approximately $368 million, representing 55% growth over 2012 EBITDA.

Net income on a non-GAAP basis for 2013 should be approximately $215 million or $3.37 per share fully diluted for the full year ending December 31, 2013. This represents a 30% increase over 2012. For the full year ending December 31, 2013, adjusted non-GAAP net income, with income taxes provided on a cash basis, should be approximately $250 million or $3.93 per share fully diluted.

The current annualized run rate is based on dollarizing March 2013 prescription data for XIFAXAN, MOVIPREP/OSMOPREP, APRISO, RELISTOR and our other products are approximately $572 million, $111 million, $93 million, $44 million and $47 million, respectively. In line with the full year 2013 guidance, for the second quarter of 2013, we anticipate total company product revenue should be approximately $228 million and EBITDA of approximately $84.5 million. Adjusted net income on a non-GAAP basis for the second quarter should be approximately $50 million or $0.78 per share fully diluted. This represents a 26% increase over the second quarter of 2012. For the 3-month period ending June 30, 2013, adjusted non-GAAP net income, with income taxes provided on the cash basis, should be approximately $57 million or $0.89 per share fully diluted.

I now will turn the call over to Carolyn Logan, our President and CEO.

Carolyn J. Logan

Thank you, Adam. During the first quarter, we also progressed in our commercialization effort for SOLESTA and FULYZAQ. We continued to introduce SOLESTA, our nonsurgical, in-office procedure that requires no anesthesia, to [ph] physicians as an option to treat fecal incontinence in their adult patients who have failed conservative therapy. Additionally, the Centers for Medicare & Medicaid Services, or CMS, issued SOLESTA a reimbursement code, C9735, effective April 1, 2013, that should facilitate reimbursement in the hospital outpatient department setting.

FULYZAQ is our first-in-class, oral, botanical, antidiarrheal approved for the symptomatic relief of non-infectious diarrhea in adult patients with human immunodeficiency virus, or HIV, and acquired immune deficiency syndrome, or AIDS, who are on anti-retroviral therapy, also referred to as ART. During the first quarter, we hired HIV therapeutic specialists in HIV major markets to complement our specialty sales force, trained our sales force and completed other prelaunch activities in preparation for launch. Additionally, we continued working with the FDA to finalize the release specifications, after which we plan to distribute FULYZAQ to the market. We are hopeful that this will take place in the very near future, and we stand ready to expedite the commercial launch of FULYZAQ. We look forward to leveraging our expertise in gastrointestinal medicine in order to effectively deliver this much-needed treatment to patients.

With regard to RELISTOR, methylnaltrexone bromide, the company continues to work with the FDA to generate a reasonable path forward that can be agreed upon by both parties for the further development and regulatory review of RELISTOR injection for subcutaneous use for the treatment of opioid-induced constipation, or OIC, in adult patients with chronic non-cancer pain. On July 27, 2012, the company received from the FDA a Complete Response Letter requesting additional clinical data for our supplemental New Drug Application. We believe that the post-marketing clinical and preclinical data currently available for RELISTOR are sufficient to permit the approval of the current sNDA.

In our attempt to resolve this dispute, Salix has submitted an appeal to the FDA. The appeal process is intended to promote rapid resolution of scientific and procedural disputes that cannot be resolved at the division level. While it is not possible to definitely determine the duration of the appeal process, at this time, we anticipate a path forward could be reached with the FDA during 2013.

Before changing our plans for the development of RELISTOR to treat OIC in chronic non-cancer pain, we intend to make every effort to gain approval for this expanded use of RELISTOR, so that the relief RELISTOR has provided since 2008, to treat opioid-induced constipation in patients with advanced illness who are receiving palliative care when response the laxative therapy has not been sufficient can be extended to patients with chronic non-cancer pain.

The company is conducting TARGET 3, a Phase III study to evaluate the efficacy and safety of repeat treatment with rifaximin 550 milligrams TID, or 3x daily, for 14 days in subjects with irritable bowel syndrome with diarrhea, also referred to as IBS-D, who responded to an initial treatment course with rifaximin 550 milligrams TID for 14 days. During the first quarter of 2013, we continued to enroll subjects into the double-blind retreatment phase of the study. We continue to anticipate securing a FDA decision regarding approvability during mid-2014.

Work continued during the quarter on the development of the extended intestinal release, or EIR, formulation of rifaximin and the development of our next-generation formulation of rifaximin. The EIR formulation has been designed to provide an efficient delivery of rifaximin by releasing the active drug following passage through the stomach in order to provide a homogenous distribution of rifaximin in the intestinal tract. We plan to study EIR rifaximin for its potential to target difficult-to-treat diseases of the intestinal tract, such as Crohn's disease.

Together with our partner, Alfa Wassermann, we have met with health authorities in the United States, United Kingdom, France and Germany to discuss the regulatory pathway for the use of EIR rifaximin as a potential treatment for Crohn's disease. Currently, the FDA is reexamining what endpoints should be considered in clinical trials designed to evaluate the efficacy of a potential new treatment for Crohn's disease. Salix is in discussions with the FDA and anticipate securing agreement on the endpoints and initiating 2 Phase III trials during the second half of 2013, with the goal of securing FDA approval to market EIR rifaximin for the treatment of Crohn's disease. With respect our next-generation formulation of rifaximin, we are targeting initiation of a Phase II dose-ranging study for the second quarter of 2013.

During the first quarter of 2013, the company also continued to make progress in the development of budesonide foam. We anticipate top line data from our 2 budesonide foam Phase III trials by the end of May 2013. Currently, we are targeting submission of the NDA for budesonide foam for the treatment of moderate ulcerative proctitis or proctosigmoiditis by the end of September 2013.

Salix is built on a tremendous history of success, including, since the year 2000, the approval of 9 new drug applications, the acquisition and/or licensing of 16 products and the establishment of a top-ranked specialty sales force. We're pleased to announce that in an independent study conducted by IMS for 2012, gastroenterologists rated the Salix sales force #1 with respect to impact, quality and familiarity.

Our core business remains strong and continues to grow. Our portfolio of marketed products is complemented by our impressive pipeline of product candidates in development that should drive additional revenue growth over the long term as they are commercialized.

Additionally, the company continues to actively pursue additional product and acquisition opportunities to expand and broaden our product portfolio. We are extremely pleased with the success we've achieved to date, and we believe the company is well positioned to continue to succeed in our mission of being the leading specialty pharmaceutical company, licensing, developing and marketing innovative products to health care professionals to prevent or treat gastrointestinal disorders.

This completes our comments. Thank you for your participation in today's call. And now I'd like to turn the call over to the operator so we can begin the question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from Ami Fadia with UBS.

Ami Fadia - UBS Investment Bank, Research Division

I've got 3 questions. Firstly, on FULYZAQ, could you give us some more details around the number of reps you've hired and some of the plans with respect to the doctors you're going to target, the managed care coverage for the product? And in relation to that, how should we think about the progression of SG&A as the quarters progress? And then I've got 2 other questions.

Carolyn J. Logan

I'll start off with your first question, and then I'm sure Adam will comment on the last portion of it. One of our sales forces, which is approximately 100 representatives, will have a certain number of target for each representative, and then we have hired some HIV therapeutics specialists for the major HIV markets, where there are so many physicians concentrated and patients concentrated. Our initial talks with payers we hear from our national account management group who runs the managed market area, they tell us they don't anticipate any problems with coverage, that it appears as though this is a category of drug for these patients, of course, who are in great need of therapy, where they are very lenient in being able to cover drugs. So we don't really anticipate any coverage issues.

Adam C. Derbyshire

And Ami, regarding the progression of SG&A, for second quarter 2013, we actually expect SG&A to be flat over first quarter, and then for it to come down in the second half of the year. So our guidance for 2013 non-GAAP SG&A is $267 million. On a GAAP basis, it's $291 million.

Ami Fadia - UBS Investment Bank, Research Division

Got it. Now the other question is on the EIR formulation. You'd previously expected to start the studies in the first half. What changed? And I wasn't aware that there was a discussion within the FDA with respect to the endpoints. If you could give us some more color on that. And then just the third question, if you could give us the details around the product sales for RELISTOR, APRISO, MOVIPREP, et cetera.

William P. Forbes

Ami, this is Bill Forbes. Let me start with taking your question regarding EIR and, obviously, since we're developing that in Crohn's, I certainly don't intend to speak on behalf of the FDA. But one of the areas that they've mentioned certainly to us and to other companies, and I think they've also mentioned publicly a little bit, is around their concern using the Crohn's Disease Activity Index in general. The Crohn's Disease Activity Index is actually, as the name would imply, an index of 8 different components. The ones that are weighted the most or contribute the most to significant are actually abdominal pain, liquid stool frequency and general well being. Those 3 actually oftentimes drive the overall Crohn's Disease Activity Index score, which is what is used and has been used for primary endpoints in clinical trials. What the division, the GI division has made very clear to us is that they have every intention to work collaboratively with the EU to make sure that we move things forward in a meaningful way for Crohn's studies in general. But that -- really, drugs that are being developed in Crohn's could be effective on healing endoscopically seen healing of the GI tract, or they could be efficacious as far as symptoms. And what they're looking for is to start to move towards understanding better when drugs are approved, which drugs will do which of those 2 components, either healing or symptom relief, and what the physicians and the patients can count on for them. So given that, we've had some discussions with the GI division. I think we're very close right now to coming to a conclusion. They've come up with and we've been able to show data around the response in the Phase II program, which has over 400 patients in it. And I think right now, using some of those components of the Crohn's Disease Activity Index, we're going to be able to accommodate both the European authorities use of that overall index, which is what we envision to begin with, as well as to satisfy analysis for the GI division, looking primarily at probably abdominal pain and liquid stool frequency. We also have an interest in the general well-being score that the patients are reporting as well, but I think the GI division has less of an interest in that particular component based on our discussion. So that -- I mean, that's probably perhaps the best description I can give you from our interactions with the GI division. But again, I don't think this is new to some of the companies that have been discussing this with the GI division.

Adam C. Derbyshire

And Ami, I'll go through the individual product revenue for the quarter. Our IBD, which is our inflammatory bowel disease, and the vast majority of that is APRISO, as you know, that's $18 million; XIFAXAN, that was in the press release, of $153 million; our bowel cleansing franchise was $14 million; and RELISTOR rounds up to $8 million, it's $7.6 million.

Operator

Your next question comes from Andrew Finkelstein with Susquehanna Financial.

Andrew Finkelstein - Susquehanna Financial Group, LLLP, Research Division

Maybe you can talk a little bit about APRISO, and we've seen some upturn in the scripts reported by IMS since one of your competitors started transitioning patients to a new formulation. And also if you could talk about your comfort with the patent situation on that product, and what the risk might be if one of the other products in the category goes generic at some point in the future.

Carolyn J. Logan

That's a multi-part question, so let me start back at the beginning on why the recent uptick in scripts. I think everybody is probably aware that Warner Chilcott discontinued Asacol 400-milligram tablets, and that was the market leader. They have introduced a product called DELZICOL. But in the switching process, patients that were on Asacol 400-milligram tablets, the maintenance patients would need to be switched to another product. And so for maintenance patients -- well, all patients need to be switched, but we're only indicated for maintenance, so those are the only patients that we are trying to get. But it's just a great opportunity for us because they're going to be switched to something. And so we're in there trying to get our fair share of maintenance patients switched to APRISO and we're having some success with that. We've also got excellent managed care coverage. We've got very good formulary placement. And our federal accounts group, which focuses on VA, Department of Defense, they have a very high APRISO market share. And so if physicians rotate through VAs, which oftentimes they do, especially in fellowship programs, they get a lot of exposure to APRISO and see how the patients respond and how efficacious the drug is. And so all of that is coming together. But we're clearly benefiting some from Warner Chilcott discontinuing Asacol 400 milligram. Did that answer your question around that part of your -- the question?

Andrew Finkelstein - Susquehanna Financial Group, LLLP, Research Division

Yes. And then in terms of the IP for you and what -- how you could see the category changing if there were a generic to one of your competitors at some point down the road?

Adam C. Derbyshire

Sure. Well, as you know, for APRISO, we do have a patent listed in the Orange Book to 2018. We also have additional patents that we expect to issue and can be listed that have a much longer life than 2018. You also are aware that we are -- have a PIV challenge related to APRISO, so we are working through that. And there was some fairly significant news today for Lialda, which is the other once-a-day product in the market, although it's approved for induction of remission and maintenance of remission. And so we would expect that product to stay branded for a considerable period of time. So we don't see anything in the 5-ASAs, especially the 5-ASA once-a-day maintenance of remission market that would threaten APRISO.

Carolyn J. Logan

And we could probably add, when COLAZAL went generic, you did not see managed care or physicians switching patients on other branded drugs to generic COLAZAL.

Operator

Your next question comes from David Amsellem with Piper Jaffray.

David Amsellem - Piper Jaffray Companies, Research Division

Just a quick couple of questions. First, on XIFAXAN, given the small sequential uptick, could we infer that there is a little bit of an inventory headwind in the quarter? How should we think about inventory in general?

Adam C. Derbyshire

For XIFAXAN?

David Amsellem - Piper Jaffray Companies, Research Division

Correct.

Adam C. Derbyshire

Yes. I mean, inventories are in that 10 to 12-week range that we like to keep them.

David Amsellem - Piper Jaffray Companies, Research Division

Okay. So inventories have not changed significantly over the past quarter?

Adam C. Derbyshire

No.

David Amsellem - Piper Jaffray Companies, Research Division

Okay. Then on RELISTOR, can you just remind us, give us some color on what kind of path forward in OIC would be acceptable to you? I know you've talked about the kind of long-term cardiovascular outcome study that you would not be amenable to. I guess the question is, what kind of test would you be amenable to?

Carolyn J. Logan

David, that's a complicated question because there are probably multiple things that we could consider. It's probably easier to talk about what we just wouldn't be willing to do. Pre-approval on the subcu injection is that 30,000, 40,000, 50,000 patient cardiovascular outcome study. That's something that's just off the table, and we believe is unnecessary based on all the clinical data that we've got and that we've shared with the agency. So we would prefer to just work our way through this appeal process. We believe that we have a strong case, we believe the agency is definitely listening to us and working with us on this and we're very appreciative of that. And we've said that we believe by the end of this year that we'll be able to discuss our path forward. Of course, if we have a clear path forward prior to the end of this year, we'll press release that and talk about it as soon as that is finalized. But I don't really know. I mean, we could speculate for quite sometime on things we might do, everything from some more PK or blood work or blood pressure monitoring or, I don't know, Dr. Forbes, you might need to help me here with some of that. But some simple tests like that. But really based on all the data we've got, and remember the advanced illness subcu has been on the market since 2008, so there is a lot of data that's available from that, as well as the work we've done with the -- the prospective work we've done with the Phase III program on the subcu RELISTOR. So we think we've got enough to get an approval.

David Amsellem - Piper Jaffray Companies, Research Division

Okay. And then just a very quick one on budesonide foam. Can you just remind us how you're sizing up the market opportunity there? And also remind us what kind of IP do you have around that product?

Adam C. Derbyshire

Sure. We think the market opportunity is about $150 million to $200 million for the rectal products that treat proctosigmoiditis or distal ulcerative colitis. And in terms of the IP, we currently have IP-ed around 2015, but we have some IP that's pending for budesonide foam as well. Right now what's -- what will be listed in the Orange Book upon approval is December 2015. And of course, we'll get 3 years of exclusivity as well. But we do have other patents that are pending.

Operator

Your next question comes from Greg Gilbert with Bank of America.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

I have a couple. First for Bill, on the RELISTOR appeal. I thought you guys were going the unofficial appeal route. Did you flip that to official, or am I missing something?

William P. Forbes

A few months ago, you may remember, there was actually a guidance document that was reissued, and it had to do with the appeals process. So I think going into this, we really had 3 goals in mind as we approached our appeals. One was, we never -- it was never our intention to exclude the division. In fact, what we were hoping to do is make sure that they were included in the appeal so that we could, obviously, work collaboratively on the appeal with them, as well as the office above them. And I think from that perspective, we considered both the formal and informal appeal. We also wanted to make sure that we utilized all the data. As Carolyn mentioned a bit ago, there was a lot of data that goes back to the original approval in 2008, and then, of course, the data that we submitted with Progenics on the current indication that we're having discussions on. So I think it's important to use all of that data. And I've mentioned publicly, there is some important mortality, all-cause mortality data that comes when you pull all of the information together from the chronic pain, as well as the palliative care or the advanced illness indication that's on the market. And that shows an actual reduction on drug or within 30 days of drug when you look at the placebo group relative to the patients that have received RELISTOR at any dose. So when we combine all the doses of RELISTOR and compare that to placebo, we see an actual reduction of mortality. And so I think along with that, although it's not a MACE trial and it's not a long-term trial as many of those patients are at end-of-life situations, we wanted to make sure that we played into all of that, and the only way to do that along with Progenics was to make sure that the GI division was also available included in it. And I think as we work through this, we wanted to make sure that whether or not this was a RELISTOR-specific issue or if it was something that may have been more policy, it was never really clear to us here at Salix. So in the end, when we took a look at all of those 3 objectives and issues that we had in front of us just revolving around RELISTOR, as the decision was made to go in under formal to make sure that everybody was going to be discussing this particular appeal together. So in the end, that was the decision after some discussion with the lawyers, and really weighing all the pros and cons.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

All right. A couple for Adam. On XIFAXAN sales growth, it was quite a bit more robust year-over-year than script growth and price growth. Did you just chalk that up to the non-IMS channels, or are there other factors that you'd point to?

Carolyn J. Logan

Well, I mean, the script growth was 26%, and then the price increase on the 200 was essentially 3 price increases at 10% per, and then on the 550, we have 2 price increases because of 5% and 7% because we did -- recently do a price increase with the 550. So I think very little of it would be related to the channel not picking something up. The other thing you need to be aware of, too, is our gross to net back in third quarter of last year, they changed a bit, and that was favorable to rifaximin or XIFAXAN.

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Okay. And then on receivables, not that I am complaining, but there's a huge swing there in your favor. What can you discuss there?

Adam C. Derbyshire

Just that we had a great collections in the quarter.

Operator

Your next question comes from Tim Lugo with William Blair.

Tim Lugo - William Blair & Company L.L.C., Research Division

Regarding licensing and the development of budesonide foam coming down the pipeline, launched to the FULYZAQ and SOLESTA, as well as maybe a big ramp in XIFAXAN next year with IBS, can you maybe discuss your interest in bringing in marketed products versus taking some more clinical at risk and maybe bringing in an earlier-stage compound?

Carolyn J. Logan

I think we've been pretty consistent, and our goal is really not to bring in real early-stage compound. At some point, maybe in our growth cycle, we'll need to start reaching back further into really early-stage compounds, but we're nowhere close to that now. So we don't foresee ourselves in licensing early-stage. We have done in-licensing of late-stage, and we probably will continue to do some of that. But we certainly would like to do an acquisition that would be accretive and in nature, and we just have a lot of things we're looking at right now of all different types, late-stage, in-licensing for development, as well as currently marketed products. So we want to put our money to good use, and we're hoping to be able to do that.

Tim Lugo - William Blair & Company L.L.C., Research Division

And I guess this goes back to, what do you see coming down the internal pipeline if -- maybe if Lumacan going to eventually proceed a little further along? Or is that the EIR formulation that you're really be focusing on post-IBS?

Carolyn J. Logan

Well, EIR is closer to going into Phase III, so I would say, we'll be focusing on that. As far as focusing on a Phase III project, we are very focused on Lumacan trying to get it into an ideal formulation that could be commercialized.

William P. Forbes

I think within R&D, what we've got our focus on right now is budesonide foam, top line data should be coming out shortly, looking at the Phase III trials, and then, of course, the rifaximin studies in Crohn's and also chronic liver disease with the next-generation formulation of rifaximin. And I think those are the things that are occupying most of our time right now.

Operator

Your next question comes from John Newman with JMP Securities.

John L. Newman - JMP Securities LLC, Research Division

On XIFAXAN, it looks like, over the past few years, you've seen a pretty meaningful bump in sales in the third quarter. I'm just wondering if there's anything that we should be aware of in terms of seasonality for either hepatic encephalopathy or off-label for IBS-D that's different from past years? And also I jump on the call a bit late, so I apologize if you've discussed this, but have you talked about when you expect to reach the required number of patients to be enrolled in the XIFAXAN retreatment study? And whether the guidance for an FDA decision in mid-'14 reflects confidence that you are on the right track in getting there?

Adam C. Derbyshire

Okay, John, I'll take your seasonality question. No, there's really no seasonality with XIFAXAN. What we do, do every third quarter is we revisit our gross to net, and it just so happens last year in third quarter and, I think, even the previous year in third quarter based on history that we've been able to tighten up our gross to net. And that benefits not only XIFAXAN but benefits a lot of our products. And I'll handle your second question and let Bill chime in. But no, our guidance has remained the same that we -- for the retreatment study, which is TARGET 3, we do expect to have top line data by the end of this year, early next, which will allow us to respond to the complete response, such that the agency can provide us an action around mid-2014. But I'll let Bill...

William P. Forbes

No, I'll just echo what Adam says. We're on target, no pun intended, but we're on target to do exactly that. So again, looking at top line data end of this year, beginning of next year, and this study is going very well.

Operator

And we have no further questions at this time. I'd like to turn the call back to Carolyn for closing remarks.

Carolyn J. Logan

Thank you for joining us today, and we look forward to speaking with you on our next call. Have a nice evening, everyone. Bye.

Operator

Thank you for participating. This concludes today's program. You may now disconnect.

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