Salix Pharmaceutical: A Good Find In Specialty Pharma

| About: Salix Pharmaceuticals, (SLXP)

Summary

Salix Pharmaceuticals stock surged on July 1 on news its drug XIFAXAN for IBS-D met a primary endpoint in Phase 3.

Obviously, this is good news for Salix and its investors, as it paves the way for future FDA approval.

Salix is also a rumored take-out candidate and a potential tax inversion play.

So Salix Pharmaceutical seems to have a lot going for it at the moment, but let's take a closer look using my Best Stocks Now analysis.

Salix Pharmaceuticals (NASDAQ:SLXP) stock surged on July 1 on news that it met a statistically significant endpoint for its Target 3 - Phase 3 trial, which studied the repeat treatment of its drug XIFAXAN, 3x daily for patients with Irritable Bowel Syndrome with diarrhea (IBS-D).

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Obviously, this is good news for Salix, as it paves the way for future FDA approval. Salix Pharmaceuticals is a stock I began purchasing just a few weeks ago for my Growth accounts. The company, based in Raleigh, North Carolina, is a specialty pharmaceutical company that specializes in gastroenterology treatments.

On July 9th, Salix is hosting an Investor Day which, according to the company, will provide further details about its strategy, market opportunities for current products, product pipeline milestones - including a review of XIFAXAN (rifaximin) and the company's financial outlook and drivers of future growth.

Besides the much-anticipated Target 3 trial results, analysts have been touting the stock as an excellent takeover target, given its strong franchise of gastroenterology drugs. XIFAXAN was already an antibiotic approved for use to avoid a complication from liver disease called hepatic encephalopathy. The drug is on pace to generate more than $700 million in revenue in 2014. Should it receive approval for the IBS-D indication as well, the drug could generate as much as $2 billion in revenue.

Another trend in pharma recently is US companies buying non-US companies for a "tax inversion" play. Salix is a prime a candidate for a so-called "accountant's merger" in order to reduce its tax rate. Several other pharmaceutical firms like Mallinckrodt (NYSE:MNK), Alexion (NASDAQ:ALXN), Perrigo (NASDAQ:PRGO), have taken advantage of this tax strategy.

So Salix Pharmaceutical seems to have a lot going for it at the moment, but let's take a closer look using my Best Stocks Now analysis.

Data from Best Stocks Now app

Salix Pharmaceutical is a mid cap name with a market capitalization of $7.8 billion, and given the fact it is a specialty pharma stock which involves some speculation, its risk profile is Aggressive.

Data from Best Stocks Now app

The company's valuation on a forward basis is actually only 16.5X earnings, which translates into a stock a valuation grade of B+. Given a very conservative 5-year annual growth rate of 17.67%, this gives it a PEG ratio of less than 1, at only .94.

Data from Best Stocks Now app

Going into this news, Salix Pharmaceutical has been a strong performer. Last year, it was up more than 122%. Year-to-date, it was up more than 37%, far in excess of the overall market. These returns were due, in part, to optimism regarding the latest trial results, but also due to a strategic partnership with Progenics (NASDAQ:PGNX) for its drug Relistor and the acquisition of Santaurus late last year.

It just so happens that going into the news, Salix Pharmaceutical was ranked #2 in the 3800+ Best Stocks Now stock universe, receiving a grade of A+.

Data from Best Stocks Now app

So Salix Pharmaceutical is another example of a stock that is working in this market, identified by my Best Stocks Now app.

Disclosure: The author is long SLXP. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.