Salix Pharmaceuticals, Ltd., a Delaware corporation, is a specialty pharmaceutical company dedicated to acquiring, developing and commercializing prescription drugs used in the treatment of a variety of gastrointestinal disorders, which are those affecting the digestive tract. Our strategy is to:
identify and acquire rights to products that we believe have potential for near-term regulatory approval or are already approved;
apply our regulatory, product development, and sales and marketing expertise to commercialize these products; and
use our approximately 150-member specialty sales and marketing team focused on high-prescribing U.S. gastroenterologists, who are doctors who specialize in gastrointestinal disorders, to sell our products.
Our current products demonstrate our ability to execute this strategy. As of December 31, 2008, our products were:
XIFAXAN® (rifaximin) Tablets 200 mg;
MOVIPREP® (PEG 3350, Sodium Sulfate, Sodium Chloride, Potassium Chloride, Sodium Ascorbate and Ascorbic Acid for Oral Solution);
OSMOPREP™ (sodium phosphate monobasic monohydrate, USP and sodium phosphate dibasic anhydrous, USP) Tablets;
VISICOL® (sodium phosphate monobasic monohydrate, USP, and sodium phosphate dibasic anhydrous, USP) Tablets;
AZASAN® Azathioprine Tablets, USP, 75/100 mg;
ANUSOL-HC® 2.5% (Hydrocortisone Cream, USP), ANUSOL-HC® 25 mg Suppository (Hydrocortisone Acetate);
PROCTOCORT® Cream (Hydrocortisone Cream, USP) 1% and PROCTOCORT® Suppository (Hydrocortisone Acetate Rectal Suppositories) 30 mg;
PEPCID® (famotidine) for Oral Suspension;
Oral Suspension DIURIL® (Chlorothiazide);
APRISO™ (mesalamine) extended-release capsules 0.375g; and
COLAZAL® (balsalazide disodium) Capsules 750 mg.
Xifaxan® (rifaximin) tablets
Xifaxan is a gastrointestinal-specific oral antibiotic that the FDA approved in May 2004 for the treatment of patients 12 years of age and older with travelers’ diarrhea caused by noninvasive strains of E coli. According to the Centers for Disease Control, each year between 30% and 50% of international travelers, an estimated 20.0 million people, develop diarrhea, with approximately 80% of the cases caused by bacteria. Approximately 1.4 million people sought treatment in the United States for infectious diarrhea in 2008 and approximately 1.2 million of those patients were prescribed a drug.
We believe the advantages of Xifaxan to treat these infections are two-fold: (1) site-targeted antibiotic delivery; and (2) improved tolerability compared to other treatments. Less than 0.5% of the drug is absorbed into the bloodstream when it is taken orally. In addition, the drug might also cause fewer side effects or discomforts such as nausea, headache or dizziness than observed with currently available, more highly-absorbed antibiotics. We believe Xifaxan is also less likely to cause harmful interaction with other drugs a patient may be taking. We believe Xifaxan is unique because there is no other U.S.-approved oral antibiotic with its potential lack of systemic absorption and safety profile.
We launched Xifaxan in the United States in July 2004 using our own direct sales force. We had net product sales of $79.9 million, $64.3 million and $51.6 million of Xifaxan in the United States in 2008, 2007 and 2006 respectively. We are exploring potential additional indications, formulations, clinical trials and co-promotion arrangements to capitalize on the potential for Xifaxan, including our development programs in hepatic encephalopathy, irritable bowel syndrome, prevention of travelers’ diarrhea, and C. difficile–associated diarrhea. Based on these potential indications, we believe Xifaxan can potentially compete in an annual U.S. market in excess of approximately $4 billion, comprised of over 12 million patient visits. While the potential market for Xifaxan is large, we expect to capture only a portion of each market due to competition, ability to capture share in each market, market acceptance and/or other factors.
The patents for the rifaximin composition of matter (also covering a process of making rifaximin and using rifaximin to treat gastrointestinal infectious diseases) expired in May 2001 in the United States and Canada. Rifaximin is a new chemical entity and was granted a five-year new chemical exclusivity by the FDA when it was approved in May 2004. Rifaximin, therefore, has data exclusivity to May 2009. In May 2006, a U.S. patent (composition of matter and process patent that covers several physical states of rifaximin) was issued that we believe extends the patent coverage of the current form of rifaximin until May 2024. Alfa Wasserman S.p.a., the patent owner, has licensed rights to rifaximin in the United States to Salix. In July 2006, Salix entered into an agreement with Cedars-Sinai Medical Center, or CSMC, for the right to use its patent and patent applications relating to methods of diagnosis and treating irritable bowel syndrome and other disorders caused by small intestinal bacterial overgrowth. The CSMC agreement also provides Salix the right to use the U.S. Patent No. 7,452,857, which issued in November 2008 and provides protection relating to rifaximin for treating irritable bowel syndrome, or IBS, caused by small intestinal bacterial overgrowth until August 2019. We have filed applications for patents relating to additional indications using rifaximin and related chemical substances.
MoviPrep® (PEG 3350, sodium sulfate, sodium chloride, potassium chloride, sodium ascorbate and ascorbic acid) oral solution
In December 2005, we acquired exclusive rights to sell MoviPrep in the United States from Norgine B.V. MoviPrep is a patent-protected, liquid polyethylene glycol-salt , or PEG, bowel cleansing product that was approved by the FDA in August 2006 and competes with a number of liquid PEG bowel cleansing products. MoviPrep is differentiated from other liquid PEG bowel cleansing products by the inclusion of ascorbic acid in its formulation. MoviPrep is indicated for bowel cleansing prior to colonoscopy, intestinal surgery and barium enema X-ray examinations. Net product sales for MoviPrep were $33.9 million in 2008, $20.1 million in 2007 and $5.0 million in 2006. We expect that the voluntary recall of C.B. Fleet’s products discussed below could lead to increased future demand for MoviPrep.
Approximately 5.7 million prescriptions for bowel cleansing products were written in 2008, representing a market value of $218 million. In terms of prescription dollar sales, the market for bowel cleansing products has been growing at a 28% annual compound rate for the last five years. Our bowel cleansing products compete with a number of PEG bowel cleansing products.
Norgine, B.V. and Norgine Europe, B. V. own U.S. Patent No. 7,169,381, or the ‘381 patent, which is listed with the FDA as protecting our MoviPrep product to 2024. Norgine licensed MoviPrep and the ‘381 patent to us for commercialization in the United States. In 2008, Novel Laboratories, Inc., filed an Abbreviated New Drug Application, or ANDA, with the FDA seeking approval to market a generic version of MoviPrep in the United States prior to the September 1, 2024 expiration of the ‘381 patent. On May 14, 2008, we and Norgine filed a lawsuit in the United States District Court for the District of New Jersey against Novel for infringement of the ‘381 patent and seeking a declaratory judgment confirming the validity of the patent. This lawsuit prevents Novel from marketing a generic version of MoviPrep for up to 30 months, unless Novel receives an earlier non-appealable judgment to the contrary. Novel filed an Answer and Counterclaim on June 20, 2008. No trial date has been set.
Visicol® and OsmoPrep® (sodium phosphate monobasic monohydrate, USP, sodium phosphate dibasic anhydrous, USP) tablets
In September 2005, we acquired Visicol with the completion of the acquisition of InKine Pharmaceutical Company, Inc. Visicol and OsmoPrep tablets are indicated for cleansing of the colon as a preparation for colonoscopy in adults 18 years of age or older. Visicol was the first, and it and OsmoPrep are the only, tablet bowel cleansing products approved by the FDA and marketed in the United States. OsmoPrep is a patented, second-generation tablet bowel cleansing product approved by the FDA in March 2006. OsmoPrep offers potential benefits compared to Visicol such as its lack of microcrystalline cellulose, smaller tablet size and possible lower dose administration. Net product sales for Visicol were ($1.4) million, $2.2 million and $18.0 million in 2008, 2007 and 2006 respectively. Net product sales for OsmoPrep were $30.3 million in 2008, $25.4 million in 2007 and $22.5 million in 2006.
CDC, LLC, owns U.S. Patent No. 5,616,346, or the ‘346 patent, for the formulation and use of OsmoPrep, which CDC licensed to us for commercialization in the United States. The ‘346 patent is listed with the FDA as protecting our OsmoPrep product to 2013. In 2008, Novel Laboratories, Inc., filed an ANDA with the FDA seeking approval to market a generic version of OsmoPrep in the United States prior to the May 18, 2013 expiration of the ‘346 patent. On September 8, 2008, we filed a lawsuit in the United States District Court for the District of New Jersey against Novel for the infringement of the ‘346 patent and seeking a declaratory judgment confirming the validity of the patent. The lawsuit also joins CDC as a party. This lawsuit prevents Novel from marketing a generic version of OsmoPrep for up to 30 months, unless Novel receives an earlier non-appealable judgment to the contrary. No trial date has been set. An additional U.S. patent application for OsmoPrep is pending that, if issued, could provide patent protection through 2024.
On December 11, 2008, the FDA announced a proposed boxed warning for OsmoPrep and Visicol that addresses the potential risk of acute kidney injury. We are working with the FDA to develop a risk evaluation and mitigation strategy, or REMS, including a medication guide, and we plan to conduct post–marketing clinical trials. In its announcement, the FDA also recommended that consumers not use over the counter Oral Sodium Phosphate, or OSP’s, for bowel cleansing. On December 12, 2008, C.B. Fleet Company announced a voluntary complete recall of their over-the-counter products Fleet® Phospho-soda® and Fleet® Phospho-soda® EZ-Prep® Bowel Cleansing System. These products were priced significantly lower than the available prescription bowel cleansing products and we believe accounted for approximately 3 million bowel cleansing procedures during 2008. We expect that this recall will result in an increase in demand for prescription bowel cleansing products in 2009. It is difficult to predict the effect that this combination of events will have on future demand for OsmoPrep and Visicol at this time.
Azasan® (azathioprine) tablets
In November 2003, we acquired from aaiPharma LLC the exclusive right to sell 25, 75 and 100 milligram dosage strengths of azathioprine tablets in North America under the brand name Azasan. Azasan is an FDA-approved drug that suppresses immune system responses and is indicated for preventing rejection of kidney transplants and treatment of severe arthritis. In February 2004, we launched the 75 and 100 milligram dosage strengths of Azasan in the United States. Net product sales for Azasan were $3.1 million, $3.4 million and $4.8 million in 2008, 2007 and 2006, respectively. The patents and data exclusivity for Azasan have expired.
Anusol-HC® and Proctocort® (hydrocortisone) creams and suppositories
In June 2004, we acquired the exclusive right to sell Anusol-HC 2.5% (hydrocortisone USP) cream, Anusol-HC 25 mg (hydrocortisone acetate) rectal suppositories, Proctocort 1% (hydrocortisone USP) cream and Proctocort 30 mg (hydrocortisone acetate) rectal suppositories from King Pharmaceuticals, Inc. The two cream products are topical corticosteroids indicated for relief of the inflammatory and pruritic, or itching, manifestations of corticosteroid-responsive dermatoses. The two suppository products are indicated for use in inflamed hemorrhoids and postirradiation proctitis, as well as an adjunct in the treatment of chronic ulcerative colitis and other inflammatory conditions. Combined net product sales for the Anusol-HC and Proctocort product lines were $3.7 million, $2.9 million and $3.0 million in 2008, 2007 and 2006, respectively. The patents and data exclusivity for Anusol-HC and Proctocort have expired.
Pepcid® (famotidine) for Oral Suspension and Oral Suspension Diuril® (Chlorothiazide)
In February 2007, we purchased the U.S. prescription pharmaceutical product rights to Pepcid Oral Suspension and Diuril Oral Suspension from Merck & Co., Inc. Pepcid Oral Suspension is a widely known prescription pharmaceutical product indicated for several gastrointestinal indications, including the treatment of duodenal ulcer, benign gastric ulcer and gastro-esophageal reflux disease. Pepcid Oral Suspension and Diuril Oral Suspension, both liquid formulations of their solid dosage form counterparts, compete in a combined market of approximately $150 million, concentrated in pediatric and hospitalized patient populations. Net product sales for Pepcid were $18.2 million in 2008 and $22.2 million in 2007. Net product sales for Diuril were $0.6 million for 2008 and $0.2 million for 2007. The patents and data exclusivity for Pepcid Oral Suspension and Diuril Oral Suspension have expired.
Apriso™ (mesalamine) extended-release capsules 0.375g
In July 2002 we acquired the exclusive development rights in the United States to a granulated mesalamine product from Dr. Falk Pharma GmbH, one of the most recognized gastroenterology companies worldwide. On October 31, 2008, the FDA granted marketing approval for Apriso for the maintenance of remission of ulcerative colitis in adults. Apriso is a locally-acting aminosalicylate and is the first and only mesalamine product approved by the FDA for once-a-day dosing for the maintenance of remission of ulcerative colitis. Apriso is designed to provide for the distribution of the active ingredient beginning in the small bowel and continuing throughout the colon. The product’s unique prolonged release mechanism might allow us to expand the range of treatment options for ulcerative colitis. We shipped Apriso to wholesalers in the fourth quarter of 2008 and launched Apriso to physicians in late February 2009.
Ulcerative colitis is a chronic form of inflammatory bowel disease characterized by inflammation of the lining of the colon. Symptoms of active ulcerative colitis include rectal bleeding, abdominal pain, increased stool frequency, loss of appetite, fever and weight loss. The cause of ulcerative colitis is unknown and no known cure exists except for the removal of the colon. It is estimated that as many as 500,000 people in the United States have ulcerative colitis. People are most often diagnosed with the disease in their mid-30’s, although the disease can occur at any age.
Apriso is patent protected until 2018.
Colazal® (balsalazide disodium) capsules
Our first drug, Colazal, was approved by the FDA in 2000 for the treatment of mildly to moderately active ulcerative colitis. We launched Colazal to physicians in the United States in January 2001 using our own sales force. In December 2006, the FDA approved Colazal for use in pediatric patients between 5 to 17 years of age with ulcerative colitis. The pediatric use of Colazal has been granted orphan drug designation. On December 28, 2007, the Office of Generic Drugs, or OGD, approved three generic balsalazide capsule products, and we announced that we had entered into an agreement with Watson Pharma, Inc. to market and sell an authorized generic of Colazal.
We had net product sales of $1.4 million, $92.4 million and $103.5 million of Colazal in the United States in 2008, 2007 and 2006, respectively. Colazal net product revenues for 2007 include a $34.6 million reduction representing our estimate of Colazal previously sold to wholesalers that may be returned to us under our return policy as a result of the generic approvals discussed above. We do not anticipate significant Colazal sales in 2009 or beyond.
Balsalazide Disodium tablets
We have developed an 1100 mg tablet formulation of balsalazide disodium. We believe the convenience the balsalazide tablet formulation is designed to provide, by means of twice-a-day dosing and a reduced number of pills, demonstrates our ongoing commitment to bring products to market that better serve the needs of gastroenterologists and their patients. On July 17, 2007 we submitted an NDA to the FDA seeking approval to market an 1100 mg tablet formulation of balsalazide disodium. On May 16, 2008 we received an approvable letter from the FDA. We submitted a complete response to the approvable letter on June 30, 2008. On December 22, 2008, the FDA issued a complete response letter. Based on its review, the FDA has determined that the application cannot be approved in its present form and that clinical data from an additional adequate and well-controlled clinical trial will be required in order to conduct further review on the NDA. We have been granted a Type A meeting with the FDA and will meet with the FDA to discuss appropriate next steps and determine if the issues described in the December 22, 2008 complete response letter can be resolved and the product can be approved for marketing. We do not intend to conduct additional clinical investigation of balsalazide tablets in this indication. The patent for balsalazide disodium tablets will expire in 2018.
Xifaxan® (rifaximin) tablets
We are committed to maximizing the commercial potential of our GI-targeted antibiotic, Xifaxan. We have prioritized our development efforts and have budgeted resources to expedite our late-stage trials in hepatic encephalopathy and irritable bowel syndrome. These studies are generating data that should provide the basis for forthcoming New Drug Applications.
In October 2008, we announced the successful completion and outcome of our pivotal Phase III trial to evaluate the efficacy, safety and tolerability of rifaximin in preventing hepatic encephalopathy, or HE. This study demonstrates that the protocol–specified, intent-to-treat, primary endpoint comparison of a 6-month course of rifaximin at 550 mg dosed twice-a-day provides a highly statistically significant result in preventing HE, compared to placebo. The results seen with the primary endpoint are corroborated by the secondary endpoints. Hepatic encephalopathy, which encompasses a spectrum of reversible neuropsychiatric abnormalities that occur in patients with acute or chronic liver disease, is a serious medical condition that has no FDA-approved drug therapies available. We intend to submit an NDA during 2009.
Irritable Bowel Syndrome
In June 2008 we initiated patient enrollment in the Phase III trials to assess the efficacy and safety of rifaximin (550 mg TID) in the treatment of patients with non-constipation irritable bowel syndrome, or non-C IBS. We are conducting two 600-subject trials, TARGET 1 and TARGET 2, in a total of approximately 190 study centers throughout the U.S. and Canada. We expect to complete patient enrollment by mid-2009.
Prevention of Travelers’ Diarrhea
We have completed two Phase III trials to evaluate Xifaxan in the prevention of travelers’ diarrhea. In December 2008 we had a pre-NDA meeting with the FDA to discuss these data and potential next steps. We currently plan to submit an NDA for the prevention of travelers’ diarrhea in late 2009.
C. difficile-associated Diarrhea
In December 2008, we concluded patient enrollment in our C. Difficile-associated diarrhea, or CDAD, trial. Final enrollment into this trial concluded with the enrollment of 238 of the protocol defined 300 patients enrolled. During 2009, we intend to analyze the results of this trial and, data allowing, request a meeting with the FDA to discuss the next appropriate steps for this indication.
In September 2006 we acquired exclusive marketing rights for vapreotide acetate in the United States from the Debiopharm Group. Patient enrollment in a confirmatory Phase III trial in the United States as a treatment of acute esophageal variceal bleeding was completed during the third quarter of 2008. Debiopharm submitted a complete response to the FDA during the fourth quarter of 2008, and the FDA granted an April 1, 2009 Prescription Drug User Fee Act, or PDUFA, goal date. We believe the FDA is likely to request a review of vapreotide acetate at a future Advisory Committee meeting, and therefore the April 1, 2009 PDUFA date may be extended. If approved by the FDA, vapreotide acetate will be the only approved treatment for esophageal variceal bleeding in the United States. Vapreotide acetate has been granted orphan drug designation in the United States, and as a result, if approved, will have seven years of exclusivity from the approval date.
Metozolv™ (metoclopramide) orally disintegrating tablets
In September 2007, we acquired exclusive, worldwide rights to metoclopramide-Zydis® from Wilmington Pharmaceuticals. Metoclopramide is indicated for short-term (4–12 weeks) therapy for adults with symptomatic documented gastroesophageal reflux who fail to respond to conventional therapy, and for the relief of symptoms associated with acute and recurrent diabetic gastric stasis. Metozolv is a fast-dissolve formulation of metoclopramide that has patent protection until 2017 and additional patent protection pending that, if issued, will provide intellectual property protection until 2023.
Wilmington submitted an NDA seeking approval to market Metozolv and, the FDA originally granted a November 30, 2008 PDUFA goal date. In November 2008, however, the FDA extended the PDUFA goal date three months, to February 27, 2009, to provide time for a full review of the submission. On February 26, 2009, Wilmington received a complete response letter from the FDA, indicating that it requires a REMS for Metozolv prior to approval of the NDA. With the exception of the REMS requirement, all substantive questions and issues surrounding the Metozolv application have been resolved. We intend to submit the REMS by mid March and will work with the FDA to expedite the approval of Metozolv. In a separate action on February 26, 2009, the FDA issued a class-wide requirement for all manufacturers of metoclopramide in the United States to provide a REMS for their products.
In December 2008 we acquired rights to crofelemer from Napo Pharmaceuticals, Inc. We are investigating crofelemer in a Phase III study as an anti-secretory anti-diarrheal agent for the treatment of chronic diarrhea in people living with HIV, or HIV-associated diarrhea. Patents for crofelemer provide intellectual property protection to 2018. If crofelemer receives marketing approval, it should be eligible for 5 years marketing exclusivity as a new molecular entity. The product also might be entitled to patent term restoration.
In March 2008, we acquired a license from Dr. Falk Pharma GmbH to a family of budesonide products, including a budesonide rectal foam and a budesonide gastro-resistant capsule, in the United States. The rectal foam product and the gastro-resistant capsule products have patent coverage in the U.S. until 2015 and 2016, respectively. We expect to initiate Phase III studies on the budesonide rectal foam product during 2009.
COLLABORATIVE AND PRODUCT ACQUISITION AGREEMENTS
We have and will continue to enter into various collaborations and product acquisition agreements with licensors, licensees and others. To date, we have entered into the following agreements:
Product Acquisitions and In-License Agreements
In November 2003, we acquired from aaiPharma LLC for $2.0 million the exclusive right to sell 25, 75 and 100 milligram dosage strengths of azathioprine tablets in North America under the name Azasan. In addition, the agreement provides that Salix is to pay aaiPharma, on a quarterly basis, a percentage royalty payment based on Salix’s net sales of Azasan in exchange for aaiPharma supplying us with drug product. Because the amount of the royalty payment is based on net sales during a quarter, with no minimum royalty amount, Salix is unable to prospectively disclose the absolute amount of such royalty payments. Royalties are only incurred if there is associated revenue, and then are included in “Cost of products sold” in the Statements of Operations.
Alfa Wassermann S.P.A.
In June 1996, Salix entered into a license agreement with Alfa Wassermann S.p.A, a privately held pharmaceutical company headquartered in Italy, pursuant to which Alfa Wassermann licensed to Salix the exclusive rights to make, use and sell rifaximin (Xifaxan) in the United States and Canada for the treatment of gastrointestinal and respiratory tract diseases. Pursuant to the license agreement, we agreed to pay Alfa Wassermann a net sales-based royalty, as well as milestone payments. Salix made annual milestone payments in varying amounts to Alfa Wassermann until the commercial launch of Xifaxan in July 2004. No more milestone payments remain under this agreement. Our obligation to pay royalties commenced upon the commercial launch of the product and continues until the later of (1) the expiration of the period in which the manufacture, use or sale of the products by an unlicensed third party would constitute an infringement on the patent covering the product or (2) 10 years from commercial launch. Thereafter, the licenses granted to us shall continue as irrevocable royalty-free paid-up licenses. However, we would remain obligated to pay a net sales based royalty for use of the product trademark if we choose to continue using it after the other licenses expired. Because the amount of the royalty payment is based on net sales during a quarter, with no minimum royalty amount, Salix is unable to prospectively disclose the absolute amount of such royalty payments. Royalties are only incurred if there is associated revenue, and then are included in “Cost of products sold” in the Statements of Operations.
Alfa Wassermann has agreed separately to supply us with bulk active ingredient rifaximin at a fixed price. Salix is committed to purchase a percentage of its rolling 12-month forecast that is updated monthly, and these amounts are included in the “Purchase Commitments” line of its contractual commitments table in its Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The license agreement does not have a set term and continues until terminated in accordance with its terms. Either party to the agreement may terminate it following a material breach by the other party and the failure of the breaching party to remedy the breach within 60 days. In addition, Alfa Wassermann has the right to terminate the agreement on three months’ written notice in the event that we fail to sell the product for a period of six consecutive months after commercial launch. In addition, Alfa Wassermann may terminate the agreement if we become involved in bankruptcy, liquidation or similar proceedings. We may terminate the agreement in respect of any indication or any part of the territory covered on 90 days’ notice, at which point our rights with respect to that indication or territory shall cease.