Salix third quarter total product revenue increases 81% to $146.2 million

Nov 9 2011

Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) today announced financial and operating results for the third quarter ended September 30, 2011 and other business updates.

Total product revenue was $146.2 million for the third quarter of 2011, an 81% increase compared to $80.6 million for the third quarter of 2010. Total product revenue for the first nine months of 2011 was $385.3 million, a 76% increase compared to $218.5 million for the first nine months of 2010. XIFAXAN^® revenue for the third quarter of 2011 was $96.7 million, a 48% increase compared to $65.2 million for the third quarter of 2010. XIFAXAN revenue for the first nine months of 2011 was $264.4 million, a 58% increase compared to $167.4 million for the first nine months of 2010.

Total cost of products sold was $24.1 million for the third quarter of 2011 and $67.9 million for the first nine months of 2011, compared to $14.5 million for the third quarter of 2010 and $41.5 million for the first nine months of 2010. Gross margin on total product revenue was 83.5% for the third quarter of 2011 compared to 82.0% for the third quarter of 2010, and 82.4% for the first nine months of 2011 compared to 81.0% for the first nine months of 2010. Research and development expenses were $24.8 million for the third quarter of 2011 and $85.3 million for the first nine months of 2011, compared to $19.7 million and $61.5 million, respectively, for the prior year periods. Selling, general and administrative expenses were $41.4 million for the third quarter of 2011 and $132.8 million for the first nine months of 2011, compared to $39.4 million and $116.7 million, respectively, for the prior year periods. The Company reported net income of $34.3 million, or $0.55 per share, fully diluted, for the third quarter of 2011.

Net income on a non-GAAP basis, excluding the impact of payments to Lupin for exclusive worldwide rights to Lupin's rifaximin technology, non-cash charges for expenses related to Salix's outstanding convertible debt, depreciation, amortization, and stock-based compensation expense, was $48.7 million, or $0.77 per share, for the three-month period ended September 30, 2011, and $103.2 million, or $1.64 per share, for the nine-month period ended September 30, 2011. 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 a substitute for, the comparable GAAP measures. A reconciliation of our non-GAAP measures to the comparable GAAP measures is provided in the accompanying financial table.

Cash and cash equivalents were $498.2 million as of September 30, 2011.

Adam Derbyshire, Executive Vice President and Chief Financial Officer, stated, "We continue to be extremely pleased with the performance of XIFAXAN^® 550 mg. During the third quarter of 2011 our XIFAXAN prescription business, comprised of XIFAXAN 200 mg tablets and XIFAXAN 550 mg tablets, demonstrated impressive growth, on a milligram basis, of 44% compared to the third quarter of 2010 and 69% compared to the first nine months of 2010. APRISO^® also demonstrated strong prescription year-over-year growth of 54% for the third quarter of 2011 and 74% year-over-year growth for the first nine months of 2011 compared to the respective periods of 2010.

"We are increasing our estimate of 2011 total Company product revenue to approximately $535 million. This revised 2011 revenue guidance represents 59% growth over 2010 revenue. We now believe we will be able to generate approximately $130 million in pre-tax income for the full year ending December 31, 2011 (excluding payments to Lupin for exclusive worldwide rights to Lupin's rifaximin technology). We believe research and development expenditures and selling, general and administrative expenditures, combined, will be approximately $270 million for 2011, excluding those payments to Lupin. The Company expects to be profitable during 2011, but because of net operating loss carryforward, we anticipate recognizing an effective tax rate of less than 10% for the full year 2011. The current annualized run rates, based on dollarizing the September 2011 prescription data for XIFAXAN, our bowel cleansing products, APRISO^®, RELISTOR^® (U.S.) and our 'other products', are approximately $395 million, $95 million, $68 million, $16 million and $11 million, respectively."

Carolyn Logan, President and Chief Executive Officer, stated, "XIFAXAN continues to grow sequentially, with prescriptions, on a milligram basis, increasing 6% for the third quarter of 2011 compared to the second quarter of 2011. XIFAXAN prescriptions exceeded one billion milligrams for both August and September. APRISO also continued to exceed the Company's expectations during the quarter. APRISO prescriptions increased 7% during the third quarter of 2011 compared to the second quarter of 2011. RELISTOR (U.S.) prescriptions increased 18% during the third quarter of 2011 compared to the second quarter of 2011.

"During the quarter the Company continued to prepare for the November 16, 2011 meeting with the Gastrointestinal Drugs Advisory Committee of the FDA to discuss the design of a clinical trial to evaluate the safety, efficacy and durability of response with repeat treatment cycles of XIFAXAN for irritable bowel syndrome (IBS) with diarrhea. Earlier in 2011 the FDA requested evidence that rifaximin is effective with repeat treatment cycles following recurrence of symptoms. Currently, data from several retrospective chart reviews demonstrate efficacy with repeat use of rifaximin and provide confidence regarding a high probability of success in this next prospective trial. Over the past five months, subsequent to our June 20, 2011 End of Review Conference with the FDA, Salix and the FDA have been working collaboratively to develop a study proposal intended to collect prospective controlled data to support repeat use of rifaximin in IBS with diarrhea following the recurrence of symptoms. We look forward to the opportunity to discuss this jointly-developed clinical trial design proposal to evaluate the safety, efficacy and durability of response with repeat treatment cycles of XIFAXAN for IBS with diarrhea with the Advisory Committee on November 16. Depending on the outcome of the discussions at the Advisory Committee, we plan to finalize the protocol with a goal of initiating patient enrollment into a retreatment trial by the end of the year 2011 or early 2012. Currently we anticipate that approximately 24 months could be required to complete the trial, file a resubmission to the Complete Response Letter and secure an FDA decision regarding approval.

"In late August the FDA accepted for filing the supplemental New Drug Application for RELISTOR Subcutaneous Injection to treat opioid-induced constipation in patients with non-cancer pain and issued an action date of April 27, 2012 under the Prescription Drug User Fee Act (PDUFA). Regarding crofelemer, during the second quarter of 2011 the FDA requested additional analytical data. These data are being collected and we intend to submit the crofelemer NDA by the end of 2011. Patient enrollment in the budesonide foam Phase 3 trial passed the half-way mark during the third quarter of 2011. At this time, we are targeting to submit the NDA for budesonide foam by the end of 2012 or early 2013. Additionally, during the third quarter work progressed on the development of a next generation rifaximin. Currently we anticipate initiating the first pharmacokinetic trial in man of several rifaximin next-generation formulations by the end of 2011.

"In October we granted a license to Link Healthcare to market RELISTOR in Australia, New Zealand, South Africa and Asia. Efforts continue to secure a distribution partner for Europe.

"Our core business is strong and growing. In the near term we anticipate that our currently marketed products should continue to generate revenue at a robust rate. 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. We believe combined peak-year sales, which we define as the seventh year of sales of a product, of our new product candidates currently in development - XIFAXAN for IBS, subcutaneous injection and oral RELISTOR for chronic, non-cancer pain, crofelemer, budesonide foam and Lumacan - could total approximately $4 billion. Additionally, the Company continues to actively pursue additional product opportunities to expand and broaden our product portfolio. We are extremely pleased with the success we have achieved to date and we believe the Company is well-positioned to continue to succeed in our mission of being the leading U.S. specialty pharmaceutical company licensing, developing and marketing innovative products to healthcare professionals to prevent or treat gastrointestinal disorders."