SLXP

Salix Pharmaceuticals, Ltd. (SLXP)

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Salix Pharmaceuticals, Ltd. (SLXP)

Q4 2008 Earnings Call Transcript

March 10, 2009 5:00 pm ET

Executives

Michael Freeman – Associate Vice President of Investor Relations and Corporate Communications

Carolyn Logan – President and Chief Executive Officer

Adam Derbyshire – Chief Financial Officer

Bill Forbes – Vice President of Research and Development

Analysts

Michael Tong – Wachovia Capital

Scott Hirsch – Credit Suisse

Presentation

Operator

Welcome to the Salix Pharmaceuticals fourth quarter 2008 earnings release conference call. Today's conference is being recorded. At this time, I'd like to turn things over to Mr. Michael Freeman, Associate Vice President of Investor Relations and Corporate Communications.

Michael Freeman

Thank you. 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, our President and Chief Executive Officer, and Adam Derbyshire, our Senior Vice President and Chief Financial Officer.

Adam will begin the presentation with a review of the financial results for the fourth quarter and full year 2008. Carolyn then will review operations to complete the foremost 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 2007. 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 Derbyshire, our Chief Financial Officer.

Adam Derbyshire

Total product revenue was $60.6 million for the fourth quarter of 2008 compared to $39.1 million for the fourth quarter of 2007. Total product revenue for the full year of 2008 was $178.8 million compared to $232.9 million for the full year of 2007. The decrease in total product revenue for the full year was due to the genericization of COLAZAL on December 28, 2007.

XIFAXAN revenue for the third quarter of 2008 was $23.8 million, a 40% increase compared to the fourth quarter of 2007. XIFAXAN revenue for the full year of 2008 was $79.9 million compared to $64.3 million for the full year of 2007, an increase of 24%.

MOVIPREP, OSMOPREP and VISICOL, which comprise of our bowel cleansing product line, generated revenue of $21.4 million for the fourth quarter of 2008, compared to $13.1 million for the fourth quarter of 2007, a 63% increase. Total product revenue for our bowel cleansing product line was $62.9 million for the full year of 2008 compared to $47.7 million for the full year of 2007, a 32% increase. Total product revenue for the fourth quarter and full year of 2008 includes the initial stocking of APRISO in the amount of $9.1 million.

Total cost of products sold was $14.6 million for the fourth quarter and $36.7 million for the full year of 2008. Gross margin on total product revenue was 75.9% for the fourth quarter of 2008 compared to 56.7% for the fourth quarter of 2007 and 79.5% for the full year 2008, compared to 76.4% for the full year of 2007. Lower gross margin in the fourth quarter and full year of 2007 is a result of the return reserve recorded in the fourth quarter of 2007 for COLAZAL due to the approval of three generic balsalazide capsule products.

Research and development expenses were $20.9 million for the fourth quarter of 2008 and $76.6 million for the full year 2008, compared to $15.1 million and $71.9 million, respectively, for the prior year periods. Selling, general, and administrative expenses were $27.5 million for the fourth quarter of 2008, compared to $22.4 million for the fourth quarter of 2007, and these expenses were $95.1 million and $86.5 million for the full year 2008 and 2007, respectively.

The company reported a net loss of $10.5 million, or $0.22 per share, fully diluted, for the fourth quarter of 2008, including a $5 million up-front payment to Napo Pharmaceuticals for the acquisition of crofelemer. The net loss for the full year 2008 was $47.0 million, or $0.98 per share, fully diluted, including the Napo payment. The loss of $0.98 per share for the year is in line with our previously stated guidance of a loss of approximately $1.00 per share, including the Napo payment. Excluding the Napo payment, the non-GAAP loss for the full year was $0.88 per share fully diluted. This non-GAAP loss of $0.88 is slightly ahead of analysts’ consensus of a loss of $0.91 and our previously stated guidance of a non-GAAP loss of $0.90.

In August 2008, the company closed a $60 million convertible note offering. This funding should facilitate our ability to finance development and licensing activities and acquisitions in a timely fashion. Cash and cash equivalents were $120.2 million on December 31, 2008.

We are extremely pleased with the continuing robust growth of XIFAXIN, our most compelling long term opportunity and our bowel cleansing franchise. Combined product revenue from XIFAXIN and our bowel-cleansing products achieved a year over year growth of 50% for the fourth quarter of 2008 and 28% for the full year. This strong fourth quarter growth was driven primarily by the outstanding performance of our bowel-cleansing products subsequent to the withdrawal from the market of a competitive over-the-counter product in mid December 2008. Market research suggests that the withdrawal of this competitive OTC product could expand the overall prescription market as much as $3 million uses or an additional $150 million. So we anticipate that our bowel cleaning franchise should grow significantly during 2009.

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