SLXP

Salix Pharmaceuticals, Ltd. (SLXP)

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Industry: Health Care
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Salix Pharmaceuticals Ltd (SLXP)

Q3 2009 Earnings Call

November 9, 2009 5:00 pm ET

Executives

Mike Freeman - Associate Vice President, IR and Corporate Communications

Carolyn Logan - President and Chief Executive Officer

Adam Derbyshire - Executive Vice President and Chief Financial Officer

Bill Forbes - Senior Vice President, R&D and Chief Development Officer

Analysts

Michael Tong - Wells Fargo Securities

Scott Hirsch - Credit Suisse

David Amsellem - Piper Jaffray

Scott Henry - Roth Capital

Jim Molloy - Caris & Company

Liisa Bayko - JMP Securities

Bert Hazlett - BMO Capital Markets

Presentation

Operator

Good day and welcome to the Salix Pharmaceuticals third quarter 2009 earnings release conference call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Michael Freeman, Associate Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

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, our President and Chief Executive Officer, and Adam Derbyshire, our Executive Vice President and Chief Financial Officer; and Dr. Bill Forbes, our Senior Vice President, Research and Development and Chief Development Officer.

Adam will begin the presentation with a review of the financial results for the third quarter of 2009. 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 2008. Specifically, the information in this conference call related to projections, development plans and other forward-looking statements is subject to the Safe Harbor.

I now will turn the call over to Adam Derbyshire, our Chief Financial Officer.

Adam Derbyshire

Thank you, Mike. Total product revenue was $65.7 million for third quarter of 2009, 53% increase, compared to $42.9 million for the third quarter 2008. Total product revenue for the first nine months of 2009 was $162.7 million, compared to $118.2 million for the first nine months of 2008.

The XIFAXAN revenue for the third quarter of 2009 was $42.7 million, compared to $41.4 million for the third quarter of 2008 and $93 million for the first nine months of 2009, compared to $56.1 million for the first nine months of 2008.

Our bowel cleansing products, MOVIPREP and OSMOPREP generated combined revenue of $16.4 million for the third quarter of 2009, compared to $14.8 million for the third quarter of 2008. Total combined product revenue for these two products was $47.6 million for the first nine months of 2009 and $44.4 million for the first nine months of 2008.

Total cost of products sold was $13.2 million for the third quarter and $34.5 million for the first nine months of 2009. Gross margin on total product revenue was 79.9% for the third quarter of 2009, compared to 81.9% for the third quarter of 2008 and 78.8% for the first nine months of 2009, compared to 81.3% for the first nine months of 2008.

The lower gross margins for 2009 relative to the comparable periods for 2008 were due to a change in the product revenue mix. We continue to expect gross margins for the year ending December 31, 2009 to be 79% to 80%.

Research and development expenses were $26.1 million for the third quarter of 2009 and $69.6 million for the first nine months of 2009, compared to $14.4 million and $57.3 million, respectively for the prior year periods.

Research and development expenses for the third quarter of 2009 include a $5 million up-front payment related to the acquisition of the exclusive U.S. right to Lupin`s proprietary bioadhesive technology for use in rifaximin.

Selling, general and administrative expenses were $29.6 million for the third quarter of 2009 and $83.6 million for the first nine months of 2009, compared to $23.4 million for the third quarter of 2008 and $67.6 million for the first nine months of 2008.

The Company reported a net loss of $7.3 million, or $0.15 per share, fully diluted, for the third quarter of 2009. Cash and cash equivalents were $69.1 million on September 30, 2009.

We continue to be pleased with the company’s ongoing product revenue growth. Our 53% year-over-year revenue growth was driven primarily by the increase in XIFAXAN revenue for the quarter.

The current annualized run rate is based on dollarizing September monthly prescription data for XIFAXAN, our bowel cleansing products and our other products category, are approximately $117 million, $85 million and $34 million, respectively.

We continue to anticipate that R&D and SG&A expenses for 2009 to be approximately $93 million and $120 million, respectively. This SG&A guidance accounts for METOZOLV ODT launch expenses, primarily associated with the hiring of 64 sales representatives during the third quarter.

For the fourth quarter of 2009, we anticipate total company product revenue will be approximately $68 million and should generate a loss of approximately $0.14 per share, fully diluted.

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