SLXP

Salix Pharmaceuticals, Ltd. (SLXP)

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Exchange: NASDAQ
Industry: Health Care
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Salix Pharmaceuticals (SLXP)

Q3 2012 Earnings Call

November 07, 2012 5:00 pm ET

Executives

G. Michael Freeman - Associate Vice President of Investor Relations & Corporate Communications

Adam C. Derbyshire - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Finance & Administration

Carolyn J. Logan - Chief Executive Officer, President, Director and Member of Pricing Committee

William P. Forbes - Chief Development Officer and Executive Vice President of Research & Development

Analysts

Annabel Samimy - Stifel, Nicolaus & Co., Inc., Research Division

Michael Faerm - Crédit Suisse AG, Research Division

Gary Nachman - Susquehanna Financial Group, LLLP, Research Division

David G. Buck - The Buckingham Research Group Incorporated

David Amsellem - Piper Jaffray Companies, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Ami Fadia - UBS Investment Bank, Research Division

Irina Rivkind - Cantor Fitzgerald & Co., Research Division

Michael Kallai Tong - Wells Fargo Securities, LLC, Research Division

Jason M. Gerberry - Leerink Swann LLC, Research Division

Tim Lugo - William Blair & Company L.L.C., Research Division

Presentation

Operator

Good afternoon, my name is Allie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Salix Pharmaceuticals Third Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to your host, Michael Freeman. Mr. Freeman, you may begin your conference.

G. 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, President and Chief Executive Officer; Adam Derbyshire, Executive Vice President and Chief Financial Officer; and Bill Forbes, Executive Vice President, Medical and Research and Development, and Chief Development Officer.

Adam will begin the presentation with a review of the financial results for the third quarter of 2012. Carolyn then will review operations to complete the formal segment of today’s call. At the conclusion of each 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 2011. 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.

Adam C. Derbyshire

Thank you, Mike. Total product revenue was $185.1 million for the third quarter of 2012, a 27% increase compared to $146.2 million for the third quarter of 2011. Total product revenue for the first 9 months of 2012 was $537.3 million, a 39% increase compared to $385.3 million for the first 9 months of 2011.

XIFAXAN revenue for the third quarter of 2012 was $137.9 million, a 43% increase compared to $96.7 million for the third quarter of 2011.

XIFAXAN revenue for the first 9 months of 2012 was $367.5 million, a 39% increase compared to $264.4 million for the first 9 months of 2011. APRISO revenue for the third quarter of 2012 was $19.7 million, a 31% increase compared to $15 million for the third quarter of 2011. The combined revenue contribution of our most recently introduced products, RELISTOR, SOLESTA and DEFLUX, totaled $12.1 million for the third quarter of 2012.

Total cost of products sold was $26.5 million for the third quarter of 2012 and $93.9 million for the first 9 months of 2012, compared to $24.1 million for the third quarter of 2011 and $67.9 million for the first 9 months of 2011.

Gross margin on total product revenue was 85.7% for the third quarter of 2012 compared to 83.5% for the third quarter of 2011, and 82.5% for the first 9 months of 2012 compared to 82.4% for the first 9 months of 2011.

Research and development expenses were $32.8 million for the third quarter of 2012 and $86.7 million for the first 9 months of 2012, compared to $24.8 million and $85.3 million, respectively, for the prior year periods.

The increase in research and development expenses for 2012 compared to 2011 is due primarily to increased expenses related to our Phase III retreatment study of rifaximin for irritable bowel syndrome with diarrhea.

Selling, general and administrative expenses were $61.5 million for the third quarter of 2012 compared to $41.4 million for the prior year period, and $187.3 million for the first 9 months of 2012 compared to $132.8 million for the prior year period.

The increase in selling, general and administrative expenses for 2012 compared to 2011 is due primarily to increased personnel costs related to our sales force expansion in 2012 and increased marketing expenses related to SOLESTA and XIFAXAN550 for hepatic encephalopathy.

The company reported GAAP net income of $16.5 million or $0.26 per share, fully diluted, for the third quarter of 2012, and $46.4 million or $0.73 per share, fully diluted, for the 9-month period ended September 30, 2012.

Net income on a non-GAAP basis, excluding the loss on extinguishment of debt and noncash adjustments related to the repurchase of a portion of our 2028 Notes in March of 2012, the intangible asset impairment charge and the change in acquisition-related contingent consideration that occurred in September 2012, the difference between income taxes paid and income taxes expensed and noncash depreciation, amortization, stock-based compensation and convertible debt interest expense was $59.7 million or $0.95 per share, fully diluted, for the 3-month period ended September 30, 2012, and $154.5 million or $2.43 per share, fully diluted, for the 9-month period ended September 30, 2012.

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. We have provided in the press release issued earlier this afternoon a reconciliation of these measures to the most closely related GAAP measures.

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