Salix Pharmaceuticals, Ltd. CEO to Retire Amid Inventory Pile Up Drama

January 6, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor

Struggling North Carolina biotech Salix Pharmaceuticals may have finally satiated some shareholders that have been pushing for a total overhaul of the company and its management, saying Monday that its chief executive, Carolyn Logan, will “retire,” as the firm continues to claw its way out from under an inventory pile-up that has made headlines for months.

Salix said that effective Jan. 30, 2015, Tom D’Alonzo, chairman of Salix’s Board of Directors, will be appointed acting chief executive officer, while William Bertrand, Jr., senior vice president and general counsel, will be appointed acting chief operating officer, pending the company’s hiring of a permanent CEO.

Salix said it had hired a “nationally recognized executive search firm” to assist it in identifying a “highly qualified, experienced pharmaceutical executive to lead the company on a going-forward basis.”

Salix finally bit the bullet in order to dig itself out of a long-running inventory pile-up, vowing Dec. 16 to slash sales to wholesalers selling three crucial drugs involved in the backlog, with a resolution target date in the fourth quarter of 2015.

Issues over Salix’s inventory levels scuttled a promising deal between Salix and potential suitor Allergan , after the Botox maker’s due diligence team said the pile-up raised significant concerns about value and management. Wall Street analysts have also consistently downgraded the company over its backlog, and shareholders have chided management for what they say has been a lax response.

Salix seemed to be getting some help at the beginning of December, when hedge fund Paulson & Cos aid it would take a stake in the specialty pharmaceutical company, a sign market watchers are taking to mean the firm will quickly be forced to shape up or be pushed for an exit.

Paulson did not disclose the size of its stake, but hedge funds typically take a large enough share of a company to press for change either via shareholder action or by seating a member on the board of directors.

With those write-downs, Salix’s bottom line will take major hit in 2015, as it sells only “minimal amounts” of Xifaxan 550, Apriso and Uceris during the fourth quarter of 2014 in an attempt to plough through—and hopefully over—the inventory issue.

Salix now forecasts earnings per share of about $3.10 to $4.10 and total net product revenue between $1.25 billion to $1.35 billion for 2015, a steep step-down from the analyst consensus of $4.49 per share for the year on revenues of $1.51 billion.

Salix’s management said the dip in earnings would pay off in the long run—particularly if the company is hoping to attract new suitors.

"As part of this effort, we are working with our wholesale partners to more aggressively work down their inventories,” said Logan at the time. “While this effort will impact Salix's revenue in the fourth quarter of 2014 and the full year 2015, we believe this one-time reduction over a defined period of five quarters is the right decision for the business long-term."

The company had more bad news in December, when the U.S. Food and Drug Administration has decided to delay a ruling on the extended approval of Salix's bowel drug Xifaxan by three months to May 27, 2015. Neither the company, nor the FDA, said why they would delay.