Salix Pharmaceuticals, Ltd. Vows To Fix Inventory Pile-Up Problem By End Of 2015

Salix Pharmaceuticals Vows To Fix Inventory Pile-Up Problem By End Of 2015

December 16, 2014

By Riley McDermid, BioSpace.com Breaking News Editor

Struggling biotech Salix Pharmaceuticals is finally biting the bullet in order to dig itself out of a long-running inventory pile-up, vowing Tuesday 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.

As such, 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 Carolyn Logan, president and chief executive officer of Salix, in a statement. “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 Tuesday, saying 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.

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