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Executives

Carolyn J. Logan – President, Chief Executive Officer and Director

Analysts

Michael Faerm – Credit Suisse Securities LLC

Salix Pharmaceuticals, Ltd. (SLXP) 2012 Credit Suisse Annual Health Care Conference Call November 14, 2012 5:00 PM ET

Michael Faerm – Credit Suisse Securities LLC

Good afternoon. I think we will get started with our next presentation. I’m Micke Faerm, Specialty Pharma Analysts with Credit Suisse. And it’s our pleasure to have with us Salix Pharmaceuticals. Presenting for the company will be Carolyn Logan, Chief Executive Officer. Carol?

Carolyn J. Logan

Thanks, Michael, and thanks to Credit Suisse for having us here at this conference. It’s a nice place to get out of all the cold, so very nice out here. As you can see by our side, we have a one tract mind; we are focused in gastrointestinal disease. So of course that is the tract that we are referring to.

I’m sure that you’ve seen a lot of forward-looking statement today, but we would like for you to take a few seconds and please review ours as well. And then we’ll get right into the presentation.

We think our mission statement does a very nice job of expressing who we are. It has changed slightly over the past 12 years or so, but several things have remained the same. We are committed to being the leading gastrointestinal-focused company. We do believe that we provide solutions for patients and healthcare providers. We also want to provide rewarding opportunities for our employees and exceptional value for our shareholders. So what has not changed with the years is our focus on gastrointestinal disease and our commitments to that area, as well as our commitment to our shareholders and our employee.

If you look at our experience, you’ll see that since inception of the company we have acquired or in license 18 different product. We’ve had a lot of success progressed in Canada through the FDA and regulatory process. We have eight NDA or SNDAs that have received approval and then gone on to product launches. And we have three that are currently pending at the FDA, and we’ll talk about more about those as go through this presentation.

We’re very proud of our sales and marketing effort. We believe that we have been quite well in this area. We are recognized by almost everyone as the leading company in gastrointestinal in that market or in that area. On average, our sales force has about 11 years of experience, and about half of them have actually presented products to gastroenterologist before.

This slide can be a little bit busy, so don’t let it scare you. And I can promise you there is one coming up a few slides later that’s even busier. But the main takeaways from this slide on the top line it looks at our acquisition and in licensing history, of course you will products on there that are currently promoted by us today, but you will see some smaller products that we acquired early on, that really helped us built our top line to give us more money to develop them, which has worked out quite nicely.

You will notice on that top line that Colazal and XIFAXAN are not listed, that’s just because they were acquired prior to 2000. When we reveal the second line for NDA approvals, of course you’ll see COLAZAL there that was approved in 2000, it’s since gone generic. You’ll see XIFAXAN in the 200 milligram that was approved for traveler’s diarrhea in 2004, and then more recently XIFAXAN 550 for a hepatic encephalopathy indication that we received in March of 2010.

Of course other products that are very prominent in our bag that we promote physicians are MOVIPREP and OSMOPREP which are bowel cleansers. APRISO for maintenance of remission of ulcerative colitis and then (inaudible) we have not launched yet but it has been approved and it is a follow on product, it’s a Colazal in the ulcerative colitis area, its balsalazide disodium in a tablet form.

And then after NDA approval of course is the product launch for we get to take our product out to physicians and therefore get them into patients and hopefully help improve patients’ lives if not have a dramatic – a more dramatic effect, maybe even prolonging in some cases.

If we look at our commercial overview you’ll see depicted on the flag here our run rate and these are based on our August prescription. So if you take August prescriptions and dollarize them and then annualize them, you’ll reach the run rate that are listed on the screen. So of course the fact and continues to just do extremely well for us. Bowel cleansing which is led by MOVIPREP franchize, it’s recognized as the number one prescription bowel cleanser in the US also in the world I might add.

APRISO is a product that just keeps gaining momentum. Relistor US you can see and then all other and of course for now in the all other categories are the Oceana product. So to look a little bit closer at XIFAXAN for those of you who may not be familiar with it, it’s just an incredibly unique molecule in the fact that it’s targeted to work in the gut, a very little of this drug goes systemic, less than 0.4% is found in the blood.

Since it is not a systemic antibiotic, we have not seen the clinically relevant plasma-mediated resistance that you do see with systemic antibiotics. Therefore the safety profile and tolerability and everything we studied it in has been comparable to placebo. Yet it is a broad spectrum antibiotic effective against both Gram-positive and Gram-negative organisms.

As I’ve mentioned a little earlier, it was approved in 2004 for travelers’ diarrhea. Of course when it got approved in 2010 for hepatic encephalopathy, it’s when dramatic growth started to really take place. Since we have two different milligram tablets on the market, we now measure our performance in milligrams and you will see a slide for that effect a little further into the presentation.

We just continue to have great growth. Since the product was approved in 2004, every quarter we have had sequential growth since then. In 2011, close to 12 billion milligrams of this drug was prescribed. This is the slide I promised is even busier than our in-licensing and acquisition history. This is the patent portfolio around XIFAXAN.

With XIFAXAN 550, we do have orphan exclusivity until March 24, 2017. Also the agency has released guidelines for any generic company that might consider developing an ANDA and those guidelines are quite rigorous. They do require a clinical trial, clinical endpoint as well, as a lot of PK and dissolution work.

But if you look at the patent portfolio, you will notice that the five at the bottom say Orange Book Listenable as opposed to the others that they Orange Book Listed. And that’s just because these five down at the bottom are in (inaudible). So of course you can’t list the patent in the Orange Book until you’ve obtained the indication. But as you can see, we have a broad array of patents and we feel quite confident in the patents, let’s say, around this recorded drug.

The New England Journal of Medicine is really where everyone wants to have their work published. It’s a pristine journal, pristine reputation and we’re very fortunate that those both our hepatic encephalopathy study was published there as well as our two Phase 3 trials in irritable bowel syndrome.

As I mentioned a little bit earlier, on March 23, 2010, we did receive the HE indication with XIFAXAN 550. I don’t know if everyone in here is familiar with HE because it’s rather very rare. We believe there are about 340,000 patients in the U.S. who have overt hepatic encephalopathy. It’s a terrible condition. It’s a consequence of late stage liver disease. And there maybe many factors that cause this (inaudible) liver to affect the brain, but one of the factors is thought to be ammonia build-up. There are other factors as well. But ammonia build up will start to affect the brain and that’s been encephalopathy phase.

These patients are in no way connected to Alzheimer, but their behavior is somewhat – it reminds us somewhat of all time within that. They have day/night reversal, they get lost, can’t remember where they live, can’t remember loved ones, they can become very agitated, they can behave in very bizarre ways. So it is just a terrible condition and once you have HE, then you have it, until you get a liver transplant or unfortunately until these patient pass away.

So before XIFAXAN 550 was approved for the mainstay of therapy, believe it or not was a potent lactulose and lactulose is thought to work by flushing the body, and flushing these toxins out. So, the downside of that of course is a lot of diarrhea, very hard to titrate the dose. A lot of diarrhea can give these patients, can dehydrate them which can throw them into an event, a lot of drugs are precluded in these patients because most drugs are metabolized through the liver and of course if you liver is hardened and grows inside, blood can’t flow through it to be filtered, so that’s the reason there is so few drugs that can’t be used in these patients. XIFAXAN is thought to work by attacking the bacteria in the gut and keeping the toxin level down that way.

So look at the market, right now there are about 8 million people in the U.S., who are at risk for chronic liver disease, these can be Hepatitis C patients, Hepatitis B, alcohol abusers, drug addicts, there are lot of ways that people have livers without some compromise. Of the people that are with the liver disease, with a very conservative number of 600,000 cases of cirrhosis, if you look at the literature on this, you will find, [patients] up to probably closer to a million cases of cirrhosis in the U.S. About 70% of these patients go on and progress into something called minimal or subclinical hepatic encephalopathy and then of course a lot of those will progress on overt.

When we filed for our orphan status for this, so we are less than 200,000 patients in the United States, but that number had since grown to somewhere in the area of about 340,000 patients who have overt HE. These patients are hospitalized, some of them multiple times a year, it’s very difficult to get them under control and keep them under control at times. And so in our data, not only that we show a 58% reduction in overt HE occurrences, we also showed a 50% decrease in hospitalization.

So as you can imagine this is a very strong pharmacoeconomic story to payers because each hospital visit cost somewhere in the range of about $35,000. We’ve stated and still strongly believe that the HE indication alone is worth about $1 billion in revenues to us at peak year and we define peak at seven years post-launch.

This is our current campaign. We’ve learned through the market research that unfortunately about 64% of these patients are falling through the cracks and not being treated. So this campaign is a little dramatic, but it’s really meant to point out to physicians that even when these patients get out of the hospital, the day they leave the hospital they maybe under control and in good shape, but they are far from being out of the woods. They can fall right back into an overt HE episode. So, we talk a lot about what that looks like and have to identify and of course we believe that the fact 550 is the best treatment for these patients.

This gives you a look; I mentioned earlier that quarter-over-quarter, we had always had sequential growth since XIFAXAN was approved for travelers’ diarrhea in 2004. This particular side picks up total milligram from when we launched it in hepatic encephalopathy. So you can see that there is – nice trend lines there.

SOLESTA is a product we acquired more recently through the acquisition of Oceana. We acquired two products SOLESTA and DEFLUX. SOLESTA was the product that we were most interested in, it’s fecal incontinence. And there are a lot of patients in this country who have that, but it’s an embarrassing condition. So people aren’t going to talk openly about it in most cases.

This is a very easy procedure. It takes a – it doesn’t require any general anesthesia. The way it’s administered in the anal canal, it’s four injections. And as long as those injections occur above within tight line, which is where physicians are instructed to inject it, there is no pain to the patient or little to no pain. They don’t really feel anything. It is a balking agent, its how you want to (inaudible) but it does have dextranomer beads in there. We have some data now that shows even 36 months after administration the patients are still having effect.

So again since this is a procedure that is not required general anesthesia, it can be done in the physicians office, very effective. We believe that peak year revenue on this drug should exceed $500 million and we haven’t seen anything that makes us shove off with that number. About 15% of all the people over 50 do have people in continent. This is the current campaign for SOLESTA, it’s a good day, it’s no accident. People who have, continent episode they refer to (inaudible) this accident. They don’t refer to them as people in continent.

Oftentimes these patients just they are bound to their homes, they don’t go out because they are afraid of these accidents; we thought it would be very embarrassing for anyone. So it is the number one reason patients are admitted through nursing homes or assisted living facility. It’s definitely an issue and we believe that we provide a really good alternative. Everybody has been track conservative therapy first that would be diet maybe diapers also some people take an animal before they go out hoping they will have enough escort if they go out or an accident, but that’s no way to live. So SOLESTA offers a nice alternative before you go on to a formal invasive and extensive surgery.

DEFLUX is the other product that came with this acquisition. It’s for the treatment of vesicoureteral reflux, this occurs in children, and then there is not many children are affected by this, about 1%. This is an easy treatment but it does require general anesthesia and a hospital setting. But it’s the hyaluronic acid with (inaudible) and it’s ingested around the uterus to catch the backwash or backflow of urine back into the kidney causing kidney infections or bladder infection.

Our bowel cleansing franchise is another area that was done quite nicely where we do lot for two, for physicians and patients to choose from. OSMOPREP is a sodium phosphate tablet very easy to take; it’s tasteless; you can take it with any clear liquid. The downside to it is sodium phosphate and if people have any sort of renal dysfunction or kidney damage, they are not a candidate for this particular bowel prep.

So the much large bowel prep is MOVIPREP, and it’s a 2-liter polyethylene glycol product with ascorbic acid in it. The ascorbic acid is an osmotic and draws more water into the intestine and we believe results in a very solid cleansing at the colon. Of course these are given prior to colonoscopy where physicians are trying to detect colon cancer in its earlier stages to prevent people from going on into a more serious stage where the prognosis is not so good.

There are about 15 million colonoscopies done in the U.S. each year; and even at that number, about half of the people that should be getting strained or not. And believe it or not the number one reason people fight for not having a colonoscopy is the bowel prep platform. Years ago people had to drink big 4-liter jug of polyethylene glycol, but now we do offer and there are a couple of competitors that offers smaller volume prep. The goal is to get more and more people strained because colon cancer is one of the few cancers that if caught early does lead to a cure, however, if it’s not caught early the end result is not so positive usually.

This looks to MOVIPREP by year, with the prescription by years since we launched it. So you can see this is another area where we’ve done quite nicely. In 2006, 31,000 up to pretty close to 1.7 million prescriptions in 2011. And we had another good year this year so far.

In the inflammatory bowel disease, of course I mentioned earlier our very first product was COLAZAL that did go generic in 2007 it was indicated in all sort of colitis.

APRISO is a new state of the art once a day, it showed the delayed and extended release drug. It’s for the maintenance of remission of usage and it’s just a really easy drug for patients tagged with once a day dosing. We have not too long ago raised our PCR revenue guidance. We now believe that this drug will be do somewhere between $125 million and $150 million in revenue seven years after we launched it.

GIAZO will be a smaller drug, but it is for aminosalicylate sodium loyalist. It works very well and has a very precise delivery system straight to the colon, which of course is where all sort of colitis is found. Just to look APRISO prescription count five quarters since it was launched. So I know you probably think I am not showing you anything, but good trim lines, but fortunately for us we have a lot of those. So it’s metastatic, they’re just spontaneous to do well for us.

Looking at our pipelines, Crofelemer is we studied it in the prevention of watery or secretory diarrhea in HIV positive or AIDS patients that are on antiretroviral therapy. So we hope we’re in the final stages of coming to an action by the FDA, of course we’re hoping that we’ll be in approval. This has been a very complex drug to get through the regulatory process and our development group has worked very closely with the agency, very collaboratively and we’re hoping for a positive outcome there by the end of first quarter in 2013.

Our Relistor SI stand for subcutaneous injection. We have Relistor with a subcutaneous injection on the market currently and it’s used in patients with advanced illness. These patients are usually in palliative care. They often times have six months or less to live and so when laxative have failed for these patients Relistor has proven to be a very useful drug for the opioid-induced constipation that patients that are on high doses of opioids experience at time.

So the advanced illness indication that’s already on the market, we had hoped to expand that to patients that are non-cancer fine induced opioid patients and we currently have received the CRL from the agency and we are in the process of preparing an appeal on that because we believe that this drug should be available to patients sooner or not – not later. We also are working on an oral form of this drug for opioid-induced constipation in chronic pain in patients.

Budesonide Foam we’ll talk about in a slide a little later, but this is for all sort of proctitis or proctosigmoiditis and this could be used in conjunction with other drugs for patients 5A SA drugs for common or for example or it could be used by (inaudible).

Lumacan, is a very exciting drug, it’s a little further back in our development pipeline, but this drug has the ability to blow off cancerous and precancerous lesions in the colon causing for earlier and better detection of potential colon cancer lesion.

We are working on a next generation, Rifaximin, we’ve talked about that in earnings call in quite a bit, but we do have various types of pharmacokinetics studies underway and hope to take this into patients in the first half of next year.

EIR stands for extended intestinal release. This is a product that we’ve in-licensed form Alfa Wassermann. It does offer extended intestinal release after you get pass the stomach and that’s for prone disease is most commonly in the ileus (inaudible) or small intestine. So we hope to be able to initiate Phase 3 studies in the first half of 2013.

This looks a little bit more at Crofelemer. There are about 1.2 million patients that are diagnosed with AIDS or HIV positive and about 15% of those patients have this chronic watery or secretory diarrhea.

So there is some schools of thought that think that this comes from the meditation around the antiretroviral therapy drug, other people think it comes from the disease or possibly a combination of both of those. So whatever the cause this drug is highly effected there and we believe peak year sales for this if we are granted the indication will be between $150 million and $200 million.

Budesonide Foam, we talked quite a bit and I believe I am about to run out of time here. Peak year sales for (inaudible), we hope to have these trials fully enrolled by the end of this year.

Lumacan, I’ve also talked about, we believe if we’re successful in developing a viable formulation for this, that this could be at about $500 million revenue in peak year. We already talked about EIR just to highlight that we do believe this drug is also in that $500 million range peak year sales. This is a New England Journal of Medicine article that was published around Relistor. Progenics our partner was able to get that – their work published there.

We’ve already talked quite a bit about Relistor. We are going into a break-out session now and we do have our Head of Medical and R&D with us, we have our Chief Financial Officer, we have our Founder and Head of Investor Relations. So we’ve got quite a broad representation of our management team here and we will be taking questions there. These are anticipated milestone that we thought you might be interested in.

Question-and-Answer Session

[No Q&A session for this event]

Michael Faerm – Credit Suisse Securities LLC

Great. Thank you, Carolyn. We’ll be moving to the canyon room for the break out.

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Source: Salix Pharmaceuticals' CEO Presents at 2012 Credit Suisse Annual Health Care Conference (Transcript)
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