Salix Pharmaceuticals Ltd. Q1 2008 Earnings Call Transcript

May. 6.08 | About: Salix Pharmaceuticals, (SLXP)

Salix Pharmaceuticals Ltd. (NASDAQ:SLXP)

Q1 2008 Earnings Call

May 6, 2008, 2:00 pm ET

Executives

Michael Freeman - Executive Director of Investor Relations

Carolyn Logan - President and Chief Executive Officer

Adam Derbyshire - Senior Vice President and Chief Financial Officer

Analysts

Michael Tong - Wachovia Capital

Scott Hirsch - Credit Suisse's

Greg Gust - Roth Capital Partners

Angela Larson - SIG

Harry Bank - Specific Growth

Operator

Good day ladies and gentlemen welcome to today's Salix Pharmaceuticals First Quarter 2008 Earnings release conference call. As a reminder today's call is being recorded. At this time, I would like to turn the call over to Mr. Michael Freeman, Executive Director of Investor Relations. Mr. Freeman please go ahead.

Michael Freeman - Executive Director of Investor Relations

Thank you and good afternoon. Thank you for joining us today this is Mike Freeman Executive Director 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 Senior Vice President and Chief Financial Officer.

Adam will begin the presentation with review of the financial results for the first quarter of 2008. Carolyn then will review operations to complete the foremost segment of today's call. At the conclusion of these comments the management will respond to appropriate questions.

Various remarks that management might make during this conference call about future expectations, plans, prospects for the company constitute forwarding-looking statements for purposes of safe harbor provisions under the private securities ligation reform act of 1995. Actual results might differ materially from those indicated by these forwarding-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 2007. 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 – Senior Vice President and Chief Financial Officer

Thank you, Mike. Total product revenue was 34.3 million for the first quarter of 2008 compared to 59.8 million for the first quarter of 2007. Xifaxan revenue for the first quarter of 2008 was 16.7 million a 9% increase compared to the first quarter of 2007. MOVIPREP, OSMOPREP and VISICOL which comprise of our bowel cleansing product line generated revenue of 10.3 million for the first quarter of 2008 compared to 11 million for the first quarter of 2007. MOVIPREP and OSMOPREP generated revenue of 14.3 million for the first quarter of 2008 compared to 10.3 million for the first quarter of 2007 an increase of 39%. The decrease in revenue for the total bowel cleansing franchisee that is MOVIPREP, OSMOPREP and VISICOL for the period reflected a one VISICOL product return due to product expiration.

The return product was shipped prior to the OSMOPREP launch and we do not anticipate additional significant VISICOL product returns. COLAZAL generated revenue of 1.3 million for the first quarter of 2008 compared to 30.1 million for the first quarter of 2007. The Decrease in COLAZAL revenue was due to the approval of three generic balsalazide capsule products on December 28 of 2007.

Our other product category generated revenue of 5.9 million for the first quarter of 2008 compared to 3.3 million for the first quarter of 2007. Total cost of products sold were 7.3 million for the first quarter of 2008. Gross margin on total product revenue was 78.8% for the first quarter of 2008 compared to 79.9% for the first quarter of 2007.

Research and development expenses were 24.9 million for the first quarter of 2008 compared to 21.8 million for the prior year period. The increase in R&D expenses was due primarily to costs associated with the ongoing late stage studies to expand the rifaximin label in label studies of granulated mesalamine and initiatives to support the 1100 mg balsalazide tablet submission.

Selling general and administrative expenses were 21.2 million for the first quarter of 2008 compared to 21.4 million in the prior year period. A total of 1.5 million in fees and costs related to license agreements including a milestone payment to Wilmington Pharmaceuticals upon the acceptance of the metoclopramide-Zydis new drug application by the FDA and a one time payment to Dr. Falk Pharma for US right to Falk's portfolio of the Budesonide Products was paid during the first quarter.

The company reported a net loss of 24 million or $0.50 per share fully diluted for the first quarter of 2008 in line with previously stated guidance.

Cash, cash equivalents and investments were 1011.5 million on March 31 of 2008. Combined product revenue from XIFAXAN, our bowel cleansing products and other products achieved year-over-year growth of 11% for the first quarter of 2008. We believe several factor should contribute to an increase in product revenue over the coming years. Mainly the continued growth of our currently marketed products the commercialization of products currently undergoing FDA review the expanded contribution of rifaximin as additional indications are approved and further expansion of our product portfolio via development activities and acquisitions.

We continue to believe based on current development programs and financial projections that our revenue generation capability combined with our cash reserve should be sufficient for the company to execute its current business plan and return to profitability without the need to raise additional funds.

The current annualized run rates based on dollarizing the latest prescription data, for XIFAXAN our bowel cleansing product line and other products are approximately 73 million, 61 million and 28 million respectively. We continue to believe total company product revenue for 2008 will be approximately 180 million. The company intends to continue to evaluate and invest in pharmacy and development projects, and as we discussed last quarter, research and development expense should be front end loaded for 2008.

Also during 2008 the company intends to continue large preparation activities for our three products currently undergoing FDA review. Consequently, we continue to anticipate generating a loss of approximately a $1.12 per share full diluted for the year ending December 31 2008.

Based on the information currently available, we expect to generate product revenue of approximately 41 million and a net loss of approximately $0.36 per share fully diluted for the second quarter of 2008.

I now will turn the call over to Carolyn Logan, our President and Chief Executive Officer.

Carolyn Logan – President and Chief Executive Officer

Thanks Adam. During the first quarter of 2008 we continue to execute our long term strategy to build our revenue by expanding the indications for our current products and securing additional product. We retained to expand our progress in the inflammatory bowel disease market with the ignition of Balsalazide Tablet and Granulated Mesalamine. The FDA has grown at May 16 2008 PDUFA date for Balsalazide Tablet and in October 31st 2008 PDUFA for Granulated Mesalamine.

Additionally the FDA has credit November 30 2008 PDUFA date for Metoclopramide-ZYDIS licensed from Wilmington Pharmaceutical. We anticipate regulatory action by the respected PDUFA dates for this patent protected products and are continuing with launch activity and anticipation of about Balsalazide Tablet launch in the third quarter of 2008, and Granulated Mesalamine and Metoclopramide-ZYDIS launches in early 2009.

We may hear this progress during the quarter with respect to our Phase III Program for Rifaximin in the treatment of the hepatic encephalopathy and non-constipation predominant irritable bowel syndrome also referred to with non-C-IBS.

At previously announced, we completed patient enrollment in the AG Phase III trial during the first quarter of 2008. Patient in this trial are dosed for six months. Thus where patient dosing should be completed during the third quarter of this year.

Provided the results of the trial supportive submission, we anticipate submitting the NDA for the HE indication lay in the fourth quarter of 2008 or in the first quarter 2009. The application has the potential for a six-month review based upon the current unmet medical need in treating this serious medical condition. The decision to accelerate the review cycle will be made by the FDA at the time of submission.

We anticipate initiating patient enrollment in our Phase III non-constipation predominant IBS trial by the end of June 2008. Based on current timelines, we anticipate completing these trials and submitting a New Drug Application in mid-2010. Additionally, Debiopharm, which licensed Vapreotide acetate to Salix made progress during the first quarter and the confirmatory Phase III trial of Vapreotide acetate for treatment of acute esophageal variceal bleeding or EVB. EVB is a life threatening and complication of late stage lever cirrhosis. And Vapreotide if approved will be only approved treatment for EVB in the United States.

Based upon information and projection available at this time we anticipate a new 2009 approvable. In March 2008 the company acquired Dr. Falk Pharma’s portfolio of budesonide product, including rectal foam and a gastro-resistant capsule. Dr. Falk Pharma market these patent protected products in Europe. We look forward to developing and marketing these products in the United States and are working to initiate late state clinical trial in 2009.

Our ongoing business continued to grow during the first quarter of 2008. Demand for our bowel cleansing product increased 26% year-over-year for the first quarter of 2008 compared to the first quarter of 2007 in terms of prescription. MOVIPREP and OSMOPREP are performing well. As we expect that our ability to provide both a tablet agent and a two-liter polyethylene glycol agent creates distinct advantages in the marketplace and an unprecedented opportunity for Salix to establish a leadership position. XIFAXAN continued to grow during the period. A record-breaking number of XIFAXAN tablets, approximately 5.3 million were prescribed during the first quarter of 2008.

In April, the company received a purposed notice of Paragraph IV Certification on behalf of Novel Laboratory. A filing of the submission of an Abbreviated New Drug Application for MoviPrep. As we stated in April, Salix and Norgen its license or have full confidence in a intellectual property rights that protect MoviPrep.

Unfortunately, in today's environment, this type of challenge to the intellectual property of an innovative product such as MoviPrep has become a common occurrence. We and Norgene and take use our reasonable mains that are historical to rigorously enforce our intellectual property rights regarding MoviPrep. Additionally it's necessary somewhat rigorously enforce our intellectual property rights regarding any of our products for many and all generic intrusion.

The level of interest in the utility of Rifaximin to potentially treat a broad spectrum of gastrointestinal disorders continues to remain high. Digestive Disease Week 2008, which will be held May 17 through 22 will provide a forum for researchers and clinicians to discuss additional results from the company sponsored Phase 2b trial of Rifaximin and the real associated abiosis as well as other Rifaximin studies conducted by independent investigators.

Data to be presented in two posters from our Phase 2b trial furnished upon our rationale for our upcoming Phase III trial in pursuit of FDA approval for Rifaximin for the treatment of non-constipation predominance irritable bowel syndrome. Two presentations to begin and report filings of investigators on the potential data set of Rifaximin in the treatment of small bowel bacterial overgrowth and irritable bowel syndrome.

DD (Donald) will provide an opportunity for gastroenterologists to learn more about results of our Phase III trials of Balsalazide tablet dose 12 daily versus placebo for the treatment of active ulcerative colitis.

Data to be presented in three posters provide additional information on the clinical improvement and quality of life benefit Balsalazide office with 12 per day dosing and reduced skill burden.

This completes my comments. Thank you for your participation in today's call. And now, I will turn the call over to the operator to begin the question-and-answer session.

Question-and-Answer Session

Operator

And, thank you. (Operator Instructions). We will go to Michael Tong with Wachovia Capital.

Michael Tong

Hi good afternoon Carolyn and Adam. I have just a couple of quick questions. In your revenue guidance for the second quarter, do you incorporate a potentially initial stocking for Balsalazide tablets in that $41 million number?

Adam Derbyshire

No, we don’t expect to launch that until July, third quarter.

Michael Tong

Okay. And also, are you in a position to reaffirm your previous R&D and SG&A guidance of 88 million and 105 million for '08 at this time?

Adam Derbyshire

Correct. We do.

Michael Tong

Okay. And then lastly, the license fee, I mean, should we expect that number to go back down to the 0.2 million range in the upcoming quarters?

Carolyn Logan

The cost related to license agreement? I mean, that's event driven. So there is nothing that that will happen unless an event occurs. What we saw last year was related to licensing agreement that we have we’re paying them $200,000 quarter over six quarters. So in the future what you will see if we do successfully in license products where milestone is hit with products we currently have. For instance, when something is accepted by FDA, NDA being accepted by FDA or an approval, and that’s when you see cost reflects itself on that line.

Micheal Tong

Okay. And then finally what are you seeing from the pre count prospective for XIFAXAN prescription at this point?

Adam Derbyshire

It’s actually now in the 71 to 74, 75 range. It bounces a little bit in that range on a week-to-weeks basis.

Micheal Tong

Okay thanks very much.

Operator

Moving on, taking our next question from Credit Suisse's Scott Hirsch.

Scott Hirsch

Hi guys. Sort of quick questions on the, I know, you said you’re going defend the Paragraph IV for MoviPrep, but I am curious if you guys have any sense of switch strategy that you can do to move to OsmoPrep or due you have any plans for that and in the works?

Carolyn Logan

Scott, we currently do not have plans to try to switch our MoviPrep business to OsmoPrep. As we stated earlier, we are enlarging very strongly our MoviPrep patent coverage and we are going to vigorously defend that.

Scott Hirsch

Is that a valuable option like could you do that down the road?

Carolyn Logan

Our possible switch strategy?

Scott Hirsch

Yes OsmoPrep I don know.

Carolyn Logan

There is not every patient is suitable for OsmoPrep, it’s the tablet formulation, it’s tasteless. So for those patients who qualify to take it it’s a really good alternative, but the majority of bowel cleansing market is in polyethylene glycol products. So MoviPrep is an important payout to us on, and we do not have plans to try to move that business over to OsmoPrep and in fact, not every MoviPrep eligible patient could be switch to OsmoPrep. That should be switch to OsmoPrep.

Scott Hirsch

Okay. And then with respect to the pipeline, I know you said that there is progress on standby I believe, but it’s kind of difficult to get patients rather, do you know how many patients are enrolled in the study at this point?

Carolyn Logan

As per my understanding they are very, very close within the couple of patient to be uncompleted with enrollment.

Scott Hirsch

And their enrollment was 70 patients is that?

Carolyn Logan

That’s correct.

Scott Hirsch

Okay.

Carolyn Logan

That is correct.

Scott Hirsch

And there any – is there any headway on the CDAD’s or the -- have you made any decisions about travelers' diarrhea that was just kind of on the back burner until HE kind of move forward?

Carolyn Logan

As you imagine our development growth is very busy right now focusing on getting the ideas up and running and completing HE. So (Inaudible) is continuing to world at a very slow pace because we just offering a lot of financial resources behind that study right now. And we are into summer months which traditionally and historically has been a relevant time for CDAD trials at least that’s our experience. And with he travelers diarrhea prophylaxis we are putting a package together and we will have a meeting with the FDA to discuss all the data and the results of our trials in that area. But we – that’s not a primary focus for us right now getting the IBS trials that’s in running and getting HE to completing in filing an NDA on our priorities or file at least right now on development.

Scott Hirsch

Okay. And then, I guess just lastly on the COLAZAL 750, I know this quarter had a lot of inventory de-stocking in generic kind of stocking going on, do you expect revenues to kind of stay in this sort of single digit most individual level that it will be come back up slightly after some of the generic, authorized generic revenues?

Adam Derbyshire

For this year we expected to stay in this and in this range.

Scott Hirsch

Alright.

Company Representative

Single digit

Carolyn Logan

I think you have been guided several rounds.

Scott Hirsch

Around and…

Carolyn Logan

30 million for the year.

Scott Hirsch

Okay.

Carolyn Logan

And costing is also effect during this year -- its not just a number of prescriptions. Actually I think our market share now is the 35 to 40% range, but pricing is a big factor in this area for us.

Scott Hirsch

Okay thanks very much.

Operator

And if one question remaining in our queue. (Operators Instruction). Now lets move on to Greg Gust with Roth Capital Partners.

Greg Gust

Hi actual (Inaudible) good afternoon to Carolyn and Adam.

Carolyn Logan

Hello.

Adam Derbyshire

Hello.

Greg Gust

Just a quick question, did you – when you talk about guidance did you also reaffirm the 100 million plus for SG&A?

Adams Derbyshire

Actually the key map on the Q&A yes, we are inline with our guidance of 105 million for SG&A and 88 million R&D.

Greg Gust

Okay. And second could you comment on the level of inventories, the wholesalers, is it more than last quarter is it in pretty much stable?

Adams Derbyshire

Yeah, it's stable it’s in that 8 to 10 week range.

Greg Gust

Okay, thank you very much.

Adams Derbyshire

Thank you.

Operator

Next question coming from Angela Larson

Angela Larson

Good afternoon. I just have couple of quick questions on looking forward to the Colazal tab launch. Historically we have been very consistent and get reporting the revenues assets post driven, not recording a bit number for inventories, and I wanted to confirm how you were looking for this launch? And also if you can give us a kittle bit of color on – are you working at that stay as a line extension that might be named Colazal something or is this going to be build as a new product launch?

Adams Derbyshire

Angela, moving into the first part of your question, we plan our launching in the July timeframe and we will recognize revenue around the initial distribution. Of course there will be a return reserve booked as well, but we will be recognizing revenue around that initial distribution.

Carolyn Logan

And Angela it will not be called Colazal tablets or there will be no mention of Colazal in the name and we will be launching it as a new product in the 5A SA category to our physician.

Angela Larson

Thank you for that. And when is the for a bookings revenues as inventory it’s because you’re actually going to disclose what your reserve?

Adams Derbyshire

And I am not sure if understand your question

Angela Larson

Or why you going to work as deferred revenue, you’re going to disclose both of those?

Adams Derbyshire

Well that’s right. We recognized, we have initial distribution in July and we will recognize that as revenue, and then, we will also based because we are very familiar with this product I mean, within selling top sellers item in the capsule form. So we know -- we have good history of determining what returns will be for the product. So what we will do is we will have a return reserve offsetting a portion of that revenue. That is initial revenue from the distribution .There wont be any discard revenue if you will, it just kind going to be a return reserve and then we will see how the product, how we uptake happens and then we will make adjustments so that reserve.

Angela Larson

Okay, that's very helpful thank you.

Operator

Our next question now comes from Harry Bank with Specific Growth.

Harry Bank

Good afternoon. I just wonder if you could talk about the Xifaxan tablet situation on the patent, and just wanted to confirm that May 26 will be the date that someone could fresh followup. And then off selling with that, would it be you or reference that would receive Paragraph IV fling although?

Carolyn Logan

Alright. Actually it should right, May 26 of this year would be the first possible an end of thoroughly, that would include a paragraph IV certification, And in the FDA we will have 60 days to review that and decide whether or not to accept, and they as they excepted the ANDI power has 20 days to its decide whether or not to accept it and then if they accepted the R&D power had 20 days to inform both ZYDIS and (Inaudible) and they would both companies.

Harry Bank

And could you talk about the poly most charge and there has been a couple of cases in the past just terms of drugs specific and what you think are you defense is there?

Carolyn Logan

There is four cases that we are well and but there is case law and we have encouraging when he has asked capacity as per delta along research, because each cases based on separate factors, circumstances and not as they are comparisons to Xifaxan or even to be charter. But in most the offices though two of those will run and two of those would not, but again we work before everybody to do their own research on it, because it’s a very complicated area. And it far as Xifaxan, Rifaximin patent, is listed in the orange book we believe the patent and trademark of our office get a very fair review before granting the patent or issuing the patent, it warrants until May 22nd of 2024 and we have discussed before that should someone file an ANDA and we would be granted the up to 30 months stay that does takes us well up to sometime in 2000 – it could be end of 2011 and that's only on the 200 mg tablet.

Our HE program and IBS programs are on 550 mg tablets. And of course with HE there is seven years of exclusivity. But as stated earlier, we plan and our proximal plans as well to vigorously defend our intellectual property right.

Harry Bank

Thanks that's helpful.

Carolyn Logan

Thank you.

Operator

And we have no further questions in our queue at this time. I'd like to turn the conference over to Ms. Carolyn Logan for additional or closing remarks.

Carolyn Logan

I'd just like to thank our stockholders, our employees and other supporters for their continued confidence and we look forward to speaking with you in the future. Thank you.

Operator

That does conclude today's conference call. Thank you for your participation. Have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!