Looking to get out of the hot seat, Salix to restate financials for past 7 quarters

After completing a review of inventory issues that inflated sales figures for some of its products, Salix ($SLXP) is going to tell it like it is. The company will restate its financial reports for the last 7 quarters, a move it thinks will put the issue to rest.

After an audit committee review and consultation with outside advisers, Salix has decided to reissue its financial statements for full-year 2013 and the first three quarters of 2014, it said Thursday. The North Carolina drugmaker expects the corrections to sap revenue by $20.7 million and net income by $11.9 million, with the vast majority coming off the 2013 figures.

Problems surfaced back in November, when Salix announced that wholesalers had built up substantial inventories of several Salix drugs--much bigger stores than the company had indicated. For top drug Xifaxan, for example, wholesalers had accumulated up to 9 months' worth, versus the 10 to 12 weeks' worth the company had indicated.

After revising the 2013 and 2014 statements, though, Salix doesn't expect to identify "any other material adjustments," it said. The company anticipates filing its annual report for 2014 on time, and the restatement won't affect the 2015 and 2016 guidance it issued recently.

That guidance already reflects corrective measures Salix is taking to deal with the foul-up, the company says. For this year, Salix expects revenue ranging from $1.25 billion to $1.35 billion, a forecast that falls short of analysts' expectations.

Salix chairman Thomas D'Alonzo

"The conclusion of the accounting portion of the ongoing audit committee review is an important milestone," company chairman Thomas D'Alonzo said in a statement. "While in total the restatements are minor in scale, the audit committee takes these matters very seriously and is in the process of promptly enhancing controls and procedures to ensure this never happens again."

Meanwhile, Salix's C-suite is also in turmoil, with its CEO and CFO already out the door. After announcing CFO Adam Derbyshire's departure with news of the inventory snafu, the company said chief Carolyn Logan would step down at the end of this month.

Salix may also be weighing a sale. Last week, it brought on investment bank Centerview Partners to help it go through its options, a move that no doubt pleased the deal-minded investors who have been pressuring Salix to put itself on the block.

After all, the inventory problems have already reportedly scuttled one potential transaction with Allergan ($AGN), which at one time wanted to buy Salix to dodge a hostile bid from Valeant Pharmaceuticals ($VRX). And before that, new, stricter U.S. rules for tax inversions forced Salix to renege on its agreement to buy the Irish division of Italy's Cosmo Pharmaceuticals, a backout that cost Salix $25 million.

- read Salix's release

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