Salix expects lackluster sales as it speeds to fix inventory issues

Back in November, Salix ($SLXP) revealed some inventory issues that had skewed perceived demand for some of its products--and possibly cost it a deal with Allergan ($AGN) in the process. Now, the company says it's moving to fix the problem quickly. But in the meantime, its top line will pay the price.

Tuesday, the North Carolina-based company said it's working with wholesalers to cut down their inventory levels of Xifaxan 550, Apriso and Uceris in a speedy fashion, aiming to resolve the issue by the end of 2015. To do so, it'll be selling them "minimal amounts of the drug" in the near-term, meaning fourth-quarter 2014 sales and full-year 2015 sales will take a hit.

"By accelerating the reduction of our inventory to targeted levels, we can more quickly focus on the underlying strength of our business and return sales growth to demand-based levels," CEO Carolyn Logan said 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."

Problems first publicly surfaced last month, when Salix sent CFO Adam Derbyshire packing. Supply levels were months higher than the company had previously communicated, suggesting demand hadn't been as high as earlier revenue numbers had suggested. And according to The Wall Street Journal's sources, that prospect had scared off would-be buyer Allergan, which had earlier entered talks with the gastroenterology specialist in hopes of thwarting hostile bidder Valeant ($VRX).

Now, the company has scrapped its Q4 financial projections and says it's expecting 2015 profit and sales marks--$3.10 to $4.10 in earnings per share and a revenue range of $1.25 billion to $1.35 billion--that'll fall short of analysts' expectations, Reuters notes.

But going forward, Leerink Partners analyst Jason Gerberry, for one, sees reason to stay positive. "We ultimately take comfort" in the company's top-line guidance of $2 billion in 2016, he wrote in an investor note. That excludes any contribution from a Xifaxan approval in IBS, which the FDA is currently reviewing; it recently pushed back the PDUFA date by three months to May 27, 2015, a move Gerberry said Salix attributed to a "high volume of data."

- read the release
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Special Report: Pharma's top 10 M&A deals of 2013 - Salix/Santarus

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