Salix Pharmaceuticals, Ltd. (NASDAQ: SLXP) today announced financial and operating results for the first quarter ended March 31, 2014, and other business updates.
Key financial highlights include:
- First quarter 2014 results include the impact of the Santarus acquisition, which was completed on January 2, 2014. Prior year results do not reflect the acquisition.
- For the first quarter of 2014, as compared to the first quarter of 2013, total net product revenue increased 90% to $384.4 million. EBITDA increased 114% to $149.2 million. Non-GAAP EPS increased 67% to $1.05 per diluted share.
- GAAP net loss was $43.9 million, or a loss of $0.69 per share fully diluted, in the first quarter of 2014 compared to GAAP net income of $22.4 million, or $0.35 per share fully diluted, in the first quarter of 2013. GAAP net loss includes $86.4 million in Santarus transaction costs.
Important disclosures about reconciliations of applicable GAAP reported to non-GAAP adjusted information are included in this press release. See "Use of Non-GAAP Financial Measures", "Reconciliation of GAAP net income (loss) to non-GAAP income (loss) and the "Reconciliation of GAAP Guidance to non-GAAP Guidance" in this press release.
Carolyn Logan, President and Chief Executive Officer, stated, "We continued to experience positive momentum in the business in the first quarter of 2014 demonstrated by strong prescription growth for XIFAXAN® 550, APRISO® and UCERIS®, with all three key products reaching new record-highs for total monthly prescriptions in March. As we transitioned Santarus into our distribution model, sales of XIFAXAN 550 and APRISO were below prescription demand for the first quarter of 2014 as wholesalers and drug chains focused on securing Santarus' products to establish adequate inventories, resulting in very strong revenue growth in Santarus' products. We expect XIFAXAN 550 sales to exceed prescription demand or be in line with prescription demand in the second quarter of 2014 as wholesalers bring XIFAXAN 550 inventories back to more typical levels, and shipments for all of the Company's products to track in line with prescription growth by the second half of the year."
Ms. Logan continued, "Since the successful integration of our respective sales forces, we believe we have established good traction with our expanded sales efforts as evidenced by the growth in new prescribers, among other indicators. The new, fully trained digestive disease specialty sales force has allowed us to increase our reach to approximately 20,000 additional healthcare providers treating patients for the reduction in risk of overt hepatic encephalopathy recurrence. Similarly, our expanded gastroenterology specialty sales force has enabled us to broaden the promotion of UCERIS to more gastroenterologists and we have seen the prescriber base for UCERIS grow by 17% since the end of 2013."
Ms. Logan concluded, "Looking ahead, we continue to be optimistic about the future trajectory for the business driven by organic growth and potential product expansions. Over the coming months we anticipate several important milestones, which have the ability to significantly grow our base business. Additionally, the acquisition and commercialization of new products, such as our recent licensing agreement for our new investigational bowel prep provide additional expansion opportunities in large and attractive markets."
Operating Results for the First Quarter of 2014
- Total net product revenue was $384.4 million for the first quarter of 2014 compared to $202.6 million for the first quarter of 2013, primarily driven by the Santarus acquisition. Revenue was comprised of sales for XIFAXAN®, UCERIS®, APRISO®, GLUMETZA®, ZEGERID®, CYCLOSET®, MOVIPREP®/OSMOPREP®, RELISTOR® and DEFLUX® of $114.3 million, $62.9 million, $14.2 million, $130.3 million, $37.6 million, $10.1 million, $7.1 million, $4.9 million and $5.9 million, respectively.
- Total cost of products sold was $97.5 million for the first quarter of 2014 (excluding an $18.0 million step-up in value of Santarus inventory under fair value accounting in connection with the acquisition) compared to $33.1 million for the first quarter of 2013.
- Gross margin, excluding amortization of product rights and intangible assets as well as the step-up in value of Santarus inventory noted above, was 74.6% for the first quarter of 2014 compared to 83.7% for the first quarter of 2013. The lower gross margin in the first quarter of 2014 was due primarily to the inclusion of sales of GLUMETZA, which has lower gross margins than Salix's other products.
- Research and development (R&D) expenses were $52.8 million for the first quarter of 2014 compared to $30.3 million for the same period of 2013. The increase in R&D expenses was due primarily to increased expenses associated with license and patent agreements and development programs. As a percentage of total net product revenues, R&D expenses declined to 13.7% for the first quarter of 2014 from 15.0% for the first quarter of 2013.
- Selling, general and administrative (SG&A) expenses were $108.8 million for the first quarter of 2014, excluding Santarus-related transaction costs of $86.4 million, compared to $76.3 million for the same period of 2013. The increase in SG&A expenses, excluding Santarus-related transaction costs, was due primarily to the inclusion of additional personnel and marketing costs related to the Santarus acquisition and increased legal expenses. As a percentage of total net product revenues, SG&A expenses declined to 28.3% for the first quarter of 2014 from 37.6% for the first quarter of 2013.
- Non-GAAP net income for the first quarter of 2014 was $77.8 million, or $1.05 per share fully diluted, compared to $40.1 million, or $0.63 per share fully diluted, for the first quarter of 2013.
- GAAP net loss for the first quarter of 2014 was $43.9 million, or a loss of $0.69 per share fully diluted, compared to GAAP net income of $22.4 million, or $0.35 per share fully diluted, for the first quarter of 2013.
Cash and cash equivalents were $385.1 million as of March 31, 2014.
The following table reconciles actual results for non-GAAP measures to the most closely related GAAP measures. See "Use of Non-GAAP Financial Measures" below.
Product and Pipeline Updates
- On February 4, 2014, the Company announced the issuance of a U.S. patent covering methods of treating hepatic encephalopathy that should provide protection until October 2029. The patent has been listed in the Orange Book.
- At the end of January, Salix completed patient enrollment in the double-blind phase of TARGET 3, the Company's Phase 3 study to evaluate the efficacy and safety of repeat treatment with rifaximin 550 mg TID for IBS-D. We now anticipate top-line data on TARGET 3 by early-July 2014.
- The Company continued patient enrollment for its Phase 2 dose-ranging study for rifaximin SSD, which is being investigated for the prevention of complications in subjects with early decompensated liver cirrhosis, and anticipates completing the enrollment process by the end of 2014. A patent for rifaximin SSD provides protection to 2031.
- The Company plans to initiate a Phase 3 Crohn's disease program during the second quarter of 2014. Based on input provided by the FDA and other regulatory agencies, the Company intends to conduct two Phase 3, double-blind, 52-week studies comparing EIR rifaximin (extended intestinal release) to placebo in induction of remission and mucosal healing. A patent for EIR rifaximin provides protection to 2027.
- On April 22, 2014, Salix announced that the submission to the European Medicines Agency of Relistor Subcutaneous Injection for the treatment of opioid-induced constipation (OIC) in adult patients with chronic non-cancer pain had been accepted for review. If approved, this will add to the current marketing authorization in the European Union, which allows for the use of Relistor in advanced illness patients.
- The FDA has tentatively scheduled June 11-12, 2014 for an Advisory Committee meeting at which time the Committee will discuss the use of mu opioid receptor antagonists for opioid induced constipation. RELISTOR will be discussed during the meeting. The FDA's action to convene an Advisory Committee was taken in response to the appeal by Salix of the complete response action taken by the FDA on July 27, 2012 regarding the RELISTOR sNDA for chronic pain. The FDA has stated that it will take action under the appeal within 30 days after receiving input from the Advisory Committee.
- Investigational bowel prep - On February 27, 2014, the Company announced that it had licensed from RedHill Biopharma Ltd. the worldwide exclusive rights to an early development stage encapsulated formulation for bowel preparation and rights to other purgative developments. If approved by the FDA, the availability of tasteless solid oral formulation bowel prep could potentially help to increase patient compliance associated with bowel cleansing prior to colonoscopy and other abdominal procedures.
- RUCONEST® - The FDA has issued a Prescription Drug User Fee Act (PDUFA) Action Date of July 16, 2014.
- UCERIS (budesonide) Rectal Foam - The FDA has issued a PDUFA Action Date of September 15, 2014.
- SOLESTA® - Two manuscripts have been accepted for peer-reviewed publication and should be available during the second quarter of 2014. One publication reports data demonstrating the long term safety and efficacy of SOLESTA® over three years and a second publication reports data regarding cost effectiveness. The publications should help facilitate consistent and improved coverage among commercial payers.
Adam Derbyshire, Executive Vice President and Chief Financial Officer, stated, "We are on course to achieve our goal of $1.6 billion for total net product revenue for 2014 and anticipate increasing revenue growth for the balance of the year as our newly-created digestive disease specialty sales force and expanded gastroenterology sales force gain traction in their respective primary care and gastroenterology markets. Longer term, we continue to believe Salix is well-positioned to deliver strong growth in product revenue and profitability, led by our currently marketed products and the potential for additional indications for rifaximin, as well as new product development opportunities, supported by our expanded sales and marketing resources."
Current annualized run rates, based on dollarizing March 2014 prescription data, for XIFAXAN®, UCERIS®, APRISO®, GLUMETZA®, ZEGERID®, MOVIPREP®/OSMOPREP®, RELISTOR® and Salix's "other products", are approximately $694 million, $109 million, $152 million, $224 million, $111 million, $109 million, $42 million and $80 million, respectively.
For the full year 2014, Salix continues to expect:
- Total net product revenue of approximately $1.6 billion.
- EBITDA, excluding expenses associated with the acquisition of Santarus, of approximately $650 million.
- Non-GAAP net income of approximately $475 million, or $6.33 per diluted share. The change in per share amount from prior guidance is due to the effect of the Company's higher stock price on the fully diluted calculation.
- Assumes a cash income tax rate of approximately 12%.
- Fully diluted shares of 75.0 million.
For the second quarter of 2014, Salix expects:
- Total net product revenue of approximately $395.0 million.
- EBITDA, excluding expenses associated with the acquisition of Santarus, of approximately $152.7 million.
- Non-GAAP net income of approximately $120.3 million, or $1.63 per diluted share.
- Assumes a cash income tax rate of approximately 4%.
- Fully diluted shares of 74.0 million.
The following table reconciles future guidance for non-GAAP measures to the most closely related GAAP measures. See "Use of Non-GAAP Financial Measures" below.
Investor Day Meeting
Salix will host an Investor Day meeting on July 9, 2014 in New York City to present an update on the Company's strategic initiatives and growth trajectory expectations. An invitation with online registration details will follow.
Salix Pharmaceuticals, Ltd.