Salix Pharmaceuticals' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Salix Pharmaceuticals, Ltd. (SLXP)

Q2 2012 Earnings Call

August 8, 2012 5:00 pm ET

Executives

Michael Freeman – Associate Vice President, Investor Relations and Corporate Communications

Adam C. Derbyshire – Chief Financial Officer, Executive Vice President-Finance and Administration

Carolyn J. Logan – President and Chief Executive Officer

William P. Forbes – Executive Vice President-Research and Development and Chief Development Officer

Analysts

Michael Faerm – Credit Suisse

Ami Fadia – UBS Securities LLC

Mario Corso – Caris & Co., Inc.

David A. Amsellem – Piper Jaffray, Inc.

Corey Davis – Jeffries & Co, Inc.

Jim Dawson – Buckingham Research

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

Irina Rivkind – Cantor Fitzgerald Securities

Michael Tong – Wells Fargo Securities LLC

Andrew J. Finkelstein – Susquehanna Financial Group LLP

Liisa A. Bayko – JMP Securities LLC

Scott R. Henry – ROTH Capital Partners LLC

Patricia Banks – DISCERN Securities, Inc.

Gregory D. Fraser – Bank of America/Merrill Lynch

Presentation

Operator

Good afternoon. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to Salix Pharmaceuticals’ Second Quarter 2012 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. Michael Freeman, Associate Vice President of Investor Relations, you may begin.

Michael Freeman

Thank you. Good afternoon, and thank you for joining us today. I am Mike Freeman, Associate Vice President of Investor Relations and Corporate Communications for Salix Pharmaceuticals. With me today are Carolyn Logan, President and Chief Executive Officer; Adam Derbyshire, Executive Vice President and Chief Financial Officer; and Bill Forbes, Executive Vice President, Medical and Research and Development, and Chief Development Officer.

Adam will begin the presentation with a review of the financial results for the second quarter of 2012. Carolyn then will review operations to complete the formal segment of today’s call. At the conclusion of these comments, management will respond to appropriate questions.

Various remarks that management might make during this conference call about future expectations, plans, and prospects for the Company, constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results might differ materially from those indicated by these forward-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 2011. 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.

Adam C. Derbyshire

Thank you, Mike. Total product revenue was $181 million for the second quarter of 2012, a 36% increase compared to $133.2 million for the second quarter of 2011. Total product revenue for the first six months of 2012 was $352.1 million, a 47% increase compared to $239.1 million for the first six-months of 2011.

XIFAXAN revenue for the second quarter of 2012 was $116.7 million, a 34% increase compared to $87 million for the second quarter of 2011. XIFAXAN revenue for the first six months of 2012 was $229.6 million, a 37% increase compared to $167.7 million for the first six months of 2011.

APRISO revenue for the second quarter of 2012 was $21.8 million, a 45% increase compared to $15 million for the second quarter of 2011. The combined revenue contribution of our most recently-introduced products RELISTOR, SOLESTA and DEFLUX totaled $19.2 million for the second quarter of 2012.

Total cost of products sold was $33.3 million for the second quarter of 2012 and $67.4 million for the first six months of 2012 compared to $25.2 million for the second quarter of 2011 and $43.8 million for the first six months of 2011.

Gross margin on total product revenue was 81.6% for the second quarter of 2012 compared to 81% for the second quarter of 2011 and 80.8% for the first six months of 2012 compared to 81.7% for the first six months of 2011.

Research and development expenses were $27.2 million for the second quarter of 2012 and $53.9 million for the first six months of 2012 compared to $29.5 million and $60.5 million, respectively for the prior year period.

Selling, general and administrative expenses were $65.3 million for the second quarter of 2012 compared to $44.7 million for the prior year period and $125.7 million for the first six months of 2012 compared to $91.3 million for the prior year period. The increase in selling, general and administrative expenses for 2012 compared to 2011 is due primarily to increased personnel cost related to our institutional sales force and our office based sales force expansion and increased marketing expenses related to RELISTOR and SOLESTA.

The company reported GAAP net income of $20.1 million or $0.32 per share fully diluted for the second quarter of 2012 and $30.1 million or $0.47 per share fully diluted for the first six months period ended June 30, 2012.

Net income on a non-GAAP basis, excluding the loss on extinguishment of debt and non-cash adjustments related to the repurchase of a portion of our 2028 notes on March 2012, the difference between income taxes paid and income taxes expensed and non-cash depreciation, amortization, stock-based compensation and convertible debt interest expense was $50.1 million or $0.79 per share fully diluted for the three-month period ended June 30, 2012 and $94.8 million or $1.48 per share fully diluted for the first six-month period ended June 30, 2012.

We believe these non-GAAP measures might provide investors additional relevant information in part for purposes of historical comparison. In addition, we use these non-GAAP measures to analyze our performance in more detail and with better historical comparability; however, you should be aware that non-GAAP measures are not superior to nor a substitute for the comparable GAAP measures. A reconciliation of our non-GAAP measures to the comparable GAAP measures is provided in our second quarter 2012 press release.

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