Q4 2006 Salix Pharmaceuticals, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, everyone, and welcome to the Salix Pharmaceuticals fourth quarter and year end 2006 earnings release conference call. Today's call is being recorded. At this time I will turn to call over to Mr. Michael Freeman, Executive Director of Investor Relations. Mr. Freeman, please go ahead.

MICHAEL FREEMAN, EXECUTIVE DIRECTOR OF INVESTOR RELATIONS, SALIX PHARMACEUTICALS: Thank you. Good morning. Thank you for joining us today. I am Michael 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 the review of the financial results for the fourth quarter and full year 2006. Carolyn 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 2005. The information in this conference call related to projections, development plans and other forward-looking statements is subject to the Safe Harbor.

I will now turn the call over to Adam Derbyshire, Senior Vice President and Chief Financial Officer.

ADAM DERBYSHIRE, SVP AND CFO, SALIX PHARMACEUTICALS: Thank you Mike. Total product revenue was $62.6 million for the fourth quarter of 2006, a year-over-year increase of 23% compared to $50.7 million for the fourth quarter of 2005. Total product revenue for 2006 was $208.5 million a year-over-year increase of 35%. Visicol and Osmoprep and Moviprep combined to generate revenue of $11.5 million for the fourth quarter of 2006 and $45.5 million for the full year of 2006. Revenues from these three products which comprised of our bowel cleansing franchise contribute 22% of 2006 total product revenue. Our bowel cleansing franchise achieved 20% prescription market share by the end of 2006.

Xifaxan revenue for the fourth quarter of 2006 was $18.7 million for a 61% increase compared to the fourth quarter of 2005. And Xifaxan revenue for 2006 was $51.6 million, a 72% increase compared to 2005. Colazal generated revenue of $30.4 million for the fourth quarter of 2006 compared to $30.8 million for the fourth quarter of 2005. Colazal generated revenue of $103.5 million for 2006 compared to $110.3 million for 2005. This 6% decrease in revenue compared to 2005 Colazal revenue reflects the normalization of Colazal trade inventories over the course of 2006. Based on Colazal's current price, the dollar value of 2006 prescriptions approximated $114 million.

Total cost of products sold was $12.2 million for the fourth quarter and $41.4 million for the full year. Gross margin on total product revenue was 80.4% for the fourth quarter and 80.1% for 2006 compared to 75.2% and 77.9%, respectively, for the corresponding period in 2005.

Research and development expenses were $15.8 million for the fourth quarter of 2006 compared to $17.3 million for the prior year period. Research and development expenses were $47.9 million for 2006 compared to $34.5 million for 2005. Selling, general, and administrative status were $19.1 million for the fourth quarter of 2006 and $82.6 million for 2006 compared to $23 million and $70.8 million respectively for the corresponding periods of 2005.

The Company reported net income of $13.9 million or $0.29 per share fully diluted for the fourth quarter of 2006. Or for the full year reported net income of $31.5 million or $0.65 per share fully diluted.

Cash, cash equivalents and investments were $76.5 million on December 31, 2006. As of January 31st, 2007 cash, cash equivalents and investments were approximately $109 million and accounts receivables totaled approximately $17 million. Total product revenue for 2006 increased 35% to $208.5 million building net income of $31.5 million or $0.65 per share fully diluted with a 5% tax rate, due to prior net operating loss carryforwards.

We are extremely pleased with this continuing robust growth particularly over the course of a year during which we invested in the future of the Company by launching two products, acquiring one product and advancing our pipeline of development projects and increasing our cash reserves.

The demand for Xifaxan was most compelling -- our most compelling long-term opportunity continued to increase in 2006. Xifaxan sales totaled $51.6 million for the year, a 72% increase over 2005.

Prescription demand for Xifaxan during the fourth quarter was approximately $15 million. Xifaxan revenue of $18.7 million for the fourth quarter reflects the impact of a 5% price increase taken during December. Currently the annualized demand for Xifaxan is $63 million. Demand is based upon an annualized run rate utilizing the latest prescription data.

Our newly launched bowel cleansing product, Osmoprep and Moviprep …