Q4 2008 Salix Pharmaceuticals, Inc. Earnings Conference Call - Final.(Broadcast transcript)

OPERATOR: Good day, and welcome to the Salix Pharmaceuticals fourth quarter 2008 earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Freeman, Associate Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

MIKE FREEMAN, ASSOCIATE VP, IR, CORP COMM, SALIX PHARMACEUTICALS, INC.: Good afternoon. 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, our President and Chief Executive Officer, and Adam Derbyshire, our Senior Vice President and Chief Financial Officer. Adam will begin the presentation with a review of the financial results for the fourth quarter and full year 2008. 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 10K for 2007. Specifically the information in this conference call related to projections, development plans, and other forward-looking statements is subject to this Safe Harbor. I now will turn the call over to Adam Derbyshire, our Chief Financial Officer.

ADAM DERBYSHIRE, SVP, CFO, SALIX PHARMACEUTICALS, INC.: Thank you, Mike. Total product revenue was $60.6 million for the fourth quarter of 2008 compared to $39.1 million for the fourth quarter of 2007. Total product revenue for the full year of 2008 was $178.8 million compared to $232.9 million for the full year of 2007. The decrease in total product revenue for the full year was due to the genericization of Colazal on December 28, 2007. Xifaxan revenue for the fourth quarter 2008 was $23.8 million, a 40% increase compared to the fourth quarter of 2007. Xifaxan revenue for the full year 2008 was $79.9 million compared to $64.3 million for the full year of 2007, an increase of 24%. Moviprep, Osmoprep and Visicol which comprised of our bowel cleansing product line generated revenue of $21.4 million for the fourth quarter of 2008 compared to $13.1 million for the fourth quarter of 2007, a 63% increase.

Total product revenue for our bowel cleansing product line was $62.9 million for the full year of 2008 compared to $47.7 million for the full year of 2007, a 32% increase. Total product revenue for the fourth quarter and full year of 2008 includes the initial stocking of Apriso in the amount of $9.1 million. Total costs of products sold was $14.6 million for the fourth quarter and $36.7 million for the full year of 2008. Gross margin on total product revenue was 75.9% for the fourth quarter of 2008 compared to 56.7% for the fourth quarter of 2007 and 79.5% for the full year 2008 compared to 76.4% for the full year 2007. Lower gross margin in the fourth quarter and full year of 2007 is a result of the return reserve recorded in the fourth quarter of 2007 for Colazal due to the approval of three generic balsalazide capsule products. Research and development expenses were $20.9 million for the fourth quarter of 2008 and $76.6 million for the full year of 2008, compared to $15.1 million and $71.9 million respectively for the prior year periods. Selling, general and administrative expenses were $27.5 million for the fourth quarter of 2008 compared to $22.4 million for the fourth quarter of 2007, and these expenses were $95.1 million and $86.5 million for the full year 2008 and 2007 respectively.

The Company reported a net loss of $10.5 million, or $0.22 per share fully diluted for the fourth quarter of 2008, including a $5 million upfront payment to Napo Pharmaceuticals for the acquisition of Crofelemer. The net loss for the full year of 2008 was $47 million, or $0.98 per share fully diluted, including the Napo payment. The loss of $0.98 per share for the year is in line with our previously stated guidance of a loss of approximately $1 including the Napo payment. Excluding the Napo payment, the non-GAAP loss for the full year was $0.88 per share fully diluted. This non-GAAP loss of $0.88 is slightly ahead of analyst consensus of a loss of $0.91 and our previously stated guidance of a non-GAAP loss of $0.90. In August 2008, the Company closed a $60 million convertible note offering. This funding should facilitate our ability to finance development and licensing activities and …