Salix Pharma (SLXP) Announces Completion of Audit Committee Review; Will Restate Certain Financials

Salix Pharma (NASDAQ: SLXP) announced that the Audit Committee of Salix’s Board of Directors (the “Audit Committee”), in consultation with its outside advisors and management, has determined that the Company’s previously issued consolidated financial statements for the full year 2013 and the first three quarters of 2014 require correction of certain errors and should no longer be relied upon. These restatements were based upon the results of an accounting review, conducted by outside counsel reporting to the Audit Committee and BDO Consulting, of potential accounting and financial reporting issues associated with sales to wholesalers and other wholesaler-related transactions.

The errors, which are primarily related to the timing for recognition of certain revenue, revenue-reducing returns and discounts, and expense items, will be corrected in the Company’s restated financial statements. Salix believes the cumulative impact for correcting these matters over all previously reported periods affected by the restatement will decrease previously reported net product revenue and net income by approximately $20.7 million and $11.9 million, respectively. For the full year 2013, this would decrease previously reported net product revenue and net income by approximately $20.1 million and $11.8 million, respectively. For the nine months ended September 30, 2014, this would decrease previously reported net product revenue by $0.7 million and result in no change in net loss.

“The conclusion of the accounting portion of the ongoing Audit Committee review is an important milestone,” said Thomas W. D'Alonzo, Chairman of the Board of Salix. “While in total the restatements are minor in scale, the Audit Committee takes these matters very seriously and is in the process of promptly enhancing controls and procedures to ensure this never happens again.”

Subject to completion, the restatements are expected to have the following effects:

• Previously reported net product revenue, net income and diluted net income per share will be decreased by approximately $20.1 million, $11.8 million and $0.18 per share, respectively, for the full year 2013, as compared to originally reported amounts.
• Previously reported net product revenue will be increased by approximately $18.6 million, and net loss and diluted net loss per share will be decreased by approximately $8.9 million and $0.14 per share, respectively, for the three months ended March 31, 2014, as compared to originally reported amounts.
• Previously reported net product revenue, net income and diluted net income per share will be decreased by approximately $6.5 million, $3.4 million and $0.04 per share, respectively, for the three months ended June 30, 2014, as compared to originally reported amounts.
• Previously reported net product revenue will be decreased by approximately $12.8 million, and net loss and diluted net loss per share will be increased by approximately $5.5 million and $0.09 per share, respectively, for the three months ended September 30, 2014, as compared to originally reported amounts.

More detail related to the restatements is available in a Form 8-K that the Company is filing this afternoon with the U.S. Securities and Exchange Commission.

Salix will report on a timely basis its fourth quarter and full year 2014 financial results and will file its 2014 Annual Report on Form 10-K on or prior to March 2, 2015. The Company anticipates filing its restated financial statements prior to filing its 2014 Form 10-K. The restatements are not expected materially to impact the Company’s previously issued 2015 and 2016 guidance.

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