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Bowel Cleansers, XIFAXAN([R]) and Other Product Revenue Increases 34% Over 2006
Q4 and Full Year 2007 Financial Results Impacted by $34.6 Million Non-Cash Charge Related to Introduction of Generic Balsalazide Products
Balsalazide Tablet, Granulated Mesalamine and Metoclopramide-ZYDIS([R]) Progressing Toward 2008 Approvals
Rifaximin Phase 2b Study Results Demonstrate Statistically Significant Improvement in Diarrhea-Associated Irritable Bowel Syndrome
Pepcid([R]) OS and Metoclopramide-ZYDIS Acquired
Bowel Cleansers Achieve 25% Market Share
RALEIGH, N.C. — Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) today announced financial and operating results for the fourth quarter and year ended December 31, 2007.

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Including the effects of the December 28, 2007 approval of three generic balsalazide products, total product revenue was $39.1 million for the fourth quarter of 2007 and $232.9 million for the full year 2007, compared to $62.6 and $208.5 million for the same periods in 2006. The Company reported a net loss of $19.0 million, or $0.40 per share, fully diluted, for the fourth quarter of 2007 compared to fourth quarter 2006 net income of $13.9 million and EPS of $0.29, fully diluted. For the full year 2007 the Company reported net income of $8.2 million, or $0.17 per share, fully diluted, compared to net income of $31.5 million, or $0.65 per share, fully diluted, for the full year 2006. The introduction of generic competitors to Salix’s COLAZAL([R]) required a $34.6 million non-cash charge to be taken during the fourth quarter of 2007. This charge reflects an estimate of potential returns and in-house inventory write-offs due to an anticipated decrease of future prescription demand. Full year and fourth quarter revenue also includes $2.2 million from sales of our authorized generic version of COLAZAL by our authorized generic distributor, Watson Pharmaceuticals, Inc.
Total product revenue, excluding the non-cash charge and authorized generic revenue described above, was $71.5 million for the fourth quarter of 2007, a year-over-year increase of 14% compared to $62.6 million for the fourth quarter of 2006. Total product revenue, excluding these items, was $265.3 million for 2007, a year-over-year increase of 27% compared to $208.5 million for 2006. Net income for the full year 2007, excluding these items, was $43.0 million, or $0.88 per share, fully diluted, for the full year. This level of performance is in line with Company 2007 guidance of approximately $262 million product revenue and $0.88 earnings per share.
Total product revenue, earnings per share and gross margin excluding the effects of the launch of generic balsalazide are non-GAAP measures and should not be considered superior to, or a substitute for, the related GAAP measures of total product revenue, earnings per share and gross margin. However, we believe that in this instance, 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 since there were not comparable events in 2006. A reconciliation of these non-GAAP measures to the related GAAP measures is included in the financial tables following this press release.
Cash, cash equivalents and investments were $111.3 million as of December 31, 2007, compared to $76.5 million as of December 31, 2006.
XIFAXAN([R]) revenue for the fourth quarter of 2007 was $17.0 million, compared to $18.7 million for the fourth quarter of 2006. XIFAXAN revenue for the fourth quarter of 2006 reflects the impact of a 5% price increase and the related product buy-in that occurred during the period. XIFAXAN revenue for 2007 was $64.3 million, a 25% increase compared to 2006. MOVIPREP([R]), OSMOPREP([R]) and VISICOL([R]),which comprise our bowel cleansing product line, generated revenue of $13.1 million for the fourth quarter of 2007, compared to $11.5 million for the fourth quarter of 2006. Our bowel cleansing product line contributed $47.7 million in product revenue for 2007 compared to $45.5 million for 2006. Our “other products” category generated revenue of $8.9 million and $28.5 million for the fourth quarter and full year 2007, respectively, compared to $2.0 million and $7.9 million for the corresponding periods of 2006. The year-over-year increases in “other products” revenue for the fourth quarter and full year 2007 primarily reflect the contribution of PEPCID([R]) OS, which we acquired in February 2007.
Total cost of products sold was $16.9 million for the fourth quarter and $55.0 million for 2007. Gross margin on total product revenue was 56.7% for the fourth quarter of 2007 and 76.4% for the full year 2007. Excluding the impact of generic balsalazide, gross margin was 79.1% for the fourth quarter of 2007 and 80.0% for the full year 2007. Gross margin was 80.4% for the fourth quarter of 2006 and 80.1% for the full year 2006.