Salix Pharmaceuticals shares plummeted as much as 40 percent in after-hours trading Thursday after the Raleigh company said an audit committee would review the way it characterizes inventory of its best-selling drug Xifaxan.
Earlier in the day, the company abruptly announced that its chief financial officer, Adam Derbyshire, had resigned and was being replaced immediately by Timothy Creech, Salix’s senior vice president of finance and administrative services. Salix did not say whether the review of its inventory practices was related to Derbyshire’s resignation.
Salix issued updated wholesaler inventory levels for Xifaxan as of Sept. 30 that were substantially longer – nine months’ supply compared with 10 to 12 weeks – than it had reported in previous quarters. Asked by an analyst on a conference call whether Salix’s previous comments on its inventory levels were misleading, CEO Carolyn Logan said the company couldn’t comment beyond saying its audit committee had retained outside counsel and would review the issue.
“However, I do want to say management believes that the company’s accounting in relation to sales to wholesalers has been appropriate,” Logan said.
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Salix also cut its fourth-quarter and full-year guidance after reporting third-quarter earnings late Thursday that missed Wall Street estimates.
The company had revenue of $355 million in the third quarter, up 49 percent from the same period last year but below the $392 million that was the consensus among Wall Street analysts who cover the company, according to Bloomberg. The company reported earnings per share of $1.53, slightly below the $1.55 per share estimated by analysts.
Salix now forecasts that its revenue in 2014 will be $1.4 billion, down from $1.6 billion previously.
Creech told analysts that revenue was lower in the quarter because prescriptions were less than anticipated. He also said the company had a high turnover of sales people after its acquisition of Santarus, “which required hiring and training new sales representatives.”
Salix, which sells drugs to treat gastrointestinal ailments, had been a darling of investors before Thursday. Its stock, which closed Thursday at $138.55, has risen 54 percent this year and is up nearly 90 percent over the past 12 months. In after-hours trading, however, the stock was trading around $86.
In recent months, Salix has had a proposed merger fall apart and reportedly been in talks with several companies about being acquired.
Last month, Salix and Cosmo Pharmaceuticals called off their $2.7 billion merger, citing recent moves by the U.S. Treasury Department to make it more difficult for companies to complete so-called corporate inversions. Under the deal, Salix would have continued to be headquartered in Raleigh but would have re-incorporated in Ireland, allowing it to eventually reduce its long-term tax rate from the high 30 percent range to the low 20 percent range.
Salix reportedly also has been in acquisition talks with Botox-maker Allergan and Actavis, an Irish specialty pharmaceutical company.
Logan declined to comment on a potential acquisition when asked about the rumors by analysts.
She said management is confident that Salix will complete the audit in a timely manner. She described the inventory issues as a temporary and small one compared to Salix’s growing portfolio of products.
“I mean, our prospects for growth are strong, our pipeline is strong, our current products are growing like crazy,” she said. “I mean, we’ve got a lot of great things going for us.”