Salix Pharmaceuticals announced after the markets closed Wednesday that it will need to restate its financial statements for 2013 and the first three quarters of 2014 in response to overstating the inventory levels of several of its drugs.
An audit committee that included members of Salix’s Board of Directors, in consultation with outside advisers, made the determination to the restate the Raleigh company’s earnings.
The errors in previous earnings are related to the recognition of some revenue, revenue-reducing returns and discounts and expense items. Salix said the cumulative affect of correcting the errors will reduce its reported net revenue and net income over that period by about $20.7 million and $11.9 million, respectively.
The bulk of the reductions – $20.1 million in revenue and $11.8 million in net income – will be applied to 2013, when Salix earned a total of $933.8 million in revenue and $143 million in net income.
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“The conclusion of the accounting portion of the ongoing Audit Committee review is an important milestone,” said Thomas D’Alonzo, chairman of Salix’s board, in a statement. “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.”
The announcement is the latest blow for Salix, which has replaced its CEO and chief financial officer since watching its stock plummet after it revised upward the drug inventory levels for several of its drugs in November.
Salix had been reporting inventory levels for several of its drugs as being between 10 and 12 weeks. Investors were stunned when the company abruptly issued revised levels showing that Salix’s best-selling drug Xifaxan and its drug Apriso both had a nine-month supply while Glumetza had a seven-month supply and Uceris had a five-month supply.
Some analysts speculated that Salix would not have to restate earnings after the company reported in December that it expected to reduce the inventory of those three drugs to three months by the end of 2015 – about a year earlier than it had previously announced.
The inventory problems stemmed in part from Salix offering wholesalers rebates of as much of 25 percent to entice them to buy its drugs. Such rebates, while common among drugmakers who don’t have negotiated agreements with wholesalers, helped lead to the high inventory levels.
Salix lost $3 billion of its market value in trading immediately after it restated its drug inventory levels in November. The stock has recovered much of that value since. The shares closed Wednesday at $1.27.89, about 8 percent below where they were trading before the inventory disclosures.