Incorporated: 1993 as Salix Holdings, Ltd.
NAIC: 325412 Pharmaceutical Preparation Manufacturing
SIC: 2834 Pharmaceutical Preparations
North Carolina-based Salix Pharmaceuticals, Ltd., is a NASDAQ-listed company that focuses on drugs that treat gastrointestinal (digestive tract) diseases. Rather than incurring the expense of developing products from scratch, the company acquires late-stage or already marketed proprietary drugs, and then relies on its in-house sales force to maximize market potential in the United States by targeting gastroenterologists. The company also plans to forge international alliances to market its products overseas, eliminating the expense of establishing an international sales force. To further reduce overhead, Salix outsources manufacturing. Products already on the market include Colazal, for the treatment of ulcerative colitis; Azasan, an immune system suppressant; Proctocort and Anusol-HC, hemorrhoid treatments; Xifaxan, used to treat traveler's diarrhea; Pepcid OS, a short-term treatment of gastroesophageal reflux disease; and several preparatory colonoscopy products: Visicol, MoviPrep, and OsmoPrep. In addition, Salix has a pipeline of drug candidates for which it is seeking approval from the Food and Drug Administration (FDA).
Launch of Salix: 1989
Salix was founded in November 1989 in Palo Alto, California, as Salix Pharmaceuticals, Inc., by Randy W. Hamilton and Dr. Lorin K. Johnson. Hamilton, a sociology graduate of California State University, Long Beach, had been director of strategic planning and business development for SmithKline Diagnostics, where he gained considerable marketing experience. He had headed Asian business development for California Biotechnology Inc. Hamilton became Salix's chief executive officer. Serving as chief scientific liaison was Johnson, a former assistant professor of pathology at Stanford University Medical Center. He then went on to head anti-inflammatory therapeutics for California Biotechnology Inc. before teaming up with Hamilton to start Salix. For seed money the partners relied on their own savings as well as investments from friends, consultants, and others, eschewing traditional venture capitalists.
Reorganizing Overseas: 1993
From the start, Salix pursued late-stage gastrointestinal drugs. The early years were dedicated to acquiring drug candidates and raising additional funds to keep the company afloat until it was able to bring products to market. In December 1993 the operation was reorganized with the incorporation of Salix Holdings, Ltd., in the British Virgin Islands to serve as the holding company for Salix Pharmaceuticals as well as an international subsidiary, Glycyx Pharmaceuticals, Ltd., which itself was incorporated in Bermuda. Salix encountered some difficulty in securing further capital. Having bypassed the stage where venture capitalists were typically involved, the company sought funds from investment banks in the United States only to find that the minimum amount, about $30 million, was more than it sought. If Salix had accepted a deal in this range it would have given up a larger stake in the business than its founders believed was warranted. Moreover, the banks placed a value on the company that the founders thought was more appropriate for a company with drugs in the early stages of development, not the final stages, as was the case with Salix.
Stock Listing in Toronto: 1996
In 1995 Salix turned to Canada for money, hiring Canaccord Capital Corp. to sell some debt securities. In 1996 the company was able to sell about $4.5 million in these securities. Because Canada's pharmaceutical sector was far less crowded than the United States, Salix decided to conduct an initial public offering (IPO) of stock in the country, underwritten by Haywood Securities Inc., Dlouhy Investments Inc., and Moss, Lawson & Co., Ltd. Completed in May 1996, the IPO raised $14 million. To satisfy investors, Salix then sought a listing on the Toronto Stock Exchange, Canada's premiere equity market. Once the company was better established, it hoped to be listed on a U.S. stock market, preferably the tech-oriented NASDAQ.
Salix's connection to North Carolina was also established in the mid-1990s. In 1995 the company recruited Robert P. Ruscher to serve as director of corporate affairs. Ruscher had been an associate of a Palo Alto law firm and then moved to Raleigh, North Carolina, joining an area law firm, Wyrick Robbins Yates & Ponton. He continued to work for the law firm while running a one-person corporate development operation for Salix out of Raleigh.
First Product to Market
Salix brought its first product, Colazide (balsalazide disodium), to market in 1997. It had been licensed from Biorex Laboratories Limited, and in July 1997 gained approval from the United Kingdom Medicines Control Agency for the treatment of mildly to moderately active ulcerative colitis. A new drug application to the FDA in the United States was also in the works when the product became available in the United Kingdom in October 1997, accounting for the company's first product revenues. For the year, Colazide generated sales of $245,000. Combined with revenues from collaborative agreements and other sources, Salix recorded sales of more than $2 million in 1997 and a net loss of nearly $5 million. In October 1997 the company was able to complete a secondary stock offering in Canada and an IPO of stock in the United States.
Product sales more than doubled to $559,000 in 1998, as Colazide received approval in several other countries, including Austria, Belgium, Denmark, Italy, Luxembourg, and Sweden. It was also in 1998 that Salix Holdings changed its name to Salix Pharmaceuticals, Ltd. Sales of Colazide dipped slightly to $491,000 in 1999 but on the strength of $2.6 million in milestone and other payments, the company increased total revenues to more than $3 million while trimming its net loss to $4.6 million.
The final weeks of 1999 also brought a changing of the guard at Salix, with Hamilton stepping down as CEO in favor of Ruscher. "I thought it was time for new blood," Hamilton explained to Raleigh's News & Observer. Salix moved its headquarters to Raleigh to accommodate Ruscher, but continued to maintain a nine-person Palo Alto clinical development operation. Hamilton also stayed on to serve as Salix's chairman.
Salix entered the new century with some financial concerns, finding itself with little cash on hand and its stock relegated to penny stock status. By mid-December 1999 shares of Salix were trading as low as CAD 0.18. However, the company was able to benefit from the merger of a pair of major European pharmaceutical companies, Astra and Zeneca. A few years earlier Astra had licensed a treatment for inflammatory bowel disease from Salix and had since invested nearly $20 million to develop the drug and began selling it in a handful of European countries under various names. The merged company, AstraZeneca, did not consider the product large enough to keep and returned the license to Salix.
Raising Much Needed Cash: 2000
In May 2000 Ruscher was able to sell the European rights to the drug, which the company would rename Colazal, to Shire Pharmaceuticals. The $24 million deal included stock but more importantly an upfront cash payment of $9.6 million that kept the company afloat at a time when it had just two months of cash remaining. Moreover, the money allowed Salix to take Colazal through the final stage of gaining FDA approval and to launch the product in the U.S. market. After the FDA approved the drug for sale in July 2000, Salix began to assemble a 30-person, direct sales force. The company ended 2000 with a net loss of nearly $3 million, but was able to increase product revenues to $6.3 million and total revenues to more than $14.5 million. Investors took note of the company's improving fortunes, bidding up the price of Salix stock to nearly CAD 4 a share in the early months of the year, and after an analyst for Boston's Leerink Swann & Co. touted the company in August the price soared to CAD 10.25. Salix was then able to complete a private placement of stock in November 2000, raising more than $14 million, in an offering placed by Leerink Swann. Subsequently, the company delisted its stock from the Toronto Stock Exchange and began trading exclusively on the NASDAQ. A year later the company changed its place of incorporation from the British Virgin Islands to the state of Delaware.
After a dozen years in business, Salix had begun to turn the corner. With the launch of its first U.S. product, the company increased product revenues to $14.1 million in 2001, and $8 million in other payments brought total revenues to $22.35 million. Salix also raised $28.1 million in another private placement of stock. A public offering in March 2002 raised an additional $57.4 million. In 2002 Salix had no ancillary income but increased total revenues to $33.5 million solely on the strength of improving product sales. Moreover, Salix was on the verge of launching its second U.S. product, Xifaxan.
Because Salix had reached a stage in its development where marketing would play an ever more important role, Ruscher turned over daily control to a new CEO, Carolyn Logan, head of sales and marketing who had assembled the sales force, which had grown to 60 people. Staying on as chairman, Ruscher focused on further drug acquisitions and corporate strategy. A year later, he would resign entirely but not before fending off a hostile takeover bid.
For many months Salix had been rumored to be an acquisition target for larger firms, another indication that the company was coming of age. In 2003 a Canadian drug company, Axcan Pharma Inc., made an unsolicited tender offer of $8.85 per share. Although the suitor would improve the offer to $10.50 per share, it was soundly rejected by Salix shareholders, winning less than 6 percent of the vote in a proxy fight completed in June 2003. Nevertheless, the fight cost Salix $1.7 million in legal fees. Three months later Ruscher announced that he would be leaving the company by the end of the year. He was replaced as chairman by John Chappell, a former SmithKline Beecham senior executive and Salix board member since 1993.
In May 2004 Salix received marketing approval for Xifaxan from the FDA and subsequently launched the product in the United States. Colazal, in the meantime, was continuing to expand its market share, with sales increasing to $85.4 million in 2004, a marked improvement over the $55.8 million posted a year before. As a result, Salix was able to top the $100 million mark in total revenues in 2004 and achieve profitability for the first time in its history, netting $6.8 million.
InKine Pharmaceutical: 2005
Sales increased to $155 million in 2005 and the company posted a net loss of $60.6 million, but that loss was the result of a $74 million write-off connected to a major acquisition. In September 2005 Salix completed the $190 million stock acquisition of InKine Pharmaceutical, a Pennsylvania drug company with complementary gastrointestinal products. Its flagship product was Visicol, a tablet used to cleanse the bowel prior to colonoscopy. The Salix sales force was already calling on doctors who might prescribe InKine products, so the acquisition made sense from that reason alone. It also allowed Salix to beef up its sales force and grow its pipeline of future products.
Having new products to sell was important because it lessened Salix's dependence on Colazal, which saw a dip in sales in 2006. Moreover, the drug was expected to soon face competition from generic versions. The company's bid to achieve diversity was strengthened in 2006 with the approval of two bowel cleansing products, OsmoPrep and MoviPrep, the former a tablet and the later a liquid agent. In addition, in September 2006, Salix acquired the U.S. marketing rights to Sanvar, a treatment for acute esophageal variceal bleeding, a complication of late-stage liver cirrhosis. Contributions from these new products helped Salix grow revenues 35 percent to $208.5 million in 2006.
Salix sought diversification in a different vein in 2007. As part of an effort to establish a hospital-based source of revenues, the company acquired the U.S. rights to Pepcid OS (oral suspension) and Diuril OS from Merck & Co. Inc. in a deal that included a $55 million upfront payment. A $100 million credit facility with Bank of America N.A. helped to finance the deal. At the end of 2007 Salix gained some protection for its Colazal franchise, authorizing a generic version of the drug with Watson Pharmaceuticals, Inc. Salix also appeared to be well positioned for the near-term. Revenues through three-quarters of the year enjoyed a 33 percent increase, the company had licensed some of its colonoscopy products to European countries, and several products were on the verge of FDA approval to drive revenues even higher in the years to come.
Principal Subsidiaries
Salix Pharmaceuticals, Inc.; Glcyx Pharmaceuticals Ltd.
Principal Competitors
GlaxoSmithKline plc; Pfizer Inc.; The Procter & Gamble Company.
Further Reading
Critchley, Barry, "TSE A Greener Pasture for Salix," Financial Post, July 13, 1996, p. 45.
Ranii, David, "Acquisition to Boost Salix Pharmaceuticals' Product Portfolio, Sales, Force," Raleigh (N.C.) News & Observer, June 24, 2005.
------, "CEO of Raleigh, N.C.-based Pharmaceutical Sees Good Times Ahead," Raleigh (N.C.) News & Observer, July 18, 2000.
------, "President, CEO of Research Triangle Park, N.C., Drug Company," Raleigh (N.C.) News & Observer, July 17, 2002.
------, "Raleigh, N.C.-based Drug Company Reports Success in Selling First Product," Raleigh (N.C.) News & Observer, May 2, 2001.
------, "Raleigh, N.C.-based Pharmaceutical Company Raises Profile," Raleigh (N.C.) News & Observer, September 8, 2000.
Vollmer, Sabine, "Chairman to Leave Post at Raleigh, N.C.-based Salix Pharmaceuticals," Raleigh (N.C.) News & Observer, September 3, 2003.
------, "2 Drugs Part of Salix's Strategy: Sales Expected to Rise This Year," Raleigh (N.C.) News & Observer, March 1, 2007.
— Ed Dinger
