SALIX PHARMACEUTICALS LTD, S-3, 2000-12-05

SALIX PHARMACEUTICALS LTD
S-3, 2000-12-05
PHARMACEUTICAL PREPARATIONS

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As filed with the Securities and Exchange Commission on December 5, 2000
Registration Statement No. 333-

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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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SALIX PHARMACEUTICALS, LTD.
(Exact name of registrant as specified in its charter)

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<TABLE>
<S> <C>
British Virgin Islands 94-3267443
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
3801 Wake Forest Road
Suite 205
Raleigh, North Carolina 27609
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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ROBERT P. RUSCHER
President
Salix Pharmaceuticals, Ltd.
3801 Wake Forest Road, Suite 205
Raleigh, North Carolina 27609
(919) 788-8550
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:
DONALD R. REYNOLDS
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
(919) 781-4000
Fax (919) 781-4865

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Approximate date of proposed sale to the public: From time to time after
this registration statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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CALCULATION OF REGISTRATION FEE

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<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Proposed Maximum Aggregate
Securities Amount to be Offering Price Offering Amount of
to be Registered Registered (1) Per Share(2) Price(1) Registration Fee
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value per share....... 2,644,200 shares $6.34375 $16,774,143.75 $4,428.37
</TABLE>

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(1) This registration statement also shall cover any additional shares of
common stock which become issuable in connection with the shares registered
for resale hereby by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration which results in an increase in the outstanding shares of
our common stock

(2) Estimated solely for the purpose of calculating the registration fee, based
upon the average of the high and low prices of the common stock on the
Nasdaq SmallCap Market on November 30, 2000 in accordance with Rule 457.

--------------

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete. It might change. We +
+cannot sell these securities until the registration statement that we have +
+filed with the SEC is effective. This prospectus is not an offer to sell, nor +
+does it solicit offer to buy, these securities in any state where the offer +
+or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED DECEMBER 5, 2000

PROSPECTUS
----------

2,644,200 Shares

SALIX PHARMACEUTICALS, LTD.

Common Stock

------------

This is a resale prospectus for the resale of up to 2,644,200 shares of
common stock of Salix Pharmaceuticals, Ltd. by the selling shareholders listed
herein.

Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"SLXP". On December 1, 2000, the last sale price of our common stock on the
Nasdaq SmallCap Market was $7.375 per share.

The selling shareholders may offer the shares through public or private
transactions, on or off the Nasdaq SmallCap Market, at prevailing market prices
or at privately negotiated prices. See "Plan of Distribution".

Our principal executive offices are located at 3801 Wake Forest Road, Suite
205, Raleigh, North Carolina 27609, Attention: Investor Relations. Our
telephone number at that location is (919) 788-8550.

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 8.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved our securities or determined that this
prospectus is truthful or complete. It is illegal for anyone to tell you
otherwise.

The date of this prospectus is , 2000.
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with SEC. You may read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. You should call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Our SEC filings are also available to the public
the SEC's web site at "http:/www.sec.gov."

The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"):

1. Annual Report on Form 10-K405/A for the year ended December 31, 1999;

2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000;

3. definitive proxy solicitation materials dated May 1, 2000; and

4. the description of our stock contained in our registration statements
filed pursuant to Section 12 of the Exchange Act, as amended from time to
time.

You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:

Salix Pharmaceuticals, Ltd.
Investor Relations
3801 Wake Forest Road
Suite 205
Raleigh, North Carolina 27609
(919) 788-8550

This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.

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<PAGE>

THE COMPANY

General

Salix Pharmaceuticals, Ltd. is a specialty pharmaceutical company dedicated
to acquiring, developing and commercializing brand name, prescription
pharmaceutical products used in the treatment of a variety of gastrointestinal
diseases. We do not do any basic research--instead we engage in product "search
and development" efforts. Our strategy is to identify and acquire late-stage
proprietary pharmaceutical products having an existing base of safety and
efficacy data in humans for the treatment of gastrointestinal disease, and to
apply our regulatory, product development, and sales and marketing expertise to
commercialize these products. We select products that we believe have potential
for rapid regulatory approval, and are marketable to U.S. gastroenterologists
through our specialized sales force. Once approval is received for an initial
indication, we might perform clinical studies for other broader indications to
expand the approved use of the drug. This strategy is designed to reduce the
expense, time and risk typically associated with pharmaceutical research and
development, and to expedite the commercialization of higher potential
products.

COLAZAL(TM) (balsalazide disodium) and rifaximin are our first two in-
licensed products, demonstrate management's ability to execute this strategy
successfully. We in-licensed COLAZAL and completed the development work, which
resulted in U.S. Food and Drug Administration (FDA) approval in July 2000. We
also in-licensed rifaximin and have completed Phase III clinical trials on the
product. We currently intend to strategically market these and future products
to U.S. gastroenterologists through our own direct sales force, and enter into
distribution relationships outside the United States and in markets where a
larger sales organization is necessary.

COLAZAL(TM)

Our lead product, COLAZAL, is a new chemical entity that was approved by the
U.S. Food and Drug Administration in July 2000 for the treatment of mildly to
moderately active ulcerative colitis. COLAZAL is the first new chemical entity
approved in ten years and the first new therapy in seven years approved by the
FDA for this indication. We currently expect to launch COLAZAL in the United
States in early 2001 using our own specialty sales force. Based on clinical
trials, COLAZAL has shown an efficacy and safety profile that has certain
significant advantages over currently available treatments. COLAZAL's
formulation allows 99% of the drug to reach the colon without absorption from
the stomach or small intestine resulting in significantly less side effects
than sulfasalazine, one current treatment, and a faster onset of action than
Asacol(R), the market-leading drug in this therapeutic category with sales of
$200 million in 1999. Current therapies either have (1) significant side
effects causing up to 30-40% of patients to discontinue treatment or (2) do not
efficiently deliver maximal doses of the active therapeutic agent to the colon,
resulting in a variable and sometimes inadequate response.

COLAZAL consists of two molecular structures. The first molecule, 5-ASA, is
the active agent and is responsible for the actual therapeutic effect in the
treatment of ulcerative colitis. The second molecule, 4-ABA, is a non-toxic
carrier molecule that enables the 5-ASA molecule to travel to the colon without
being absorbed in the bloodstream. The molecules are joined by an azo-bond that
is cleaved in the colon by bacteria that exist only in the colon, allowing for
the release of the 5-ASA active ingredient targeted at the disease site. This
unique delivery mechanism provides COLAZAL with more reliable and consistent
delivery of 5-ASA to the colon than pH delivery products such as Asacol. Asacol
consists of 5-ASA with a pH sensitive coating designed to release 5-ASA at a
certain range of pH levels. The problem with such a delivery mechanism is that
the pH levels within gastrointestinal tracts can vary substantially from
patient to patient, and even within a given patient depending on such factors
as diet and disease state. Thus, Asacol frequently releases the 5-ASA too early
(before reaching the colon), or too late (after passing through the colon),
thus reducing the amount of 5-ASA available in the colon to treat the disease.
The improved 5-ASA delivery of COLAZAL over Asacol has

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been established in Phase III studies in peer-reviewed data, where COLAZAL
provided a significant improvement over Asacol in time to relief of symptoms in
ulcerative colitis patients with active disease.

Ulcerative colitis is a form of inflammatory bowel disease, or IBD,
characterized by inflammation of the lining of the colon. Symptoms of active
ulcerative colitis include rectal bleeding, abdominal pain, increased stool
frequency, loss of appetite, fever and weight loss. The cause of ulcerative
colitis is unknown, and there is no known cure except for removal of the colon.
This chronic disease affects roughly 500,000 people in the United States,
typically under the age of 40. In 1999, U.S. sales of prescription products
indicated to treat ulcerative colitis totaled approximately $350 million. This
market in terms of prescription dollar sales has been growing at an annual
compound rate exceeding 25% for the last 10 years.

Rifaximin

Our second drug, rifaximin, is a broad-spectrum, gastrointestinal specific
antibiotic that we intend to establish as the drug of choice for the treatment
of gastrointestinal infections. We have recently completed a Phase III clinical
study comparing rifaximin to placebo for the treatment of bacterial infectious
diarrhea, or BID. Analysis of the results has started and a New Drug
Application, or NDA, submission is expected in the second half of 2001.

Over eight million patient visits to physicians occur annually in the United
States due to diarrhea caused by a wide variety of organisms that could
potentially be treated with rifaximin. Each year between 20% and 50% of
international travelers, an estimated 10 million persons, develop diarrhea,
with approximately 80% of the cases caused by bacteria.

We believe the advantages of rifaximin are two-fold: (1) site-targeted
antibiotic delivery; and (2) superior tolerability. The lack of systemic
absorption of the drug (less than 0.1% is absorbed) when taken orally allows
high concentrations of this broad-spectrum antibiotic to treat bacterial
infections throughout the gastrointestinal tract. The drug causes fewer side
effects or discomforts such as nausea, headache or dizziness observed with
currently available, highly-absorbed antibiotics and is less likely to induce
systemic resistance and/or drug-to-drug interaction. To date, peer reviewed
data from Phase III BID studies have not been published, but they are expected
to show that rifaximin has comparable efficacy to the market leader,
ciprofloxacin. Additional unpublished Phase III study results comparing
rifaximin to placebo for BID are expected to show statistically significant
improvement in the use of rifaximin in resolving BID in travelers.

Rifaximin also received Orphan Drug status for a second indication, the
treatment of hepatic encephalopathy. Hepatic encephalopathy is a rare
neuropsychiatric syndrome caused by a build-up of toxic products (such as
ammonia) due to advanced liver disease. Symptoms include intellectual
deterioration, an altered state of consciousness, personality and behavior
changes, and neurologic abnormalities. There are approximately 140,000 cases of
hepatic encephalopathy per year in the United States. Current antibiotic
treatments are considered inadequate due to their limited antibacterial
spectrum and broad side effects, including gastrointestinal and renal toxicity.
Lactulose, the only FDA approved therapy for hepatic encephalopathy, reduces
the amount of toxic products accumulated in the intestine by increasing the
number of bowel movements per day to an amount considered intolerable by
patients. We expect to commence Phase III clinical trials for rifaximin for
this indication early next year, followed by an NDA submission with the FDA in
2002. Additionally, we intend to investigate the use of rifaximin in other
indications such as antibiotic-associated colitis, prophylaxis prior to bowel
surgery, diverticulitis, bacterial overgrowth of the small intestine, and
pseudomembraneous colitis.

Sales and Marketing

We are establishing a direct sales force to promote our products to the
fastest adopting, highest prescribing physicians in the United States
responsible for treating gastrointestinal disease. In 1999, there were

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approximately 26 million patient visits to U.S. gastroenterologists, and these
physicians wrote approximately 35 million prescriptions valued at $2.4 billion.
Because there are only approximately 9,000 active prescribing
gastroenterologists in the United States (compared to over 300,000 U.S. based
general practitioners), we can effectively and efficiently market our products
directly to gastroenterologists through a relatively small specialty sales
force. This strategy allows us to attain the higher profit margins and benefits
of direct control over distribution obtained in selling products directly,
while also avoiding the significant costs, risks and infrastructure inherent in
assembling a large sales force. We intend to have the sales force ready to
begin marketing COLAZAL in January 2001.

Pipeline Strategy

We currently intend to leverage our expertise in developing and marketing
products by continuing to expand indications for approved products; in-
licensing or acquiring new pharmaceutical products for the treatment of
gastrointestinal disease; and seeking co-promotion relationships for marketed
pharmaceutical products that are not adequately promoted to
gastroenterologists. Large pharmaceutical companies dominate the U.S.
pharmaceutical marketplace, but these companies are increasingly divesting
products that, due to mergers or change in strategic fit, do not meet the
threshold level of sales required by such companies. Accordingly, we believe
there will be a significant pool of potential gastroenterology products that we
can acquire, in-license, develop and market through our specialty sales force.

5
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THE OFFERING

<TABLE>
<C> <S>
Shares of common stock offered by us.. None

Shares of common stock which may be
sold by the selling shareholders..... 2,644,200(1)

Use of proceeds....................... We will not receive any proceeds from
the resale of shares offered hereby,
all of which proceeds will be paid to
the selling shareholders

Risk factors.......................... The purchase of our common stock
involves a high degree of risk. You
should carefully review and consider
"Risk Factors" beginning on page 8.

Nasdaq SmallCap Market Trading
Symbol............................... SLXP
</TABLE>
--------
(1) Includes 384,200 shares of common stock issuable upon exercise of warrants.

6
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this prospectus discuss our plans and
strategies for our business and are "forward-looking statements" as that term
is defined in the Private Securities Litigation Reform Act. The words
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions are meant to identify these statements as forward-looking
statements, but they are not the exclusive means of identifying them. The
forward-looking statements in this prospectus reflect the current views of our
management; however, various risks, uncertainties and contingencies could cause
our actual results, performance or achievements to differ materially from those
expressed or implied by these statements, including:

. The success or failure of our efforts to implement our business strategy;

. Our limited sales and marketing experience;

. The high cost and uncertainties relating to clinical trials and
regulatory reviews for pharmaceutical products;

. The need for additional funds;

. The unpredictability of the duration and results of regulatory review of
new drug applications and investigational new drug applications;

. Our dependence on our two pharmaceutical products, balsalazide and
rifaximin, and the uncertainty of market acceptance of those products;
and

. The other factors discussed in the "Risk Factors" section and elsewhere
in this prospectus

In evaluating these statements, you should specifically consider the risks
described above and in other parts of this prospectus, including the "Risk
Factors" section. These factors may cause our actual results to differ
materially from any forward-looking statement.

7
<PAGE>

RISK FACTORS

You should be aware that there are various risks to an investment in our
common stock, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
prospectus, before you decide to invest in shares of our common stock.

If any of the following risks or other risks not known to us now or that we
currently believe to not be significant develop into actual events then our
business, financial condition, results of operations or prospects could be
negatively affected. If that happens, the market price of our common stock
could decline and you may lose all or part of your investment.

Lack of Sales and Marketing Experience

We have no experience in marketing and selling our products either directly
or through our relationships with licensees. We are in the process of
establishing our own direct sales force for the purpose of achieving direct
sales of balsalazide, rifaximin and other future products in the United States.
There can be no assurance that our marketing and direct sales efforts will be
successful. Our sales and marketing strategy for balsalazide outside of the
United States relies on our third-party licensees, to whom we have granted, or
foresee granting, exclusive marketing rights. There can be no assurance that
either Menarini International or Shire Pharmaceuticals or new licensees will
market balsalazide successfully in any country in which they have exclusive
rights.

Dependence on Currently Licensed Products; Uncertainty of Regulatory Approval
of Our Products

Our future success will depend, among other factors, on our ability to in-
license, develop and commercialize new pharmaceutical products. We currently
license two pharmaceutical products, balsalazide and rifaximin, and our
prospects over the next three to five years are substantially dependent on
regulatory approval and successful commercialization of these products. We have
in-licensed rights to balsalazide and rifaximin from Biorex and Alfa
Wassermann, respectively. In addition, we have entered into agreements relating
to the development, commercialization, manufacture and marketing of balsalazide
with Menarini for Italy, Spain, Portugal and Greece, and with Shire
Pharmaceuticals for Austria, Belgium, Denmark, Finland, France, Germany,
Iceland, Republic of Ireland, Luxembourg, Norway, the Netherlands, Switzerland,
Sweden and the United Kingdom.

Development, manufacture and marketing of both balsalazide and rifaximin are
subject to extensive regulation by governmental authorities in the United
States and other countries. The FDA only recently approved balsalazide and has
not approved rifaximin for use in the United States. If regulatory approval of
rifaximin or any other product is granted, such approval will be limited to
those disease states and conditions for which the product has been shown to be
safe and effective, as demonstrated to the FDA's satisfaction through well
controlled clinical studies. Furthermore, approval may entail ongoing
requirements for post-marketing studies. Even if such regulatory approval is
obtained, as with balsalazide, a marketed product, promotional activities for
the product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections. In addition, identification of
certain side effects after a drug is on the market or the occurrence of
manufacturing problems could cause subsequent withdrawal of approval,
reformulation of the drug, additional preclinical testing or clinical trials
and changes in labeling of the product.

We received in May 1998 notification of approval of balsalazide as a
treatment for acute ulcerative colitis in Austria, Belgium, Denmark, Italy,
Luxembourg, and Sweden through the mutual recognition process of the European
Union. Our then partners withdrew marketing applications from certain other EU
countries that had questions that could not be addressed within the time
constraints of the review period required by the mutual recognition process.
These countries are Finland, France, Germany, Greece, Ireland, Netherlands,
Portugal and Spain. Resubmission in these countries will primarily be the
responsibility of our licensees, Shire Pharmaceuticals and Menarini, and there
can be no assurance that they will pursue such applications or that

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they will be successful. There can be no assurance that balsalazide will
receive approval from regulatory agencies in any member country of the European
Union where the marketing application was withdrawn. Even if such approvals are
ultimately received, there can be no assurance as to the timing of such
approvals or market acceptance of balsalazide for the approved indications, or
that our marketing partners will launch balsalazide in the countries where the
marketing application has been approved.

With respect to rifaximin, Alfa Wassermann recently completed a clinical
trial in Spain relating to the drug as a therapy for hepatic encephalopathy. We
determined through discussions with the FDA that this study is not sufficient
support for the filing of an NDA with the FDA. We recently completed a Phase
III clinical study comparing rifaximin to placebo for the treatment of
bacterial infectious diarrhea. We are analyzing the results of the study, and
if the results are promising, expect to file a new drug application. There can
be no assurance that this study for rifaximin will demonstrate that the drug is
safe and effective for the indication tested, that such study will support the
filing of an NDA for rifaximin as a therapy for infectious diarrhea, that in
the event an NDA is filed with the FDA, we will be successful in obtaining
regulatory approval in the United States or Canada.

We expect that a significant portion of our potential revenues for the next
few years will depend on regulatory approval and sales of these products.
Failure to obtain regulatory approvals, delays in obtaining regulatory
approvals, obtaining regulatory approvals for balsalazide or rifaximin in only
limited markets or for limited uses, or lack of market acceptance for either
product, to the extent regulatory approvals are obtained, would have a material
adverse effect on our business, financial condition, and results of operations.

History of Operating Losses; Expectation of Future Losses

Our operations have consisted primarily of development of our products and
sponsorship with third parties of research and clinical trials. We have had net
losses in all but one quarter and have not realized any material operating
revenues from product sales, either directly by us or indirectly through our
development and distribution partners. Substantially all of our revenues to
date have been derived from milestone payments from our collaborative partners
related to the development of balsalazide and limited product sales of
balsalazide in the United Kingdom. As of September 30, 2000, we had incurred
cumulative losses since inception of approximately $23.8 million. We currently
expect operating losses to continue until product revenues reach a sufficient
level to support ongoing operations. Our future operating performance will
depend on the timing of regulatory approvals of balsalazide in various
principal European countries and rifaximin in the United States and Canada,
particularly the timing of FDA approval, and, if such approvals can be
obtained, will also depend on market acceptance, and our ability to secure
manufacture of those products at an acceptable cost.

Dependence On Collaborative Partners/New Collaborative Partner

The commercialization of balsalazide outside of the United States is
entirely dependent on Menarini and Shire in their respective territories. We
currently intend also to seek a new partner or partners for other countries.
There can be no assurance that we will be able to find a new distribution
partner for these countries, or that approvals in those countries will be
granted. Although Menarini has agreed to use its best endeavors to promote,
market, and sell balsalazide disodium in its exclusive markets, there are no
specified financial thresholds that must be achieved for Menarini to maintain
its exclusivity. Our agreement with Menarini provides for a term of not less
than 10 years from first launch. Although Menarini has advised us that it
intends to seek approval in the countries for which marketing applications were
withdrawn, the responsibility to complete the approval process lies with
Menarini and not us. There can be no assurance that Menarini will seek such
approvals, or it does, that approval will be granted. Although Shire has the
right to develop, distribute and market balsalazide, there are no specific
financial thresholds that must be achieved by Shire to maintain its
exclusivity. Our agreement with Shire has no term and neither we nor Shire can
terminate the agreement unless by mutual agreement or because of a breach of
the agreement. Although Shire has agreed to use all reasonable commercial
endeavors to obtain regulatory approvals for balsalazide in France, Germany and
the Netherlands as soon as reasonably practicable, the responsibility to do so
is Shire's and not ours. There can be no assurance that Shire will succeed in
obtaining approvals in those countries or any other countries.

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<PAGE>

There can be no assurance that we will be able to negotiate acceptable
collaborative arrangements in the future, or that our current or future
collaborative arrangements, including the agreements with Menarini and Shire,
will be successful or will not be terminated by the other party. Although we
believe that parties to any collaborative arrangements would have an economic
motivation to succeed in performing their contractual responsibilities, the
amount and timing of resources to be devoted to these activities in most
instances will not be within our control. Failure by us and our collaborative
partners to develop, commercialize, manufacture or market products, including
balsalazide, would have a material adverse effect on our business, financial
condition, and results of operations.

Dependence On Third Parties For Manufacturing

We currently do not manufacture our potential pharmaceutical products,
including balsalazide and rifaximin, and, therefore, are dependent on contract
manufacturers for the production of such products for development and
commercial purposes. We have experienced supply problems due to our dependence
upon a limited number of contract manufacturers which have manifested in
shortages of finished product in the market place. In the event that we are
unsuccessful in obtaining or retaining third-party manufacturing or if our
manufacturers experience production difficulties, delays or disruptions or fail
to comply with regulatory requirements, we may not be able to obtain adequate
supplies of products in a timely fashion or at acceptable quality, and price,
or to commercialize our potential products as planned. No assurances can be
given that we, or our manufacturing partners, will be able to manufacture
future developed products in commercial quantities sufficient to meet our
business objectives. Under the terms of our agreement with Menarini, the
obligations of Menarini to purchase product will terminate under certain
circumstances in which we are unable or unwilling to adequately supply them
with product. In such circumstances Menarini is granted a temporary license to
manufacture balsalazide. Under certain situations, such manufacturing license
may become permanent, in which case our revenues from the arrangements could
be, depending on the circumstances, severely reduced or eliminated. In our
agreement with Shire, if the price at which Shire actually manufactures
balsalazide, by itself or through third parties, exceeds the price ceiling set
in the agreement for specified periods and quantities, we must pay Shire the
excess cost, which would reduce our revenues. We anticipate that future
agreements with new distribution partners will contain clauses similar to those
in the Menarini and Shire agreements. Moreover, contract manufacturers that we
might use must adhere to current Good Manufacturing Practices, which are
regulations strictly enforced by the FDA through its facilities inspection
program. If these facilities cannot pass a pre-approval plant inspection, the
likelihood of the FDA's pre-market approval of rifaximin will be adversely
affected. Certain material manufacturing changes that may occur after approval
are also subject to FDA review and approval. There can be no assurance that the
FDA or other regulatory agencies will approve the processes or the facilities
by which any of our products might be manufactured. In addition, if the
facilities cannot pass regular post-approval inspections, manufacturing and
distribution might be disrupted, recalls of distributed products may be
necessary, and other sanctions could be applied. Any disruption in the supply
in manufacturing and marketing of our proposed products would have a material
adverse effect on our business, financial condition and results of operations.

Dependence On In-Licensing And Acquisition Of New Products For Future Growth

Whether or not balsalazide or rifaximin receives regulatory approvals and is
successfully marketed, our ability to grow in the future will depend on our
success in in-licensing or acquiring additional pharmaceutical products. We
currently intend to seek to in-license or acquire pharmaceutical products that
have been developed beyond the initial discovery phase and for which late-stage
human clinical data is already available. There can be no assurance that such
pharmaceutical products will be available on attractive terms for in-licensing
or acquisition by us.

Uncertainty Of Market Acceptance

Our future success will depend in part on our ability to develop and
commercialize products, including balsalazide and rifaximin. Assuming we can
successfully develop such products and obtain regulatory

10
<PAGE>

approvals, their future success will depend upon their acceptance by the
medical community and third-party payers as useful and cost-effective. Market
acceptance will depend upon several factors, including the establishment of the
safety, effectiveness, patient tolerance, and cost of our products relative to
those of our competitors. We and our collaborative partners may be required to
engage in extensive advertising, educational programs or other means to market
our products. Failure of any of our products to achieve market acceptance would
have a material adverse effect on our business, financial condition and results
of operations.

Dependence On Exclusive Licenses

Our rights to balsalazide and rifaximin are derived from its license
agreements with Biorex and Alfa Wassermann, respectively. Our rights under
these licenses are subject to early termination under certain circumstances,
including material breach by us, the bankruptcy or insolvency of the company or
our failure to satisfy our manufacturing obligations under our agreements with
distribution partners. In the event that Biorex or Alfa Wassermann terminates
their respective license agreements, we would have no further rights to utilize
their respective patents or trade secrets to manufacture and market products
based on balsalazide or rifaximin, as the case may be. Our licenses for
balsalazide and rifaximin provide that our royalty obligations may extend
beyond the expiration date of the underlying patents, which could have a
material adverse effect on our business, financial condition and results of
operations in the event a generic version of balsalazide or rifaximin, as the
case may be, were introduced. In addition, our license agreement with Alfa
Wassermann also provides that we may not promote, distribute or sell any
antibiotic products that compete with rifaximin in its licensed territory (the
United States and Canada) for a period of five years after the first commercial
sale of rifaximin under the agreement, thereby limiting our ability to in-
license, develop or market such products.

Patents And Proprietary Rights; Expiration Of Patents

Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the pharmaceutical industry places considerable importance on
obtaining patent and trade secret protection for new technologies, products and
processes. Because our strategy is to in-license or acquire pharmaceutical
products which typically have been discovered and initially researched by
others, such products may have limited or no remaining patent protection due to
the time elapsed since their discovery. The patents for the balsalazide
composition of matter and method of treating ulcerative colitis with
balsalazide expire in July 2001 in the United States, July 2006 in the United
Kingdom, May 2002 in France, July 2006 in Italy, and April 2002 in Germany. The
patents for the method of treating colon cancer using balsalazide expire in
January 2014 in the United States and, assuming patents issue from pending
applications, in January 2015 in various countries in Europe, Asia and North
America. The patents for the rifaximin composition of matter (also covering a
process of making rifaximin and using rifaximin to treat gastrointestinal
infectious diseases) expire in May 2001 in the United States and Canada. The
patents for another process of making rifaximin expire in April 2005 in both
the United States and Canada. Patents for the use of rifaximin for H. PYLORI
infections expire in June 2013 in the United States and February 2014 in
Canada. We have been successful in obtaining patent extensions of five years in
both Italy and the United Kingdom, and we believe it may be granted additional
extensions of up to five years in certain circumstances, based on patent term
restoration procedures established in Europe and in the United States under the
Waxman-Hatch Act for products that have received regulatory approval. However,
there can be no assurance that any extensions will be granted. We have filed
applications for use patents for additional indications using balsalazide and
related chemical substances. There can be no assurance that any patents will be
issued. There can be no assurance that competitors will not develop products
based on the same active ingredients for marketing as soon as the applicable
patents expire or at any time thereafter or that competitors will not design
around existing patents. Sales of such generic versions could have an adverse
effect on our business, financial condition, and results of operations. Our
success will depend in part on our ability to obtain United States and foreign
patent protection for our products and processes, preserve our trade secrets,
and operate without infringing on the proprietary rights of third parties.
There can be no assurance that patents will issue with respect to, or that the
claims allowed will provide sufficient protection to, our present or future
technology.

11
<PAGE>

There can be no assurance that any other patents will be issued on any of
our patent applications or on patent applications licensed from third parties.
Moreover, there can be no assurance that claims allowed in the patents or
patent applications are or will be sufficiently broad to protect our technology
or that the patents will provide protection against competitive products or
otherwise be commercially valuable.

Furthermore, our patent and other proprietary rights are subject to
uncertainty. Our patent or other proprietary rights related to our products
might conflict with current or future rights of others. For instance, there is
no assurance that the use of our technology will not infringe the patent rights
of others. For the same reasons, the products of others could infringe our
patent or other proprietary rights. Litigation or patent interference
proceedings, either of which could result in substantial cost to us, may be
necessary to enforce any patents issued to us and our other proprietary rights
or to determine the scope and validity of other parties' proprietary rights.
The defense and prosecution of patent and intellectual property claims are both
costly and time-consuming, even if the outcome is favorable to us. Any adverse
outcome could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties, or require us to cease
selling our products.

In addition to patent protection, we also rely on trade secrets, proprietary
know-how and technological advances which we seek to protect, in part, through
confidentiality agreements with our collaborative partners, employees and
consultants. There can be no assurance that these agreements will not be
breached, that we will have adequate remedies for any breach, or that our trade
secrets and proprietary know-how will not otherwise become known or be
independently developed by others.

There can be no assurance that we will be able to obtain a license to any
third-party technology that we may require to conduct our business or that, if
obtainable, such technology can be licensed at a reasonable cost.

Failure by us to obtain a license to any technology that we might require to
commercialize our technologies or products will have a material adverse effect
on our operations. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information or
obtain access to our know-how, or that others will not be issued patents which
prevent the manufacture or sale of our products or require licensing and the
payment of significant fees or royalties by us in order for us to be able to
carry on our business. Litigation, which could result in substantial cost to
us, may be necessary to enforce or defend our patents or proprietary rights.

Intense Competition

Competition in the pharmaceutical industry is intense and characterized by
extensive research efforts and rapid technological progress. We believe that
there are numerous pharmaceutical and biotechnology companies, both public and
private and including large well-known pharmaceutical companies, as well as
academic research groups throughout the world engaged in research and
development efforts with respect to pharmaceutical products targeted at
gastrointestinal diseases and conditions addressed by our current and potential
products. In particular, we are aware of products in research or development by
competitors that address the diseases being targeted by our products. There can
be no assurance that developments by others will not render our current and
potential products obsolete or non-competitive. Competitors may be able to
complete the development and regulatory approval process sooner and, therefore,
market their products earlier than us. Many of our competitors have
substantially greater financial, marketing and personnel resources and
development capabilities than we do. For example, many large, well capitalized
companies already offer products in the United States and Europe that target
the proposed indications for balsalazide, including mesalamine (SmithKline
Beecham plc, Dr. Falk Pharma GmbH, Pharmacia & Upjohn, Inc., Solvay S.A., The
Procter & Gamble Company and Shire Pharmaceuticals), sulfasalazine (Pharmacia &
Upjohn, Inc.), and olsalazine (Pharmacia & Upjohn, Inc.). Technological
developments by competitors, earlier regulatory approval for marketing
competitive products, or superior marketing capabilities possessed by
competitors could adversely affect the commercial potential of our products,
including balsalazide, and could have a material adverse effect on our
business, financial condition and results of operations. In addition,
manufacturers of

12
<PAGE>

generic drugs may seek to compete directly with our products in the absence of
effective patent protection or non-patent exclusivity protection.

Currency Fluctuations

A significant portion of our business is conducted in currencies other than
the United States dollar. Foreign currency transaction gains and losses arising
from normal business operations are credited to or charged against earnings in
the period incurred. As a result, fluctuations in the value of the currencies
in which we conduct our business relative to the United States dollar have
caused and will continue to cause currency transaction gains and losses.
Although translation into our reporting currency has not historically had a
material impact on our financial position, due to the substantial volatility of
currency exchange rates, among other factors, we cannot predict the effect of
exchange rate fluctuations upon future operating results. There can be no
assurance that we will not experience currency losses in the future. We have
not previously undertaken hedging transactions to cover our currency exposure
but may hedge a portion of our currency exposure in the future we deem
appropriate.

Management Of Growth And Expansion

We expect to experience significant growth in the number of our employees
and the scope of our operations. We have recently established corporate
headquarters in Raleigh, North Carolina, and have begun to assemble our direct
sales force. This growth and expansion is expected to place a significant
strain on our management and operations. Our ability to manage such growth
effectively will depend upon our ability to broaden our management team and our
ability to attract, hire, and retain skilled employees. Our success will also
depend on the ability of our officers and key employees to continue to
implement and improve our operational, management information and financial
control systems and to expand, train and manage our employee base. Our
inability to manage growth effectively could have a material adverse effect on
our business, financial condition and results of operations.

Dependence On Key Personnel; Ability To Recruit Personnel

We are dependent upon a number of key management and technical personnel,
including Randy Hamilton, Chairman, Robert Ruscher, President and Chief
Executive Officer, Lorin Johnson, Senior Vice President, Research and
Development, Carolyn Logan, Senior Vice President Sales and Marketing, Adam
Derbyshire, Chief Financial Officer, Lise Riopel, PhD., Vice President,
Clinical Affairs, and Alvaro Carvajal, Vice President, Information Systems.
Because the loss of the services of one or more of these key employees could
have a material adverse effect on our operations, we have entered into
employment agreements with several of these key personnel to provide for an
extended transition period in the event of resignation. Our success will also
depend on our ability to attract and retain additional highly qualified
management and technical personnel. We face intense competition for qualified
personnel, many of whom are often subject to competing employment offers. With
the recent regulatory approval for balsalazide in the United States, we have
begun hiring and training a small direct sales force to market balsalazide in
the United States. New employees, particularly new sales and marketing
employees, will require substantial training and education concerning
balsalazide and any future products. There can be no assurance that we will be
successful in attracting and retaining qualified personnel as necessary, and
the failure to do so could have a material adverse effect on our business,
operating results and financial condition.

Price Volatility; Limited Trading Volume

The securities markets have from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market prices of the common stock of
many publicly traded pharmaceutical and biotechnology companies have in the
past and can in the future be expected to be especially volatile. Announcements
of technological innovations or new products by us or our competitors,
developments or disputes concerning proprietary rights, publicity regarding

13
<PAGE>

actual or potential medical results relating to products under development by
us or our competitors, regulatory developments in both the United States and
other countries, public concern as to the safety of pharmaceutical products and
economic and other external factors, as well as period-to-period fluctuations
in our financial results, might have a significant impact on the market price
of our common stock. Our common stock was traded on The Toronto Stock Exchange
from May 1996 to November 24, 2000. Our common stock began trading on the
Nasdaq SmallCap Market on November 20, 2000. Prior to listing on the Nasdaq
SmallCap Market, trading volume in our common stock on The Toronto Stock
Exchange had been low, and there can be no assurances that an active trading
market will develop or be sustained on the Nasdaq SmallCap Market, or any other
exchange or dealer quotation system.

14
<PAGE>

USE OF PROCEEDS

We will not receive any of the proceeds from the sale of shares of the
common stock offered by the selling shareholders. We are registering the shares
for sale to provide the holders thereof with freely tradable securities, but
the registration of such shares does not necessarily mean that any of such
shares will be offered or sold by the holders thereof.

15
<PAGE>

SELLING SHAREHOLDERS

The shares offered under this prospectus may be sold from time to time for
the account of the selling shareholders named in the following table. The table
also contains information regarding the selling shareholders' beneficial
ownership of shares of our common stock as of November 27, 2000. Except as
otherwise disclosed in the footnotes, 10% of the shares listed with respect to
each selling shareholder represents shares of common stock issuable upon
exercise of warrants. Percentages are based on 11,302,771 shares outstanding as
of November 27, 2000, plus in each case the shares issuable upon exercise of
the related warrants, all of which are currently exercisable.

<TABLE>
<CAPTION>
Beneficial Ownership
Prior to Offering
-----------------------
Percentage Number of
Number of Shares to
Name of Shares(1) Class(2) be Sold
---- ------------ ---------- ---------
<S> <C> <C> <C>
Leonard J. Adams............................ 13,200 * 13,200
ANO LLC..................................... 4,400 * 4,400
Robert Apple................................ 5,720 * 5,720
Aries Domestic Fund II, L.P................. 14,058.4 * 14,058.4
Aries Domestic Fund, L.P.................... 41,298 * 41,298
Aries Master Fund II........................ 85,443.6 * 85,443.6
Don A. Backlund............................. 4,400 * 4,400
Baker Street Capital Partners, L.P.......... 66,000 * 66,000
Baker Street Technology Partners, L.P....... 66,000 * 66,000
John Bannon................................. 4,400 * 4,400
Kevin & Deborah Barbary..................... 5,500 * 5,500
Bear Stearns Security Corp Trustee for
William S. Ellsworth, Jr................... 4,400 * 4,400
The Blinn Family Trust...................... 4,400 * 4,400
William R. Brown............................ 4,400 * 4,400
Allen Chao and Lee Hua Chao Family Trust.... 35,200 * 35,200
Andrew and Lydia Chesnick................... 4,400 * 4,400
Janet Childs................................ 5,500 * 5,500
John F. Combs............................... 7,040 * 7,040
John J. Connor.............................. 5,280 * 5,280
Mark Cooper................................. 4,400 * 4,400
Alan R. Curtis.............................. 4,400 * 4,400
DCF Life Sciences Fund Limited.............. 88,000 * 88,000
Deerfield International Limited............. 104,544 * 104,544
Deerfield Partners, L.P..................... 282,656 2.5% 282,656
Franklin Strategic Series--Franklin Global
Health Care Fund........................... 176,000 1.6% 176,000
Paul & Laurie Frasier....................... 5,500 * 5,500
William A. Galvin........................... 8,800 * 8,800
William H. Gaudreau Trust................... 4,400 * 4,400
David Goldberg.............................. 4,400 * 4,400
Peter Grabler............................... 13,200 * 13,200
Donald D. Graham............................ 8,800 * 8,800
Peter Greco................................. 8,800 * 8,800
Martin M. Hale.............................. 11,000 * 11,000
Charles J. Hammarstrom, Jr.................. 8,800 * 8,800
William R. Haney, Sr........................ 8,800 * 8,800
Leonard S. Jacob & Sandra Jacob............. 5,500 * 5,500
Judy G. Johnson Living Trust Dated 10/6/99.. 4,400 * 4,400
Darlene L. Jordan........................... 6,600 * 6,600
Gerald R. Jordan Foundation................. 16,500 * 16,500
Gerald R. Jordan, Jr........................ 93,500 * 93,500
Jordan Family 1984 Trust.................... 16,500 * 16,500
Yi H. Kao, M.D. & Marianne Kao.............. 4,400 * 4,400
Jeffrey M. Lavin............................ 4,400 * 4,400
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
Beneficial Ownership
Prior to Offering
-------------------------
Percentage Number of
Number of Shares to
Name of Shares(1) Class(2) be Sold
---- ------------ ---------- ---------
<S> <C> <C> <C>
Leerink Swann & Company................ 158,200(1) 1.4% 158,200(1)
Lighthouse Management L.P.............. 49,500 * 49,500
Wayne Lipson........................... 4,400 * 4,400
Steven K. Luminais..................... 4,400 * 4,400
Norman A. Marowitz..................... 4,400 * 4,400
Joe Mayer.............................. 4,400 * 4,400
Timothy W. McGibney.................... 4,400 * 4,400
MLPF&S Custodian FPO Bankruptcy
Affiliates Basic...................... 4,400 * 4,400
Octavio and Diana Morales Living Trust
Dated March 19, 1999.................. 4,400 * 4,400
mRNA Fund L.P.......................... 5,022.6 * 5,022.6
Mark & Lynda E. Mscisz................. 4,400 * 4,400
Steven Mscisz.......................... 4,400 * 4,400
Charles F. Norton, Jr.................. 6,160 * 6,160
Eric & Dierdre K. Okamoto, Joint
Tenants............................... 4,400 * 4,400
Oxford Bioscience Partners (Adjunct)
III, L.P.............................. 39,600 * 39,600
Oxford Bioscience Partners (Bermuda)
III Limited Partnership............... 60,297.6 * 60,297.6
Oxford Bioscience Partners III, L.P.... 423,079.8 3.7% 423,079.8
Pipes Corporate Strategies Ltd.
Investment Manager UBS O'Connor LLC... 246,400 2.2% 246,400
Harry T. Poteat, MD, ScD............... 22,000 * 22,000
ProMed Partners, L.P................... 140,800 1.2% 140,800
Rainbow Trading Corporation............ 17,600 * 17,600
Andrew Randall......................... 4,400 * 4,400
Steven M. Ratner 1999 Irrevocable
Trust................................. 4,400 * 4,400
Michael A. Russell..................... 4,400 * 4,400
Wayne Saker............................ 13,200 * 13,200
Jonathan P. Schwartz................... 4,400 * 4,400
Ira Sherman and Darlene Bryant, As
Joint Tenants......................... 8,800 * 8,800
Shuman & Ross Profit Sharing Trust
F/B/O Howard S. Ross.................. 4,400 * 4,400
Walter G. Steinkrauss & Deborah A.
Slocum................................ 4,400 * 4,400
Samuel & Shirley Straface.............. 4,400 * 4,400
Willoughby Stuart...................... 17,600 * 17,600
Bertram C. Tackeff & Sterra S. Tackeff,
JTWROS................................ 17,600 * 17,600
Todd Taplin............................ 4,400 * 4,400
Jiri Tichy & Dagmar Tichy.............. 8,800 * 8,800
Toledano Capital LLC................... 8,800 * 8,800
Tribophysics Corporation............... 13,200 * 13,200
Tryphon Fund, Inc...................... 17,600 * 17,600
Charles B. Wells....................... 4,400 * 4,400
Scott Wilfong.......................... 6,600 * 6,600
John W. Wilkinson...................... 4,400 * 4,400
--------- --- ---------
Totals:................................ 2,644,200 2,644,200
========= === =========
</TABLE>
--------
* Less than 1%

(1) Consists of a warrant to purchase 158,200 shares of our common stock.

We issued an aggregate of 2,260,000 shares of our common stock to the
selling shareholders in connection with our $14.1 million private placement in
November 2000. We also issued to the selling shareholders warrants to purchase
a total of 226,000 shares of common stock in connection with this private
placement and warrants to purchase a total of 158,200 shares of common stock to
the placement agent who assisted in the private placement. We agreed to
register all of these shares, including those issuable upon exercise of the
warrants, and to pay substantially all of the expenses of offering them under
this prospectus.

17
<PAGE>

PLAN OF DISTRIBUTION

The selling shareholders may offer the shares at various times in one or
more of the following transactions:

. on the Nasdaq SmallCap Market;

. in the over-the-counter market;

. in transactions other than market transactions;

. in connection with short sales of shares of our common stock;

. by pledge to secure debts or other obligations;

. in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions in
standardized or over-the-counter options; or

. in a combination of any of the above.

The selling shareholders may sell shares at market prices then prevailing,
at prices related to prevailing market prices, at negotiated prices or at fixed
prices.

In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers.

The selling shareholders may use broker-dealers to sell shares. If this
happens, broker-dealers will either receive discounts or commissions from the
selling shareholders, or they will receive commissions from purchasers of
shares for whom they have acted as agents.

The selling shareholders and any broker-dealers who act in connection with
the sale of the shares hereunder may be deemed to be "underwriters" within the
meaning of the Securities Act, and any commissions they receive and proceeds of
any sale of the shares may be deemed to be underwriting discounts and
commissions under the Securities Act.

Neither we nor the selling shareholders can presently estimate the amount of
such compensation. We know of no existing arrangements between any selling
shareholders, any other shareholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the shares.

We will pay all of the expenses incident to the registration, offering and
sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents. We also agreed to indemnify the selling
shareholders and certain related persons against certain liabilities, including
liabilities under the Securities Act.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons, we have
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable.

We have advised the selling shareholders that during such time as they may
be engaged in a distribution of the shares included in this prospectus they are
required to comply with Regulation M promulgated under the Securities Exchange
Act of 1934, as amended. With certain exceptions, Regulation M precludes the
selling shareholders, any affiliated purchasers, and any broker-dealer or other
person who participates in such distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is
the subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to stabilize
the price of a security in connection with the distribution of that security.
All of the foregoing may affect the marketability of the shares offered hereby.

This offering will terminate on the earlier of (a) the date on which all of
the shares are eligible for resale in a three-month period pursuant to Rule 144
under the Securities Act, or (b) the date on which all shares

18
<PAGE>

offered by this prospectus have been sold by the selling shareholders, except
that this offering will terminate as to the 158,2000 shares offered by Leerink
Swann & Company on the earlier of the above or November 8, 2005.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K405/A for the
year ended December 31, 1999 as set forth in their report, which is
incorporated by reference in the registration statement. Our consolidated
financial statements are incorporated by reference in this prospectus in
reliance upon Ernst & Young LLP's report given on their authority as experts in
accounting and auditing.

LEGAL MATTERS

The validity of the issuance of the shares of common stock offered hereby
will be passed upon for us by Wyrick Robbins Yates & Ponton LLP, Raleigh, North
Carolina.

19
<PAGE>

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

No one (including any salesman or broker) is authorized to provide oral or
written information about this offering that is not included in this
prospectus.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information........................................ 2
The Company................................................................ 3
The Offering............................................................... 6
Special Note Regarding Forward-Looking Statements.......................... 7
Risk Factors............................................................... 8
Use of Proceeds............................................................ 15
Selling Shareholders....................................................... 16
Plan of Distribution....................................................... 18
Experts.................................................................... 19
Legal Matters.............................................................. 19
</TABLE>

----------------

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-------------------------------------------------------------------------------
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2,644,200 Shares

SALIX PHARMACEUTICALS, INC.

Common Stock

----------------

PROSPECTUS

----------------

, 2000

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses payable by the
registrant in connection with the filing of this Form S-3 Registration
Statement:

<TABLE>
<S> <C>
SEC registration.................................................... $ 4,428.37
Nasdaq SmallCap Market listing fee.................................. 10,000.00
Printing costs...................................................... 5,000.00
Legal fees.......................................................... 25,000.00
Accounting fees and expenses........................................ 5,000.00
Miscellaneous expenses.............................................. 5,571.63
----------
Total............................................................. $55,000.00
==========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Registrants'Articles of Association provide that the Registrant may
indemnify against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably incurred in
connection with legal, administrative or investigative proceedings of any
person who is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil, criminal or
administrative or investigative, by reason of the fact that the person is or
was a director, an officer or a liquidator of the Registrant; or is or was, at
the request of the Registrant, serving as a director, officer or liquidator of,
or in any other capacity is or was acting for, another company or a
partnership, joint venture, trust or other enterprise. The Registrant may only
indemnify a person if the person acted honestly and in good faith and with a
view to the best interests of the Registrant and, in the case of criminal
proceedings, the person had no reasonable cause to believe that his or her
conduct was unlawful.

The Registrant maintains liability insurance insuring its officers and
directors against liabilities that they may incur in such capacities.

At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------

<C> <S>
3.1(a) Memorandum of Association of Salix Pharmaceuticals, Ltd., as amended

3.2(a) Articles of Association of Salix Pharmaceuticals, Ltd., as amended

4.1(a) Form of Common Share Certificate.

4.2(a) Form of Warrant to purchase Common Shares.

4.3(a) Form of Warrant to purchase Common Shares.

5.1 Opinion of Wyrick Robbins Yates & Ponton LLP.

10.1(a) Form of Indemnification Agreement between the Registrant and each of
its officers and directors.

10.2(a) Form of 1994 Stock Plan for Salix Pharmaceuticals, Ltd. and form of
Stock Option and Restricted Stock Purchase Agreements thereunder.
</TABLE>

II-1
<PAGE>

<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------

<C> <S>
10.3(k) Form of 1996 Stock Plan for Salix Pharmaceuticals, Ltd. and form of
Notice of Stock Option Grant and Stock Option Agreement
thereunder, as amended September 14, 2000.

10.4(b) Amendment Agreement effective as of September 17, 1992 by and among
Glycyx Pharmaceuticals, Ltd., Salix Pharmaceuticals, Inc. and
Biorex Laboratories, Ltd.

10.5(b) License Agreement, dated September 17, 1992 between Biorex
Laboratories Limited and Glycyx Pharmaceuticals, Ltd. and letter
agreement amendments thereto.

10.6(b) Research and Development Agreement dated September 21, 1992 between
Glycyx Pharmaceuticals, Ltd. and AB Astra and letter agreement
amendments thereto.

10.7(b) Distribution Agreement dated September 21, 1992 between Glycyx
Pharmaceuticals, Ltd. and AB Astra.

10.8(b) Amended and Restated License Agreement by and between Salix
Pharmaceuticals, Inc. and Biorex Laboratories, Limited, dated
April 16, 1993.

10.9(b) Co-Participation Agreement, dated April 30, 1993 between Salix
Pharmaceuticals, Inc. and AB Astra as amended by Amendment No. 1
thereto effective September 30, 1993.

10.9.1(c) Letter Agreement dated October 16, 1998 to Co-Participation
Agreement dated April 30, 1993 by and between Salix
Pharmaceuticals, Inc. and AB Astra.

10.10(b) Manufacturing Agreement, dated September 15, 1993 between
Courtaulds Chemicals Limited and Glycyx Pharmaceuticals, Ltd.

10.11(b) Distribution Agreement, dated September 23, 1994 between Glycyx
Pharmaceuticals, Ltd. and Menarini International Operations
Luxembourg SA and amendments thereto.

10.12(b) License Agreement, dated June 24, 1996, between Alfa Wassermann
S.p.A. and Salix Pharmaceuticals, Ltd.

10.13(b) Supply Agreement, dated June 24, 1996, between Alfa Wassermann
S.p.A. and Salix Pharmaceuticals, Ltd.

10.14(a) Lease dated January 1, 1992 by and between Kontrabecki Mason
Developers and Salix Pharmaceuticals, Inc., as amended.

10.15(d) Consulting Agreement dated July 31, 1998 between Salix
Pharmaceuticals, Ltd. and James Shook.

10.16(e) Severance Agreement and Mutual Release dated January 6, 1999
between Salix Pharmaceuticals, Ltd. and David Boyle.

10.17(e) Letter of Intent dated March 5, 1999 between Glycyx
Pharmaceuticals, Ltd. and Fujirebio.

10.18(f) Employment Agreement effective May 6, 1999 between Salix
Pharmaceuticals, Ltd. and Randy W. Hamilton.

10.19(f) Employment Agreement effective May 6, 1999 between Salix
Pharmaceuticals, Ltd. and Dr. Lorin K. Johnson.

10.20(j) Employment Agreement effective May 15, 2000 between Salix
Pharmaceuticals, Ltd. and Robert P. Ruscher.

10.21(f) Employment Agreement effective May 6, 1999 between Salix
Pharmaceuticals, Ltd. and John Brough.

10.22(g) Termination and Settlement Agreement dated as of December 22, 1999,
by and between Astra AB and Salix Pharmaceuticals Inc. (a wholly
owned subsidiary of Salix Pharmaceuticals, Ltd.).

10.23(g) Agreement dated December 22, 1999, between Glycyx Pharmaceuticals,
Ltd. (a wholly owned subsidiary of Salix Pharmaceuticals, Ltd.)
and Astra AB.

10.24(h) Shareholder Protection Rights Agreement, dated as of January 13,
2000 between Salix Pharmaceuticals, Ltd. and Montreal Trust
Company of Canada.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------

<C> <S>
10.25(j)* Agreement between Glycyx Pharmaceuticals, Ltd. and Shire
Pharmaceuticals Group, PLC

10.26(j)* Agreement between Biorex Laboratories Limited and Glycyx
Pharmaceuticals, Ltd.

10.27 Form of Subscription Agreement and Warrant for November 2000 private
placement.

21.1(a) Subsidiaries of the Registrant.

23.1 Consent of Ernst & Young LLP, Independent Auditors.

23.2 Consent of Wyrick Robbins Yates & Ponton LLP (contained in Exhibit
5.1)

24.1 Power of Attorney (see page II-5)

27.1(k) Financial Data Schedule.
</TABLE>
--------
* Confidential treatment granted.

(a) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration No. 333-
33781), which the United States Securities and Exchange Commission declared
effective on October 16, 1997.

(b) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Registration Statement on Form S-1 (Registration No. 333-
33781), which the United States Securities and Exchange Commission declared
effective on October 16, 1997. The Registrant has received confidential
treatment with respect to certain portions of this exhibit. Such portions
have been omitted from this exhibit and have been filed separately with the
United States Securities and Exchange Commission.

(c) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the three months ended September 30, 1998.

(d) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the three months ended June 30, 1998.

(e) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998.

(f) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the three months ended June 30, 1999.

(g) Incorporated by reference to exhibits filed with the Registrant's Current
Report on Form 8-K dated December 28, 1999.

(h) Incorporated by reference to exhibits filed with the Registrant's Current
Report on Form 8-K dated January 13, 2000.

(i) Incorporated by reference to the exhibit bearing the same number filed with
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999.

(j) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the six months ended June 30, 2000.

(k) Incorporated by reference to exhibits filed with the Registrant's Quarterly
Report on Form 10-Q for the nine months ended September 30, 2000.

II-3
<PAGE>

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes as follows:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;

Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.

(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
related to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person or the registrant in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certified that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Raleigh, State of North Carolina, on this 4th day of
December 2000.

SALIX PHARMACEUTICALS, LTD.

/s/ Robert P. Ruscher
By: _________________________________
Robert P. Ruscher
President and Chief Executive
Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Robert P.
Ruscher and Adam C. Derbyshire, and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any related Registration
Statements filed pursuant to Rule 462(b) promulgated under the Securities Act
of 1933, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent, or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----

<S> <C> <C>
/s/ Robert P. Ruscher Director, President and December 4,
____________________________________ Chief Executive Officer 2000
Robert P. Ruscher (Principal Executive
Officer)

/s/ Adam C. Derbyshire Chief Financial Officer December 4,
____________________________________ (Principal Financial and 2000
Adam C. Derbyshire Accounting Officer)

/s/ John F. Chappell Director December 4,
____________________________________ 2000
John F. Chappell

/s/ Thomas A. D'Alonzo Director December 4,
____________________________________ 2000
Thomas A. D'Alonzo

/s/ Richard A. Franco Director December 4,
____________________________________ 2000
Richard A. Franco

/s/ Randy W. Hamilton Director and Chairman December 4,
____________________________________ 2000
Randy W. Hamilton
</TABLE>

II-5