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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission file number: 000-23265
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SALIX PHARMACEUTICALS, LTD.
(Exact name of Registrant as specified in its charter)
British Virgin Islands 94-3267443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4101 Lake Boone Trail, Suite 418
Raleigh, North Carolina 27607
(Address of principal executive offices, including zip code)
(919) 788-8550
(Registrant's telephone number, including area code)
--------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
The number of shares of the Registrant's Common Stock outstanding as of
August 4, 2000 was 11,234,742.
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<PAGE>
SALIX PHARMACEUTICALS, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
------- --------------------- --------
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999 (audited)........................... 1
Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2000 (unaudited) and 1999....................... 2
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 (unaudited)....................... 3
Notes to Condensed Consolidated Financial Statements..................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................... 5
Item 3. Quantitative and Qualitative Disclosures About Market Risk................... 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.......................... 9
Item 6. Exhibits and Reports on Form 8-K ........................................... 10
Signatures ............................................................................... 11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION.
Item 1. Condensed Consolidated Financial Statements
SALIX PHARMACEUTICALS, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ---------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,489 $ 2,402
Accounts receivable 193 287
Inventory 1,170 378
Prepaids and other current assets 378 390
----------- -------------
Total current assets 9,230 3,457
Property and equipment, net 140 151
Other assets 152 51
----------- -------------
$ 9,522 $ 3,659
========== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other current liabilities $ 1,915 $ 1,444
Deferred revenue 3,028 ----
Commitments ---- ----
Shareholders' equity:
Preferred stock, issuable in series, no par value;
5,000,000 shares authorized; none outstanding ---- ----
Common stock, no par value; 40,000,000 shares authorized; 11,120,262
shares issued and outstanding at June 30, 2000 and 10,208,838
shares issued and outstanding at December 31, 1999 27,922 27,626
Accumulated deficit (23,343) (25,411)
----------- -------------
Shareholders' equity 4,579 2,215
----------- -------------
$ 9,522 $ 3,659
=========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALIX PHARMACEUTICALS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---------- -------- ------- -----
<S> <C> <C> <C> <C>
Revenues:
Product revenue $ 173 $ 64 553 138
Other revenue 8,905 1,000 9,372 1,484
---------- -------- ------- -----
Total revenues 9,078 1,064 9,925 1,622
--------- -------- ------- -----
Expenses:
Cost of products sold 222 302 535 563
License fees 4,480 100 4,480 297
Research and development 754 1,679 1,324 2,850
Selling, general and administrative 902 536 1,546 1,119
---------- -------- ------- -----
Total expenses 6,358 2,617 7,885 4,829
---------- -------- ------- -----
Income (loss) from operations 2,720 (1,553) 2,040 (3,207)
---------- -------- ------- -------
Interest, and other (expense)/income, net 40 67 38 104
---------- -------- ------- -------
Net income (loss) before tax $ 2,760 $ (1,486) $ 2,078 $(3,103)
Income tax 9 --- 9 ---
---------- -------- ------- -------
Net income (loss) $ 2,751 $ (1,486) $ 2,069 $ (3,103)
========== ======== ======= =======
Net income (loss) per share, basic $ 0.25 $ (0.14) $ 0.19 $ (0.30)
========== ======== ======= =======
Net income (loss) per share, diluted $ 0.24 $ (0.14) $ 0.19 $ (0.30)
========== ======== ======= =======
Shares used in computing net income (loss) per share, basic 11,007 10,209 10,809 10,209
========== ======== ======= =======
Net effect of dilutive stock options based on treasury stock method
using average market price 259 ---- 259 ---
---------- -------- ------- -------
Shares used in computing net income (loss) per share, diluted 11,266 10,209 11,068 10,209
========== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SALIX PHARMACEUTICALS, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 2,069 $ (3,103)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 72 47
Loss on disposal of equipment 13 ---
Changes in assets and liabilities:
Accounts receivable, inventory and other current assets (788) 86
Accounts payable and other current liabilities 471 50
Deferred revenue 3,028 ---
----------- ----------
Net cash provided by (used in) operating activities 4,865 (2,920)
Cash flows from investing activities
Sale and maturity of short term investments --- 1,000
Purchases of property and equipment (74) (7)
-------------- --------------
Net cash provided by (used in) investing activities (74) 993
Cash flows from financing activities
Proceeds from issuance of common stock 296 ---
------------- ----------
Net cash provided by financing activities 296 ---
Net increase (decrease) in cash and cash equivalents 5,087 (1,927)
Cash and cash equivalents at beginning of period 2,402 2,763
----------- -----------
Cash and cash equivalents at end of period $ 7,489 $ 836
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SALIX PHARMACEUTICALS, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
1. Organization and Basis of Presentation
Salix Pharmaceuticals, Ltd. was incorporated in the British Virgin
Islands in December 1993 for the purpose of acquiring all of the outstanding
capital stock of Salix Pharmaceuticals, Inc., a California corporation ("Salix
California"), and Glycyx Pharmaceuticals, Ltd., a Bermuda corporation. Salix
California was incorporated in California in 1989 and Glycyx was incorporated in
Bermuda in 1992. The Company is developing new pharmaceuticals, primarily
focused in the area of gastrointestinal disease. The Company intends to
commercialize its pharmaceutical products through its own direct sales force in
the United States and via third party distributors or sub-licensees in other
territories. The Company conducts its business within one industry segment.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. All amounts are denominated in
United States dollars.
The accompanying unaudited condensed consolidated financial statements
include all adjustments (consisting only of normal recurring items) which, in
the opinion of management, are necessary for a fair presentation of financial
position, results of operations and cash flows. These financial statements
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this Report
and with the audited financial statements for the fiscal year ended December 31,
1999 included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 filed with the Securities and Exchange Commission. The
results of operations for interim periods are not necessarily indicative of
results to be expected for a full year.
These statements have been prepared in accordance with accounting
principles generally accepted in the United States. The application of these
principles conforms in all material respects with financial statements prepared
using accounting principles generally accepted in Canada. The Company's Common
Shares are traded on The Toronto Stock Exchange under the symbol "SLX."
2. Commitments
At June 30, 2000, the Company had a binding purchase order commitment
for inventory purchases aggregating approximately $3.6 million to be delivered
before January 31, 2001.
3. Inventory
All inventories at December 31, 1999 were classified as raw materials.
Inventories at June 30, 2000 consisted of raw materials $.9 million and finished
goods of $.3 million.
4. Liquidity and Capital Resources
Prior to the quarter ended June 30, 2000, the Company had sustained
continuing operating losses. Despite the net income in the second quarter of
2000, the Company expects to incur further losses until product revenues reach a
sufficient level to support ongoing operations. In May 2000, the Company signed
an agreement with Shire Pharmaceuticals Group plc ("Shire") under which Shire
purchased from Salix the exclusive rights to balsalazide, a treatment for
ulcerative colitis, for several European countries. Under the agreement, Shire
paid the Company a first payment of $11.7 million in consideration for the prior
development of balsalazide and the purchase of the intellectual property related
to balsalazide and could pay an aggregate of as much as $11.6 million consisting
of several milestone payments payable upon achievement of certain events.
4
<PAGE>
$3.0 million of the first payment was deferred and will be recognized as
revenue, if and when expense is incurred for clinical trials necessary for
registration of balsalazide in France, Germany and the Netherlands. The Company
believes its cash reserves at June 30, 2000 and projected milestones should be
sufficient to satisfy the cash requirements of the Company through 2000 and
until such time, if at all, that it needs to raise additional funds in the form
of debt or equity financing to fund future licensing, development and
commercialization of rifaximin and other new products.
5. Subsequent Event
On July 24, 2000, the Company announced that COLAZAL(TM) (balsalazide
disodium) was approved by the United States Food and Drug Administration for
marketing in the United States for the treatment of mildly to moderately active
ulcerative colitis, a chronic and debilitating inflammatory disease of the
gastrointestinal tract.
6. Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101), which among other guidance clarifies certain conditions to be met in order
to recognize revenue. SAB 101 will require companies to recognize certain
up-front non-refundable fees over the term of the related agreement unless the
fee is in exchange for products delivered or services performed that represent
the culmination of a separate earnings process. The Company has reviewed the
requirements of SAB 101 as it relates to the Shire Pharmaceuticals agreement
signed in May 2000 and discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Report. A substantial portion of the first payment from the agreement is in
consideration for prior development of balsalazide and the purchase of the
intellectual property related to balsalazide. This portion of the first payment
is recognized as revenue in the current period. The Company believes that
adoption of SAB 101 will not have a material impact on the Company's results of
operations or financial condition.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or anticipated results, including those set forth under
"Cautionary Statement" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in, or incorporated by
reference into, this report. The following discussion should be read in
conjunction with the Company's Condensed Consolidated Financial Statements and
notes thereto included elsewhere in this report.
Unless otherwise indicated, all references to "dollars" or "$" refer to
United States dollars. The Company's Common Shares trade on The Toronto Stock
Exchange.
Overview
The Company's objective is to be a market-driven specialty
pharmaceutical company focused on the needs of physicians specializing in
gastroenterology. The Company intends to establish a small direct sales force to
promote its products to this specialist audience. The Company's strategy is to
identify and acquire products that have near-term commercial potential and apply
its regulatory and product development expertise to commercialize these
products. The Company selects products that it believes serve a gastrointestinal
disease in need of new treatments, have the potential for rapid regulatory
approval, and are marketable to this small group of specialized physicians. The
Company believes this strategy will reduce the expense, time and risk normally
associated with pharmaceutical development. The Company believes that its first
two products, balsalazide disodium, presently marketed in the United Kingdom,
Sweden and Denmark under the brand names COLAZIDE(R), COLAZID(R) and PREMID(R),
respectively, and rifaximin, will demonstrate the Company's ability to execute
this strategy.
5
<PAGE>
The Company has generated limited revenues to date from the sales of
products. The Company had cash balances of approximately $7.5 million as of June
30, 2000. The Company expects both sales revenues and operating expenses to
increase as the Company intends to launch COLAZAL(TM) in the United States
through its specialized sales force and continues product development and
clinical programs for rifaximin. As of June 30, 2000, the Company had
accumulated losses of approximately $23.3 million. Since 1992, the Company has
financed its operations principally through reimbursement payments, license fees
and milestone revenues, totaling approximately $28.8 million under collaborative
research and licensing agreements, and sales of equity and convertible debt
securities totaling approximately $27.9 million. Over the same period, the
Company has recorded expenses totaling $45.6 million, of which $23.9 million
were in research and development expenses and $6.1 million in license fees to
licensors. Alliances with Astra AB (now AstraZeneca), Shire Pharmaceuticals
Group plc and a division of Menarini Pharmaceutical Industries s.r.l. have
allowed the Company to fund the development of balsalazide, to in-license other
gastrointestinal products, and to help establish itself with a relatively small
amount of outside capital.
In May 2000, the Company signed an agreement with Shire Pharmaceuticals
Group under which Shire purchased from Salix the exclusive rights to
balsalazide, a treatment for ulcerative colitis, for Austria, Belgium, Denmark,
Finland, France, Germany, Iceland, Republic of Ireland, Luxembourg, Norway, the
Netherlands, Switzerland, Sweden and the United Kingdom. Under the agreement,
Shire paid the Company a first payment of $11.7 million in consideration for the
prior development of balsalazide and the purchase of the intellectual property
related to balsalazide, and could pay an aggregate of as much as $11.6 million
consisting of several milestone payments payable upon achievement of certain
events. $3.0 million of the first payment was deferred and will be recognized as
revenue, if and when expense is incurred for clinical trials necessary for
registration of balsalazide in France, Germany and the Netherlands.
Balsalazide was first approved in the United Kingdom in July 1997 for
the treatment of acute ulcerative colitis and launched by AstraZeneca under the
brand name COLAZIDE(R) in October 1997. Following receipt of pricing approvals
AstraZeneca launched balsalazide in Sweden and Denmark in March 1999.
AstraZeneca has also received approval for balsalazide in Argentina, Austria,
Belgium, Brazil, Czech Republic, Iceland, Luxembourg, Norway, and Switzerland
and applications are pending in several other countries. Balsalazide is also
approved in Italy, where following receipt of pricing approval it will be
distributed by Menarini. The Company expects Menarini to obtain the pricing
approval and launch balsalazide in Italy during 2000. On July 24, 2000, the
Company announced that COLAZAL(TM) (balsalazide disodium) was approved by the
United States Food and Drug Administration (FDA) for marketing in the United
States for the treatment of mildly to moderately active ulcerative colitis, a
chronic and debilitating inflammatory disease of the gastrointestinal tract.
Product revenues to date have resulted primarily from AstraZeneca's
sales of balsalazide in the United Kingdom, Sweden and Denmark. The Company has
to date recognized only nominal product revenues from sales of balsalazide to
Menarini for use in production trials. The Company is obligated to pay to
Biorex, the original licensor of the product, a portion of any gross profit on
balsalazide sales outside the United States, and will also share with Biorex any
payments received from distribution partners outside the United States. In
addition, the Company anticipates product costs will remain high until
production volumes increase, thereby allowing the Company to benefit from
economies of scale.
The Company's second product, rifaximin, is currently under
development. The Company obtained the rights to develop, make, use and sell
rifaximin in Canada and the United States from Alfa Wassermann S.p.A. in
exchange for future royalties and milestone payments. Under a separate
agreement, Alfa Wassermann will supply Salix with bulk active ingredient
rifaximin at a fixed price.
The Company intends to pursue regulatory approvals for the initial
indication for rifaximin, bacterial infectious diarrhea, with the cost of the
clinical trials being borne by the Company. The Company is currently sponsoring
a Phase III trial for the treatment of infectious bacterial diarrhea in
travelers, which is expected to be completed during 2000. The Company plans
further development of rifaximin for several other possible indications, which
may include hepatic encephalopathy and antibiotic associated colitis. In
February 1998, the Company received Orphan Drug Designation from the FDA for
rifaximin to treat hepatic encephalopathy. Orphan Drug Designation can entail
advantages in the testing and approval process for the drug.
6
<PAGE>
Results of Operations
Three-Month and Six-Month Periods Ended June 30, 2000 and 1999
For the three-month period ended June 30, 2000, the Company recognized
product revenue from sales to AstraZeneca of $.2 million and other revenue of
$8.9 million. During the corresponding three-month period ended June 30, 1999
the Company recorded product revenue of $.1 million and revenue from
collaborative agreements of $1.0 million. Higher other revenues for the
three-month and six-month periods ended June 30, 2000 were due to the signing of
an agreement with Shire under which Shire purchased from Salix the intellectual
property related to balsalazide disodium, a treatment for ulcerative colitis,
for Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Republic of
Ireland, Luxembourg, Norway, the Netherlands, Switzerland, and the United
Kingdom.
Operating expenses for the three months ended June 30, 2000 and 1999
were $6.4 million and $2.6 million, respectively. Operating expenses for the six
months ended June 30, 2000 and 1999 were $7.9 million and $4.8 million,
respectively. The increases in operating expenses from the corresponding prior
periods were due primarily to non-recurring license fees to licensors and higher
general and administrative expenses partially offset by lower research and
development expense.
Cost of products sold for the three-month and six-month periods ended
June 30, 2000 were $.2 million and $.5 million respectively, compared with $.3
million and $.6 million in the corresponding three-month and six-month periods
in 1999.
License fees totaled $4.5 million for the three-month and six-month
periods ended June 30, 2000. License fees of $.1 million and $.3 million were
recorded during the corresponding three-month and six-month periods ended June
30, 1999. The increase is due to the Company's obligation to its licensor of
balsalazide in connection with funds received under the May 2000 balsalazide
agreement with Shire.
Research and development expenses were $.8 million and $1.3 million for
the three-month and six-month periods ended June 30, 2000, respectively,
compared to $1.7 and $2.9 million for the comparable periods in 1999. The
decrease in research and development expenses in 2000 is due primarily to the
completion of a balsalazide disodium clinical trial initiated in late 1997 in
the United States.
Selling, general and administrative expenses were $.9 million and $1.5
million for the three-month and six-month periods ended June 30, 2000,
respectively, compared to $.5 million and $1.1 million in the corresponding
three-month and six-month periods in 1999. This increase is primarily due to
sales and marketing expenses related to the Company's planned launch of
COLAZAL(TM) in the United States in first quarter 2001.
Interest and other income/(expense) for the six months ended June 30,
2000 compared to the same six-month period in the prior year is mainly
attributable to reduced interest on smaller average cash balances in 2000.
The Company recorded net income of $2.8 million for the three months
ended June 30, 2000 compared with a net loss of $1.5 million in the
corresponding three-month period prior year. The Company recorded net income of
$2.1 million for the six-month period ended June 30, 2000 compared with a net
loss of $3.1 million in the corresponding six-month period in the prior year.
The increase in net income for both the three-month and six-month periods was
due to revenue resulting from the Shire agreement.
Liquidity and Capital Resources
Since inception, the Company has financed product development,
operations and capital expenditures primarily from funding arrangements with
collaborative partners and from public and private sales of debt and equity
securities.
As of June 30, 2000, the Company had approximately $7.5 million in cash
and cash equivalents. As of December 31, 1999, the Company had approximately
$2.4 million in cash and cash equivalents. The increase of $5.1
7
<PAGE>
million was due to revenue from the Shire agreement offset by cash used to fund
the operating activities of the Company.
As of June 30, 2000, the Company had no long-term obligations. As of
June 30, 2000 the Company had non-cancelable purchase order commitments for
inventory purchases of approximately $3.6 million to be delivered before January
31, 2001. The Company has not quantified, but anticipates potentially
significant capital expenditures in 2000 related to establishing a direct sales
and marketing organization in the United States. On April 3, 2000 the Company
received a loan of $500,000 from AstraZeneca related to termination of the
balsalazide agreement. The loan was repaid in full in May.
Prior to the quarter ended June 30, 2000, the Company had sustained
continuing operating losses and had an accumulated deficit of $23.3 million as
of June 30, 2000. Despite the net income in the second quarter of 2000, the
Company expects to incur substantial and increasing operating losses until
product revenues reach a sufficient level to support ongoing operations. In May
2000, the Company signed an agreement with Shire Pharmaceuticals Group under
which Shire purchased form Salix the exclusive rights to balsalazide, a
treatment for ulcerative colitis, for several European countries. Under the
agreement, Shire paid the Company a first payment of $11.7 million in
consideration for the prior development of balsalazide and the purchase of the
intellectual property related to balsalazide and could pay an aggregate of as
much as $11.6 million consisting of several milestone payments payable upon
achievement of certain events. $3.0 million of the first payment was deferred
and will be recognized as revenue, if and when expense is incurred for clinical
trials necessary for registration of balsalazide in France, Germany and the
Netherlands. The Company believes its cash and investment balances at June 30,
2000 should be sufficient to satisfy the cash requirements of the Company
through 2000 and until such time, if at all, that it needs to raise additional
funds in the form of debt or equity financing to fund future licensing,
development and commercialization of rifaximin and new products. However, the
Company's actual cash requirements might vary materially from those now planned
because of a number of factors, including the results of research and
development activities, FDA and foreign regulatory processes, establishment of
and change in relationships with strategic partners, technological advances by
the Company and other pharmaceutical companies, the terms of the Company's
collaborative arrangements with strategic partners, and the status of
competitive products. The Company might also enter into additional collaborative
arrangements with corporate partners that could provide the Company with
additional funding in the form of equity, debt, licensing, milestone and/or
royalty payments. There can be no assurance that the Company will be able to
enter into such arrangements or raise any additional funds on terms favorable to
the Company.
Cautionary Statement
The Company operates in a highly competitive environment that involves
a number of risks, some of which are beyond the Company's control. The following
statement highlights some of these risks.
Statements contained in "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" which are not historical facts
are or may constitute forward-looking statements under the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Although the
Company believes the expectations reflected in such forward-looking statements
are based on reasonable assumptions, it can give no assurance that its
expectations will be attained. Forward-looking statements involve known and
unknown risks that could cause the Company's actual results to differ materially
from expected results. Factors that could cause actual results to differ
materially from the Company's expectations include, among others: the Company's
limited sales and marketing experience; the high cost and uncertainty of the
research, clinical trials and other development activities involving
pharmaceutical products; the Company's ability to fund its activities internally
or through additional financing, if necessary; the unpredictability of the
duration and results of regulatory review of New Drug Applications and
Investigational New Drug Applications; the Company's dependence on its two
pharmaceutical products, balsalazide and rifaximin, and the uncertainty of
market acceptance of those products; the possible impairment of, or inability to
obtain, intellectual property rights and the costs of obtaining such rights from
third parties; intense competition; the uncertainty of obtaining, and the
Company's dependence on, third parties to manufacture and sell its products; and
results of future litigation and other risk factors detailed from time to time
in the Company's Securities and Exchange Commission filings. The Company does
not undertake any obligation to release publicly any revisions to these
statements to reflect later events or circumstances or to reflect the occurrence
of unanticipated events.
8
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's purchases of raw materials and its product sales to its
European distribution partners are denominated in Pounds Sterling. Translation
into the Company's reporting currency, the United States dollar, has not
historically had a material impact on the Company's financial position.
Additionally, the Company's net assets denominated in currencies other than the
functional currency have not exposed the Company to material risk associated
with fluctuations in currency rates. Given these facts, the Company has not
considered it necessary to use foreign currency contracts or other derivative
instruments to manage changes in currency rates.
Due to the nature and maturity of the Company's short-term investments,
the Company does not believe such investments present significant market risk.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 2000 Annual Meeting of Shareholders was held on June
14, 2000. The following is a brief description of each matter voted upon at the
meeting and a statement of the number of votes cast for, against or withheld and
the number of abstentions with respect to each matter.
(a) The shareholders elected the following directors to serve for the
ensuing year and until their successors are elected:
FOR WITHHELD
--- --------
John F. Chappell 6,413,740 278,901
Thomas D'Alonzo 6,413,740 278,901
Richard A. Franco, R.Ph. 6,413,740 278,901
Randy W. Hamilton 6,564,584 128,057
Robert P. Ruscher 6,375,283 317,358
(b) The shareholders approved an amendment to the Company's 1996 Stock
Option Plan to increase the number of Common Shares reserved for
issuance thereunder from 1,750,000 to 2,667,207.
FOR AGAINST ABSTAIN
--- ------- -------
5,940,229 747,350 5,062
(c) The shareholders adopted a shareholder protection rights plan and
approved the Shareholder Protection Rights Agreement dated January
13, 2000 between the Company and Montreal Trust Company of Canada.
FOR AGAINST ABSTAIN
--- ------- -------
6,281,615 407,776 3,250
(d) The shareholders ratified the appointment of Ernst & Young LLP as
independent accountants of the Company for the fiscal year ending
December 31, 2000.
FOR AGAINST ABSTAIN
--- ------- -------
6,664,072 26,869 1,700
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.25* Agreement between Glycyx Pharmaceuticals, Ltd. and Shire
Pharmaceuticals Group plc
10.26* Agreement between Biorex Laboratories Limited and Glycyx
Pharmaceuticals, Ltd.
10.27 Employment Agreement effective May 15, 2000 between Salix
Pharmaceuticals, Ltd. and Robert P. Ruscher
27.1 Financial Data Schedule
*Confidential treatment requested.
(b) Reports on Form 8-K
None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SALIX PHARMACEUTICALS, LTD.
Date: August 14, 2000 By: /s/ Robert P. Ruscher
-----------------------
Robert Ruscher, President and
Chief Executive Officer
Date: August 14, 2000 By: /s/ Adam C. Derbyshire
-----------------------
Adam C. Derbyshire, Vice
President, Finance &
Administration, Chief Financial
Officer and Corporate Secretary
