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 The two companies were close to inking a deal, but Botox maker
Allergan balked after its due diligence raised questions over
inventory levels, the people said, requesting anonymity because the
negotiations were confidential.
Allergan and Salix representatives declined to comment on the talks.
The updated earnings forecast and inventory disclosure came with
Salix's third-quarter earnings, sending its shares down nearly 36
percent after the bell.
Earlier on Thursday, Allergan said it was in discussions with
another party that a source familiar with the situation identified
as Actavis Inc, days after the company disclosed that it had been
approached.
A deal would allow Allergan to fend off a $54 billion hostile
takeover by Valeant Pharmaceuticals International and Pershing
Square Capital Management. It argues that this takeover would
diminish its growth and that Valeant would cut costs too deeply.
Salix, which makes bowel drugs, said wholesale inventory levels for
its four key drugs showed enough stock for at least five months, in
contrast to earlier statements that indicated stocks that would last
just weeks.
Inventory as of Sept. 30 was $155 million, up about 50 percent since
the beginning of the year.
The company's audit committee is conducting a review of issues
related to how the management characterized the wholesale inventory
levels, Salix said in a call with analysts.
"Management believes that the company's accounting with respect to
sales to wholesalers has at all times been appropriate," Salix Chief
Executive Carolyn Logan said.
Salix said it was currently negotiating with its wholesalers to
enter into distribution services agreements for each of the
products.
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The company said it now expects 2014 profit of $5.20 per share,
before special items, on revenue of $1.4 billion. It had previously
forecast a profit of $6.16 per share on revenue of $1.6 billion.
Analysts on average were expecting a profit of $6.17 per share on
revenue of $1.6 billion, according to Thomson Reuters I/B/E/S.
The company also reported a net loss of $88.6 million, or $1.39 per
share, for the third quarter ended Sept. 30, compared with net
income of $47.3 million, or 71 cents per share, a year earlier.
Excluding special items, the company earned $1.53 per share.
Revenue increased 49 percent to $355 million.
Analysts on average had expected a profit of $1.55 per share on
revenue of $392.4 million, according to Thomson Reuters I/B/E/S.
(Additional reporting by Vidya L Nathan in Bangalore; Editing by Ken
Wills)
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