Salix Pharmaceuticals, Ltd., headquartered in Raleigh, North Carolina, develops and markets prescription pharmaceutical products for the treatment of gastrointestinal diseases. Salix's strategy is to in-license late-stage or marketed proprietary therapeutic drugs, complete any required development and regulatory submission of these products, and market them through the Company's 150-member gastroenterology specialty sales and marketing team. 

$208.5 Million Total Product Revenue Increases 35% Over 2005 
Net Income $31.5 Million: EPS $0.65 
OSMOPREP™ and MOVIPREP® Approved and Launched 
Bowel Cleansing Franchise Achieves 20% Market Share 
XIFAXAN® Achieves 118% Year–Over–Year Growth in Prescription Demand 
SANVAR® License Agreement Signed 
Clinical Development Pipeline Advanced 

RALEIGH, NC, February 28, 2007 - Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) today announced financial and operating results for the fourth quarter and year ended December 31, 2006. 

Total product revenue was $62.6 million for the fourth quarter of 2006, a year-over-year increase of 23% compared to $50.7 million for the fourth quarter of 2005. Total product revenue for 2006 was $208.5 million, a year–over–year increase of 35%. VISICOL®, OSMOPREP™ and MOVIPREP®, combined, generated revenue of $11.5 million for the fourth quarter of 2006, and $45.5 million for the full year 2006. Revenue from these three products, which comprise our bowel cleansing franchise, contributed 22% of 2006 total product revenue. Our bowel cleansing franchise achieved 20% market share by the end of 2006. XIFAXAN® revenue for the fourth quarter of 2006 was $18.7 million, a 61% increase compared to the fourth quarter of 2005, and XIFAXAN revenue for 2006 was $51.6 million, a 72% increase compared to 2005. COLAZAL® generated revenue of $30.4 million for the fourth quarter of 2006 compared to $30.8 million for the fourth quarter of 2005. COLAZAL generated revenue of $103.5 million for 2006 compared to $110.3 million for 2005. This 6% decrease in revenue compared to 2005 COLAZAL revenue reflects the normalization of COLAZAL trade inventories over the course of 2006. Based on COLAZAL's current price, the dollar value of 2006 prescriptions approximated $114 million. 

Total cost of products sold was $12.2 million for the fourth quarter and $41.4 million for the full year. Gross margin on total product revenue was 80.4% for the fourth quarter and 80.1% for 2006, compared to 75.2% and 77.9%, respectively, for the corresponding periods of 2005. Research and development expenses were $15.8 million for the fourth quarter of 2006, compared to $17.3 million for the prior year period. Research and development expenses were $47.9 million for 2006, compared to $34.5 million for 2005. Selling, general and administrative expenses were $19.1 million for the fourth quarter of 2006 and $82.6 million for 2006, compared to $23.0 million and $70.8 million, respectively, for the corresponding periods of 2005. The Company reported net income of $13.9 million, or $0.29 per share, fully diluted, for the fourth quarter of 2006 and for the full year reported net income of $31.5 million, or $0.65 per share, fully diluted. 

Cash, cash equivalents and investments were $76.5 million on December 31, 2006. As of January 31, 2007 cash, cash equivalents and investments were approximately $109 million and accounts receivables totaled approximately $17 million. 

Commenting on the performance of the Company, Adam Derbyshire, Senior Vice President and Chief Financial Officer, stated, "Total product revenue for 2006 increased 35% to $208.5 million yielding net income of $31.5 million, or $0.65 per share, fully diluted, with a 5% tax rate due to prior net operating loss carry forwards. We are extremely pleased with our continuing robust growth, particularly over the course of a year during which we invested in the future of the Company by launching two products, acquiring one product, advancing our pipeline of development projects and increasing our cash reserves. 

"The demand for XIFAXAN, our most compelling long-term opportunity, continued to increase during 2006. XIFAXAN sales totaled $51.6 million for the year, a 72% increase over 2005. Our newly-launched bowel cleansing products - OSMOPREP and MOVIPREP - performed extremely well and met all internal expectations. Revenue from this new therapeutic franchise contributed $45.5 million or 22% of 2006 total product revenue. COLAZAL generated revenue of $103.5 million for 2006. As planned, COLAZAL's contribution as a percentage of total product revenue incrementally decreased during 2006 due to the expansion of our product portfolio with the launch of our bowel cleansing products and as XIFAXAN sales continued to ramp. COLAZAL sales contributed 50% of total product revenue for 2006 compared to 71% for 2005 and 84% for 2004. We expect COLAZAL's contribution as a percentage of total product revenue will continue to moderate going forward. 

"For 2007 we anticipate that we will be able to deliver strong ongoing revenue and EPS growth, and at the same time continue to build our business. We believe total Company product revenue for 2007 will be approximately $260 million, including the contribution of recently acquired PEPCID® OS (oral solution). This level of revenue represents top line year-over-year growth of 25%. We believe we will be able to generate $0.85 in earnings per share, fully diluted, assuming a 15% tax rate, for the year ending December 31, 2007. This 2007 EPS of $0.85 represents a 31% increase compared to 2006 earnings per share of $0.65, or, adjusting to equalize the 5% 2006 tax rate with the anticipated 15% 2007 tax rate, a 46% increase. We believe our ability to grow revenue and EPS at these rates while continuing to significantly strengthen our product portfolio distinguishes Salix from many of its peers. 

"Beginning in the first quarter of 2006 and continuing throughout the year, we committed an increased level of resources, almost $48 million, to expedite critical R&D projects, primarily our COLAZAL life cycle management programs. We are confident that this commitment to adequately fund the development of key products and indications should be more than adequately rewarded by increased commercial opportunity as these products come to market over the next several years. Research and development expenditures totaled 23% of revenue during 2006. We anticipate that R&D expenditures will be approximately 25% of revenue in 2007 as we plan to file two NDAs and as we continue to enroll patients in our ongoing late-stage clinical trials. Selling, general and administrative expenses for 2006 totaled 40% of revenue, reflecting costs associated with the June and October launches of OSMOPREP and MOVIPREP. We anticipate that SG&A will moderate to approximately 35% of revenue for 2007. Research and development expenditures and SG&A expenditures for 2008 will be similar to 2007 levels. Looking further ahead to 2009 and beyond, we expect to generate significant leverage as R&D and SG&A as a percentage of revenue should decrease in that time period."