(Reuters) - Salix Pharmaceuticals Ltd slashed its full-year forecast on Thursday and said inventory for its key drugs piled up, an issue that people familiar with the matter said dissuaded Allergan Inc from acquiring the drugmaker.
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.
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