10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the quarterly period ended September 30, 2003

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

SALIX PHARMACEUTICALS, LTD.

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 94-3267443 (I.R.S. Employer Identification No.)

8540 Colonnade Center Drive, Suite 501

Raleigh, North Carolina 27615

(Address of principal executive offices, including zip code)

(919) 862-1000

(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  ¨

Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   YES  x  NO  ¨

The number of shares of the Registrant’s Common Stock outstanding as of November 11, 2003 was 21,914,735.

SALIX PHARMACEUTICALS, LTD.

TABLE OF CONTENTS

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002 (audited)	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002 (unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 (unaudited)	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Controls and Procedures	11
PART II.	OTHER INFORMATION
Item 5.	Other Information	11
Item 6.	Exhibits and Reports on Form 8-K	11
Signatures		13

EXPLANATORY NOTE

This Form 10-Q/A amends our original 10-Q for the fiscal quarter ended September 30, 2003 to provide a copy of the License Agreement dated October 17, 2003 between Glycyx Pharmaceuticals, Inc., our wholly owned subsidiary, and Chong Kun Dang Pharmaceutical Corporation. This agreement, filed as Exhibit 10.39, reflects our revised confidential treatment request that has been filed separately with the SEC.

PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements

SALIX PHARMACEUTICALS, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars, in Thousands, Except Share Amounts)

	September 30, 2003			December 31, 2002
	(unaudited)			(audited)
ASSETS
Current assets:
Cash and cash equivalents	$	39,337		$	34,531
Short-term investments		2,026			14,165
Accounts receivable, net		4,503			5,980
Inventory, net		13,303			10,210
Prepaid and other current assets		1,953			2,080
Total current assets		61,122			66,966
Long-term investments		—			7,052
Property and equipment, net		1,858			1,284
Total assets	$	62,980		$	75,302
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,959		$	3,029
Accrued liabilities		10,492			8,676
Deferred revenue		3,334			3,208
Total current liabilities		15,785			14,913
Commitments		—			—
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, issuable in series, none outstanding		—			—
Common stock, $0.001 par value; 80,000,000 shares authorized, 21,829,473 shares issued and outstanding at September 30, 2003 and 21,375,846 shares issued and outstanding at December 31, 2002		22			21
Additional paid-in capital		134,679			131,300
Accumulated other comprehensive loss		(432	)		(306	)
Accumulated deficit		(87,074	)		(70,626	)
Total stockholders’ equity		47,195			60,389
Total liabilities and stockholders’ equity	$	62,980		$	75,302

The accompanying notes are an integral part of these financial statements.

1

SALIX PHARMACEUTICALS, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(U.S. Dollars, in thousands, Except per Share Data)

	Three months ended September 30,						Nine months ended September 30,
	2003			2002			2003			2002
Revenues:
Product revenue	$	14,124		$	8,673		$	38,579		$	22,221
Total revenues		14,124			8,673			38,579			22,221
Costs and expenses:
Cost of products sold		3,287			2,185			9,120			5,548
License fees and costs related to collaborative agreements		31			31			94			94
Research and development		5,501			7,069			17,111			13,085
Selling, general and administrative		9,369			8,392			28,346			22,828
Total cost and expenses		18,188			17,677			54,671			41,555
Loss from operations		(4,064	)		(9,004	)		(16,092	)		(19,334	)
Interest, and other income (expense), net		91			351			(356	)		743
Net loss before tax		(3,973	)		(8,653	)		(16,448	)		(18,591	)
Income tax		—			—			—			—
Net loss	$	(3,973	)	$	(8,653	)	$	(16,448	)	$	(18,591	)
Net loss per share, basic and diluted	$	(0.18	)	$	(0.41	)	$	(0.77	)	$	(0.92	)
Shares used in computing net loss per share, basic and diluted		21,652			21,351			21,501			20,193

The accompanying notes are an integral part of these financial statements.

2

SALIX PHARMACEUTICALS, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(U.S. Dollars, in Thousands)

	Nine months ended September 30,
	2003			2002
Cash flows from operating activities
Net loss	$	(16,448	)	$	(18,591	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		347			296
Changes in assets and liabilities:
Accounts receivable, inventory and other current assets		(1,489	)		(6,612	)
Accounts payable and other current liabilities		746			2,148
Deferred revenue		126			221
Net cash used in operating activities		(16,718	)		(22,538	)
Cash flows from investing activities
Purchases of property and equipment		(921	)		(394	)
Purchases of investments		—			(21,805	)
Proceeds from maturity of investments		19,191			2,159
Net cash provided by (used in) investing activities		18,270			(20,040	)
Cash flows from financing activities
Proceeds from issuance of common stock		3,380			57,744
Net cash provided by financing activities		3,380			57,744
Effect of exchange rate changes on cash		(126	)		(221	)
Net increase in cash and cash equivalents		4,806			14,945
Cash and cash equivalents at beginning of period		34,531			27,868
Cash and cash equivalents at end of period	$	39,337		$	42,813

The accompanying notes are an integral part of these financial statements.

3

SALIX PHARMACEUTICALS, LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(Unaudited)

1. Organization and Basis of Presentation

Salix Pharmaceuticals, Ltd., (the “Company”) became a Delaware corporation on December 31, 2001 pursuant to a reorganization and continuation of the Company as a domestic entity.

These statements are stated in United States dollars and are prepared under accounting principles generally accepted in the United States. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring items, that, 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 consolidated financial statements for the fiscal year ended December 31, 2002 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 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 or any future period.

2. Commitments

At September 30, 2003, the Company had binding purchase order commitments for inventory purchases aggregating approximately $9.6 million over 10 months.

3. Investments

The Company considers all investments that have a maturity of greater than three months and less than one year to be short-term investments. All securities with maturities beyond one year are considered long-term investments. The Company’s short-term and long-term investments consist of government agency and high-grade corporate bonds. The Company has the intent and ability to hold these investments until maturity; therefore, the investments are classified as held-to-maturity and are reported at amortized cost.

4. Inventory

Inventory at September 30, 2003 consisted of $10.2 million of raw materials and $3.1 million of finished goods. Inventory at December 31, 2002 consisted of $7.3 million of raw material and $2.9 million of finished goods. As of September 30, 2003, the Company had approximately $4.9 million in inventories relating to products that had not been approved by the U.S. Food and Drug Administration.

5. Revenue Recognition

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”, which among other guidance clarifies conditions to be met in order to recognize revenue. SAB 101 requires 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.

Due to the uniqueness of each of its licensing arrangements, the Company analyzes each element of each contract, including milestone payments, to determine the appropriate revenue recognition. In accordance with SAB 101, the Company recognizes revenue upon achievement of contractual milestones only when and to the

4

extent the Company concludes that a separate earnings process has been culminated or the milestone is representative of the level of effort and progress toward completion of a long-term contract.

6. Research and Development

Research and development costs, both internal and externally contracted, are expensed as incurred. These costs include direct expenditures for goods and services, as well as indirect expenditures such as salaries, administrative expenses and various allocated costs.

7. Equity Offering

On March 15, 2002, the Company completed a public offering of its common stock. The Company raised approximately $57.4 million, net of offering costs, through the issuance of 4,600,000 shares of common stock.

8. Recent Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”. The standard became effective for us for contracts entered into or modified after June 30, 2003. We do not expect the adoption of SFAS 149 to have a material impact on our results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability, or an asset in some circumstances. The standard became effective for us for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003 except for mandatorily redeemable financial instruments of nonpublic entities which are subject to the provisions of the SFAS 150 for the first fiscal period beginning after December 15, 2003. The adoption of SFAS 150 had no impact on our results of operations or financial position for the three and nine months ended, nor as of, September 30, 2003.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others (an interpretation of FAS No. 5, 57 and 107 and rescission of FAS Interpretation No. 34)”, which modifies the accounting and enhances the disclosure of certain types of guarantees. FIN 45 requires that upon issuance of certain guarantees, the guarantor must recognize a liability for the fair value of the obligation it assumes under the guarantee. The provisions of FIN 45 for the initial recognition and measurement are to be applied to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of annual periods that end after December 15, 2002. The adoption of FIN 45 had no impact on our results of operations or financial position for the three and nine months ended, nor as of, September 30, 2003.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”, which requires a new approach in determining if a reporting entity should consolidate certain legal entities, or VIE’s. A legal entity is considered a VIE if it does not have sufficient equity at risk to finance its own activities without relying on financial support from other parties. If the legal entity is a VIE, then the reporting entity that is the primary beneficiary must consolidate it. Even if a reporting entity is not obligated to consolidate a VIE, then disclosure must be made about the VIE if the reporting entity has a significant variable interest. FIN 46 is effective immediately for VIEs created after January 31, 2003 and in the first interim period ending after December 15, 2003 for VIEs created prior to February 1, 2003. We do not expect the adoption of FIN 46 to have a material impact on our results of operations or financial position.

5

9. Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive loss. Other comprehensive loss includes certain changes in the stockholders’ equity of the Company that are excluded from net loss. Specifically, other comprehensive loss includes foreign currency translation adjustments.

Comprehensive loss for the three and nine months ended September 30, 2003 and 2002 was as follows:

	Three months ended September 30,
	2003			2002
Net loss	$	(3,973	)	$	(8,653	)
Cumulative foreign currency translation adjustments		(33	)		(57	)
Comprehensive loss	$	(4,006	)	$	(8,710	)

	Nine months ended September 30,
	2003			2002
Net loss	$	(16,448	)	$	(18,591	)
Cumulative foreign currency translation adjustments		(126	)		(221	)
Comprehensive loss	$	(16,574	)	$	(18,812	)

The foreign currency translation adjustments for the three and nine month periods ended September 30, 2003 and 2002 are associated with deferred revenue related to the May 2000 agreement with Shire Pharmaceuticals Group plc.

10. Stock-Based Compensation

The Company accounts for stock-based awards to employees under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”. Under APB 25, the Company generally recognizes no compensation expense with respect to such awards.

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, “Accounting for Stock Based Compensation-Transition and Disclosure and amendment of FASB Statement No. 123”. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based employee compensation. In addition, this statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock based employee compensation and the effects of the method used on reported results (see below). The standard became effective with the financial statements for the period ended March 31, 2003 and the provisions have been adopted herein.

6

Had compensation cost for the Company’s stock-based compensation plan been determined based on fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company’s net loss and loss per share would have been increased to the pro forma amounts indicated below for the three and nine-month periods ended September 30, 2003 and 2002.

	Three months ended September 30,						Nine months ended September 30,
	2003			2002			2003			2002
Net loss:
As reported	$	(3,973	)	$	(8,653	)	$	(16,448	)	$	(18,591	)
Stock-based compensation expense under fair value method		(1,459	)		(1,167	)		(3,622	)		(3,164	)
Pro forma	$	(5,432	)	$	(9,820	)	$	(20,070	)	$	(21,755	)
Net loss per common share-basic and diluted
As reported	$	(0.18	)	$	(0.41	)	$	(0.77	)	$	(0.92	)
Stock-based compensation expense under fair value method		(0.07	)		(0.05	)		(0.17	)		(0.16	)
Pro forma	$	(0.25	)	$	(0.46	)	$	(0.94	)	$	(1.08	)

Future pro forma net income (loss) and earnings (loss) per share results might be materially different from actual amounts reported.

11. Subsequent Events

On November 7, 2003, the Company completed a private placement of its common stock. The Company raised approximately $29.0 million, net of offering costs, through the issuance of 1,700,000 shares of common stock.

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 risks and uncertainties, including those set forth under “Cautionary Statement” included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results. The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report.

Overview

We are a specialty pharmaceutical company dedicated to acquiring, developing and commercializing prescription drugs used in the treatment of a variety of gastrointestinal diseases, which are those affecting the digestive tract. Our strategy is to identify and acquire rights to products that we believe have potential for near-term regulatory approval or are already approved; apply our regulatory, product development, and sales and marketing expertise to commercialize these products; and use our 100-person sales and marketing team focused on high-prescribing U.S. gastroenterologists to sell our products. We rely on distribution relationships with third parties to sell our products outside the United States and might do so for future sales to U. S. doctors other than gastroenterologists.

We in-licensed rights to balsalazide disodium from Biorex Laboratories Limited in 1992. In July 2000, the FDA approved balsalazide for marketing in the United States under the name Colazal^®, for the treatment of mildly to moderately active ulcerative colitis. In December 2000, we established our own direct sales representative force to market Colazal in the United States. Although the creation of an independent sales organization involved substantial costs, we believe that the financial returns from our products will be more favorable to us than those from the indirect sales through marketing partners.

7

In 1996, we in-licensed rights to our second drug, rifaximin, in the United States and Canada from Alfa Wassermann. In December 2001, we submitted an NDA to the FDA for rifaximin as a treatment for travelers’ diarrhea. We received an approvable letter from the FDA in October 2002 and are currently working to submit an amendment to the NDA, which we currently expect to do no later than the end of November 2003. We believe there are opportunities to develop rifaximin for other indications, including bacterial overgrowth in the small intestine, “c. difficile” and other forms of colitis, pouchitis, Crohn’s disease and hepatic encephalopathy, and we intend to pursue these opportunities, as we deem appropriate. If FDA approval is obtained, we intend to market rifaximin to gastroenterologists, hepatologists and infectious disease physicians in the United States through our own direct sales force. We are also exploring potential co-promotion arrangements to market rifaximin to primary care physicians.

In July 2002, we in-licensed exclusive development and marketing rights in the United States to a granulated formulation of mesalamine from Dr. Falk Pharma. We intend to complete the development work required to secure regulatory approval for the product in the United States.

In late October 2003, we in-licensed exclusive marketing rights in North America to azathioprine (25mg, 75mg and 100mg tablets) and the trade name AZASAN^® from aaiPharma. Azathioprine is an immunomodulator indicated for the prevention of kidney transplant rejection and for managing severe arthritis. It is also used in the treatment of Crohn’s disease and ulcerative colitis. The Azasan product ANDA was approved by the FDA in February 2003. We intend to launch the product using our specialty sales force by the end of 2003.

We have made significant investments over the past few years to develop our commercialization infrastructure. As a result, we have sustained continuing operating losses and had an accumulated deficit of $87.1 million as of September 30, 2003. We expect to incur operating losses during 2003 and in 2004 until product revenues reach a sufficient level to support ongoing operations. We currently expect to become profitable in the second half of 2004 excluding any effects of a potential rifaximin launch. We further believe that we will be profitable for the year ending December 31, 2004, if rifaximin is approved and launched in 2004 as expected.

Critical Accounting Policies

In our Annual Report on Form 10-K for the fiscal year ended December 31, 2002, we identified our most critical accounting policies and estimates upon which our financial status depends as those relating to revenue recognition, investments, inventory, allowance for uncollectable accounts, and allowance for rebates and coupons. We reviewed our policies and determined that those policies remain our most critical accounting policies for the three and nine months ended September 30, 2003. We did not make any changes in those policies during the quarter.

Results of Operations

Three-Month and Nine-Month Periods Ended September 30, 2003 and 2002

Product sales for the three-month and nine-month periods ended September 30, 2003 were $14.1 million and $38.6 million, respectively. During the three-month and nine-month periods ended September 30, 2002, we recorded product revenue of $8.7 million and $22.2 million, respectively. Higher product revenues for the three-month and nine-month periods ended September 30, 2003 are the result of increased volume of U.S. sales of Colazal.

Costs and expenses for the three-month and nine-month periods ended September 30, 2003 were $18.2 million and $54.7 million, respectively, compared to $17.7 million and $41.6 million for the corresponding three-month and nine-month periods in 2002. Higher operating expenses in absolute terms were due primarily to on-going clinical studies and development work on rifaximin and the granulated mesalamine product, rifaximin market research and market development activities, and the marketing campaign for Colazal. However, as expected, as we increase revenue using the commercialization infrastructure built with significant investment over the past few years, costs and expenses in 2003 were less, as a percentage of revenue, than in 2002. We expect this trend to continue.

8

Cost of products sold for the three-month and nine-month periods ended September 30, 2003 was $3.3 million and $9.1 million respectively, compared with $2.2 million and $5.5 million for the corresponding three-month and nine-month periods in 2002. Gross margins for the three-month and nine-month periods ended September 30, 2003 were $10.8 million and $29.5 million, respectively, compared to $6.5 million and $16.7 million for the corresponding three-month and nine-month periods of 2002. Gross margins were 76.7% and 76.4% for the three-month and nine-month periods ended September 30, 2003.

License fees and costs related to collaborative agreements for the three-month and nine-month periods ended September 30, 2003 and 2002 were constant at $31,000 and $94,000, respectively.

Research and development expenses were $5.5 million and $17.1 million for the three-month and nine-month periods ended September 30, 2003, compared to $7.1 million and $13.1 million for the comparable periods in 2002. Our current major research and development project is rifaximin. The decrease in research and development expenses for the three-month period ended September 30, 2003, was due primarily to an upfront payment in 2002 related to the in-licensing of the rights to granulated mesalamine under an agreement with Dr. Falk Pharma GmbH. The increase in research and development expenses for the nine-month period ended September 30, 2003 was due primarily to costs associated with maintaining the rifaximin NDA and completion of studies to support it, as well as the completion of a multi-center study for rifaximin as a treatment for hepatic encephalopathy and a single-center study for rifaximin as a treatment for Crohn’s disease. To date, we have incurred research and development expenditures of approximately $18.0 million for balsalazide and $23.6 million for rifaximin. Due to the risks and uncertainties of the drug development and regulatory approval process, research and development expenditures are difficult to forecast and subject to unexpected increases. We expect research and development costs to continue to increase in absolute terms as we pursue additional indications for balsalazide and rifaximin, pursue development of the granulated mesalamine product, and if and when we acquire new products.

Selling, general and administrative expenses were $9.4 million and $28.3 million for the three-month and nine-month periods ended September 30, 2003, compared to $8.4 million and $22.8 million in the corresponding three-month and nine-month periods in 2002. This increase was primarily due to rifaximin market research and market development activities and the marketing campaign for Colazal.

Interest and other income (expense), net was $0.1 million and ($0.4) million for the three-month and nine-month periods ended September 30, 2003, compared to $0.4 million and $0.7 million in the corresponding three-month and nine-month periods in 2002. The decrease in interest and other income (expense) for the three months ended September 30, 2003, was primarily due to smaller average cash balances. The decrease in interest and other income (expense) for the nine months ended September 30, 2003, was mainly attributable to $1.7 million of expenses related to the attempted hostile takeover of our company via a tender offer and related proxy contest by Axcan Pharma, Inc.

We experienced net losses of $4.0 million and $16.4 million for the three-month and nine-month periods ended September 30, 2003, compared with net losses of $8.7 million and $18.6 million in the corresponding three-month and nine-month periods in the prior year.

Liquidity and Capital Resources

Since inception, we have financed product development, operations and capital expenditures primarily from funding arrangements with collaborative partners and from public and private sales of equity securities. Since launching Colazal in January 2001, product revenue has been a growing source of cash, a trend that we expect to continue. As of September 30, 2003, we had approximately $41.4 million in cash, cash equivalents and investments, compared to $55.7 million as of December 31, 2002. In November 2003, we completed a private placement of 1,700,000 shares of common stock with net proceeds of approximately $29.0 million.

Cash used in our operations was $16.7 million for the nine-month period ended September 30, 2003, compared with $22.5 million in the corresponding nine-month period in 2002. Negative operating cash flows during these periods were caused primarily by operating losses and increases in accounts receivable, inventory and other current asset balances. Our capital expenditures were $0.9 million for the nine-month period ended September 30, 2003, compared with $0.4 million in the corresponding nine-month period in 2002, with the expenditures primarily attributable to the purchase of office furniture and equipment. During the nine-month period ended September 30, 2003, $19.2 million of investments matured or were called by the issuers. During the nine-month period ended September 30, 2002, we purchased $21.8 million of investments. During the nine-month period ended September 30, 2003, cash provided by financing activities was $3.4 million due primarily to the exercise of stock options. During the nine-month period ended September 30, 2002, cash provided

9

by financing activities was $57.7 million due primarily to the public offering of common stock that we completed on March 15, 2002.

To date, we have not experienced any material accounts receivable collection issues. Based on a review of specific customer balances, industry experience and the current economic environment, we currently reserve for specific accounts plus 1% of the outstanding accounts receivable balance as an allowance for uncollectable accounts, which was approximately $90,000 at September 30, 2003.

During the third quarter of 2002, we restructured our working capital line of credit. We entered into a $7.0 million dollar line of credit, with borrowing capacity of up to 75% of our eligible accounts receivable under 90 days old from the date of invoice. Under the original terms, this facility expired in September 2003. On September 29, 2003, we modified the terms of the facility to expire on December 31, 2003. We had no outstanding balance under this line as of September 30, 2003. As of September 30, 2003, we had no long-term debt outstanding.

As of September 30, 2003, we had non-cancelable purchase order commitments for inventory purchases of approximately $9.6 million over 10 months. We anticipate continued significant expenditures in the remainder of 2003 related to our continued sales, marketing, product launch and development efforts associated with Colazal, rifaximin and the granulated mesalamine product. To the extent we acquire rights to additional products, we are likely to incur additional expenditures.

We have sustained continuing operating losses and had an accumulated deficit of $87.1 million as of September 30, 2003. We expect to incur operating losses in 2003 and into 2004 until product revenues reach a sufficient level to support ongoing operations. We believe our cash, cash equivalent and investments balances should be sufficient to satisfy our cash requirements for the foreseeable future. However, our actual cash needs might vary materially from those now planned because of a number of factors, including our success in selling products, the results of research and development activities, FDA and foreign regulatory processes, establishment of and change in relationships with strategic partners, technological advances by us and other pharmaceutical companies, the terms of our collaborative arrangements with strategic corporate partners, the status of competitive products and whether we acquire rights to additional products. We might seek additional debt or equity financing or both to fund our operations. If we increased our debt levels, we might be restricted in our ability to raise additional capital and might be subject to financial and restrictive covenants. If we issue additional equity, our stockholders could suffer dilution. We might also enter into additional collaborative arrangements with corporate partners that could provide us with additional funding in the form of equity, debt, licensing, milestone and/or royalty payments. We might not be able to enter into such arrangements or raise any additional funds on terms favorable to us or at all.

Cautionary Statement

We operate in a highly competitive environment that involves a number of risks, some of which are beyond our control. The following statement highlights some of these risks.

Statements contained in this Form 10-Q which are not historical facts are or might constitute forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained. Forward-looking statements involve known and unknown risks that could cause actual results to differ materially from expected results. Factors that could cause actual results to differ materially from our expectations expressed in the report include, among others: the unpredictability of the duration and results of regulatory review of New Drug Applications and Investigational New Drug Applications; our dependence on our first four pharmaceutical products, balsalazide, rifaximin, granulated mesalamine and Azasan, and the uncertainty of market acceptance of those products; the high cost and uncertainty of the research, clinical trials and other development activities involving pharmaceutical products; the uncertainty of obtaining, and our dependence on, third parties to manufacture and sell our products; intense competition; the possible impairment of, or inability to obtain, intellectual property rights and the costs of obtaining such rights from third parties; and results of future litigation and other risk factors detailed from time to time in our other SEC filings.

10

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our purchases of raw materials and product sales to European distribution partners are denominated in Euros. Translation into our reporting currency, the United States dollar, has not historically had a material impact on our financial position. Additionally, our net assets denominated in currencies other than the functional currency have not exposed us to material risk associated with fluctuations in currency rates. Given these facts, we have not considered it necessary to use foreign currency contracts or other derivative instruments to manage changes in currency rates.

Pursuant to our investment policy, we have invested a portion of our available cash in government agency and high-grade corporate bonds. Due to the nature and maturity terms of these investments, we do not believe these investments present significant market risk.

Item 4. Controls and Procedures

(a) As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.

(b) No change in the Company’s internal control over financial reporting occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 5. Other Information

Deadline for Receipt of Stockholder Proposals for 2004 Annual Meeting of Stockholders

Stockholders may present proposals for action at future meetings of stockholders only if they comply with the proxy rules established by the Securities and Exchange Commission, applicable Delaware law and our Bylaws, as amended and restated on August 18, 2003, a copy of which was filed as Exhibit 3.2 to our Current Report on Form 8-K filed with the SEC on September 2, 2003. Stockholder proposals to be presented at our 2004 annual meeting of stockholders must be delivered to the secretary of the corporation at our principal executive offices not earlier than March 14, 2004 or later than April 13, 2004; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to or delayed my more than 30 days after June 19, 2004, notice by the stockholder must be delivered not later than the close of business on the later of (i) the 90^th day prior to such annual meeting or (ii) the 10^th day following the day on which public announcement of the date of such meeting is first made.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

10.38	*	Modification to Commercial Promissory Note Agreement dated September 29, 2003 between RBC Centura Bank, Salix Pharmaceuticals, Ltd. and Salix Pharmaceuticals, Inc.
10.39	**	License Agreement dated October 17, 2003, between Glycyx Pharmaceuticals, Ltd (a wholly owned subsidiary of Salix Pharmaceuticals, Ltd.) and Chong Kun Dang Pharmaceutical Corporation.
31.1		Certification by the Chief Executive Officer pursuant to Section 240.13a-14 or section 240.15d-14 of the Securities and Exchange Act of 1934, as amended.

11

31.2	Certification by the Chief Financial Officer pursuant to Section 240.13a-14 or section 240.15d-14 of the Securities and Exchange Act of 1934, as amended.
32.1	Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Previously filed.

** Portions of this exhibit have been omitted pursuant to a request for confidential treatment that has been filed separately with the SEC.

(b) Reports on Form 8-K

We filed an Item 5 Form 8-K with the United States Securities and Exchange Commission on July 16, 2003 to announce that we had hired Arthur R. Kamm, Ph.D. as Senior Vice President, Research and Development and Chief Development Officer.

We filed an Item 5 Form 8-K with the United States Securities and Exchange Commission on July 22, 2003 announcing that we would report second quarter 2003 financial results before the market opening on Tuesday, July 29, 2003.

We furnished an Item 12 Form 8-K with the United States Securities and Exchange Commission on July 29, 2003 announcing our operating results for the fiscal quarter ended June 30, 2003.

We filed an Item 5 Form 8-K with the United States Securities and Exchange Commission on August 28, 2003 to announce that we will present at the Thomas Weisel Partners annual healthcare conference – Healthcare Tailwinds 2003 – in Boston, Massachusetts on Thursday, September 4, 2003 at 2:40 p.m., Eastern Time.

We filed an Item 5 Form 8-K with the United States Securities and Exchange Commission on September 2, 2003 announcing (1) that we will present at the Roth Capital Partners New York Conference in New York, New York on Tuesday, September 9, 2003 at 10:00 a.m. Eastern Time; (2) results of our most recently completed Phase III Rifaximin clinical study; and (3) the implementation of changes to our internal structure, including appointment of a non-employee Chairman of the Board and various Bylaw amendments, to improve corporate governance and clarify governance procedures.

12

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: June 14, 2004	By:	/s/    Carolyn J. Logan
		Carolyn J. Logan President and Chief Executive Officer

Date: June 14, 2004	By:	/s/    Adam C. Derbyshire
		Adam C. Derbyshire Senior Vice President, Finance & Administration and Chief Financial Officer

13

EX-10.39

EXHIBIT 10.39

Portions of this exhibit marked [*] are omitted and

are requested to be treated confidentially.

DATED October 17, 2003

Glycyx Pharmaceuticals, Ltd.

-and-

Chong Kun Dang Pharmaceutical Corporation

License Agreement

Republic of Korea

Table of Contents

1.	DEFINITIONS	1
2.	REPRESENTATIONS AND WARRANTIES	4
3.	GRANT	5
4.	DEVELOPMENT	6
5.	COMMERCIALISATION	7
6.	TRADE NAMES	8
7.	PAYMENTS TO GLYCYX	8
8.	REPORTS AND ADVERSE EFFECTS	9
9.	PAYMENT TERMS	9
10.	INFRINGEMENT	10
11.	CONFIDENTIALITY	10
12.	PATENT PROSECUTION AND MAINTENANCE	11
13.	TERM AND TERMINATION	12
14.	RIGHT OF FIRST NEGOTIATION	14
15.	INDEMNITY	15
16.	FORCE MAJEURE	16
17.	ASSIGNMENT	16
18.	MISCELLANEOUS	17

THIS LICENSE AGREEMENT (“Agreement”) is made the 17th day of October 2003 (“Effective Date”)

BETWEEN:

(1) Glycyx Pharmaceuticals, Ltd a subsidiary company of Salix Pharmaceuticals, Limited incorporated in Delaware having its principal place of business at 8540 Colonnade Center Drive, Suite 501, Raleigh, North Carolina 27615 USA (“Glycyx”); and

(2) Chong Kun Dang Pharmaceutical Corporation, a company incorporated in the Republic of Korea having its principal place of business at 368, 3-ga, Chungjeong-ro, Seodaemun-gu, Seoul 120-756, Republic of Korea (“CKD”).

WHEREAS:

A. By an agreement dated 22 August 2001 between Biorex Laboratories Limited (“Biorex”) and Glycyx, Biorex granted to Glycyx an exclusive license in respect of certain intellectual property rights of Biorex in a human pharmaceutical product for certain Asian territories, including the Republic of Korea, with the right to sublicense.

B. Glycyx has agreed to grant to CKD and CKD has agreed to accept a sublicense of such rights for the Republic of Korea on the terms of this agreement.

IT IS AGREED AS FOLLOWS:

1. DEFINITIONS

1.1 For the purposes of this Agreement, the terms defined in this Clause shall have the meanings specified below:

“Affiliate”

means any corporation or other entity which controls, is controlled by, or is under common control with, a party to this Agreement. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls more than fifty percent (50%) of the voting stock or other ownership interest of the other corporation or entity, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or other entity.

“Approved Price”

means the price for each [*] of Product approved by the relevant regulatory authorities in the Territory prior to Launch of such Product in the Territory, for reimbursement and other purposes.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC

“Balsalazide”	means 5-[4(2-Carboxyethelcarbamoyl)-phenylazo]- salicylic acid disodium salt dihydrate.
“CKD GI Product”	means a pharmaceutical product which CKD itself (not in a collaboration with or by license from a Third Party) intends to develop and commercialise for one or more indications in the field of gastroenterology and/or hepatology and which shall be subject to the right of first negotiation under Clause 14.
“Glycyx Fees”	means the fees payable to Glycyx under Clause 7.1.
“Glycyx Territory”	means North America.
“KW”	means Korean Won, the lawful currency in the Territory.
“Launch”	means a commercial launch of the Product in the Territory after an MA for such Product has been granted supported by such marketing expense and support and launched in such quantities as may be appropriate for the Product to have a significant effect on total sales of any similar or competitive product in the Territory.
“Liabilities”	is as defined in Clause 15.1.
“MA”	means an approval granted by the Korean Food and Drug Administration for the marketing of a Product in the Territory, and, if required for marketing of the Product in the Territory, pricing approval for such Product.
“Manufacturing Technology”	means all methods, processes, designs, data, procedures and other information owned by or licensed to Glycyx or its Affiliates or within the control of Glycyx or its Affiliates on terms whereby Glycyx is permitted to license the same to third parties, during the Term, reasonably required for commercial manufacture of Products, including, without limitation, final quality assurance-quality control procedures, manufacturing procedures (including conditions, times, temperatures, pressures and rates), product and raw material specifications, and other technology related thereto.

2

“Patent Rights”	means all rights of Glycyx in the Territory to any subject matter claimed in or covered by any of the following:
	(i)     patent no(s). PCT/SE98/00455 and PCT/US95/00055 and any continuations, continuation-in-part, divisions, substitutions, renewals, reissues and extensions thereof;
	(ii)    Any and all other patent rights, now existing or hereafter acquired (including applications therefor), pertaining to the subject matter described in paragraph (a) above, or that are otherwise related to Balsalazide, or to prodrugs, analogs or isomers thereof or improvements of any of the foregoing, obtained in the Territory.
“Products”	means products incorporating Balsalazide, whether or not such products are covered by the Patent Rights, or any other material whose manufacture, use or sale by an unlicensed third party would constitute an infringement of any Valid Claim included within the Patent Rights.
“Report”	means any report prepared pursuant to Clauses 4.6 or 8.1.
“Salix”	means Salix Pharmaceuticals, Inc., a company incorporated under the laws of California having its principal place of business at 8540 Colonnade Center Drive, Suite 501, Raleigh, North Carolina 27615, USA, a Glycyx Affiliate.
“Sublicense”	has the meaning given by Clause 3.2.3.
“Sublicensee”	has the meaning given by Clause 3.2.3.
“Supplies”	means any and all of the following:
	(a)    Products, and
	(b)    components of Products including, without limitation, ingredients, intermediates, Balsalazide chemical or pharmaceutical dosage forms of Products sold by CKD or its Affiliates to Third Parties for (i) further processing or packaging, and/or (ii) sale by Third Parties.

3

“Technical Information”	means all formulae, raw material and product specifications, designs and procedures, formulation data, processes and methods, pharmacology, toxicology and other pre-clinical tests results, clinical trials data and results, know-how, trade secrets, inventions and other scientific, medical, technical and marketing data and information, including all patent and other intellectual property rights thereto, which:
	(a)    are owned or controlled by, or licensed to, Glycyx or its Affiliates on terms whereby Glycyx is permitted to license the same to Third Parties during the Term, and
	(b)    that are reasonably necessary for the development, sale or use of Products.
“Territory”	means the Republic of Korea.
“Third Party”	means any entity other than Glycyx or CKD and their respective Affiliates.
“Trade Names”	means the trade names “Colazide” and “Colazal”
“Valid Claim”	means a claim of an issued and unexpired patent included within the Patent Rights, which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

2. REPRESENTATIONS AND WARRANTIES

2.1 Authorisation. Glycyx represents and warrants to CKD that;

2.1.1 it has the full right and authority to grant the licenses and rights provided in this Agreement and perform its obligations hereunder;

2.1.2 to the best of Glycyx’s knowledge, CKD may exercise the licenses and rights granted to it under this Agreement without conflict with, restrictions to or infringement of any rights or alleged rights of any person or entity; and

2.1.3 Glycyx has not, and will not during the term of this Agreement, make any commitment or incur any obligation in conflict with the licenses granted in this Agreement.

4

2.2 No other Representations. Except to the extent provided in this Clause 2, Glycyx makes no representations, extends no warranties of any kind, either expressed or implied, with respect to use, sale, or other disposition by CKD or its Sublicensees or its vendees or other transferees of Products licensed under this Agreement. THE WARRANTIES EXPRESSLY SET FORTH IN THIS CLAUSE 2 BY GLYCYX ARE EXCLUSIVE AND NO OTHER WARRANTY, WRITTEN OR ORAL, INCLUDING WARRANTIES OF SATISFACTORY QUALITY OR FITNESS FOR A PARTICULAR PURPOSE, IS EXPRESSED OR IMPLIED.

3. GRANT

3.1 Grant. Glycyx hereby grants to CKD the exclusive right and license under the Patent Rights, the Technical Information and the Manufacturing Technology to develop, have developed, make, have made, market, distribute, use, sell and have sold Products in the Territory.

3.2 Sublicenses.

3.2.1 The license granted to CKD under Clause 3.1 above shall include the right to grant Sublicenses within the Territory. CKD shall provide Glycyx with a copy of any Sublicense issued hereunder, which copy shall be maintained in confidence pursuant to Clause 11. Notwithstanding the foregoing, except as provided in Clause 3.2.4 CKD shall not grant to any Third Party a sublicense or marketing rights for the manufacture or sale of a Product in the Territory without first obtaining Glycyx’s consent, which consent shall not be withheld unreasonably and notwithstanding the grant of any Sublicense, CKD shall remain solely liable for the performance of its obligations hereunder.

3.2.2 In the event that CKD receives from a Sublicensee hereunder notice of a default by CKD that would give rise to a termination of the Sublicense agreement, CKD shall promptly provide such notice to Glycyx. Except where Glycyx enters into an agreement with the Sublicensee to provide an alternative arrangement in such circumstances, CKD shall ensure that the Sublicense agreement shall provide that, in the event of such a breach by CKD and a failure by CKD to cure the breach within the cure period specified in the Sublicense agreement, Glycyx will have an additional period to cure the breach and to assume CKD’s rights under the Sublicense agreement.

3.2.3 Subject to Clause 3.2.4, in this Agreement the term “Sublicense” shall mean any agreement under which CKD grants to a Third Party (the “Sublicensee”) rights to:

(a) market, promote, and/or distribute Products in the Territory using Supplies purchased from CKD; and/or

(b) make, have made, use and/or sell or have sold Products in the Territory.

3.2.4 The following types of arrangements shall not be Sublicenses hereunder:

(a) subcontracting of Third Parties to develop the Product or new Products for CKD; or

5

(b) subcontracting of Third Parties to manufacture the Products or ingredients for supply to CKD or its Sublicensees only.

3.3 Documentation. Glycyx and CKD agree to execute and file such formal patent licenses and similar instruments as the other party may reasonably request to evidence or perfect the licenses granted herein.

4. DEVELOPMENT

4.1 Clinical Development and MAs. CKD shall use commercially reasonable efforts to

4.1.1 obtain all necessary MAs to market a Product within the Territory as soon as possible after the date hereof;

4.1.2 obtain an Approved Price [*];

4.1.3 effect at its sole cost such additional pre-clinical and clinical studies as may be necessary in order to apply for and obtain an MA for the Product in the Territory Provided that it shall keep Glycyx fully informed of the nature and extent of any such additional studies required and the conduct and progress of such studies and its timetable and proposals for obtaining an MA for the Product.

4.2 Technical Information. Glycyx shall promptly on execution of this Agreement, supply to CKD all Technical Information within its possession or control. Thereafter, Glycyx shall promptly provide to CKD, and in any event at least semi-annually, all Technical Information that it develops or acquires after the date hereof. In addition, Glycyx shall use all reasonable efforts to provide to CKD all information generated or developed by or for other licensees of Glycyx and to permit CKD to use such information to the same extent it may use Technical Information under the terms of this Agreement and to cross-reference regulatory filings in respect of Product made by such other Glycyx licensees. In the event that Glycyx does not obtain from any other licensee of Glycyx the right to permit CKD to use such information, Glycyx shall not provide to such other licensee any information of CKD provided to Glycyx under Clause 4. 6 below.

4.3 Manufacturing Technology Glycyx shall at the request of CKD, in the event that CKD wishes to effect manufacture of Balsalazide or Product, promptly provide to CKD all Manufacturing Technology within its possession or control reasonably required in connection with the manufacture of Balsalazide or Product. Thereafter, Glycyx shall promptly provide to CKD, and in any event at least semi-annually, all such Manufacturing Technology that it develops or acquires after such date.

4.4 Supply of Product. In connection with any studies effected by CKD under clause 4.1.3 or otherwise in connection with any application for an MA by CKD, Glycyx shall provide to CKD such supplies of Balsalazide and/or Product (at cost to Glycyx) as CKD may reasonably require for such purposes.

4.5 Technical Assistance. Glycyx shall at the request of CKD, provide to CKD such reasonable technical assistance as is in Glycyx’s control, with respect to the clinical testing, the progress of any application for a MA or the manufacture of Products. Glycyx will be reimbursed by

6

CKD its reasonable out-of-pocket expenses incurred in rendering such assistance, in accordance with a budget therefore agreed between the parties.

4.6 Progress Reports. CKD shall provide to Glycyx quarterly reports describing in reasonable detail its progress in developing and securing an MA for the Products. Such obligation shall continue until Launch of the first Product, after which such reports shall be provided semi-annually. Reports will be provided promptly and in any event within 45 days of the end of the relevant quarter or six monthly period.

4.7 Translations CKD may (at its sole cost and expense) translate any materials or information supplied to it by Glycyx into Korean as may reasonably be required in connection with the exploitation of its rights under this Agreement. All rights in the translation shall vest in CKD, provided that it shall use such translation only in connection with the exploitation of its rights granted hereunder and in so far as the same is a translation of any Confidential Information of Glycyx it shall at all times deal with such translation as Confidential Information of Glycyx, in accordance with Clause 11.

5. COMMERCIALISATION

5.1 Commercial Supply. Glycyx shall introduce CKD to its suppliers of Balsalazide and Product and shall assist CKD in commercial negotiations with such suppliers to enable CKD to obtain Balsalazide and /or Product at a price comparable to the price paid by Glycyx from time to time. If required in connection with obtaining such price, CKD shall cooperate with Glycyx in the provision of volume forecasts to the relevant supplier. Provided that CKD shall execute a separate and independent supply agreement with any such supplier and Glycyx shall not be liable in any manner for the supply by such supplier of Balsalazide or Product to CKD and CKD shall pay (in addition to any price comparable to the Glycyx price) shipping, insurance, customs and related taxes in respect of such supply.

5.2 Marketing. For each Product for which CKD (or its Sublicensee) has obtained an MA, CKD shall itself or shall procure that its Sublicensee shall use commercially reasonable efforts to procure:

5.2.1 Launch of such Product in the Territory within [*] days ([*]) days of receiving the MA; and

5.2.2 that after Launch it meets and develops the market demand for such Product in the Territory.

5.3 Termination for Failure to Market. If CKD (or its Sublicensee) fails to fulfil its obligations under Clause 5.2:

5.3.1 and fails to remedy such failure within [*] days after receiving a written request to do so, Glycyx shall have the right to terminate CKD’s exclusive rights hereunder upon written notice to CKD and in the event that Glycyx exercises such right, CKD shall permit Glycyx (or its licensee) to cross reference any data filed in connection with an MA or any granted MA, in connection with the approval of any Product in the Territory, required to permit Glycyx or its licensee to market a Product in the Territory;

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC

7

5.3.2 and fails to effect Launch of such Product within [*] months after receiving the MA, Glycyx may terminate CKD’s rights under this agreement upon written notice to CKD, and the provisions of Clause 13 shall apply.

5.4 Sole Remedy for Failure to Market. Clause 5.3 sets forth Glycyx’s sole remedies for a failure by CKD to meet its obligations under Clause 5.2 and in the event that Glycyx exercises either the right to terminate exclusivity and / or the right to terminate this agreement, CKD shall have no further or additional liability to Glycyx in respect of such failure.

5.5 Excused Performance. In addition to the provisions of Clause 16, CKD’s obligations with respect to any Product under Clauses 4.1 or 5.2, are expressly conditioned upon the continuing absence of any adverse condition relating to the safety, quality or efficacy of that Product or any other restrictions or delays imposed or caused by governmental authorities, or other condition or event beyond CKD’s control that would reasonably justify CKD, after consultation with Glycyx, in exercising prudent and justifiable business judgment, to conclude that development or marketing of such Product should be delayed, suspended or stopped altogether, and CKD’s obligation to develop or market any such Product shall be delayed or suspended so long as any such condition or event exists, but for a maximum of five (5) years from the commencement of such delay or suspension.

6. TRADE NAMES

6.1 Right to use. As between the parties, CKD shall have the right to supply Products in the Territory by reference to a Trade Name and to apply to register the Trade Names as a trade mark in the Territory.

6.2 No warranty. Glycyx makes no representation and gives no warranty that the Trade Name can be registered as a trade mark in the Territory or can be used in the Territory without infringing the rights of a Third Party. CKD acknowledges that so far as Glycyx is aware the Trade Name has not been used in the Territory and there is no registration of of the Trade Name in the Territory.

7. PAYMENTS TO GLYCYX

7.1 Glycyx Fees. In consideration of the rights granted under this agreement CKD shall pay to Glycyx:

7.1.1 US$[*] ([*] US dollars) upon the date of execution of this Agreement; and

7.1.2 a further sum payable within 14 days of the date of MA (and determination of the Approved Price) which shall be:

(a) US $[*] if the Approved Price is [*]; or

(b) US $[*] if the Approved Price is [*]; or

(c) US $[*] if the Approved Price is [*].

8

7.2 Third Party Royalties. In the event that CKD is required to pay to a Third Party any royalties on a Product with respect to technology incorporated in such Product other than the technology licensed hereunder, CKD will be solely responsible for such payment.

7.3 Withholding Taxes. All sums payable hereunder shall be paid in full without any set-off, deduction or withholding except any tax which CKD is required by law to deduct or withhold, and if CKD is required by law to make any such tax deduction or withholding, CKD shall do all in its power which may be necessary to enable or assist Glycyx to claim exemption from or (if that is not possible) a credit for the deduction or withholding under any applicable double taxation or similar agreement from time to time in force, and shall from time to time give Glycyx proper evidence as to the deduction or withholding any payment over the tax deducted or withheld.

8. REPORTS AND ADVERSE EFFECTS.

8.1 Reports. Following Launch of a Product in the Territory, CKD shall furnish to Glycyx on a semi-annual basis a written report covering post-marketing surveillance of adverse events reported to CKD pursuant to standard reporting practices required by the regulatory authorities in the Territory. CKD shall report all serious adverse events to Glycyx within the time frames required of CKD to report such events to the regulatory authorities in the Territory.

8.2 Adverse Effects. Glycyx shall promptly provide CKD with all information known or available to Glycyx relating to any adverse effects which may arise in connection with the Products.

9. PAYMENT TERMS

9.1 Payment method. All payments due hereunder shall be made by electronic bank transfer into a bank account of Glycyx designated and notified to CKD for such purpose.

9.2 Currency Conversion. All payments to Glycyx shall be made in U.S. Dollars.

9.3 Exchange Control. Notwithstanding Clause 9.2 if at any time legal restrictions prevent the prompt remittance of payment, payment shall be made through such lawful means or methods as Glycyx may designate.

9.4 Late Payments. Any payment that is not paid on or before the date such payment is due shall bear interest to the extent permitted by applicable law at the then-current U.S. prime rate, as published in The Wall Street Journal, Eastern U.S. Edition. plus [*] percent, calculated on the number of days such payment is delinquent. This Clause 9.4 shall in no way limit any other remedy available to either party.

9

10. INFRINGEMENT

10.1 Infringement Rights. The provisions of this Clause 10 shall govern the parties’ rights and obligations, as between themselves, with respect to actions against and by Third Parties for infringement of Patent Rights or of patent rights owned by such Third Parties. In the event that either party learns of an infringement of the Patent Rights within the Territory, it shall promptly notify the other party.

10.2 Enforcement of Patent Rights.

10.2.1 CKD shall have the exclusive right to bring, direct and control any action to enforce the Patent Rights against infringers within the Territory and CKD will bear all costs and expenses incurred in such respect.

10.2.2 Glycyx shall cooperate with CKD, at CKD’s expense, in connection with any such action, including without limitation by joining as a party if necessary or appropriate and executing such documents as CKD may reasonably request.

10.3 Defence of a Third Party Claim.

10.3.1 CKD shall have the exclusive right to defend any action brought against it by a Third Party alleging infringement of any third party patent rights and CKD will bear all costs and expenses incurred in such respect.

10.3.2 Glycyx shall cooperate with CKD, at CKD’s expense, in connection with any such action.

11. CONFIDENTIALITY

11.1 General. Except as expressly otherwise provided in this Agreement, each party shall hold in confidence and not use or disclose to any Third Party (other than employees, consultants, advisors, permitted Sublicensees and Third Parties with whom such party is considering entering into a business relationship who are similarly bound in writing) any product, technical, manufacturing, process, marketing, financial, business or other information, ideas, or know-how of the other party that is identified in writing by the other party as confidential at the time of its disclosure or within thirty (30) days thereafter; provided that all Technical Information and Manufacturing Technology provided hereunder shall be deemed confidential (“Proprietary Information”) provided, however, that Proprietary Information of a disclosing party shall not include any part of such information :

11.1.1 which at the time of disclosure is published or otherwise generally available to the public;

11.1.2 which, after disclosure to the receiving party, is published or becomes generally available to the public through no breach of this Agreement by receiving party or the receiving party’s employees or agents; or

11.1.3 which the receiving party can show by documentary evidence was or is;

10

(a) in its possession at the time of disclosure and not acquired directly or indirectly from the disclosing party; or

(b) independently developed, without use of any Proprietary Information of the disclosing party.

11.2 Exceptions. A receiving party may disclose Proprietary Information of the disclosing party :

11.2.1 in connection with the order of a court of law or in compliance with laws or regulations relating to registration or sale of securities or

11.2.2 as required in connection with any application for regulatory approval for a Product; or

11.2.3 if such Proprietary Information is also rightfully acquired by the receiving party from a Third Party who, to the best of the receiving party’s knowledge and belief, is entitled to rightfully make such disclosure, but only to the extent that the receiving party complies with any restrictions imposed by the Third Party; or

11.2.4 at any time after the expiry of this agreement in accordance with clause 13.1, or in the event of earlier termination, after the expiry of a period of five(5) years from the date of termination of this agreement.

11.3 Licensed Information. Any Proprietary Information of or used by Glycyx which is or may be subject to an exclusive licence to CKD hereunder, shall not be disclosed by Glycyx to any Third Party for use in the Territory except for purposes not inconsistent with such exclusive license and only pursuant to confidentiality and non-use restrictions at least as restrictive as those provided herein.

11.4 Terms of this Agreement. CKD and Glycyx agree not to disclose the financial terms or conditions of this Agreement to any Third Party without the prior written consent of the other party hereto (which consent shall not be unreasonably withheld), except as required by applicable law or regulation, or to professional advisers, or to persons with whom CKD or Glycyx has entered into or proposes to enter into a business relationship for the purposes of raising capital to run their business, and then only under conditions of confidence.

12. PATENT PROSECUTION AND MAINTENANCE

12.1 Control. CKD shall have the right to take such actions as are necessary or appropriate, with counsel of its choosing, to effect the patent applications within the Patent Rights and to obtain patent protection with respect to the subject matter therein within the Territory. In the event that CKD elects not to prosecute or maintain a patent application or patent within the Patent Rights, Glycyx shall have the right to do so at its own expense.

12.2 Expenses. The cost of CKD’s preparing, filing, prosecuting and maintaining all patent applications and patents within the Patent Rights shall be borne by CKD.

11

12.3 Co-operation. CKD shall provide Glycyx with copies of all material documentation after CKD’s receipt from or prior to submission to any governmental agency with jurisdiction in respect of the Patent Rights in the Territory so that Glycyx may be informed and appraised of the continuing prosecution and maintenance. CKD shall consult with Glycyx and its counsel concerning prosecution of any patent application and adopt reasonable suggestions made with respect thereto, and shall use its best efforts to amend any patent application to include claims reasonably requested by Glycyx and required to protect the Product contemplated to be sold under this Agreement. Glycyx shall make available to CKD or its authorised attorneys, agents or representatives, Glycyx’s employees, agents or consultants necessary or appropriate to enable CKD to file, prosecute and maintain patent applications and resulting patents within the Patent Rights. Glycyx shall sign or cause to have signed all documents relating to said patent applications or patents at no charge to CKD.

13. TERM AND TERMINATION

13.1 Expiration. Unless terminated earlier pursuant to this Clause 13, this Agreement shall expire upon whichever shall be the later of;

13.1.1 the date of expiry of the last to expire of the Patent Rights in the Territory; and

13.1.2 eight (8) years from the date of first Launch.

Upon expiration of this Agreement, CKD shall have an irrevocable, non-exclusive, royalty-free licence (with the right to sublicense) under the Technical Information and Manufacturing Technology to make, have made, use, sell and have sold Products in the Territory.

13.2 Termination for Cause. Either party may terminate this Agreement following the material breach of any material provision of this Agreement by the other party if the breaching party has not commenced to cure such breach within ninety (90) days after written notice thereof by the other party and thereafter proceeded diligently to cure such breach within a reasonable time; provided, that in no event shall such reasonable time to cure such breach exceed one hundred eighty (180) days from the date of such notice. In determining whether there has been a material breach of a material provision of this Agreement for purposes of this Clause 13.2, all of the circumstances of the breach shall be considered, including the breaching party’s conduct, the hardship of termination, the extent to which the breaching party has performed its obligations, the extent to which the non-breaching party will obtain the benefits it reasonably anticipated, and similar factors.

13.3 Termination by CKD. CKD shall have the right to terminate this Agreement and the licences granted herein, at any time, and from time to time, by giving notice in writing to Glycyx. Such termination shall be effective ninety (90) days from the date Glycyx receives such notice and all CKD’s rights associated therewith shall cease as of that date; provided, however, that if CKD revokes in writing its notice of termination before the end of such 90 day period, such notice of termination shall have no effect and the rights specified in such notice of termination shall not terminate.

12

13.4 Termination by Glycyx. Without prejudice to any other rights Glycyx may have to terminate under this Agreement:

13.4.1  if CKD ceases business or seeks protection from its creditors pursuant to the bankruptcy laws of its domicile or files or has filed against it a voluntary or involuntary bankruptcy procedure that is not dismissed within sixty (60) days or if a receiver or administrator is appointed for the benefit of its creditors or if it takes or suffers any similar action in consequence of debt with respect to all or substantially all of its assets; Glycyx shall have the right to terminate this Agreement forthwith by notice in writing.

13.4.2  if:

(a) a Sublicensee terminates its Sublicense with CKD, by reason of any default or insolvency of CKD; and

(b) Glycyx and the Sublicense have either:

(i) prior to the date of the relevant Sublicense; or

(ii) on the same day as the date of the relevant Sublicense; or

(iii) after the date of the relevant Sublicense and with the consent of CKD, such consent not to be delayed or unreasonably withheld

entered into an agreement under which Glycyx agrees, in the event of termination of the Sublicense, to grant a licence directly to the Sublicensee;

CKD’s rights and licenses under this Agreement shall terminate forthwith automatically.

13.5 Effect of Termination.

13.5.1  Upon a termination of this Agreement by CKD under Clause 13.3 above, or by Glycyx under Clause 13.4 above, or by Glycyx under Clause 13.2, or upon termination under Clause 5.3.2;

(a) all licenses granted to CKD hereunder shall terminate; and

(b) CKD shall (to the extent that any applicable Sublicense allows) transfer to Glycyx’ name (or as it may direct) all applications for an MA for a Product and all MAs granted in respect of the Products; and

(c) CKD shall promptly deliver to Glycyx all Technical Information and Manufacturing Technology in its possession or control and all information relating to the Products created by it during the term of this agreement, in so far as the same may be of use in connection with the development and marketing of the Products in the Territory (including all clinical data generated by it);

13

(d) all sums due and payable under Clause 7.1 shall remain due and payable and in no circumstances shall any payment made under Clause 7.1 be recoverable; and

(e) CKD shall assign to Glycyx free of any payment therefore all its right title and interest (if any) to the Trade Names, including any registration thereof and all goodwill therein an all right title and interest of CKD in respect of any trade name used exclusively in connection with the Product in the Territory (including any registration of such trade name and all goodwill (if any) existing therein in connection with the Product).

13.5.2 Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination.

13.5.3 Upon termination of this Agreement by either party, CKD shall provide Glycyx with a written inventory of all Products in process of manufacture or in stock, and CKD (and its Affiliates and Sublicensees) shall have the right to dispose of such Products within a period of one hundred eighty (180) days from the effective date of termination only.

13.5.4 In event of any termination of this Agreement or any licenses granted hereunder, whether in whole or in part, any Sublicense rights granted by CKD hereunder shall survive at the option of the Sublicensee and Glycyx may (if so requested by the Sublicensee) assume the Sublicense or enter into such alternative arrangement preserving the rights of the Sublicensee as may be agreed between Glycyx and the Sublicensee direct.

13.5.5 Upon the expiration or termination of this Agreement for any reason, the parties’ rights and obligations under the following provisions shall survive: Clauses 11, 15 and 18; provided that the indemnification provision of Clause 15 shall survive only with respect to claims that are made prior to the expiry of a period of three (3) years after expiration or termination of this Agreement.

14. RIGHT OF FIRST NEGOTIATION

14.1 The Parties acknowledge their mutual desire to explore a broader collaboration whereby Glycyx would develop and market CKD GI Products in the Glycyx Territory. Therefore, in addition to the exclusive rights granted to CKD in respect of the Product under Clause 2 CKD hereby grants to Glycyx a right of first negotiation with respect to rights to develop and exploit CKD GI Products in the Glycyx Territory.

14.2 During the period of [*] years from the date hereof CKD shall provide written notification to Glycyx of any opportunity in respect of a CKD GI Product (such notice, a “Product Notice”), which Product Notice shall be served promptly on any CKD GI Product being available for licensing outside the Territory. Such Product Notice shall contain a description in reasonable detail of the CKD GI Product(s) and such other information as may reasonably be required to enable Glycyx to assess the CKD GI Product opportunity. Upon request by Glycyx within [*] days after receipt of such Product Notice (the date of such receipt the “Notice Date” and such period the “Notice Period”), the Parties shall negotiate in good

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC

14

faith towards an agreement granting to Glycyx exclusive rights in respect of the CKD GI Product in the Glycyx Territory. If Glycyx chooses not to request such negotiations, it shall so notify CKD promptly before the expiry of the Notice Period and if Glycyx makes no communication within the Notice Period, it shall be deemed to have not effected a request. If notwithstanding good faith negotiations the Parties do not enter into a definitive agreement within [*] days of the Notice Date (the “Negotiation Period”), CKD may proceed to grant rights or licenses to Third Parties with respect to all or a part of the CKD GI Product(s) opportunity offered to Glycyx provided that CKD shall not enter into a transaction in respect of the CKD GI Product(s) opportunity in the Glycyx Territory proposed by CKD to Glycyx with a Third Party on terms which, assessed as a whole, are materially less favourable to CKD than those proposed by Glycyx in the course of the good faith negotiations during the Negotiation Period.

14.3 The only obligations of CKD and Glycyx under this Clause 14 are as expressly stated therein, and there are no further implied obligations relating to the matters contemplated therein.

15. INDEMNITY

15.1 CKD. Subject to Glycyx’s compliance with its obligations set forth in Clause 15.3 below, CKD agrees to indemnify and hold Glycyx, its Affiliates and their employees and agents harmless from and against any losses, claims, damages, liabilities or actions (including reasonable attorneys’ fees and court and other expenses of litigation) (collectively, the “Liabilities”) suffered or incurred in connection with Third Party claims for personal injuries or any Product recall to the extent caused by the manufacture, use, sale or marketing of Product by CKD or its Sublicensees in the Territory Provided that CKD shall have no liability under this clause 15.1 if such Liability arises by reason of (or to the extent that such Liabilities arise by reason of;

15.1.1  any defect in any Balsalazide or Product supplied to CKD by Glycyx; or

15.1.2  the failure by Glycyx promptly to notify CKD of any Product recall effected in any other territory in which the Product may be sold or supplied; or

15.1.3  the failure by Glycyx promptly to notify CKD of any material adverse event of which Glycyx is aware in any territory which may reasonably be anticipated to require a Product recall in the Territory; or

15.1.4  the negligence, recklessness or intentional misconduct of Glycyx.

15.2 Glycyx. Subject to CKD’s compliance with its obligations set forth in Clause 15.3, Glycyx agrees to indemnify and hold CKD, its Affiliates, and Sublicensees and their employees and agents harmless from and against any Liabilities suffered or incurred in connection with third party claims for personal injuries or any Product recall to the extent caused by:

15.2.1  any defect in any Balsalazide or Product supplied to CKD by Glycyx; or

15.2.2  the failure by Glycyx promptly to notify CKD of any Product recall effected in any other territory in which the Product may be sold or supplied; or

15

15.2.3 the failure by Glycyx promptly to notify CKD of any material adverse event of which Glycyx is aware in any territory which may reasonably be anticipated to require a Product recall in the Territory; or

15.2.4 the negligence, recklessness or intentional misconduct of Glycyx.

Notwithstanding the foregoing, Glycyx shall not be obligated to indemnify CKD or its Affiliates, Sublicensees and their employees and agents with respect to Liabilities incurred or to the extent incurred by reason of the negligence, recklessness or intentional misconduct of CKD or its Affiliates, Sublicensees and their employees and agents.

15.3 Procedure. A party (the “Indemnitee”) that intends to claim indemnification under this Clause 15 shall promptly notify the other party (the “Indemnitor”) in writing of any Liabilities in respect of which the Indemnitee or any of its Affiliates, employees or agents intend to claim such indemnification, and the Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires to assume the defence thereof with counsel mutually satisfactory to the parties; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitee, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceeding. The indemnity agreement in this Clause 15 shall not apply to amounts paid in settlement of any Liabilities if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Clause 15, but the omission so to deliver written notice to the Indemnitor shall not relieve it of any liability that it may have to any Indemnitee otherwise than under this Clause 15. The Indemnitee under this Clause 15, its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification.

16. FORCE MAJEURE

Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party or from fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labour disturbances, acts of God or acts, omissions or delays in acting by any governmental authority.

17. ASSIGNMENT

This Agreement may not be assigned or otherwise transferred, nor, except as expressly provided hereunder, may any right or obligations hereunder be assigned or transferred, by either party without the written consent of the other party; provided, however that either CKD or Glycyx may, without such consent, assign this Agreement and its rights and

16

obligations hereunder to any Affiliate of such party in connection with the transfer of all or substantially all of its business relating to the Product to such Affiliate. Any purported assignment in violation of the preceding sentence shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement. No assignment shall relieve either party of responsibility for the performance of any accrued obligation which such party then has hereunder.

18. MISCELLANEOUS

18.1 Notices. Any notice or report required or permitted to be given or made under this Agreement by one of the parties hereto to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery or courier) or courier, postage prepaid, addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and shall be effective upon receipt by the addressee.

If to Glycyx;

Glycyx Pharmaceuticals, Ltd

8540 Colonnade Center Drive

Raleigh

NC 27615

USA

Attention: President

(with a copy to Salix at the same address).

If to CKD;

Chong Kun Dang Pharmaceutical Corporation

368, 3-ga, Chungjeong-ro, Seodaemun-gu

Seoul 120-756

Republic of Korea

Attention: President

18.2 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Delaware, U.S.A., without regard to conflicts of laws provisions.

18.3 Dispute Resolution. Any dispute between the parties concerning this agreement or the matters contained in this Agreement which cannot be settled amicably between the parties shall be referred by the parties shall be referred to arbitration to a single independent arbitrator appointed and acting in accordance with the Rules of the London Court of International Arbitration. The seat of such arbitration shall be London, England provided that in the event that such arbitration is requested by CKD hearings shall be held in Raleigh, North Carolina, USA and in the event that such arbitration is requested by Glycyx hearings shall be held in Seoul, Korea.

18.4 Export Laws. Glycyx shall procure and maintain all U.S. export licenses required for it to transfer to CKD all Technical Information, Patent Rights and Manufacturing Technology

17

and shall comply with all other U.S. laws, regulations and governmental directives relating to the export of technical data, goods and services.

18.5 No Consequential Damages. EXCEPT AS PROVIDED IN CLAUSE 14, IN NO EVENT SHALL EITHER GLYCYX OR CKD OR THEIR AFFILIATES BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, PRODUCTION, USE OR SALES) BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY.

18.6 Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof in respect of the Territory. All express or implied agreements and understandings, either oral or written, heretofore made are expressly excluded provided that nothing in this Agreement shall speak to exercise or limit liability for fraud. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both parties hereto.

18.7 Headings. The captions to the several Clauses and sub-clauses hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Clauses hereof.

18.8 Independent Contractors. It is expressly agreed that Glycyx and CKD shall be independent contractors and that the relationship between the two parties shall not constitute a partnership, joint venture or agency. Neither Glycyx nor CKD shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior written authorisation of the other party to do so.

18.9 Waiver. The waiver by either party of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise.

18.10 Further Assurances. CKD shall use commercially reasonable efforts to ensure that each of its Sublicensees and subcontractors (if any) shall observe and perform all the obligations and restrictions applicable to it under this Agreement.

18.11 Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, but this Agreement shall be construed as if such invalid or illegal or unenforceable provisions had never been contained herein.

18

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and year first above written.

For and on behalf of: Glycyx Pharmaceuticals, Ltd.			For and on behalf of: Chong Kun Dang Pharmaceutical Corporation
Signed:	.signature	/s/    Carolyn J. Logan	Signed:	.signature	/s/    Jung-Wao Kim
Full Name:	Carolyn J. Logan		Full Name:	Jung-Wao Kim
Job Title:	President and CEO		Job Title:	President

19

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Carolyn J. Logan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Salix Pharmaceuticals, Ltd.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation (the “Evaluation Date”); and

c. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	June 14, 2004	By:	/s/    Carolyn J. Logan
			Carolyn J. Logan President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Adam C. Derbyshire, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Salix Pharmaceuticals, Ltd.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation (the “Evaluation Date”); and

c. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	June 14, 2004	By:	/s/    Adam C. Derbyshire
			Adam C. Derbyshire Senior Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Salix Pharmaceuticals, Ltd. (the “Company”) for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Carolyn J. Logan, President and Chief Executive Officer, hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

/s/    Carolyn J. Logan        

President and

Chief Executive Officer

June 14, 2004

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Salix Pharmaceuticals, Ltd. (the “Company”) for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Adam C. Derbyshire, Senior Vice President, Finance and Administration, and Chief Financial Officer, hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

/s/    Adam C. Derbyshire        

Senior Vice President and

Chief Financial Officer

June 14, 2004