8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) December 9, 2008

SALIX PHARMACEUTICALS, LTD.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)

000-23265	94-3267443
(Commission File Number)	(IRS Employer ID Number)

1700 Perimeter Park Drive, Morrisville, North Carolina	27560
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (919) 862-1000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

On December 9, 2008, Salix Pharmaceuticals, Ltd. entered into a Collaboration Agreement with Napo Pharmaceuticals, Inc., a Delaware corporation, and a Manufacturing and Supply Agreement with Glenmark Pharmaceuticals Ltd., a corporation organized under the laws of India, with respect to crofelemer, an anti-secretory agent for the treatment of chronic diarrhea.

Under the Collaboration Agreement, Napo and Salix agree to develop crofelemer to obtain and maintain initial regulatory approval for a licensed product for an indication. Napo granted Salix an exclusive, royalty-bearing license to crofelemer for the treatment of HIV-associated diarrhea and additional indications of pediatric diarrhea and acute infectious diarrhea in North America, Europe (excluding Iceland, Liechtenstein, Norway and Switzerland) and Japan. Napo also granted Salix a non-exclusive, worldwide, royalty-bearing license to use Napo-controlled trademarks associated with crofelemer. The licenses granted to Salix include the sole right to commercialize crofelemer and the right to grant sublicenses. Under the Collaboration Agreement, Salix also got a first right of negotiation for a 60-day period with respect to any license Napo desires to grant to any of its other products developed for gastro-intestinal indications.

As consideration for the rights Salix acquires under the Collaboration Agreement, Salix paid Napo an upfront license fee of $4.5 million and purchased $500,000 worth of Napo common stock, representing less than 1% of Napo common stock. Napo may also receive up to $50.0 million in regulatory milestone payments, up to $250.0 million in sales milestone payments, and royalty payments based on net sales during the royalty term. Salix will be responsible for development costs of crofelemer, but costs exceeding $12.0 million in respect of crofelemer used for the HIV-associated diarrhea indication will be credited towards regulatory milestones and thereafter against sales milestones. Development costs in respect of other indications of crofelemer will be credited against regulatory and sales milestones if regulatory approval is obtained for the indications.

The term of the Collaboration Agreement continues on a product-by-product and country-by-country basis until the expiration of the last royalty obligation with respect to each product containing crofelemer in such country. Salix may terminate the Collaboration Agreement upon 90 days written notice if Salix determines that it is not feasible to commercialize crofelemer. Either party may terminate the Collaboration Agreement at any time due to a material breach of the other, subject to a 30-day cure period for payment defaults and a 180-day cure period for all other defaults. Either party also may terminate the Collaboration Agreement due to insolvency of the other, with Napo owing Salix a 5% royalty based on net sales if Salix terminates in such a case. Napo may be required to pay Salix royalties based on net sales in other circumstances as well, whether Salix or Napo terminates the Collaboration Agreement.

Under the Manufacturing and Supply Agreement, Glenmark agrees to manufacture and supply to Salix such quantities of crofelemer as Salix orders. If Salix uses third party manufacturers for its supply of crofelemer, it may pay a penalty to Glenmark in certain circumstances.

The Manufacturing and Supply Agreement has a ten-year term, unless extended for additional two-year periods at Salix’s option upon 6 months prior written notice to Glenmark. Salix may terminate the Manufacturing and Supply Agreement early if, among other things, regulatory authorities cause the withdrawal of crofelemer from the market. Either party may terminate the Manufacturing and Supply Agreement early upon bankruptcy or material breach of the other (upon a 30-day cure period), and sale of a generic version of crofelemer (upon 30 days written notice).

The descriptions of the Collaboration Agreement and Manufacturing and Supply Agreement provided above are qualified in their entirety by reference to the full and complete terms contained in the Collaboration Agreement and Manufacturing and Supply Agreement which will be filed as exhibits to Salix’s Annual Report on Form 10-K for the year ending December 31, 2008.

Item 1.02. Termination of a Material Definitive Agreement.

On December 11, 2008, Dr. Falk Pharma GmbH sent Salix Pharmaceuticals, Inc., a wholly owned subsidiary of Salix, written notice of termination of the parties’ License Agreement dated April 16, 2007. Under the License Agreement, Salix granted Falk an exclusive royalty-bearing license to use and develop Salix intellectual property and product data related to DIACOL^TM1500 mg tablets in 28 territories in Europe, a non-exclusive option to market Diacol in Italy and France, and a non-exclusive license to manufacture Diacol worldwide for sale in the territories. Falk sent Salix notice of termination upon concluding that the continued use of Diacol was no longer in Falk’s commercial interests. Termination of the License Agreement was effective as of December 11, 2008. Falk will transfer all marketing authorizations for Diacol back to Salix or its designee at Falk’s expense. Salix will retain the $1.5 million non-refundable and non-creditable sum Falk paid Salix upon execution of the License Agreement. Otherwise, there are no other early termination penalties or other financial ramifications to Falk or Salix as a result of the termination.

Salix and Falk have additional relationships. Salix holds the exclusive development rights in the United States to a granulated mesalamine product from Falk. It also holds an exclusive royalty-bearing license from Falk to develop and commercialize in the United States budesonide in foam and oral formulations.

Item 8.01. Other Events.

On December 10, 2008, Salix issued a press release announcing the Collaboration Agreement. A copy of this press release is attached as Exhibit 99.1.

The information in this Item 8.01, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to liabilities of that section, nor shall such information be deemed incorporated

by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Press release dated December 10, 2008 announcing the Collaboration Agreement between Salix Pharmaceuticals, Ltd. and Napo Pharmaceuticals, Inc.

SIGNATURE

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: December 15, 2008
	/s/ Adam C. Derbyshire
	Adam C. Derbyshire
	Senior Vice President and Chief Financial Officer

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contact:	Adam C. Derbyshire	G. Michael Freeman
	Senior Vice President and Chief Financial Officer	Associate Vice President, Investor Relations and Corporate Communications
	919-862-1000	919-862-1000

SALIX IN-LICENSES CROFELEMER FROM

NAPO PHARMACEUTICALS

Potential First-in-Class Dual-Action Anti-Secretory Anti-Diarrheal Agent

HIV-Associated Diarrhea Market Opportunity $300 Million

Potential for Use in the Acute and Chronic Diarrhea Markets

RALEIGH, NC, December 10, 2008 – Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) today announced that the Company has acquired rights to crofelemer from Napo Pharmaceuticals, Inc. Crofelemer currently is being investigated in a Phase 3 study as an anti-secretory anti-diarrheal agent for the treatment of chronic diarrhea in people living with HIV, or HIV-associated diarrhea. Salix now has an exclusive license to this indication and the additional indications of pediatric diarrhea and acute infectious diarrhea in North America, Europe (excluding Iceland, Liechtenstein, Norway and Switzerland) and Japan. Salix also has a worldwide license to all other possible human indications, including irritable bowel syndrome, for crofelemer.

Carolyn Logan, President and CEO, Salix, commented, “Crofelemer is a strategic addition to our expanding portfolio of gastrointestinal products. Approximately 15-30% of the 1 million people in the United States living with HIV are affected by chronic diarrhea. HIV-associated diarrhea is a serious unmet medical condition that contributes to increased mortality and morbidity by reducing treatment compliance and efficacy as well as the quality of life in patients. If crofelemer is approved, Salix should be well-positioned to leverage our experienced specialty sales force and our established relationships with gastroenterologists and key opinion leaders in infectious disease to deliver this much- needed solution to patients. We believe the HIV-associated diarrhea market opportunity alone may be $300 million. Currently crofelemer is

being investigated in a Phase 3 randomized, double-blind, placebo-controlled, multi-center study. The protocol for this study has been reviewed and approved by the U.S. Food and Drug Administration (FDA) as a Special Protocol Assessment (SPA). Additionally, the FDA has granted crofelemer fast track designation. We expect to complete the ongoing Phase 3 study and submit a New Drug Application to the FDA during the first half of 2010. If crofelemer proves successful in the clinic, we may investigate additional indications for crofelemer to address the broader diarrhea market.”

“Crofelemer is a locally-acting, minimally-absorbed product which is believed to possess dual novel mechanisms of action that may be effective in treating both acute infectious diarrhea and chronic diarrhea,” stated Bill Forbes, Pharm. D., Vice President, Research and Development, and Chief Development Officer, Salix. “Investigational studies support the use of crofelemer as an anti-secretory anti-diarrheal agent that may provide relief to patients through the inhibition of chloride secretion by both gut CFTR (Cystic Fibrosis Transmembrane Conductance Regulator Protein) as well as gut CaCC (calcium-activated chloride channel). Inhibiting CFTR and CaCC prevents the secretion of chloride and other ions, as well as water which passively follows chloride, out of the body into the gastric lumen. It is this secretion that leads to diarrhea with the associated symptoms of dehydration, electrolyte imbalance, abdominal cramping, urgency and increased frequency. Crofelemer, if approved, would be a first-in-class CFTR inhibitor as well as a first-in-class CaCC inhibitor which would work as an anti-secretory anti-diarrheal drug.”

The current 350-patient Phase 3 trial (ADVENT) is being conducted in two stages. In Stage 1 the first 200 patients will receive either 1 of 3 doses of crofelemer or placebo. Results from Stage 1 will be utilized to determine the dose selected for Stage 2. The final 150 patients will be randomized on a 1:1 ratio to receive either the selected dose of crofelemer or placebo. Both stages of the study involve a 10-day screening period, a 31-day treatment phase and a 5-month extension phase. The primary objective of the study treatment phase is to determine the proportion of HIV-positive patients experiencing relief of diarrhea with crofelemer compared to placebo.

Patents for crofelemer provide intellectual property protection to 2018. Upon marketing approval, crofelemer will be eligible for market exclusivity for 5 years as a new molecular entity in the U.S. Because crofelemer is a new molecular entity Salix believes the product may be entitled to patent term restoration. Salix will continue to seek opportunities to further protect crofelemer through its development of the HIV-associated diarrhea indication and future indications. Crofelemer is not available synthetically and Salix has the right to the manufacturing process for producing crofelemer from the biologic source.

Financial terms of the transaction are weighted on the successful development and subsequent regulatory approval of crofelemer. Salix will pay Napo an upfront license fee of $5 million ($4.5 million cash and $500,000 equity investment in Napo) and a regulatory milestone in respect of the HIV-associated diarrhea indication. Additional regulatory milestones are payable in respect of other indications. Salix also will pay sales-based milestones and royalties on net sales of crofelemer.

Salix will control and fund the development of crofelemer. Napo will remain the IND holder and will be responsible for filing the NDA. Development costs exceeding $12 million in respect of the HIV-associated diarrhea indication will be credited toward the above-mentioned regulatory milestones and thereafter against sales milestones. Development costs in respect of other indications will be funded by Salix but will be credited against relevant regulatory and sales milestones so long as regulatory approval is obtained for the indication.

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

Salix markets XIFAXAN^® (rifaximin) tablets 200 mg, OSMOPREP^® (sodium phosphate monobasic monohydrate, USP and sodium phosphate dibasic anhydrous, USP) Tablets, MOVIPREP^® (PEG 3350, Sodium Sulfate, Sodium Chloride, Potassium Chloride, Sodium

Ascorbate and Ascorbic Acid for Oral Solution), VISICOL^® (sodium phosphate monobasic monohydrate, USP, and sodium phosphate dibasic anhydrous, USP) Tablets, COLAZAL^® (balsalazide disodium) Capsules 750 mg, PEPCID^® (famotidine) for Oral Suspension, Oral Suspension DIURIL^® (Chlorothiazide), AZASAN^® Azathioprine Tablets, USP, 75/100 mg, ANUSOL-HC^® 2.5% (Hydrocortisone Cream, USP), ANUSOL-HC^® 25 mg Suppository (Hydrocortisone Acetate), PROCTOCORT^® Cream (Hydrocortisone Cream, USP) 1% and PROCTOCORT^® Suppository (Hydrocortisone Acetate Rectal Suppositories) 30 mg. METOZOLV™ ODT (metoclopramide), balsalazide tablet, vapreotide acetate and rifaximin for additional indications are under development.

For full prescribing information on Salix products, please visit www.salix.com.

Salix trades on the NASDAQ Global Select Market under the ticker symbol “SLXP”.

For more information, please visit our Web site at www.salix.com or contact the Company at 919-862-1000. Information on our Web site is not incorporated into our SEC filings.

Please Note: The materials provided herein contain projections and other forward-looking statements regarding future events. Such statements are just predictions and are subject to risks and uncertainties that could cause the actual events or results to differ materially. These risks and uncertainties include, among others: the cost and unpredictability of the duration and results of clinical trials and FDA approval; the possible impairment of, or inability to obtain, intellectual property rights and the costs of obtaining such rights from third parties; market acceptance for approved products; our need to return to profitability; generic and other competition and the need to acquire new products. The reader is referred to the documents that the Company files from time to time with the Securities and Exchange Commission.

###