Salix Pharmaceuticals shares rebounded 7 percent Tuesday on news that the Raleigh-based company will launch a plan to reduce drug inventory by the end of 2015.

Salix was rocked in November when it acknowledged big inventory problems.

That news may well have cost Salix a chance at a $10 billion merger/acquisition. 

Shares dropped some 40 percent.

On Tuesday, however, Salix (Nasdaq: SLXP) rallied $7.08 to close at $113.10.

The company said it would reduce sales to wholesalers as part of its strategy.

“By accelerating the reduction of our inventory to targeted levels, we can more quickly focus on the underlying strength of our business and return sales growth to demand-based levels,” said Carolyn Logan, chief executive officer of Salix. “As part of this effort, we are working with our wholesale partners to more aggressively work down their inventories. While this effort will impact Salix’s revenue in the fourth quarter of 2014 and the full year 2015, we believe this one-time reduction over a defined period of five quarters is the right decision for the business long-term.”

Salix is reducing sales to wholesalers even as demand for its top four gastrointestinal products have increased year-over-year.

  • Prescription demand for Xifaxan 550 is up 24 percent
  • Demand for Apriso is up 12 percent
  • Relistor is up 31 percent
  • Uceris is up 64 percent

“With our continued strong prescription growth, attractive pipeline of new products and our second-to-none sales force, Salix continues to be a market leader in gastroenterology,” Logan said in a statement. “The Board and management have determined that the decision to accelerate the reduction of wholesale inventory levels, which reflects the views expressed by our largest shareholders, best positions Salix for future success.”

However, Salix also disclosed that the Food and Drug Administration had delayed possible approval of Xifaxan 550 for the treatment of irritable bowel syndrome with diarrhea until May of next year.