Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Salix Pharmaceuticals (NASDAQ:SLXP), a biopharmaceutical company focused on developing and acquiring drugs targeting gastrointestinal diseases, gave its own shareholders indigestion today when the stock plunged as much as 40% on third-quarter earnings results.

So what: For the quarter, Salix Pharmaceuticals delivered $354.7 million in revenue, up 49% from the year-ago period. Adjusted net earnings per share, which excluded a hefty generally accepted accounting principles loss associated with its Santarus acquisition and the termination of its Cosmo merger, was $1.53, up 72% from the $0.89 in EPS reported a year ago. However, Wall Street had expected considerably higher revenue of $392.9 million and $1.55 in adjusted EPS.

Furthermore, Salix issued fourth-quarter guidance that includes revenue of approximately $325 million and EPS of roughly $1.16. Wall Street's consensus for the quarter was $436.9 million in sales and $1.96 in EPS. Salix wasn't even in the ballpark.

Specifically listed among its problem in the company's earnings release are high wholesaler inventory levels of nine months for Xifaxan and Apriso, seven months for Glumetza, and five months for Uceris. Salix blamed its lack of adequate distribution service arrangements for its high inventory levels and its wild revenue fluctuations on a quarter-to-quarter basis.

Finally, to add gasoline to the fire, the company's chief financial officer issued his resignation and the company during the conference call skirted around the idea of conducting an audit.

Now what: I was a fan of Salix Pharmaceuticals and felt it had the potential to motor toward $200. Sometimes you're just wrong. You take your lumps and you move on with the expectation that you can't win them all.

There's obviously still potential here, as Salix had been the object of buyout interest for years. It has amassed a pretty impressive portfolio of rapidly growing and focused products that nicely boost a larger pharmaceutical company looking to offset patent expiration woes.

However, Salix's miscues on the distribution front, the possibility that it might need an extensive audit following this mess and pressure from investors, the resignation of its CFO, and more Wall Street downgrades than I can possibly count make the stock essentially toxic after a day like today, and have me questioning management's ability to properly lead this company. This reaction could be well overdone and shareholders could still see significant returns over the long run. But, following today's announcement, you won't see me going anywhere near Salix until a thorough audit or overhaul of management is complete.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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