Salix Pharmaceuticals Ltd. shares (NASDAQ:SLXP) plunged 34 percent to $91.47 Friday as the company slashed its full-year sales forecast and revealed that inventories of key drugs were sharply higher than earlier thought, an issue that may have scuttled Allergan Inc.'s interest in acquiring the company.

Salix reported third quarter earnings Thursday, reporting that inventory as of Sept. 30 was $155.2 million, up about 50 percent since the beginning of the year.

Chief Financial Officer Adam Derbyshire, who had earlier suggested to investors that inventories were much lower than they turned out to be, resigned his position, as the board's audit committee hired outside counsel to review the issues. Insider Timothy Creech will take over as acting CFO as the Raleigh, N.C.-based company searches for a permanent replacement for Derbyshire.

Salix did not respond to a request comment.

During its first quarter earnings call May 8, Derbyshire told investors that Salix sought to carry about 10 weeks to 12 weeks of wholesaler inventories. Following an internal review shared with investors Thursday, Salix instead found inventory levels of Xifaxan (rifaxmin) and Apriso (mesalamine) were much higher, at nine months each, with Glumetza (metformin hydrochloride extended-release tablets) inventory sits at about seven months and Uceris (budesonide) at about five months.

Piper Jaffray senior research analyst David Amsellem called the inventory issue "an unmitigated disaster," suggesting that it will depress the company's top-line earnings in both 2015 and 2016 as wholesalers work through existing inventories.

Salix, meanwhile, stood by earlier accounts of sales to wholesalers and said it expects to normalize inventories to about three months per product by the end of 2016.

To reduce inventory, Salix CEO Carol Logan said the company is negotiating distribution services agreements with each of its principal wholesalers, agreements that she expects will better the company's visibility into wholesaler inventory levels and inventory management and planning, improving Salix's ability to better forecast revenue and expenses.

"The trajectory of prescription growth for our major products remains strong and unchanged, which should help reduce the impact on future net product revenues caused by adjusting our inventory levels," she said. "We've made significant progress in expanding and realigning our sales force earlier this year, which we expect to drive accelerating prescription demand for the legacy Salix products as well as for Uceris."

The company said prescription demand for its key products remained robust in the quarter. Prescriptions for its overt hepatic encephalopathy antibiotic, Xifaxan 550, rose 23 percent year over year, while prescriptions for its ulcerative colitis drug, Apriso, rose 15 percent. Prescriptions for its opioid-induced constipation drug, Relistor (methylnaltrexone bromide), rose 24 percent year over year, while demand for Uceris, its newest ulcerative colitis drug, popped, rising 76 percent year over year.

"These numbers make clear that the health of our business remains in great shape, and that the trajectory of prescription growth for our major products continue," said Logan.

Despite the positive prescription growth, Jeffries LLC equity analyst David Steinberg suggested that Irvine, Calif.-based Allergan "may have discontinued discussions after diligence on inventory levels." Though that would suggest the issue was an extra costly error for the company, he said that Jeffries continues to view Salix as an "attractive bolt-on asset for a large acquirer," such as Shire plc or Actavis plc due to its dominance in the gastrointestinal area. Given the share's steep drop, he said, Salix "may be a more attractive asset – and with less leverage as to price."

Salix lowered it 2014 net sales forecast to $1.4 billion from the $1.6 billion estimate it provided Aug. 7. Analysts on average were expecting a profit of $6.17 per share on revenue of $1.6 billion, according to Thomson Reuters I/B/E/S.

The company also reported a net loss of $88.6 million, or $1.39 per share, for the third quarter, compared with net income of $47.3 million, or 71 cents per share, a year earlier. Excluding special items, the company earned $1.53 per share.

Revenue increased 49 percent to $355 million. Analysts on average had expected a profit of $1.55 per share on revenue of $392.4 million, according to Thomson Reuters I/B/E/S.