Edited Transcript of PTX earnings conference call or presentation 8-Nov-18 9:30pm GMT

Turning to Contrave, a market-leading prescription product indicated for weight loss. We began distributing the product at the end of July following the completion of the transaction. Net sales for August and September represented the 2 strongest months in the U.S. during 2018. We have spent the first 90 days working with the Nalpropion team to stabilize that business from the disruption caused by Orexigen's bankruptcy process.

Turning to our core business. The last several months have certainly not been without their challenges, as I stated earlier. As you know, in the company's litigation against Alvogen, the court recently found that the asserted claims of our 2 U.S. method of use patents relative to Zohydro ER with BeadTek, were, in fact, infringed. However, the court also concluded that our patents were invalid, citing obviousness and the lack of adequate written description.

Pernix strongly disagrees with this judgment, and we filed a notice of appeal on September 7, 2018. We and Alvogen now have to submit our written arguments to the Court of Appeals, and an oral argument on the appeal is expected in the second quarter of 2019 with a written decision to follow thereafter.

Although I cannot provide you with any assurance that our appeal will be successful, what I can say is that we intend to vigorously defend the validity of our patents and are pursuing multiple avenues to protect our Zohydro exclusivity. With that said, if our appeal was not successful, pursuant to a previous settlement, Alvogen can launch a generic version of Zohydro ER with BeadTek subject to final approval of an MDA from the FDA as early as October 1, 2019.

Further, it is important to understand that the court's decision has no immediate impact on Pernix' January 2018 settlement agreement with Actavis Laboratories, now a part of Teva Pharmaceuticals, relating to the proposed version of Zohydro ER. Under the terms of the Actavis settlement agreement, Pernix granted Actavis a license to begin selling generic version of Zohydro ER on March 1, 2029.

The other significant challenges for us have been Treximet generic competition. While sales of our branded Treximet doubled sequentially in the first -- in the third quarter of 2018, there are now 4 generic competitors in the market, including our own authorized generic. And we expect to face additional pricing and volume pressure going forward.

To point to this in context to our investors, branded Treximet sales were $50.4 million in the first 9 months of 2017, accounting for over 45% of the company's sales as compared to $17.2 million for the first 9 months of 2018, a decrease of 2/3. However, as expected, the launch of our authorized generic has bolstered Pernix' overall sales to some degree.

Finally, I know that SILENOR life cycle management is an area of particular interest. I want to reiterate that securing an RX to OTC partnership remains a high priority for the company. You should also recognize that the path of securing such partnerships is complicated and can be a lengthy process. We cannot say with certainty what the outcome will be or speculate on its timing. I can tell you that the company remains engaged in discussions regarding a partnership.

With that, now let me turn the call over to George to discuss our commercial progress. George?

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George P. Jones, Pernix Therapeutics Holdings, Inc. - VP of Sales & Marketing [4]

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Thank you, John. Let me begin with a brief comment on Contrave. The Pernix team is working closely with the Nalpropion team to support their commercial and marketing efforts. During the third quarter, Contrave remained the leading prescription weight-loss brand in the United State, and we're currently exploring a number of initiatives to enhance the value of the brand globally. Angus will provide an update on the financial performance of the product shortly.

Moving on to the Pernix portfolio of core branded products, for Zohydro ER, the efforts of our sales specialists have been focused on enhancing the awareness of health-care professionals relative to the appropriate and safe use of prescription opioid medications as well as the transition of appropriate patients from other forms of hydrocodone. This has led to continued growth in our share of the long-acting hydrocodone market in the third quarter. We've increased our share of that market to 30% compared to 25% in January of this year.

Our prescription trends remain positive for Zohydro ER with a 7% year-over-year increase in total prescriptions in the third quarter of 2018. Importantly, this is the second-consecutive quarter that Zohydro ER has demonstrated year-over-year total prescription growth and has turned us to positive year-over-year growth for the first 9 months of 2018.

Turning to SILENOR. Prescription demand for the third quarter was flat year-over-year, although it increased 3% for the first 9 months of 2018 compared to the same period in 2017.

Moving on to Treximet. I'll review the overall franchise, including prescriptions sold of both our authorized generic and branded versions. As a reminder, we launched our own authorized generic version of Treximet on February 15 in an effort to mitigate the impact on our business from the loss of exclusivity of branded Treximet.

Our authorized generic version now faces competition from a total of 3 generics, including 2 that launched during the third quarter. However, we were still able to capture 50% market share of generic Treximet market during the quarter. Branded Treximet total prescriptions continued to demonstrate significant year-over-year declines in the third quarter. In the face of heightened generic competition, we expect to continue to experience significant declines in Treximet branded volumes in 2018.

I will now turn the call over to our Principal Financial Officer, Angus Smith, for his review of the financials. Angus?

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Angus W. Smith, Pernix Therapeutics Holdings, Inc. - Senior VP, Chief Business Officer & Principal Financial Officer [5]

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Thank you, George. Good afternoon, everyone. Before I discuss our financial results, I want to make sure that everyone understands how we are accounting for Nalproprion in our financial statements. Since we have the power to direct activities that most significantly impact Nalpropion's economic performance, we have determined that Nalpropion qualifies as a variable interest entity based on the governance structure and contractual relationship with Pernix. We are therefore, consolidating Nalpropion's financial results into ours.

On our income statement, we adjust through a line entitled net gain or loss from noncontrolling interests for the amount of gain or loss associated with Nalpropion that is proportional to the amount of that entity that we don't own. In other words, at this point, 90% of the income or losses are adjusted out of our earnings.

On the balance sheet, the net assets and liabilities that are attributable to other Nalpropion shareholders are adjusted out within shareholders equity in the line entitled, noncontrolling interests.

With that, let me review our financial results for the 3-month period ended September 30, 2018. For the third quarter of 2018, net revenues were $37.2 million, an 8% decrease from $40.5 million in the third quarter of 2017.

The year-over-year decrease was attributable primarily to a decline in net revenues of branded Treximet, our noncore generic drugs and SILENOR, partially offset by our first net revenues from Contrave, growth in Zohydro ER and net revenues from our Treximet authorized generic. Excluding Contrave, net revenues were $25.5 million, down 49% compared to the prior year period.

Now let's review the specifics for each major product. Contrave generated net revenues of $16.4 million during the 3 months ended September 30, 2018, which was attributable to Nalpropion's acquisition of the assets of Orexigen, which closed on July 27, 2018.

Zohydro ER net revenues increased by $400,000 or 6% to $6.7 million during the third quarter of 2018 compared to the prior year period. The increase was due to an increase in net price related primarily to favorable growth in net accrual rates, partially offset by lower sales volume of $200,000.

Gross to net for Zohydro ER were 62% in the third quarter compared to 60% in the prior year period. The increase in gross to net during the third quarter was due to favorable gross to nets across numerous categories.