Q3 2018 Pernix Therapeutics Holdings Inc Earnings
The Woodlands Nov 9, 2018 (Thomson StreetEvents)
-- Edited Transcript of Pernix Therapeutics Holdings Inc earnings
conference call or presentation Thursday, November 8, 2018 at
TEXT version of Transcript
Pernix Therapeutics Holdings, Inc. - Senior VP,
Chief Business Officer & Principal Financial Officer
George P. Jones
Pernix Therapeutics Holdings, Inc. - VP of Sales
John Anthony Sedor
Pernix Therapeutics Holdings, Inc. - Chairman
Robert A. Yedid
LifeSci Advisors, LLC - MD
Good afternoon, ladies and gentlemen, and welcome
to the Pernix Therapeutics Third Quarter 2018 Earnings Conference
Call. My name is Ian, and I'll be your event specialist today.
(Operator Instructions) As a reminder, this call is being recorded
for replay purposes.
And I'd now like to turn the call over to Bob
Yedid. Please go ahead, sir.
Robert A. Yedid, LifeSci Advisors, LLC - MD 
Good afternoon. This is Bob Yedid, and thank you
for participating in today's call. On the call today are John
Sedor, Chairman and CEO; George Jones, Vice President of Sales and
Marketing; and Angus Smith, Senior Vice President, Chief Business
Officer and Principal Financial Officer of Pernix Therapeutics.
Please be advised that Pernix issued a press
release this afternoon containing financial results for the quarter
ended September 30, 2018. The release, including the financial
tables and reconciliation of non-GAAP financial measures to the
most directly comparable GAAP financial measures, is available on
the company's website at www.pernixtx.com. The company also expects
to file its Form 10-Q for the third quarter of 2018 with SEC later
During today's call, the company will be making
forward-looking statements and actual results may differ from
current expectations. Please note that, under safe harbor rules,
Pernix has no obligation to update the information contained in
these forward-looking statements even if actual results or future
expectations change materially. The company recommends that you
refer to the cautionary statements contained in the SEC filings for
a more detailed explanation of the inherent limitations of such
I would now like to turn the call over to John
Sedor, the company's Chairman and Chief Executive Officer.
John Anthony Sedor, Pernix Therapeutics Holdings,
Inc. - Chairman & CEO 
Thank you, Bob. Good afternoon, and thank you for
joining us today. This afternoon, we announced our financial
results for the third quarter of 2018.
Before getting into the specifics of the quarter,
let me begin by commenting on recent events. As you're well aware,
we have faced and continue to face a number of challenges,
including the recent court decision in the Zohydro ER patent
litigation and more aggressive generic competition for Treximet.
Please note that we're working hard to address these events and are
focused on stabilizing our business.
I will now briefly review Pernix' key financial
results for the third quarter. Our net revenues for the third
quarter of 2018 were $37.2 million, down 8% from $40.5 million in
the prior year. Net revenues for Zohydro ER grew 6% year-over-year,
and this product has generated year-over-year sales growth in each
of the first 3 quarters of the year. For the first 9 months of
2018, revenues for Zohydro ER and SILENOR were up 22% and 11%
Following the loss of exclusivity in February 15,
sales of branded Treximet have substantially shifted to generic
versions of Treximet, including our own authorized generic. With
multiple edition -- additional generic versions now in the
marketplace, we expect further sales erosion in both the brand and
our authorized generic.
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
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?
George P. Jones, Pernix Therapeutics Holdings,
Inc. - VP of Sales & Marketing 
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
I will now turn the call over to our Principal
Financial Officer, Angus Smith, for his review of the financials.
Angus W. Smith, Pernix Therapeutics Holdings,
Inc. - Senior VP, Chief Business Officer & Principal Financial
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,
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
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.