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

I believe our participation in the recent acquisition of Contrave is consistent with our strategy of acquiring new assets and will help Pernix to build sustainable long-term enterprise value.

With that, let's discuss the Contrave transaction in further detail. Nalpropion's investors are comprised of Pernix and funds affiliated with 2 leading investment management firms: Highbridge Capital Management and Whitebox Advisors. Just as a reminder, Highbridge knows Pernix well, as they were the lead investor in July 2017's financial restructuring of our balance sheet. Nalpropion acquired certain assets of Orexigen Therapeutics, including worldwide rights to Contrave for $73.5 million in cash.

Pursuant to a service agreement with Nalpropion, Pernix will receive a management fee equal to 5% of Contrave's net revenues. We will also assume the responsibility for production and -- for product distribution in the U.S. and manage Nalpropion for the initial term of 2 years. Additionally, Pernix will be entitled to reimbursement of certain shared expenses at cost, initially capped at $6 million per year. Importantly, we expect to provide these services to Nalpropion using our existing resources.

As part of Nalpropion's investment group, Pernix agreed to contribute 10% of the capital required for the purchase price and working capital needs, funded through the company's existing delayed draw term loan facility. Pernix invested a total of $9.2 million, consisting of $7.4 million for the purchase price and $1.8 million in working capital. We believe that the structure of this transaction enable us -- enables us to recognize an immediate benefit in the form of management fee and shared service reimbursement, which we believe will allow us to recoup our initial investment quickly.

Longer term, Pernix will receive 2 purchase options to acquire up to 49.9% and 100% of Nalpropion at specified time periods and purchase prices, which remain confidential.

As we discussed in our last earnings call, Contrave, known as Mysimba in certain markets outside the United States, was approved by the FDA in September of 2014. The product is also marketed in 25 additional countries, where it is distributed by a network of partners. Since its launch in 2014, Contrave has grown to be the #1 prescribed branded weight loss drug in the United States, with over 2.5 million prescriptions and over 100,000 unique prescribers since U.S. launch. In 2017, net sales in the U.S. were approximately $75 million. Contrave also delivered over 20% total prescription growth in 2017.

We believe that the disruption caused by Orexigen's bankruptcy process will impact prescription growth for 2018. However, in the long term, we believe Contrave is an attractive product because it is a market-leading branded weight loss prescription drug, is approximately approaching $100 million of global net sales, has a patent runway out to 2030 and possesses a differentiated clinical profile. Importantly, this is a product we view as having long -- having significant growth potential.

Let me conclude my remarks on this transaction by saying we believe it can generate significant upside for Pernix if we can reestablish the growth trajectory for the product while providing a path to an outright acquisition on Contrave over time.

Now let me review some of Pernix' key financial results from the second quarter. Our net revenues for the quarter of -- second quarter of 2018 was $21.1 million, which was down 39% from $34.3 million in the prior year period. Net revenues for both Zohydro ER and Silenor delivered strong year-over-year growth of 28% and 23%, respectively, continuing the strong growth rates from the first quarter.

For the first half of 2018, revenues from both of these core brand -- branded products grew over 30% year-over-year. Offsetting these results was the decline in the sales of our branded Treximet due to the loss of exclusivity as of February 15. The second quarter was the first full quarter without Treximet exclusivity. As expected, the market has substantially shifted to the generic version of Treximet, including our own authorized generic and one generic offered by a competitor.

Next I want to update you on Silenor life cycle management. We continue to have meaningful partnership discussions with global pharmaceutical companies who have deep Rx-to-OTC switch capabilities, and remain in active dialogue with interested parties. Let's be clear that these discussions have been more prolonged than we expected, but the switch to OTC remains a priority for our team and is an important opportunity for Pernix.

Before I turn the call over to George, I'd like to comment on the series of transactions announced on August 1 concerning our balance sheet. We believe these transactions represent another significant step forward for Pernix in addressing our debt outstanding and improving our financial flexibility. The transactions reduced total debt by $12 million, provide incremental liquidity to Pernix and result in a total annual interest savings of more than $1 million per year.

Furthermore, we have provided a mechanism for further deleveraging through an exchange agreement using preferred stock. These transactions are consistent with our previously stated desire to continue to address our balance sheet and improve our liquidity in advance of our August 2020 maturity of the 12% senior notes. And we will continue to pursue transactions that will help us achieve this objective. Angus will provide more details on these transactions shortly.

In summary, we have accomplished a lot in the recent months, including our participation in Nalpropion's acquisition of Contrave assets, several transactions to improve our balance sheet and financial flexibility and improve sales of Zohydro ER and Silenor. I want to thank our team for their extraordinary efforts in these negotiations, due diligence and execution of the transaction.

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.

Before I discuss the results of our core branded products, I want to convey my excitement about the potential for Contrave. We look forward to providing the Nalpropion team with the necessary support in order to continue the momentum that Contrave has generated to date.

Moving to the Pernix portfolio of core branded products, I'm excited about the results that we were able to achieve in Q2. As John reviewed, from a net revenue standpoint, both Silenor and Zohydro ER continued to deliver solid growth in the second quarter.

Taking a look at prescriptions, for Zohydro ER our trends were strong, with a 6% year-over-year increase in total prescriptions in the second quarter of 2018. Importantly, this is the first quarter that Zohydro ER has shown year-over-year total prescription growth since Q1 2017.

We were also able to grow our market share of the long-acting hydrocodone market in Q2, increasing our share from 25% to 28% since January 2018. This is important because our sales specialists focus on the education of health care professionals around the appropriate and safe use of opioids focusing on the transition of patients from other forms of hydrocodone.

Turning to our ongoing patent litigation with Alvogen regarding Zohydro ER, trial testimony in the case was heard mid-June, and closing arguments were heard late July. We're expecting the judge's final decision shortly.

In the second quarter, we also saw higher prescription demand for Silenor, with total prescriptions growing 4% year-over-year, representing the third consecutive quarter of year-over-year growth. Overall, the prescription results of our core branded portfolio, Zohydro ER and Silenor, highlight the effectiveness of our newly realigned sales force as well as the impact of our highly focused marketing efforts.

Turning 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 order to mitigate the impact on our business from the loss of exclusivity on branded Treximet. In the second quarter, our authorized generic captured -- our authorized generic version captured a solid 53% share of the generic market that currently includes just one other competitor.