Pernix Therapeutics (PTX) Reports 4Q and Full Year 2016 Results


Pernix Therapeutics Holdings, Inc. (NASDAQ:PTX) announced financial results for the three and twelve months ended December 31, 2016.

Fourth Quarter and Full-Year 2016 Financial and Product Highlights:

  • On a GAAP basis, fourth quarter 2016 net revenues decreased 27% over the third quarter of 2016, to $30.1 million, and decreased 35% from $46.4 million in the fourth quarter of 2015.

• GAAP net revenues of Treximet for the three months and year ended December 31, 2016 were negatively impacted by $15.3 million of disputed rebate claims, which were recorded during the year ended December 31, 2016, for sales which occurred in prior periods ($12.5 million and $2.8 million for the years ended December 31, 2015 and 2014, respectively) related to the unfavorable arbitration ruling in our dispute with GSK.

  • On a non-GAAP basis, adjusted net revenues1 for the fourth quarter 2016 increased 9% over the third quarter of 2016, to $45.4 million, and increased 4% from $43.8 million in the fourth quarter of 2015.
  • Total prescription volumes increased year-over-year for all three core brands, Treximet®, Zohydro ER® with BeadTekTM, and Silenor®, during the fourth quarter of 2016.
  • Net loss for the fourth quarter of 2016 was $86.1 million, as compared to net loss of $26.4 million for the third quarter of 2016, and net loss of $81.7 million for the three months ended December 31, 2015. The increase in the net loss was due primarily to non-cash charges related to the impairment of intangible assets and goodwill.
  • Fourth Quarter 2016 adjusted EBITDA improved by approximately 49% to $12.5 million from $8.4 million in third quarter 2016 and 60% from $7.8 million in the prior year period.

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1
 Adjusted net revenues is a non-generally accepted accounting principles (GAAP) financial measure that adjusts GAAP net revenues for the impact of the GSK arbitration award for the year ended December 31, 2016 and reclassifies it to the years ended December 31, 2015 and 2014 and, therefore, has not been calculated in accordance with GAAP. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our operating results because it reclassifies the gross-to-net adjustments that were the subject of the GSK arbitration award to the years (2015 and 2014) in which the sales directly related to the gross-to-net adjustments actually occurred.

Business Update

  • Solid increases in prescription volumes in the fourth quarter due to continued momentum and focused efforts on highest volume prescribers

• Treximet TRx up 1% year-over-year
• Zohydro ER TRx up 11% year-over-year
• Silenor TRx up 4% year-over-year

  • Prevailed in the litigation with Actavis Laboratories FL, Inc. regarding a proposed generic version of Zohydro ER.

• U.S. District Court concluded that Actavis’ proposed generic versions of Zohydro ER infringed U.S. Patent Nos. 9,132,096 (which expires on September 12, 2034) and 6,902,742 (which expires on November 1, 2019) following a trial that took place in October 2016.
• Judge entered an order enjoining Actavis from engaging in the commercial manufacture, use, offer to sell, or sale in the United States, or importation into the United States of Actavis’ proposed generic version of Zohydro ER.
• While Actavis has appealed this decision, Pernix remains confident that the decision and order of the District Court will be upheld upon review.

  • Appointed Ken Piña as Senior Vice President, General Counsel and Chief Compliance Officer
  • Provided an update on the arbitration with GlaxoSmithKline (GSK)

• As previously disclosed, Pernix and GSK had been in arbitration regarding claims related to the Treximet asset purchase agreement and supply agreement.
• On January 31, 2017, the arbitration tribunal issued opinions in favor of GSK, awarding it damages and fees in the amount of approximately $35 million, plus interest.  The Tribunal denied Pernix’s claim that GSK breached its obligations under the supply agreement.
• On March 17, 2017, Pernix and GSK entered into an agreement that establishes a payment schedule for satisfaction of the balance of the award ($16.5 million previously paid). Pursuant to the agreement, Pernix and GSK have agreed that the outstanding balance of the award is $21.45 million and that Pernix will pay the award balance to GSK as follows: amounts totaling $1.0 million in 2017, $3.5 million in 2018 and $16.95 million in 2019. Pernix has agreed that for so long as the Interim Settlement Agreement is in effect, the Company will be subject to certain restrictions on non-ordinary course payments and transactions and GSK will have certain information rights.

“Since July 2016, when we restructured our sales force, we have achieved significant progress in improving the performance of our business,” said John Sedor, Chairman and Chief Executive Officer of Pernix Therapeutics.  “Moreover, our prescription fulfillment program, Pernix Prescriptions Direct, continues to drive uptake of Treximet and Silenor.  We remain focused on improving our commercial execution and driving further growth of our core brands.  In addition, our business returned to positive adjusted EBITDA during the second half of 2016.”

“We were pleased to reach a resolution with GSK,” said Graham Miao, President and Chief Financial Officer.  “We continue to assess various alternatives in order to proactively address our liquidity and capital structure in a constructive manner, including strategic and refinancing alternatives, asset sales, and mergers and acquisitions.”

Three Months Ended December 31, 2016 vs. Three Months EndedSeptember 30, 2016

For the three months ended December 31, 2016, net revenues were $30.1 million, a 27% decrease from the $41.5 million in the third quarter of 2016.  A summary of net revenues is outlined below (US dollars in millions):

                       
      Three Months Ended            
      December 31,     September 30,     Increase      
      2016     2016     (Decrease)     Percent
GAAP Revenues:                        
  Treximet   $ 8.8   $ 24.0   $ (15.2 )     -63%
  Zohydro     7.2     6.1     1.1       18%
  Silenor     4.5     4.6     (0.1 )     -2%
  Other Products     9.4     6.7     2.7       40%
Net product revenues     29.9     41.4     (11.5 )     -28%
  Co-promotion and other revenue     0.2     0.1     0.1       100%
Total GAAP net revenues   $ 30.1   $ 41.5   $ (11.4 )     -27%
                         
Non-GAAP adjustment:                        
GAAP Treximet Revenues   $ 8.8   $ 24.0   $ (15.2 )     -63%
GSK arbitration award adjustment     15.3         15.3       n/a
  Adjusted net revenues of Treximet (1)     24.1     24.0     0.1       0%
Total non-GAAP adjusted net revenues   $ 45.4   $ 41.5   $ 3.9       9%
(1) Adjusted net revenues is a non-GAAP financial measure that adjusts GAAP net revenues for the impact of the GSK arbitration award for the year ended December 31, 2016 and reclassifies it to the years ended December 31, 2015 and 2014 and, therefore, has not been calculated in accordance with GAAP. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our operating results because it reclassifies the gross-to-net adjustments that were the subject of the GSK arbitration award to the years (2015 and 2014) in which the sales directly related to the gross-to-net adjustment actually occurred.

Treximet net revenues decreased by $15.2 million, or 63%, during the three months ended December 31, 2016, compared to the three months ended September 30, 2016.  Net revenues of Treximet for the year ended December 31, 2016 were negatively impacted by $15.3 million of disputed rebate claims, which were recorded during the year ended December 31, 2016, for sales which occurred in prior periods ($12.5 million and $2.8 million for the years ended December 31, 2015 and 2014, respectively) related to the unfavorable arbitration ruling in our dispute with GSK.  Treximet adjusted net revenues were $24.1 million for the three months ended December 31, 2016, consistent with the three months ended September 30, 2016, driven by an increase in volume offset by a decrease in gross to nets.

Zohydro ER net revenues increased $1.1 million, or 18%, as compared to the third quarter of 2016.  This increase is due primarily to higher volume.

Silenor net revenues were down slightly as compared to the third quarter of 2016.  These results were driven by higher gross-to-net revenue deductions, offset by higher volume.

Three Months Ended December 31, 2016 vs. Three Months EndedDecember 31, 2015

For the three months ended December 31, 2016, net revenues were $30.1 million, a decrease of 35% from the $46.4 million in the three months ended December 31, 2015.  A summary of net revenues is outlined below (US dollars in millions):

    Three Months Ended            
      December 31,     Increase      
      2016     2015      (Decrease)     Percent
GAAP Revenues:                        
  Treximet   $ 8.8   $ 26.8     $ (18.0 )     -67%
  Zohydro     7.2     7.2             0%
  Silenor     4.5     4.7       (0.2 )     -4%
  Other Products     9.4     4.6       4.8       104%
Net product revenues     29.9     43.3       (13.4 )     -31%
  Co-promotion and other revenue     0.2     3.1       (2.9 )     -94%
Total GAAP net revenues   $ 30.1   $ 46.4     $ (16.3 )     -35%
                         
Non-GAAP adjustment:                        
GAAP Treximet Revenues   $ 8.8   $ 26.8     $ (18.0 )     -67%
GSK arbitration award adjustment     15.3     (2.6 )     17.9       n/a
  Adjusted net revenues of Treximet (1)     24.1     24.2       (0.1 )     0%
Total non-GAAP adjusted net revenues   $ 45.4   $ 43.8     $ 1.6       4%
(1) Adjusted net revenues is a non-GAAP financial measure that adjusts GAAP net revenues for the impact of the GSK arbitration award for the year ended December 31, 2016 and reclassifies it to the years ended December 31, 2015 and 2014 and, therefore, has not been calculated in accordance with GAAP. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our operating results because it reclassifies the gross-to-net adjustments that were the subject of the GSK arbitration award to the years (2015 and 2014) in which the sales directly related to the gross-to-net adjustment actually occurred.
   

Treximet net revenues decreased by $18.0 million, or 67%, during the three months ended December 31, 2016, compared to the three months ended December 31, 2015.  Net revenues of Treximet for the year ended December 31, 2016 were negatively impacted by $15.3 million of disputed rebate claims, which were recorded during the year ended December 31, 2016, for sales which occurred in prior periods ($12.5 million and $2.8 million for the years ended December 31, 2015 and 2014, respectively) related to the unfavorable arbitration ruling in our dispute with GSK.  Treximet adjusted net revenues for the three months ended December 31, 2016 were stable compared to the three months ended December 31, 2015, driven by an increase in volume offset by a decrease in net price.

Zohydro ER was acquired in April 2015 with the first sale occurring on May 4, 2015.  Zohydro ER net revenues were stable as compared to the fourth quarter of 2015.

Silenor net sales decreased by approximately $0.2 million, or 4%, during the three months ended December 31, 2016, compared to the three months ended December 31, 2015.  The decrease in net sales of Silenor was driven primarily by wholesaler inventory changes.

Net product revenues – Other Products increased by $4.8 million, or approximately 104%, during the three months ended December 31, 2016, compared to the three months ended December 31, 2015.  The increase in net product revenue – Other Products was due primarily to favorable gross-to-nets for our generic products portfolio.

Co-promotion and other revenue decreased $2.9 million during the three months ended December 31, 2016, as compared to the three months ended December 31, 2015, due to termination of a co-promotion agreement in the prior year period.

Selling, general and administrative expense increased by $1.0 million, or 4%, during the three months ended December 31, 2016, compared to the three months ended December 31, 2015.  The increase was driven primarily by higher legal expenses, partially offset by a decrease in sales and marketing costs.

Research and development expense decreased by $1.7 million during the three months ended December 31, 2016, compared to the three months ended December 31, 2015.  The decrease was related to lower spend for Treximet and Silenor.

Depreciation and amortization expense decreased by $7.5 million during the three months ended December 31, 2016, compared to the three months ended December 31, 2015.  The decrease was primarily a result of an extension of the estimated useful life of Zohydro ER with BeadTek during the three months ended March 31, 2016, due to the additional patents that were issued in February 2016, and intangible asset impairments during the twelve months ended December 31, 2016, and the fourth quarter of 2015.

Loss from disposal of assets, impairments of intangibles and goodwill increased by $29.4 million during the three months ended December 31, 2016 compared to the three months ended December 31, 2015.

Interest expense, net increased by $1.6 million, or 17%, during the three months ended December 31, 2016, compared to the prior year period.  The increase was due primarily to interest expense associated with the GSK arbitration award which was partially offset by the lower principal balance on the Treximet Secured Notes.

Net loss was $86.1 million for the fourth quarter of 2016, compared to $81.7 million in the fourth quarter of 2015.

Adjusted EBITDA was $12.5 million for the fourth quarter of 2016, compared to adjusted EBITDA of $7.8 million in the fourth quarter of 2015.

12 Months Ended December 31, 2016 vs. 12 Months Ended December 31, 2015

For the year ended December 31, 2016, net revenues were $140.8 million, a decrease of 20% from the $175.9 million in the year ended December 31, 2015.  A summary of net revenues is outlined below (US dollars in millions):

                       
      Twelve Months Ended            
      December 31,     Increase      
      2016     2015      (Decrease)     Percent
GAAP Revenues:                        
  Treximet   $ 66.9   $ 101.8     $ (34.9 )     -34%
  Zohydro     24.7     16.5       8.2       50%
  Silenor     16.9     20.9       (4.0 )     -19%
  Other Products     31.8     32.1       (0.3 )     -1%
Net product revenues     140.3     171.3       (31.0 )     -18%
  Co-promotion and other revenue     0.5     4.6       (4.1 )     -89%
Total GAAP net revenues   $ 140.8   $ 175.9     $ (35.1 )     -20%
                         
Non-GAAP adjustment:                        
GAAP Treximet Revenues   $ 66.9   $ 101.8     $ (34.9 )     -34%
GSK arbitration award adjustment     15.3     (12.5 )     27.8       n/a
  Adjusted net revenues of Treximet (1)     82.2     89.3       (7.1 )     -8%
Total non-GAAP adjusted net revenues   $ 156.1   $ 163.4     $ (7.3 )     -4%
(1) Adjusted net revenues is a non-GAAP financial measure that adjusts GAAP net revenues for the impact of the GSK arbitration award for the year ended December 31, 2016 and reclassifies it to the years ended December 31, 2015 and 2014 and, therefore, has not been calculated in accordance with GAAP. We believe that this non-GAAP financial measure provides meaningful supplemental information regarding our operating results because it reclassifies the gross-to-net adjustments that were the subject of the GSK arbitration award to the years (2015 and 2014) in which the sales directly related to the gross-to-net adjustment actually occurred.

Treximet net revenues decreased by $34.9 million, or 34% during the year ended December 31, 2016 compared to the year ended December 31, 2015.  The decrease in Treximet net revenues was primarily related to the impact of $15.3 million of disputed rebate claims, which were recorded during the year ended December 31, 2016, for sales which occurred in prior periods, $12.5 million and $2.8 million for the years ended December 31, 2015 and 2014, respectively, for the unfavorable arbitration ruling with GSK. Treximet adjusted net revenues for the twelve months ended December 31, 2016 decreased by $7.1 million compared to the twelve months ended December 31, 2015. The decrease in Treximet adjusted net revenues was driven primarily by lower volumes, partially offset by an increase in net price.

Zohydro ER was acquired in April 2015 with the first sale occurring on May 4, 2015.  Zohydro ER net revenues increased by $8.2 million during the year ended December 31, 2016 compared to the prior period, which consisted of eight months of sales.

Silenor net revenues decreased by $4.0 million, or 19%, during the year ended December 31, 2016 compared to the year ended December 31, 2015.  The decrease in sales of Silenor was driven primarily by changes in wholesaler inventory.

Net product revenues – Other Products decreased by $0.3 million, during the year ended December 31, 2016 compared to the year ended December 31, 2015.  The decrease was due to (i) the discontinuation of certain less profitable products, primarily generics, and certain OTC monograph seasonal cough and cold products and (ii) the termination of certain contracts pursuant to which we marketed and distributed products for others and invoiced those sales.

Co-promotion and other revenue decreased by $4.1 million during the year ended December 31, 2016 compared to the year ended December 31, 2015.  The decrease in co-promotion and other revenue was attributable primarily to the termination of a co-promotion agreement during 2015, which released the remaining deferred revenue from our consolidated balance sheet.

Selling, general and administrative expense increased by $1.4 million, during the year ended December 31, 2016 compared to the year ended December 31, 2015.  Legal fees associated with the GSK arbitration settlement drove the increase, partially offset by a decrease in selling and marketing costs for Treximet and Silenor.

Research and Development expense decreased by $2.2 million, or 26%, during the year ended December 31, 2016, compared to the year ended December 31, 2015, primarily due to lower spend for Treximet and Zohydro.

Depreciation and amortization expense decreased by $8.6 million, or 9%, during the year ended December 31, 2016 compared to the year ended December 31, 2015.  The decrease was related primarily to intangible asset impairments during the year ended December 31, 2016 and 2015 and the extension of the patent life of Zohydro ER developed technology in the first quarter of 2016.  These decreases were partially offset by the amortization of Treximet pediatrics developed technology, which began in May 2015.

Interest expense decreased $0.4 million, or 1%, during the year ended December 31, 2016 compared to the year ended December 31, 2015.  The decrease was due primarily to reduced interest expense on our Treximet Secured Notes due to the lower principal balance which was partially offset by interest expense associated with the GSK arbitration award.

Net loss for full-year 2016 was $169.6 million, compared to net loss of $148.3 million for the full-year 2015.

Adjusted EBITDA for the year ended December 31, 2016, was $15.0 million, as compared to $20.7 million in the year ended December 31, 2015.

Liquidity

As of December 31, 2016, the Company had total liquidity of approximately $53 million, consisting of approximately $36 million of cash and approximately $17 million available to draw under our $50 million revolving credit facility.

Total principal amount of debt outstanding at the end of 2016 was approximately $334 million. The total principal amount of debt consisted of approximately $190 million of 12% Senior Secured Notes, $130 million of 4.25% convertible notes and $14 million under our revolving credit facility. On February 1, 2017, we made the semi-annual principal and interest payment of $24.2 million on our 12% Senior Secured Notes per the terms of the indenture.

To improve financial flexibility, the Company continues to analyze various alternatives, including strategic and refinancing alternatives, asset sales, and mergers and acquisitions.

During the three and twelve months ended December 31, 2016, the Company raised $1.4 million and $19.7 million, respectively, in net proceeds through the issuance of common stock.

Shares of Pernix are down nearly 8% to $3.75 in after-hours trading Tuesday. PTX has a 1-year high of $4.50 and a 1-year low of $3.16. The stock’s 50-day moving average is $3.30 and its 200-day moving average is $2.70.

Pernix Therapeutics Holdings, Inc. engages in the research, development, and manufacture of biopharmaceutical products. It focuses on therapeutics for diseases on central nervous system, neurology, pain, and psychiatry. Its products include treatment of migraine pain and inflammation, insomnia, and depressive disorder. The firm distributes its products under the following brands: Treximet, Silenor, Zohydro ER with BeadTek, and Khedezla. 

 

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