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Edited Transcript of PTX earnings conference call or presentation 10-May-18 8:30pm GMT

Thomson Reuters StreetEvents

Q1 2018 Pernix Therapeutics Holdings Inc Earnings Call

The Woodlands May 18, 2018 (Thomson StreetEvents) -- Edited Transcript of Pernix Therapeutics Holdings Inc earnings conference call or presentation Thursday, May 10, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Angus W. Smith

Pernix Therapeutics Holdings, Inc. - Senior VP, Chief Business Officer & Principal Financial Officer

* George P. Jones

Pernix Therapeutics Holdings, Inc. - VP of Sales and Marketing

* John Anthony Sedor

Pernix Therapeutics Holdings, Inc. - Chairman & CEO

* Robert A. Yedid

LifeSci Advisors, LLC - MD

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Conference Call Participants

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* Jacques Villefranc

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Welcome to the Pernix Therapeutics First Quarter 2018 Earnings Conference Call. My name is Abby, and I will be your event specialist today. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Bob Yedid. Please go ahead, sir.

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Robert A. Yedid, LifeSci Advisors, LLC - MD [2]

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Good afternoon, and thank you for joining us on the 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 March 31, 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 first quarter of 2018 with the SEC later today.

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 statement contained in the SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements. With those remarks, I'd like to turn the call over to John Sedor, the company's Chairman and CEO. John?

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John Anthony Sedor, Pernix Therapeutics Holdings, Inc. - Chairman & CEO [3]

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Thanks, Bob. And good afternoon and thank you for joining us today. This afternoon as Bob said, we announced our financial results for the first quarter of 2018. While I'm excited about the positive results we generated in the first quarter, I want to begin by reviewing our recently announced participation in a bid to acquire the global rights to Contrave, which is indicated for weight loss. Prior to getting into the particulars of the agreement, and what it means to Pernix's business, I'd like to highlight how this potential transaction represents the continued execution of our long-term strategic plan.

To reiterate what we discussed on our last call, our three-pronged strategy includes the following. The first prong to be achieved in the first 18 months from when I joined the company as CEO in mid-2016 was the fix what was broken. Mainly, the company's cost structure, our debt and our ability to drive sales. I believe that we have greatly improved our financial profile to better position the company for future success through initiatives we have executed in each of those areas.

The second prong of our strategy to be achieved over the following 18 months is to acquire new assets and solidify our path forward for Silenor OTC. And the third prong is to build sustainable long-term enterprise value.

As you can see, we have a clearly defined plan. We are executing on it, and I believe, the potential transaction involving Contrave is a key step towards advancing this strategy. With that, let's discuss the Contrave transaction in further detail.

Last month, we announced our participation in a newly formed special-purpose vehicle, called Nalpropion Pharmaceuticals Inc. to be completed, comprised of a wholly-owned subsidiary of Pernix and financial co-investors. Nalpropion has entered into a stalking horse asset purchase agreement to acquire a certain asset of Orexigen Therapeutics, including worldwide rights to Contrave, the

#1 branded prescription weight loss medication in the United States, for $75 million in cash. Should the transaction be completed, Pernix next will own 10% of Nalpropion, receive a fee equal to 5% of net sales for managing the business for an interim term of 2 years, and receive reimbursements for certain shared services at cost.

Pernix will contribute 10% or $7.5 million of the capital required for the purchase price, furnished through our existing delayed draw term loan facility.

In addition, Pernix will receive 2 options to acquire up to 49.9% and 100% of Nalpropion at specific time periods and purchase prices. The transaction remains subject to higher or better offers at the auction to be conducted on June 26, but if Nalpropion prevails, the transactions is expected to close in July of this year.

I'll let George Jones, our Vice President of Sales and Marketing, provide further details on Contrave shortly. But let me say a few things about this product and the transaction, so you better understand why we're so excited about it. We are attracted to Contrave because it's a market-leading product. It's approaching $100 million of annual global net sales. It has a long IP runway, and has differentiated clinical profile.

Further, we believe the structure of the announced transaction will provide an attractive risk-reward profile [per pond] Pernix that will allow us to capture significant upside if we continue to grow the trajectory for the product.

Simply put, we believe this transaction has the potential to create significant shareholder value.

Now turning to our current business. I'd like to highlight the launch of our authorized generic version of Treximet, which occurred on February 15.

The authorized generic provides a lower cost option to patients and providers that will compete with any version of Treximet, as well as other prescription migraine treatments.

George will provide additional information here, but this launch is off to a great start, as prescriptions for the authorized generic captured 56% of the Treximet generic market during the first quarter since its launch.

Before I turn the call over to George, I'd like to review some of the key financial results for the first quarter.

Net revenues for both Zohydro ER and Silenor experienced solid year-over-year growth of 35% and 51%, respectively.

Additionally, adjusted EBITDA improved to $2.5 million in the first quarter of this year, compared to a negative $300,000 in the period prior year.

Importantly, this represents the first time we've reported positive EBITDA in the first quarter of a year since 2015. With that, let me turn the call over to George to discuss our commercial progress.

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

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Thank you, John. I'm very pleased with the results that we achieved in Q1 for our core branded business. But before I discuss those results, I'd like to provide you with some key metrics on Contrave that make us optimistic about the prospects for this brand.

Driven by its strong sales and marketing effort, that included a robust direct-to-consumer campaign, Contrave prescriptions increased 23% year-over-year in 2017.

More recently, Contrave prescriptions were up approximately 17% in Q1 2018, as compared to the same period 2017.

Importantly, this growth is off a much higher base. In addition, Contrave recently achieved all-time highs in weekly prescriptions in branded market share at 49%.

Beyond the U.S., Contrave or Mysimba, as it's known in certain markets, has been launched with 25 of 68 partnered companies with additional launches currently planned for 2018. If Pernix prevails in the auction, we will provide you with further details on our commercialization plans for commercial -- for Contrave upon the closing of this transaction.

Moving on to our current portfolio of branded products. Our business is off to a strong start in 2018.

Of significance, we are seeing strong continued demand for Silenor, which demonstrated 4.5% year-over-year growth in total prescriptions in the first quarter.

As for Zohydro ER, the backorder of the 20-milligram strength announced in May of 2017, led to a 3% year-over-year decline in total prescriptions in the first quarter of 2018.

As previously announced, we resumed distribution of the 20-milligram strength during the last week of the quarter. It is important to point out that our sales specialist provide product education on the appropriate use of opioids and on the transition of patients from other forms of hydrocodone. Within the universe of health care professionals, where they provide such education, Zohydro ER prescriptions were up 24%.

In recent weeks, we have begun to see year-over-year growth in overall Zohydro ER prescriptions for the first time since August 2017.

We are highly encouraged by this and believe that the product is positioned for continued growth during the remainder of 2018 and beyond.

Also, as a reminder, early in the first quarter of 2018, we entered into a settlement agreement with Actavis related to our patent litigation surrounding the proposed generic version of Zohydro ER that provides Pernix many years of product exclusivity and removes some of the patent litigation overhang on Zohydro ER.

Under the terms of the license agreement between the parties, unless certain circumstances arise, Actavis cannot begin selling a generic version of Zohydro ER until March 1, 2029.

Regarding Silenor, our initiatives aimed at reaccelerating growth for this product continue to positively impact our business.

To reiterate, in the first quarter of 2018, Silenor experienced a 4.5% year-over-year growth.

This represents the second consecutive quarter of year-over-year growth for this product and includes 33% growth within our targeted prescribers.

This growth also highlights the effectiveness of our recently restructured sales force.

As I said before, from a life cycle management standpoint, we believe that Silenor can add significant potential in the OTC market.

We continue to have meaningful partnership discussions with global pharmaceutical companies with deep Rx-to-OTC switch capabilities and remain in active negotiations with interested parties. Simultaneously, we will continue to evaluate an internal development strategy.

Taking a closer look at Treximet, we've been planning for the loss of exclusivity for some time now and working on plans to mitigate the impact of that loss via the launch of our own authorized generic version of Treximet, which launched on February 15.

As a review of the market conditions for our authorized generic, while we are initially expecting 1 generic entrant in January and 2 entrants in February, only one of these competitors has entered the market to date.

With that said, branded Treximet prescriptions decreased 45% year-over-year in the first quarter, due to the loss of exclusivity.

Digging a little deeper into the overall market for Treximet and its related generics, there were approximately 42,000 total prescriptions of Treximet and its generic equivalence dispensed in the first quarter, down 13% year-over-year.

Pernix was able to retain 88% of this market on a total perception basis, which includes 56% of the generic market. It's important to note that prescriptions through our pharmacy direct program, Pernix Prescriptions Direct or PPD, are not included in Symphony Health or IMS data but are included in the data that I just discussed.

Despite the launch of Pernix's authorized generic, we expect to experience significant declines in overall Treximet brand in authorized generic revenues in 2018 and into the future.

As you know, in anticipation of the loss of exclusivity, Pernix substantially reduced its sales and marketing investments in the Treximet brand in early 2018.

And while we continue to distribute Treximet and support patients and providers through the PPD program, we have ceased most direct promotional investment in this product.

With all of this said, we continue to view Treximet and the recently launched authorized generic as important components of our business, and remain focused on working with our trade partners to maximize the value of this product.

We continue to expect that our PPD program will provide benefits to patients and providers and will increasingly improve the competitive position of our authorized generic in the migraine market.

For Silenor, weekly PPD prescriptions as a percentage of total prescriptions reached as high as 17% in the first quarter of 2018.

Silenor PPD prescriptions in the first quarter were up a robust 22% year-over-year.

In conclusion, we're excited about the prospects for Contrave and are pleased with our continued commercial progress and the improvements to date in our current business, especially, regarding Silenor and Zohydro ER.

We look forward to the future with confidence. 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, everybody. Our current business has consistently improved since mid-2016.

As we said on prior calls, our focus is on generating greater awareness of the benefits of our key products, Zohydro ER and Silenor, while identifying additional in-licensing our acquisition candidates to further augment our business and leverage our infrastructure.

We are pleased to have made progress on both of these fronts to date. We achieved robust year-over-year growth in net sales for both Zohydro ER and Silenor during the first quarter, and the recent announcement regarding our participation in the potential acquisition of Contrave is a great example of the work we are doing to move our business forward.

With that, let me review our financial results for the 3-month period ended March 31, 2018.

For the first quarter of 2018, net revenues were $28.1 million, a 5% decrease from $29.7 million in the first quarter of 2017.

The year-over-year decrease during the first quarter of 2018 was primarily attributable to declines in net revenues of Treximet and our generic products, partially offset by growth in Zohydro ER and Silenor.

Now let's review the specifics for each major product. Zohydro ER net revenues increased by $1.8 million or 35% during the first quarter of 2018, compared to the first quarter of 2017.

The increase was due to an increase in net price and higher sales volume.

Zohydro ER sales volume, which represents our sales to customers, was favorably impacted by the relaunch of the 20-milligram strength of Zohydro ER during the last week of the quarter.

Gross to nets for Zohydro ER in the first quarter were 58%, consistent with the prior year period.

We expect gross to nets for 2018 to be in the mid 50. Silenor net revenues increased by $1.8 million or 51% during the first quarter of 2018, compared to the first quarter of 2017.

The increase was due to an increase in net price and higher sales volumes. Gross to nets for Silenor in the first quarter were 30%, as compared to 27% in the prior year period.

We expect gross to nets for 2018 to be in the low 30s. Treximet brand net revenues decreased by $1.5 million or 11% during the 3 months ended March 31, 2018, compared to the prior year period, due primarily to the loss of exclusivity of Treximet in February 2018, and the resulting generic competition.

Gross to nets for the Treximet in the first quarter were 39%, as compared to 37% in the prior year period.

On February 15, 2018, we launched an authorized generic or AG version of Treximet. Treximet AG net revenues were $1.8 million in the first quarter of 2018.

The company gross margin in the first quarter of 2018 was 68%, up from 66% in the corresponding period of 2017, due primarily to product mix. Selling, general and administrative expense decreased by $3 million or 15% during the first quarter of 2018, compared to the first quarter of 2017.

The decrease was driven primarily by lower sales force related expenses due to the restructuring announced in January 2018 and our decision to lower marketing expenditures for Treximet, due to the entrance of generic competition, partially offset by higher legal fees.

Research and development expense decreased by $500,000 during the first quarter of 2018, compared to the prior year period, primarily due to the discontinuation of a certain Zohydro-related research projects.

Net loss was $18.6 million for the 3 months ended March 31, 2018 compared, to a net loss of $29.5 million in the same period last year.

The reduced net loss was driven primarily by a reduction in operating expenses. Adjusted EBITDA improved to $2.5 million for the 3 months ended March 31, 2018, compared to adjusted EBITDA of negative $300,000 in the same period last year, an increase of $2.8 million.

Finally, as of March 31, 2018, the company had total liquidity of $35.9 million, consisting of cash of approximately $26.9 million and availability under our revolving credit facility of $9 million.

Lastly, I'd like to update you on where we stand on the business development front.

We remain active beyond the Contrave transaction and continue to have ongoing discussions focused primarily on potential acquisition and co-promotion opportunity.

As a reminder, we had $15 million of funding available for certain acquisition purposes under the delayed draw term loan facility and an additional $20 million available under that facility with lender consent. We anticipate that we will fund our portion of the Contrave purchase price through this facility.

With that, I'll now hand the call back to John Sedor for closing remarks.

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John Anthony Sedor, Pernix Therapeutics Holdings, Inc. - Chairman & CEO [6]

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Thanks, Angus. To summarize, we believe, we have an outstanding opportunity with Contrave. Should we prevail in the auction, we are pleased with the progress achieved in our existing business and optimizing our cost structure. We remain confident in our growth strategy and are focused on sustaining our momentum throughout 2018 and beyond. We look forward to providing you with further updates throughout the year. With that, I'll turn the call over to the operator to open up the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will take our first question from Jacques Villefranc with LifeSci Capital.

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Jacques Villefranc, [2]

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I had a question with respect to the Contrave deal. Could you give us more color on why you're now focusing on weight loss given that the main focus of the company is on -- in the CMS space?

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John Anthony Sedor, Pernix Therapeutics Holdings, Inc. - Chairman & CEO [3]

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Thank you Jack, and thanks for the question. As we stated on our last earnings call, our business development strategy is to be disciplined as well as opportunistic.

We feel this opportunity to participate in an acquisition of a well-differentiated and marketed-leading product with long IP aligns with this strategy. The Contrave transaction will immediately improve our EBITDA and our liquidity, and it has the potential to be transformable deal for Pernix. I should mention that this will not prevent us from pursuing acquisitions in the pain space, and we are still actively receiving such -- reviewing such opportunity.

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Jacques Villefranc, [4]

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Great. Another question here. Could you give us an update on the timing for the possible partnership regarding Silenor OTC?

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

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Thanks for the question. As we said earlier, we continue to have discussions with potential partners regarding Silenor OTC. And as we said before, we think the market potential for Silenor in the OTC setting is attractive. And we are very focused on finding the right path forward for the product. Having said that, our partnership discussions have primarily been with big pharma companies that have many layers of oversights, and the due diligence negotiation process takes a fair bit of time. Having said that, it's difficult to predict exactly how long it's going to take for us to go down this path and figure out the right path forward for Silenor OTC. But we are committed to working with these potential partners to bring this process to a close so that we can make a decision as quickly as possible on the most appropriate path forward for the product.

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Jacques Villefranc, [6]

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Great. And I really just one last question. So this one's regarding Treximet. So far we've seen one entrant coming to the market. Do you expect another generic company to come in the market during the remainder of the year?

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George P. Jones, Pernix Therapeutics Holdings, Inc. - VP of Sales and Marketing [7]

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Okay, I'll take that one. So just to start, I can just reiterate that we are pleased with the launch of our authorized generic to date, and with anything, these are other companies, and we can't predict exactly what's going to happen in the marketplace. We do know that 2 other companies have the right to launch the generic product for Treximet right now. And it's our planning assumption that they'll enter sometime in 2018.

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John Anthony Sedor, Pernix Therapeutics Holdings, Inc. - Chairman & CEO [8]

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Okay, if there's no further questions.

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Operator [9]

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So I would like to turn the conference back to John Sedor for any additional or closing remarks.

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John Anthony Sedor, Pernix Therapeutics Holdings, Inc. - Chairman & CEO [10]

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Okay. Thank you, Abby. If there is no additional questions. I just want to, again, thank everybody for joining us today. And we look forward to updating you on our next quarterly call. Thank you.

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Operator [11]

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Ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.