Pernix Therapeutics Reports First Quarter 2014 Financial Results

MORRISTOWN, N.J.--()--Pernix Therapeutics Holdings, Inc. (“Pernix” or the “Company”) (NASDAQ:PTX), a specialty pharmaceutical company, today announced financial results for the first quarter ended March 31, 2014.

Business Update

The first quarter of 2014 continued to be a work in progress as Pernix took further actions to reshape and reposition the Company for growth. Several actions were taken during the first quarter 2014 including:

  • reshaping the Company’s board of directors to include new directors with pharmaceutical experience that can support management as the Company seeks to make new acquisitions. During the quarter the Company announced the addition of John Sedor to its Board. In April, the Company announced the addition of Tasos Konidaris to its Board. We are pleased to add new directors of such caliber to the Pernix team;
  • the addition of Terry Novak as Chief Operating Officer and Rick Shalaby as SVP Sales and Marketing, as well as filling other key positions in compliance, supply chain and marketing;
  • entering into an agreement with Cardinal to exclusively manage its distribution and logistics. The Company will be closing its distribution centers in Magnolia, Texas and Madison, Mississippi by June 30, 2014, resulting in net cost savings;
  • completing the sale of its Houston-based manufacturing facility to Woodfield Pharmaceutical, providing the Company with approximately $5 million in annual operating savings;
  • implementing price increases on several core products after an in-depth review which will improve the margins on these products in 2014;
  • entering into a lease agreement enabling the Company to relocate its corporate headquarters from Houston, Texas to Morristown, NJ, an area known for having strong pharmaceutical talent, to provide the Company with a sustainable pool of experienced employees as the Company expands its specialty brands offerings;
  • launching Khedezla ER Tablets for major depressive disorder. Khedezla is a bioequivalent version of Pristiq, a product with sales of approximately $700 million in 2013. Pernix’s team of 90 sales professionals is targeting high prescribers of Pristiq, including select psychiatrists and primary care physicians; and
  • re-launching Silenor, the Company’s non-narcotic insomnia product, to high prescribing psychiatrists and primary care physicians, further leveraging our sales organization within this specialist community.

Financial Results

For the first quarter of 2014, net sales decreased by approximately 14% to $19.1 million, compared to $22.1 million for the same period in the prior year. For the first quarter 2014, net product revenues consisted of 58% revenue contribution from generic products, including our authorized generics, and 42% revenue contribution from branded product sales. Gross product sales revenue increased approximately $2.0 million, or 5%, offset by decreases of $333,000 in collaboration revenue and $313,000 in manufacturing revenue. We realized increases in gross sales revenue for CEDAX and SILENOR and certain other brand and generic products as a result of price increases partially offset by decreases in revenue from certain legacy cough and cold products that were phased out in 2013.

The increase in gross product sales revenue was offset by an increase in gross to net revenue deductions. The decrease of $3.0 million in net sales revenue was due to an increase of approximately $4.0 million in price adjustments, primarily attributable to our coupon program. The Company changed its coupon program in January 2014 to increase the “pay no more than” value to the customer and we also added our authorized generics for CEDAX and ZUTRIPRO to the coupon program. This increased our coupon redemption expense on our cough and cold products significantly in excess of our projected impact. In addition, we also realized increases in our customer admin fees, managed care rebate expense, product returns, and government rebates all of which were primarily attributed to the product price increases. The increases in these deductions were offset by decreases in customer rebates, chargebacks and other discounts as a result of product sales mix. Subsequent to the end of the quarter, new management has reviewed and amended the coupon program in order to continue to provide co-pay relief for patients, while capping the Company’s maximum liability under the program to protect profitability.

The net loss for the first quarter of 2014 was approximately $9.5 million, or $0.26 per basic and diluted share, compared to net loss of $7.9 million, or $0.23 per basic and diluted share, for the first quarter of 2013. The net loss for the first quarter of 2014 included an impairment charge of $6.5 million in connection with the subsequent divestiture of our manufacturing facility

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, a non-GAAP measure) was a non-GAAP net loss of approximately $2.0 million for the first quarter of 2014 and $1.4 million for the first quarter of 2013. See the table at the end of this press release for a reconciliation of net income to Adjusted EBITDA.

Selling, general and administrative (SG&A) expenses in the first quarter of 2014 were approximately $13.6 million, compared to $14.1 million for the first quarter of 2013. Overall compensation expense represented approximately $7.9 million, or 58%, and $6.8 million, or 49%, of total SG&A for the three months ended March 31, 2014 and 2013, respectively. The increase in overall compensation expense of approximately $1.0 million is due to the issuance of options to the new management team hired during the three months ended March 31, 2014 and the acceleration of the vesting of the options issued to our former CEO upon his departure partially offset by a decrease in base compensation as a result of consolidation and integration of certain Cypress positions after the three months ended March 31, 2013.

The increase in overall compensation expense was offset by a decrease in other SG&A expenses of approximately $1.5 million which was primarily a result of a decrease in professional and legal fees of approximately $1.2 million and a decrease in deal expenses of approximately $400 thousand.

Depreciation and amortization expense was $2.2 million for the first quarter of 2014, compared to $1.8 million for the first quarter of 2013.

The Company recognized an income tax benefit of $5.9 million for the first quarter of 2014, compared to an income tax benefit of $3.1 million in the first quarter of 2013.

Weighted average common shares outstanding were 37.3 million and 35.1 million per basic and diluted shares for the first quarter of 2014 and 2013, respectively.

Financial Position

As of May 9, 2014, the Company had $51.4 million of cash and approximately $40.0 million available under its revolving line of credit subject to borrowing base capacity. The Company currently has no balance outstanding under its credit facility.

Conference Call Information

Management will host a conference call today at 10:00 a.m. EDT to discuss its financial results for the first quarter ended March 31, 2014. The conference call will feature remarks from Douglas Drysdale, President and Chief Executive Officer, and Tracy Clifford, Principal Accounting Officer. To participate in the live conference call, please dial (877) 312-8783 (domestic) or (408) 940-3874 (international), and provide conference ID code 25970459. A live webcast of the call will also be available on the investor relations section of the Company’s website, www.pernixtx.com. Please allow extra time prior to the webcast to register and download and install any necessary audio software.

A replay of the call will be available through May 19, 2014. To access the replay, please dial (855) 859-2056 (domestic) and (404) 537-3406 (international), and provide conference ID code 25970459. An online archive of the webcast will be available on the Company's website for 30 days following the call.

About Pernix Therapeutics Holdings, Inc.

Pernix Therapeutics is a specialty pharmaceutical company primarily focused on the sales, marketing, and development of branded pharmaceutical products. The Company markets a portfolio of branded products, including: CEDAX®, an antibiotic for middle ear infections and a number of treatments for cough and cold conditions including ZUTRIPRO®, REZIRA® and VITUZ®. The Company also markets SILENOR, a non-narcotic product for the treatment of insomnia and KHEDEZLA, a treatment for major depressive disorder. The Company promotes its branded products to physicians through its Pernix sales force and markets its generic portfolio through its wholly owned subsidiaries, Cypress Pharmaceuticals and Macoven Pharmaceuticals. Founded in 1996, the Company is now based in Morristown, NJ.

Additional information about Pernix is available on the Company’s website located at www.pernixtx.com.

Non-GAAP Financial Measures

Pernix is disclosing non-GAAP financial measures in this press release. Primarily due to acquisitions, Pernix believes that an evaluation of its ongoing operations (and comparisons of its current operations with historical and future operations) would be difficult if the disclosure of its financial results were limited to financial measures prepared only in accordance with U.S. generally accepted accounting principles (GAAP). In addition to disclosing its financial results determined in accordance with GAAP, Pernix is disclosing non-GAAP results that exclude items such as amortization expense and certain other expense and revenue items in order to supplement investors' and other readers' understanding and assessment of the Company's financial performance. Whenever Pernix uses a non-GAAP measure, it will provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. Investors and other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures set forth herein and should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP.

Cautionary Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements including words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions are forward-looking statements. Because these statements reflect the Company’s current views, expectations and beliefs concerning future events, these forward-looking statements involve risks and uncertainties. Investors should note that many factors, as more fully described under the caption "Risk Factors" in our Form 10-K, Form 10-Q and Form 8-K filings with the Securities and Exchange Commission and as otherwise enumerated herein or therein, could affect the Company’s future financial results and could cause actual results to differ materially from those expressed in forward-looking statements contained in the Company’s Annual Report on Form 10-K. The forward-looking statements in this press release are qualified by these risk factors. These are factors that, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results. The Company assumes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise.

 
PERNIX THERAPEUTICS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
   

March 31,
2014

     

December 31,
2013

(unaudited)    
ASSETS
Current assets:
Cash and cash equivalents $ 55,851,215 $ 15,646,963
Accounts receivable, net 31,884,179 25,681,371
Inventory, net 10,831,283 13,809,929
Prepaid expenses and other current assets 6,202,656 5,878,292
Note receivable, net of unamortized discount of $62,864 4,787,136 4,749,418
Prepaid income taxes 1,129,889 1,318,446
Deferred income tax assets – current 10,877,000 9,301,000
Held for sale – assets, net of impairment charge of $6,456,966   3,294,859    

Total current assets 124,858,217 76,385,419
Property and equipment, net 1,056,053 6,872,042
Other assets:
Goodwill 41,581,017 42,496,592
Intangible assets, net 78,864,295 80,022,283
Note receivable, net of unamortized discount of $270,891 and $318,696, respectively 4,579,109 4,531,304
Other long-term assets   5,930,444     1,078,655
Total assets $ 256,869,135   $ 211,386,295
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable $ 5,878,659 $ 3,443,629
Accrued personnel expense 4,010,995 3,803,274
Accrued allowances 39,003,810 34,285,578
Other accrued expenses 4,655,944 5,532,549
Put option and contingent consideration - Cypress acquisition 1,330,000
Other liabilities 6,398,751 4,072,933
Held for sale - liabilities 1,901,742
Debt – short term   5,047,850     16,999,687
Total current liabilities 66,897,751 69,467,650
Long-term liabilities
Other liabilities 11,755,119 14,387,766
Debt – long term 1,309,767
Deferred income taxes 10,654,000 15,499,000
Senior convertible notes   65,000,000    
Total liabilities   154,306,870     100,664,183
 
Commitments and contingencies (Note 22)
 
Temporary Equity
Common stock subject to repurchase
 
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 90,000,000 shares authorized, 39,801,624 and 39,318,301 issued, and 37,502,908 and 37,189,351 outstanding at March 31, 2014 and December 31, 2013, respectively 375,029 371,893
Treasury stock, at cost (2,298,716 and 2,128,950 shares held at March 31, 2014 and December 31, 2013, respectively) (4,680,566 ) (4,001,475 )
Additional paid-in capital 121,612,255 119,553,760
Retained earnings (14,744,453 ) (5,202,066 )
Other comprehensive income      
Total stockholders’ equity   102,562,265     110,722,112
 
Total liabilities and stockholders’ equity $ 256,869,135   $ 211,386,295
 
PERNIX THERAPEUTICS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)
   
Three Months Ended

March 31,

2014     2013
Net revenues $ 19,051,552 $ 22,077,873
Costs and operating expenses:
Cost of sales 9,955,950 13,077,447
Selling, general and administrative expenses 13,623,450 14,079,188
Research and development expense 968,854 1,207,116
Depreciation and amortization expense 2,190,467 1,824,708
Impairment of assets held for sale   6,456,966
Total costs and operating expenses   33,195,687  

30,188,459

 
Loss from operations (14,144,135 )

 

(8,110,586 )
 
Other income (expense):
Change in fair value of put right

 

 

(2,140,727 )
Change in fair value of contingent consideration

283,000
Interest expense, net   (1,264,252 )

 

(1,076,615 )
Total other (loss) income, net   (1,264,252

)

 

  (2,934,342 )
 
Loss before income taxes (15,408,387 )

 

(11,044,928 )
 
Income tax benefit  

(5,866,000

)

 

  (3,134,000 )
 
Net Loss $ (9,542,387 )

 

$ (7,910,928 )
 
Unrealized gains during period, net of tax of $0 and $946,000, respectively

(1,448,645 )
   
Comprehensive (Loss) income $ (9,542,387 )

 

$ (9,359,573 )
 
Net Loss per share, basic $ (0.26 )

 

$ (0.23 )
Net Loss per share, diluted $ (0.26

)

 

$ (0.23 )
Weighted-average common shares, basic   37,270,992   35,052,205
Weighted-average common shares, diluted   37,270,992   35,052,205
 

Supplemental Financial Information

The following table presents a reconciliation of Pernix’s net income to adjusted EBITDA. The Company defines EBITDA as net income plus interest, income tax expense, depreciation and amortization and presents these measures to assist investors in evaluating Pernix’s operating performance and comparing the Company’s results with those of other companies. Adjusted EBITDA should not be considered in isolation from or as a substitute for net income.

 
PERNIX THERAPEUTICS HOLDINGS, INC.
EBITDA Reconciliation Table
 
Three Months Ended March, 31,
2014       2013  
Net (loss) income $ (9,542,387 ) $ (7,910,928 )
Amortization & depreciation 2,190,467 1,824,708
Net interest 1,264,252 1,076,616
Impairment of assets held for sale 6,456,966

Taxes (5,866,000 ) (3,134,000 )
EBITDA (5,496,702 ) (8,143,604 )
 
Deal expenses 1,953 410,668
Stock compensation

1,778,826

545,564
Stock compensation – ParaPRO 119,129 146,584

Increase in basis of acquired inventory included in COGS

1,622,231 3,815,260
Increase in value of put right

2,140,727

Change in fair value of contingent consideration

  (283,000 )
Adjusted EBITDA $

(1,974,563

) $ (1,367,801 )

Contacts

Pernix Therapeutics Holdings, Inc.
Doug Drysdale, 800-793-2145 ext. 7407
President and CEO
ddrysdale@pernixtx.com

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Contacts

Pernix Therapeutics Holdings, Inc.
Doug Drysdale, 800-793-2145 ext. 7407
President and CEO
ddrysdale@pernixtx.com