Pernix Therapeutics Holdings, Inc. (“Pernix” or the “Company”) PTX, a specialty pharmaceutical company, today announced financial results for the fourth quarter and year ended December 31, 2013.
“Pernix exited 2013 with accelerating momentum -- revenue exceeded guidance, product price increases were implemented, and expense reductions began in earnest,” said Doug Drysdale, Chairman and Chief Executive Officer. “February 2014 delivered additional good news as fresh product acquisition capital was paired with proven management to create a strong pharma platform for shareholders.”
Business Update
The Company has recently resolved two major contingent liabilities that were burdening its opportunity for growth. In January, the Company entered into a settlement agreement with the former shareholders of Cypress Pharmaceuticals pursuant to which all claims, including the put rights, were waived and released by the parties and Pernix made a one-time payment to the Cypress shareholders of $1.33 million in full and final settlement of the claims. In February, our Cypress subsidiary entered into a settlement agreement with the Texas Attorney General to settle all Medicaid claims against Cypress that related to the ownership prior to our acquisition for a total of $12 million, with $2 million paid upfront and five payments of $2 million to be made annually on the anniversary date thereafter. The financial impact of both of these settlements was recorded in the fourth quarter.
Subsequent to these settlements, the Company was able to generate new interest in its future. In February, Pernix announced the closing of the issuance of $65 million of 8% Convertible Senior Notes. The Notes mature in 2019 and are convertible into shares of Pernix common stock at a conversion price of $3.60, representing a conversion premium of more than 70% over the share price on February 4, 2014, which was the date the Company entered into purchase agreements with investors.
On February 5, 2014, Douglas Drysdale, a seasoned pharmaceutical executive, assumed the position of Chairman, President and CEO of the Company from Mr. Michael Pearce who remains on the Board.
Over the past two quarters and subsequent to year-end, Pernix has been focused on reducing operating costs, improving operating efficiencies, implementing more robust compliance systems and increasing product margins. Significant progress has been made with actions planned over the next two quarters to reduce the Company's G&A spending run-rate and further consolidate operations.
Free from the historic litigation overhangs and with cash on the balance sheet, Pernix is now well positioned to invest in new commercial product assets and is poised for a new period of growth.
A New Direction
In recent weeks, management has taken several actions including:
- reshaping the Company's board of directors to include new members with strong pharmaceutical resumes who can support management as the Company seeks to make new acquisitions. On March 13, 2014 Pernix announced that industry veteran John Sedor has joined its Board and the Company is in the midst of the selection process to appoint an additional Director as soon as practicable to round out its five-member board;
- adding additional pharmaceutical talent to its management team, including the hiring of Terry Novak as Chief Operating Officer. Terry brings thirty years of pharmaceutical experience including positions as President of Norwich Pharma Services, President and Chief Commercial Officer at Patheon and President of DSM Pharmaceuticals;
- entering into an agreement with Cardinal to exclusively manage its distribution and logistics. It is expected that all products will be moved to Cardinal by the end of April, 2014. As a result the Company will be closing its distribution centers in Magnolia, Texas and Madison, Mississippi by June 30, 2014, resulting in net cost savings;
- conducting a strategic review of its Houston manufacturing operations and assessing options to address profitability at the site;
- implementing price increases on certain core products after an in-depth review which will improve the margins on these products in 2014;
- entering into late stage negotiations to relocate the Company's corporate headquarters over the next quarter 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; and
- finally, the Company announced on February 27th that it has entered into a license agreement with Osmotica Pharmaceuticals to sell and market 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 will be targeting high prescribers of Pristiq, including select psychiatrists and primary care physicians.
In summary,
- Pernix has fortified its financial position by divesting non-core assets, removing historic contingent liabilities and by adding cash to the balance sheet;
- management is securing the base business through the addition of strong pharmaceutical talent, several price increases on key products, and the licensing of Khedezla;
- the Company has achieved significant SG&A cost savings and foresees additional cost savings during the balance of 2014, with the aim of delivering a self-sustaining cost structure; and
- Pernix is well capitalized and poised to acquire new specialty products that better leverage its strong sales organization.
Financial Results
For the fourth quarter of 2013, net sales increased by approximately 31% to $23.9 million, compared to $18.2 million for the same period in the prior year. The Company experienced growth in net revenues due to sales revenues of branded and generic products that the Company acquired from Cypress Hawthorn and the Silenor product acquired in the merger with Somaxon. The increase from the acquired products was offset by a decrease in the Company's legacy portfolio of products which was due in part to the discontinuation of certain brand and generic cough and cold products that had been recalled and of certain generic products as a result of related litigation settlement terms. As it relates to revenue contribution, 68% of our product sales revenue was from brand product sales and 32% of our revenue was from generic product sales. This was primarily attributed to an increase in the sales of brand cough and cold products during the quarter along with the fact that several of our generic products were on back-order during this period.
The net loss for the fourth quarter of 2013 was approximately $5.6 million, or $0.15 per basic and diluted share, compared to net loss of $1.4 million, or $0.05 per basic and diluted share, for the fourth quarter of 2012.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, a non-GAAP measure) was approximately $1.0 million for both the fourth quarter of 2013 and the fourth quarter of 2012. 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 fourth quarter of 2013 were approximately $23.6 million (including the fair value of the settlement of the Texas Medicaid litigation of approximately $9.8 million), compared to $11.1 million for the fourth quarter of 2012. Approximately $1.0 million of the increase relates to an increase in overall compensation expense that was primarily attributable to the addition of Cypress Hawthorn employees, effective January 1, 2013, partially offset by decreases resulting from the reorganization of the consolidated company and the elimination and consolidation of certain management level and staff positions as part of our expense reduction program. The remaining increase was primarily due to the incremental increase of the facility and overhead operating expenses from the acquisitions of Cypress Hawthorn and Somaxon, offset by certain synergistic savings in the operations of the consolidated business.
Depreciation and amortization expense was $1.2 million for the fourth quarter of 2013, compared to $0.9 million for the fourth quarter of 2012. The Company recognized an income tax benefit of $12.7 million for the fourth quarter of 2013, compared to an income tax benefit of $0.2 million in the fourth quarter of 2012.
For the year ended December 31, 2013, net revenues increased by approximately 38% to $84.9 million, compared to $61.3 million for the prior year period. The increase in net revenues was due primarily to sales of Cypress Hawthorn products acquired offset by reduced revenue resulting from discontinued products in the Pernix legacy portfolio.
The net loss for the year ended December 31, 2013 was approximately $25.6 million, or $0.70 per basic and diluted share, compared to net loss of approximately $1.4 million, or $0.05 per basic and diluted share, for the prior year period.
Adjusted EBITDA was a loss of $6.2 million for the year ended December 31, 2013, compared to adjusted EBITDA of $5.9 million for the prior year period. See the table at the end of this press release for a reconciliation of net income to EBITDA.
SG&A expenses for the year ended December 31, 2013 were approximately $62.6 million, compared to $35.5 million for the prior year period.
Overall compensation expense represented approximately $26.1 million, or 41.7%, and $17.3 million, or 48.7%, of total selling, general and administrative expenses for the years ended December 31, 2013 and 2012, respectively. The increase of approximately $8.8 million in overall compensation expense is primarily due to the addition of Cypress Hawthorn employees effective January 1, 2013, and the addition of Pernix Manufacturing employees in July 2012 offset by decreases resulting from the reorganization of the consolidated company and the elimination and consolidation of certain management level and staff positions.
Other selling, general and administrative expenses were approximately $36.4 million and $18.2 million for the years ended December 31, 2013 and 2012, respectively, an increase of approximately $18.2 million. This increase was primarily due to the settlement of the Texas Medicaid litigation which contributed approximately $9.8 million to the SG&A expenses in addition to the incremental increase of the SG&A expenses from the acquisitions of Cypress, Somaxon and the manufacturing facility.
Depreciation and amortization expense was $8.7 million for the year ended December 31, 2013, compared to $3.2 million for the prior year period. The Company recognized an income tax benefit of $20.8 million for the year ended December 31, 2013, compared to an income tax benefit of approximately $0.4 million in the prior year period.
Financial Position
As of December 31, 2013, the Company had $15.6 million of cash and approximately $3.0 million available under its revolving line of credit subject to borrowing base capacity. As of March 12, 2014, the Company had $64.6 million of cash and approximately $32.0 million available under its revolving line of credit subject to borrowing base capacity.
Conference Call Information
Management will host a conference call today at 9:00 a.m. ET to discuss its financial results for the fourth quarter and full year ended December 31, 2013. 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 1582135. 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 March 24, 2014. To access the replay, please dial (855) 859-2056 (domestic) and (404) 537-3406 (international), and provide conference ID code 1582135. 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, manufacturing 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. The Company's wholly owned subsidiary, Pernix Manufacturing, manufactures and packages products for the pharmaceutical industry in a wide range of dosage forms. Founded in 1996, the Company is based in Houston, TX.
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 | |||||||||||
| December 31, | |||||||||||
| 2013 | 2012 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 15,646,963 | $ | 23,022,821 | |||||||
| Accounts receivable, net | 25,681,371 | 36,647,087 | |||||||||
| Inventory, net | 13,809,929 | 22,014,405 | |||||||||
| Prepaid expenses and other current assets | 5,878,292 | 3,888,117 | |||||||||
| Note receivable, net of unamortized discount of $100,582 | 4,749,418 |
— |
|||||||||
| Prepaid income taxes | 1,318,446 | 2,024,411 | |||||||||
| Deferred income tax assets – current | 9,301,000 | 8,118,500 | |||||||||
| Total current assets | 76,385,419 | 95,715,341 | |||||||||
| Property and equipment, net | 6,872,042 | 6,946,944 | |||||||||
| Other assets: | |||||||||||
| Investments | — | 5,710,526 | |||||||||
| Goodwill | 42,496,592 | 37,160,911 | |||||||||
| Intangible assets, net | 80,022,283 | 104,054,431 | |||||||||
| Note receivable, net of unamortized discount of $318,696 | 4,531,304 | — | |||||||||
| Other long-term assets | 1,078,655 | 1,858,534 | |||||||||
| Total assets | $ | 211,386,295 | $ | 251,446,687 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 3,443,629 | $ | 5,045,488 | |||||||
| Accrued personnel expense | 3,803,274 | 2,881,967 | |||||||||
| Accrued allowances | 34,285,578 | 30,054,551 | |||||||||
| Other accrued expenses | 5,532,549 | 5,548,084 | |||||||||
| Put option and contingent consideration - Cypress acquisition | 1,330,000 | 6,562,169 | |||||||||
| Other liabilities | 4,072,933 | 1,568,498 | |||||||||
| Debt – short term | 16,999,687 | 2,286,513 | |||||||||
| Total current liabilities | 69,467,650 | 53,947,267 | |||||||||
| Long-term liabilities | |||||||||||
| Put option and contingent consideration – Cypress acquisition | — | 7,765,511 | |||||||||
| Other liabilities | 14,387,766 | — | |||||||||
| Debt – long term | 1,309,767 | 41,349,563 | |||||||||
| Deferred income taxes | 15,499,000 | 35,535,500 | |||||||||
| Total liabilities | 100,664,183 | 138,597,841 | |||||||||
| Commitments and contingencies (Note 22) | |||||||||||
| Temporary Equity | |||||||||||
| Common stock subject to repurchase (4,427,084 shares as of December 31, 2012) | — | 34,309,901 | |||||||||
| STOCKHOLDERS' EQUITY | |||||||||||
| Common stock $.01 par value, 90,000,000 shares authorized, 39,318,301 and 35,374,828 issued, and 37,189,351 and 33,302,018 outstanding at December 31, 2013 and 2012, respectively | 371,893 | 288,749 | |||||||||
| Treasury stock, at cost (2,128,950 and 2,072,810 shares held at December 31, 2013 and 2012, respectively) | (4,001,475 | ) | (3,772,410 | ) | |||||||
| Additional paid-in capital | 119,553,760 | 58,614,226 | |||||||||
| Retained earnings | (5,202,066 | ) | 20,433,262 | ||||||||
| Other comprehensive income | — | 2,975,118 | |||||||||
| Total stockholders' equity | 110,722,112 | 78,538,945 | |||||||||
| Total liabilities and stockholders' equity | $ | 211,386,295 | $ | 251,446,687 | |||||||
| PERNIX THERAPEUTICS HOLDINGS, INC. AND SUBSIDIARIES | |||||||||||||||||||||
|
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME |
|||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
| Net revenues | $ | 23,925,683 | $ | 18,197,042 | $ | 84,872,087 | $ | 61,312,559 | |||||||||||||
| Costs and operating expenses: | |||||||||||||||||||||
| Cost of sales | 10,058,735 | 7,515,434 | 43,870,350 | 23,376,895 | |||||||||||||||||
| Selling, general and administrative expenses | 23,590,281 | 11,149,140 | 62,550,591 | 35,451,653 | |||||||||||||||||
| Research and development expense | 1,165,208 | 219,971 | 4,797,927 | 731,665 | |||||||||||||||||
| Loss from the operations of the joint venture with SEEK |
— |
— |
— |
240,195 | |||||||||||||||||
| Depreciation and amortization expense | 1,209,294 | 880,894 | 8,676,285 | 3,201,483 | |||||||||||||||||
| Loss on disposal of assets, impairments of intangibles | 19,636,246 |
— |
19,637,525 |
— |
|||||||||||||||||
| Total costs and operating expenses | 55,659,764 | 19,765,439 | 139,532,678 | 63,001,891 | |||||||||||||||||
| Loss from operations | (31,734,081 | ) | (1,568,397 | ) |
(54,660,591 |
) |
(1,689,332 | ) | |||||||||||||
| Other income (expense): | |||||||||||||||||||||
| Change in fair value of put right | (2,244,400 | ) |
— |
(8,360,889 |
) |
— |
|||||||||||||||
| Change in fair value of contingent consideration |
— |
— |
805,000 |
— |
|||||||||||||||||
| Gain on contingent consideration | 16,268,600 |
— |
16,268,600 |
— |
|||||||||||||||||
| Interest expense, net | (556,745 | ) | (34,847 | ) | (4,048,711 | ) | (94,823 | ) | |||||||||||||
| Gain on sale of investment |
— |
— |
3,605,263 |
— |
|||||||||||||||||
| Total other (loss) income, net | 13,467,455 | (34,847 | ) | 8,269,263 | (94,823 | ) | |||||||||||||||
| Loss before income taxes | (18,266,626 | ) | (1,603,244 | ) | (46,391,328 | ) | (1,784,155 | ) | |||||||||||||
| Income tax benefit | (12,696,000 | ) | (203,999 | ) | (20,756,000 | ) | (373,999 | ) | |||||||||||||
| Net Loss | $ | (5,570,626 | ) | $ | (1,399,245 | ) | $ | (25,635,328 | ) | $ | (1,410,156 | ) | |||||||||
|
Unrealized gains during period, net of tax of $(411,000) and $1,061,000, respectively |
— |
(401,124 | ) |
(702,000 |
) |
1,885,750 | |||||||||||||||
|
Reclassification adjustment for net gain included in net loss, net of tax of $(1,332,000) |
— |
— |
(2,273,118 |
) |
— |
||||||||||||||||
| Comprehensive (Loss) income | $ | (5,570,626 | ) | $ | (1,800,369 | ) | $ | (28,610,446 | ) | $ | 475,594 | ||||||||||
| Net Loss per share, basic | $ | (0.15 | ) | $ | (0.05 | ) | $ | (0.70 | ) | $ | (0.05 | ) | |||||||||
| Net Loss per share, diluted | $ | (0.15 | ) | $ | (0.05 | ) | $ | (0.70 | ) | $ | (0.05 | ) | |||||||||
| Weighted-average common shares, basic | 37,115,805 | 29,254,667 | 36,444,161 | 28,146,207 | |||||||||||||||||
| Weighted-average common shares, diluted | 37,115,805 | 29,254,667 | 36,444,161 | 28,146,207 | |||||||||||||||||
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 December 31, |
Year Ended December 31, |
||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
| Net (loss) income | $ | (5,570,626 | ) | $ | (1,399,245 | ) | $ | (25,635,328 | ) | $ | (1,410,156 | ) | |||||||||
| Amortization & depreciation | 1,209,294 | 880,894 | 8,676,285 | 3,201,483 | |||||||||||||||||
| Impairment of Intangibles | 19,429,496 |
— |
19,429,496 |
— |
|||||||||||||||||
| Impairment of Fixed assets | 208,029 |
— |
208,029 |
— |
|||||||||||||||||
|
Net interest |
556,745 | 34,847 | 4,048,711 | 94,823 | |||||||||||||||||
| Taxes | (12,696,000 | ) | (203,999 | ) | (20,756,000 | ) | (373,999 | ) | |||||||||||||
| EBITDA | 3,136,938 | (687,503 | ) | (14,028,807 | ) | 1,512,151 | |||||||||||||||
| Deal expenses | 266,978 | 776,816 | 1,370,690 |
1,000,947 |
|||||||||||||||||
| Stock compensation | 532,223 | 752,619 | 2,048,476 | 2,654,206 | |||||||||||||||||
| Stock compensation – ParaPRO | 121,777 | 144,842 | 547,807 | 685,094 | |||||||||||||||||
| Increase in basis of acquired inventory included in COGS | 1,236,148 |
— |
6,359,216 |
— |
|||||||||||||||||
| Increase in value of put right | 2,244,400 |
— |
8,360,889 |
— |
|||||||||||||||||
| Change in fair value of contingent consideration |
— |
— |
(805,000 | ) |
— |
||||||||||||||||
| Gain on waiver of put right | (11,726,400 | ) |
— |
(11,726,400 | ) |
— |
|||||||||||||||
| Gain on contingent consideration | (4,542,200 | ) |
— |
(4,542,200 | ) |
— |
|||||||||||||||
|
Other non-recurring items – litigation settlement |
9,780,000 |
— |
9,780,000 |
— |
|||||||||||||||||
| Gain on sale of investment |
— |
— |
(3,605,263 | ) |
— |
||||||||||||||||
| Adjusted EBITDA | $ | 1,049,864 | $ | 986,774 | $ | (6,240,592 | ) | $ | 5,852,398 | ||||||||||||
Pernix Therapeutics Holdings, Inc.
Doug Drysdale, 800-793-2145 ext.
7407
President and CEO
ddrysdale@pernixtx.com
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