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Zogenix, Inc. (ZGNX) Reports Second Quarter 2014 Financial Results



8/5/2014 3:22:23 PM

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SAN DIEGO, Aug. 5, 2014 (GLOBE NEWSWIRE) -- Zogenix, Inc. (Nasdaq:ZGNX), a pharmaceutical company developing and commercializing products for the treatment of pain-related and central nervous system (CNS) disorders, today reported financial results for the second quarter ended June 30, 2014.

Roger Hawley, chief executive officer of Zogenix, stated, "In the first full quarter of the launch of Zohydro ER there continues to be steady growth in prescriptions and positive feedback from prescribers and patients on Zohydro ER and our safe use offerings. With only 5 months of product availability, we have approximately 2,800 prescribers and 15,000 prescriptions. We also announced an updated development timeline for our abuse deterrent formulations of Zohydro ER, and remain on track to file the supplemental New Drug Application by October 2014 for the first formulation, with potential approval in early 2015."

Mr. Hawley added, "Despite misrepresentations of the facts, the data reported to our External Safe Use Board thus far has demonstrated a lack of signal of misuse and diversion of Zohydro ER. Similarly, we have resolved issues in most of the limited number of states that had taken a narrow focus on Zohydro ER. The focus has now shifted appropriately to implementing class-wide prescribing guidelines to reduce the risk of opioid abuse, instead of singling out Zohydro ER. In Massachusetts, we have resolved all matters in Federal court with the exception of resolution of the State Board of Registration in Pharmacy's requirements specific to Zohydro ER. We remain committed to maintaining appropriate patient access to Zohydro ER in all States."

Second Quarter 2014 Financial Results

Total revenues for the second quarter 2014, which consisted of net product revenue, contract manufacturing revenue, and service and other revenue, were $9.2 million, up 2% from $8.9 million in the second quarter 2013. Net product revenue on sales of Zohydro ER for the second quarter 2014 was $2.4 million. The Company began commercializing Zohydro ER in March 2014, with recognized revenue based on product dispensed through patient prescriptions as estimated by Source Healthcare Analytics. As of June 30, 2014, the Company had $7.0 million in deferred revenue for Zohydro ER sold to wholesalers but not yet dispensed through patient prescriptions. Gross-to-net sales deductions will be recorded at the time the prescription units are dispensed.

Net product revenue on sales of SUMAVEL DosePro for the second quarter 2014 was $3.4 million, compared to $8.9 million in the second quarter 2013. In May 2014, the Company completed the sale of the SUMAVEL DosePro business to Endo International plc ("Endo"). In connection with the sale of the business, the Company and Endo executed a supply agreement whereby the Company will act as the exclusive supplier of SUMAVEL DosePro to Endo. As a result of the sale, the Company will no longer report net product revenue on sales of SUMAVEL DosePro and will instead report contract manufacturing revenue consisting of the supply of SUMAVEL DosePro to Endo under the companies' supply agreement.

Contract manufacturing revenue on sales of SUMAVEL DosePro to Endo under the companies' supply agreement for the second quarter 2014 was $2.2 million. It excludes the transfer of SUMAVEL DosePro finished goods inventory to Endo at the closing of the transaction, which was accounted for as part of the sale of the SUMAVEL DosePro business.

Service and other revenue for the second quarter 2014 was $1.1 million, which was primarily comprised of fees from Valeant Pharmaceuticals for the Company's co-promotion of Migranal® Nasal Spray, which began in August 2013.

Cost of sales for the second quarter 2014 was $2.4 million, compared to $4.6 million in the second quarter 2013. Product gross margin was 59% in the second quarter 2014, compared to 48% in the second quarter 2013. The increase in product gross margin was primarily due to product mix, as higher margin Zohydro ER comprised a higher proportion of net product revenue in the second quarter 2014. Cost of manufacturing services for SUMAVEL DosePro supplied to Endo during the second quarter 2014 was $1.9 million.

Royalty expense for the second quarter 2014 was $435,000, an increase from $338,000 in the second quarter 2013, reflecting the launch of Zohydro ER in March 2014.

Research and development expenses for the second quarter 2014 were $4.1 million, representing a 15% increase from $3.6 million in the second quarter 2013. The increase in research and development expenses was primarily due to an increase in development expenses for Zohydro ER abuse-deterrent formulations and Relday development expenses.

Selling, general and administrative expenses were $24.5 million for the second quarter 2014, representing a 104% increase from $12.0 million for the second quarter 2013. The increase in selling, general and administrative expenses was primarily the result of the launch of Zohydro ER, including expansion of the Company's sales force and the addition of its medical affairs team. It also reflects the implementation of the FDA required ER/LA opioids REMS program and the Company's voluntary initiatives to support the responsible commercialization of Zohydro ER.

A net gain on the sale of the SUMAVEL DosePro business was booked in the second quarter. The aggregate consideration received by the Company was $89.6 million. The net gain on sale was calculated as the difference between the allocated consideration for the SUMAVEL DosePro business, in accordance with authoritative accounting guidance, of $80.0 million, and the net carrying amount of the assets transferred to Endo. The undelivered elements of this transaction were deferred and will primarily be recognized as contract manufacturing revenue based on proportional performance of contract manufacturing services under the supply agreement.

Impairment of long-lived assets of $838,000 was booked in connection with the sale of the Company's SUMAVEL DosePro business. The Company tested the recoverability of its manufacturing machinery and equipment and construction in progress that relates to SUMAVEL DosePro manufacturing.

Other income for the second quarter 2014 totaled $7.9 million, compared to other expense of $853,000 in the second quarter 2013, reflecting a non-cash mark-to-market adjustment to the fair value of the Company's outstanding warrants driven primarily by changes in the Company's stock price.

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