Pernix Therapeutics (PTX) to Acquire Zogenix's (ZGNX) Zohydro ER Business

March 10, 2015 4:06 PM EDT

Zogenix (NASDAQ: ZGNX) has entered into a definitive agreement to sell its Zohydro ER (hydrocodone bitartrate) business to Pernix Therapeutics (Nasdaq: PTX) for $100 million plus regulatory and sales milestones up to $283.5 million. Both companies plan to transition the Zogenix sales team and other select employees to Pernix.

This transaction enables Zogenix to strategically shift focus to its late-stage CNS clinical pipeline highlighted by two promising product candidates:

  • ZX008, which has orphan drug designation in the US and EU for the treatment of Dravet syndrome and is expected to enter Phase 3 development this year, and;
  • Relday, a unique long-acting injectable formulation of risperidone for the maintenance treatment of schizophrenia that is expected to be ready for Phase 3 studies in the first half of 2016.

The sale of Zohydro ER to Pernix significantly reduces operating expenses, eliminates all R&D expenses related to ongoing abuse-deterrent formulations, and further enhances the Company's financial strength with non-dilutive capital.

Roger Hawley, chief executive officer of Zogenix said, "The submission and recent approval of the supplemental New Drug Application (sNDA) for Zohydro® ER with BeadTek™ was an important catalyst for increasing strategic interest in the brand. We are very pleased to have selected Pernix for this transaction as we believe they are well positioned to continue raising awareness of the important clinical benefits of Zohydro ER for patients suffering with severe chronic pain who are in need of around-the-clock opioid therapy. As a further benefit to those involved with Zohydro ER, upon closing both companies plan to transition the Zogenix sales team and other select commercial and medical affairs employees to Pernix. This will help ensure uninterrupted customer support, a smooth transition and continued growth of the product. We thank our entire commercial and medical organizations for their achievements during the product's first year on the market and look forward to continued efforts in the coming months by our sales team in driving adoption of Zohydro ER in the pain community."

Terms of the agreement

Under terms of the agreement, at closing, Pernix will pay Zogenix $30 million in cash, $20 million in common stock and provide a $50 million short-term promissory note. Ten percent of the cash consideration will be deposited into escrow to fund potential indemnification claims for a period of 12 months, plus up to an additional $7 million to be deposited into escrow upon repayment of the promissory note. The Company is also eligible to receive $12.5 million upon approval of ZX007, a tablet formulation of extended-release hydrocodone with abuse-deterrent properties which is currently in development in collaboration with Altus Formulation. In addition, Zogenix is eligible to receive cash payments of up to $271 million based on the achievement of pre-determined annual product sales milestones for Zohydro ER and ZX007. Pernix will also purchase a pre-defined amount of Zohydro ER product inventory.

The Zohydro ER NDA and related investigational new drug applications will be transferred to Pernix immediately upon closing and Pernix will assume responsibility for Zogenix's royalty and manufacturing obligations to Daravita Limited, an indirect wholly-owned subsidiary of Alkermes plc. Upon closing, Pernix will also assume regulatory and financial responsibility for the ongoing efforts related to amending the Zohydro ER label to include abuse-deterrent claims and for the development of ZX007, with Zogenix providing assistance in the development of both programs under a Transitional Services Agreement for up to 18 months following closing. The transaction is expected to close in April 2015, subject to customary closing conditions.

Leerink Partners LLC acted as financial advisor and Latham & Watkins LLP acted as legal advisor to Zogenix on the transaction.

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