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Narrow-than-Expected Loss at Pernix

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Shares of Pernix Therapeutics Holdings, Inc. were down 12.4% on the release of third quarter earnings but were up 10.50% in the next trading session. Overall, shares dropped 1.3% since the company reported third quarter results.

Pernix reported a  third quarter 2013 loss of 12 cents per share, narrower than the Zacks Consensus Estimate of a loss of 13 cents, but wider from the year-ago loss of a penny.

Revenues in the third quarter of 2013 came in at $18.3 million, up 0.9% from the year-ago quarter but missed the Zacks Consensus Estimate of $23 million.

Quarter in Detail

Sales of products, both branded and generic, that Pernix acquired from Cypress Pharma, Hawthorn Pharma and Somaxon Pharma registered an increase.

We note that Pernix has completed the acquisitions of Cypress Pharmaceuticals (a privately-owned generic pharmaceutical company) and Hawthorn Pharmaceuticals (a privately-owned branded pharmaceutical company) at the end of Dec 2012.

In early Mar 2013, Pernix completed the acquisition of Somaxon Pharmaceuticals, thereby adding insomnia drug Silenor to its portfolio.

However, the increase in revenues due to recent acquisitions was partially offset by a decrease in the sales of legacy products. This, in turn, was attributed to the discontinuation of the sale of certain generic products as a result of related litigation settlement terms along with the recall of certain products.

During the reported quarter, Pernix completed the sale of some of its non-core assets (generic assets owned by its subsidiary, Cypress Pharma) to privately-held Breckenridge Pharmaceutical, Inc.

Gross margin declined to 50.0% in the reported quarter from 57.0% in the year-ago quarter. Gross margin was negatively impacted by the sale of products subject to revenue-sharing arrangements.

Selling, general and administrative (SG&A) expenses increased 19.3% from the year-ago quarter to $11.7 million.

Pernix expects to realize annualized savings of approximately $2.0 million from headcount reductions as well as savings from cost reductions in areas of manufacturing, logistics, distribution, supply chain, sales process and corporate overhead in the coming three quarters.

2013 Outlook Lowered

Pernix lowered its guidance for 2013. Pernix now projects revenues of $80.0 million in 2013, down from the previous projection of $90 million – $100 million.

The decrease in guidance was due to a recent modification of the company’s agreement with ParaPRO. The modification is estimated to reduce revenues from the sale of Natroba and authorized generic products by $2.0 million in the fourth quarter of 2013. Moreover, Pernix has recently entered into a co-promotion agreement with Cumberland Pharmaceuticals Inc. for its gastroenterology drug, Omeclamox-Pak. This agreement is expected to reduce revenues by $1.5 million.

The Zacks Consensus Estimate of $86 million for 2013 is above the company’s forecast of $80 million.

Pipeline Update

We remind investors that Pernix decided not to launch Dr. Cocoa, an OTC chocolate flavored cough and cold offering, on its retail channels due to lack of resources. The company licensed rights of Dr. Cocoa in the U.S. and Canada to Infirst Healthcare in exchange for a net sales royalty, effective Aug 30, 2013.

Pernix is on track to start patient dosing for the trial on in its late stage pediatric candidate, in late Nov/early Dec 2013. Pernix is also working on the Silenor OTC switch.

Pernix currently carries a Zacks Rank #3 (Hold). We were disappointed by the sales miss and lowered guidance.

Right now, Actavis, Inc. , Jazz Pharmaceuticals (JAZZ - Free Report) and Impax Laboratories (IPXL - Free Report) look attractive with a Zacks Rank #1 (Strong Buy).

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