In Move That Spells Relief, Zogenix Sells Painkiller to Pernix

Xconomy San Diego — 

Zohydro was supposed to be a new kind of painkiller, but it gave Zogenix CEO Roger Hawley a headache that lasted more than a year. Now perhaps he can rest a little easier.

After introducing Zohydro in the United States almost exactly a year ago, San Diego-based Zogenix (NASDAQ: ZGNX) said today it has agreed to sell the opioid painkiller to Morristown, NJ-based Pernix Therapeutics for $100 million, with additional payments of as much as $283.5 million in regulatory and sales milestones.

“It was a year I’ll never forget,” Hawley declared at the outset of a conference call with analysts after the two companies announced the transaction, which is expected to close next month.

Proceeds from the sale, along with the elimination of employees and operating expenses related to the Zohydro business, will enable Zogenix to advance two drugs in its pipeline without needing to raise additional capital, Hawley said. Nearly 100 Zogenix sales representatives will move to Pernix as part of the deal, and Zogenix is expected to reduce its total workforce from “just under” 200 to about 50 or 60 employees, Hawley said.

Zogenix began developing Zohydro as a pure hydrocodone pain reliever, at least partly in response to reports of liver damage caused by acetaminophen in existing narcotics like Percocet, Vicodin, and Tylenol with codeine, which are all opioid drugs with acetaminophen.

The FDA approved Zohydro in late 2013, against the recommendation of its own medical advisory committee, and set off a firestorm among anti-addiction activists who warned that Zohydro would supplant OxyContin as the narcotic of choice for habitual drug abusers. Public health authorities denounced Zohydro, and 28 state attorneys general signed a letter asking the FDA to rescind its approval, or require Zogenix to reformulate the drug to make it harder to crush the capsules and use the powdered drug to get high.

FDA Commissioner Margaret Hamburg defended the agency’s decision, arguing that patients suffering from long-term chronic pain needed Zohydro.

Nevertheless, the controversy intensified after Zogenix introduced the painkiller last March. Public pressure led Zogenix to develop a new formulation of its extended release painkiller with abuse-deterrent properties. When the FDA approved the new formulation in January, Hawley said it created an opportunity for Zogenix to seek a wider variety of strategic options—and that eventually led to the Pernix deal.

“One of the key reasons we made this difficult choice on Zohydro was to put ourselves in a position of controlling our own destiny, and to put our shareholders in a position where they could follow the advances in our pipeline,” Hawley said during the conference call.

As Hawley put it, the real challenge was that Zohydro was the company’s only product.

“It was tough to make it, particularly given the publicity around the launch, which is now abating, and we think the future of the brand Zohydro is much brighter now,” Hawley said. Pernix gets the benefit of adding Zohydro to its own commercial lineup, along with a sales force that can pitch Pernix products along with Zohydro on their sales calls.

Once the deal closes, Pernix agreed to pay Zogenix $30 million in cash upfront, along with $20 million in common stock, and to provide a $50 million short-term promissory note. Zogenix said it agreed to support certain activities related to the further development of Zohydro after the deal closed.

Zogenix said it also is eligible to receive $12.5 million from Pernix upon approval of ZX007, a new tablet formulation of the extended-release hydrocodone with abuse-deterrent properties that is currently under development. Zogenix also is eligible to get as much as $271 million in cash as Pernix reaches certain product sales milestones for Zohydro ER and ZX007.

The transaction enables Zogenix to deftly shift its strategic focus to two promising (and less controversial) drug candidates. The company is preparing for Phase 3 clinical studies later this year for ZX008, which has orphan drug designation in the U.S. and Europe for the treatment of Dravet syndrome, a severe and catastrophic form of epilepsy that begins in infancy. Zogenix said it also has begun to enroll patients in a mid-stage clinical trial of a subcutaneous formulation of risperidone (Relday) for treating schizophrenia. Zogenix says top line data expected by the end of September will enable the company to move to an “end-of-phase-2 meeting” with the FDA.

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One response to “In Move That Spells Relief, Zogenix Sells Painkiller to Pernix”

  1. sportsbook14 says:

    Zogenix through us ( the shareholders ) Under the bus in a big way. I can’t believe I held on to this for so long. I am going to lose everything now. ZGNX should have a class action filed against them. Only what? 8% of drugs get through stage 3 FDA? :(