Pernix exits generics (sort of) 
Posted by Carlos on Aug 13, 2013







Texas-based Pernix Therapeutics announced a $30 million divestment of a portfolio of generic assets to Breckenridge:

Under the terms of the agreement, Breckenridge will pay Pernix $20 million in an upfront payment and $10 million which is to be paid in two equal installments over the next two years. The assets include 7 previously marketed Abbreviated New Drug Applications (ANDAs), 11 ANDAs filed at the FDA, and certain other ANDAs in various stages of development….This transaction is expected to close no later than mid-September 2013.

In reviewing the transcript from the Earnings Call, it’s unclear to us if Pernix divested all of their generic products, or if they still have a few in development:

Analyst: And just, I missed this earlier, but on the generic side, to drive growth in that business, do you still have ANDAs that you’ve maintained in your portfolio?

CEO: As far as what we sold from Cypress, yes, there’s additional consideration, which is that there are still some work to be done and some costs to be incurred in bringing along some of the ANDAs that they had. So Breckenridge — I mean, Pernix could find a way to continue on the path, and we’re certainly pleased with the people we have working at the company on that side. But Breckenridge, also in a very good position to finish that out, and so we were able to divest products that not only brought in revenue and — I should say, not only brought in cash proceeds, but also allowed them to take over the process of bringing the products to the finish line. So part of the Breckenridge transaction is driven by need and how many — and it’s a combination of the ones — of things they wanted, things we were willing to sell at a price we’re willing to sell them at, and then also not being in a position where we had to continue to spend to bring them through. The thing about what we sold is that there’s always some risk to ANDAs. There’s always an element of the unknown with generics and how many others eventually may be launched. I mean, Breckenridge is a super-good company, and their parent, Esteve, is squarely behind them. They have capabilities. This is good economics for them. It’s a give-to-get deal, but there’s work to be done and it’s — I guess, there’s always a risk for Pernix when you sell something, and there’s always risk for a buyer when you buy something. But they’re professional buyers in this case. They know what they’re doing across the broad portfolio of what they’re acquiring. They’re going to do very well, but there’s always an element of risk in various pockets in what we sold. And as far us products, you have to be approved. So we did the risk/reward calculus, and we’re comfortable that this was a good transaction for us, given where we sit today.

So we think Pernix has completely exited the generics business.

Does this meant that it is becoming increasingly difficult for smaller generic companies to compete in the US against the likes of Teva and Mylan?

Or, are there niche generic markets that remain ripe for smaller players to participate?

We happen to believe (and know) that the latter is the case. There remain some (not many, but some) pockets in the generics space where smaller companies may be able to carve out a business. These include areas such as sophisticated parenteral formulations, certain prefilled syringe-based products, and a few others.

We don’t know the details surrounding the actual portfolio purchased by Breckenridge. We do agree that Breckenridge is a very good, up-and-coming generic company, and they should do well with these products.

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