Penwest Pharmaceuticals Co. (PPCO) filed Quarterly Report for the period ended 2009-09-30.
Penwest Pharmaceuticals is engaged in the research, development and commercialization of novel drug delivery technologies and has extensive expertise in developing and manufacturing excipient ingredients for the pharmaceutical industry. Based on this fundamental expertise in tabletting ingredients, the company has developed its proprietary TIMERx controlled release drug delivery technology, which is applicable to a broad range of orally administered drugs, and ProSolv a co-processing drug deliverytechnology platform. Penwest Pharmaceuticals Co. has a market cap of $73.68 million; its shares were traded at around $2.32 with and P/S ratio of 8.63. Penwest Pharmaceuticals Co. had an annual average earning growth of 8.9% over the past 10 years.
Highlight of Business Operations:
In January 2009, we implemented staff reductions of approximately 18% of our workforce as part of our efforts to aggressively manage our overhead cost structure. The terms of the severance arrangements we entered into with terminated employees include severance pay and continuation of certain benefits, including medical insurance, over the respective severance periods. In connection with these severance arrangements, we recorded a severance charge in our statement of operations for the first quarter of 2009 of $550,000, of which $21,000 was unpaid as of September 30, 2009 but will be paid over the remainder of 2009. Of such severance charge, $464,000 and $86,000 were recorded as SG&A expense and R&D expense, respectively, in the first quarter of 2009. In addition, as a result of these terminations, in the first quarter of 2009, we recorded a non-cash credit of $885,000 associated with the forfeiture of stock options held by these former employees. Of such amount, $844,000 and $41,000 were recorded as credits to SG&A expense and R&D expense, respectively, in the first quarter of 2009.
In November 2009, we announced that we would be reducing our staff from 48 to 39 and consolidating our Danbury, Connecticut headquarters into our Patterson, New York facility as of January 1, 2010. We expect an annualized cost reduction of approximately $2 million from the staff reduction and facilities consolidation, including a reduction in SG&A expense of approximately $1.2 million and a reduction in R&D expense of approximately $800,000, all on an annualized basis. In addition, we announced our decision to defer any new development work on A0001, other than the two Phase IIa studies, pending review and analysis of the results of those studies. We anticipate recording a restructuring charge in the fourth quarter of 2009 of approximately $250,000, which amount is net of a non-cash credit associated with the expected forfeiture of stock options held by affected employees. This charge relates primarily to anticipated severance arrangements and facility relocation costs, and will be recorded primarily to selling, general and administrative expense.
Under the terms of our collaboration with Endo, Endo pays us royalties based on U.S. net sales of Opana ER. No payments were due to us for the first $41 million of royalties otherwise payable to us beginning from the time of the product launch in July 2006, a period we refer to as the “royalty holiday”. In the third quarter of 2008, the royalty holiday ended and we began earning royalties from Endo on sales of Opana ER. Endo has the right under our agreement to recoup the $28 million in development costs that Endo funded on our behalf prior to the approval of Opana ER, through a temporary 50% reduction in royalties. For the three and nine month periods ended September 30, 2009, we recognized $4.9 million and $13.7 million, respectively, in royalties from Endo on sales of Opana ER. These royalty amounts reflect this temporary reduction. As of September 30, 2009, $9.3 million of the $28 million remains to be recouped by Endo.
On May 5, 2009, we and Edison entered into an agreement under which Edison agreed that we could offset $550,000, and following that, the loan amount of $1.0 million plus accrued interest, against 50% of any future milestone and royalty payments, which may be due to Edison under the terms of the Edison Agreement. The loan amount is otherwise due and payable by Edison according to the original loan terms under the loan agreement. In addition, the agreement provides that we have no further contractual payment obligations in connection with the research period. Following the milestone payment we made to Edison in the fourth quarter of 2009, as noted above, $300,000 remains of the $550,000 offset provided for under the May 5, 2009 agreement.
We have incurred net losses since 1994 including net losses of $26.7 million, $34.5 million and $31.3 million during 2008, 2007 and 2006, respectively. For the nine month period ended September 30, 2009, our net loss was $2.7 million. As of September 30, 2009, our accumulated deficit was approximately $236 million. We currently generate revenues primarily from royalties received from Endo on Endo’s net sales of Opana ER and from Mylan on Mylan’s net sales of Pfizer’s generic version of Procardia XL 30 mg, revenues from our drug delivery technology collaborations and, to a lesser extent, from bulk sales of TIMERx material to Endo for use in Opana ER. For the third quarter of 2009, we reported net income of $383,000, our first quarterly net profit from continuing operations. We anticipate that, based upon our current operating plan, which includes expected royalties from third parties, we will achieve profitability in the fourth quarter of 2009 and annual profitability in 2010. If we do not receive royalties from Endo for Opana ER in such amounts as forecasted and provided to us by Endo, or if we are unable to maintain our current operating expense level, which was reduced, compared with our 2008 level, we may not be able to achieve profitability in the fourth quarter of 2009 or in the full year of 2010. However, even if we are profitable in the fourth quarter of 2009 or the full year 2010, we may not be able to sustain profitability on a quarterly or annual basis. Our future profitability will depend on numerous factors, including:
Our royalties increased in the three and nine month periods ended September 30, 2009, as compared to the three and nine month periods ended September 30, 2008, reflecting increased royalties received from Endo on its net sales of Opana ER. We began to recognize royalties from Endo on sales of Opana ER following the completion of the royalty holiday in the third quarter of 2008. For the three and nine month periods ended September 30, 2009, we recognized $4.9 million and $13.7 million, respectively, in royalties from Endo as compared to $577,000 for each of the three and nine periods ended September 30, 2008. Partially offsetting these increased revenues were decreased royalties from Mylan due to a decrease in Mylan’s net sales of Pfizer’s generic version of Procardia XL 30 mg. During the fourth quarter of 2009, we expect that our royalty rate on Endo’s net sales of Opana ER will increase as we expect aggregate net sales for 2009 to exceed the $150 million annual net sales threshold, beyond which our royalty rate increases from the current royalty rate, pursuant to our agreement with Endo. We expect royalties to increase in 2010 because we expect that during the first quarter of 2010, Endo will recoup the remainder of the $28 million in development costs that Endo funded on our behalf, which will result in an end to the temporary 50% reduction in the royalty rate we earn under our agreement. In October 2009, Mylan notified us that Mylan had informed Pfizer of Mylan’s intent not to renew its supply and distribution agreement with Pfizer, which expires in March 2010. As a result, we do not expect to receive royalties from Mylan on sales of Pfizer’s generic version of Procardia XL 30 mg after the first half of 2010.
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