Penwest Pharmaceuticals Co. (PPCO) filed Quarterly Report for the period ended 2009-03-31.
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 $60.9 million; its shares were traded at around $1.92 with and P/S ratio of 7.1. 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 $355,000 was unpaid as of March 31, 2009 but will be paid over the remainder of 2009. Of such severance charge, $464,000 and $86,000 were recorded as selling, general and administrative expense, and research and development expense, respectively. In addition, as a result of these terminations, in the first quarter of 2009, we recorded a non-cash credit of $885,000 under SFAS No. 123R 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 selling, general and administrative expense, and research and development expense, respectively.
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 month period ended March 31, 2009, we recognized $4.4 million in royalties from Endo on sales of Opana ER. This royalty amount reflects this temporary reduction. As of March 31, 2009, $9.4 million of the $28 million has been recouped by Endo.
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 three month period ended March 31, 2009, our net loss was $962,000. As of March 31, 2009, our accumulated deficit was approximately $235 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 to Endo for use in Opana ER. We anticipate that, based upon our current operating plan, which contemplates a significant reduction in our operating expenses as compared with 2008 levels, and includes expected royalties from third parties, we will achieve quarterly profitability in the fourth quarter of 2009. 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 significantly reduce our operating expenses, we may not be able to achieve quarterly profitability in the fourth quarter of 2009. However, even if we are able to achieve profitability on a quarterly basis, we may not be able to maintain it, or we may not be able to achieve profitability on an annual basis. Our future profitability will depend on numerous factors, including:
Selling, general and administrative, or SG&A, expenses for the three month period ended March 31, 2009 decreased as compared to the three month period ended March 31, 2008 primarily due to lower share-based compensation expense, largely due to a credit of $844,000 recorded in the 2009 three month period, which resulted from the forfeiture of stock options held by former employees in connection with our January 2009 staff reductions discussed above. The decrease also reflects the inclusion in SG&A expense in the 2008 three month period of the impairment charge we recorded in the amount of $1.0 million to establish a reserve against the collectability of the loan that we made to Edison in February 2008 under the Edison agreement. These decreases were partially offset by the severance charge we recorded in the 2009 three month period, as discussed above, and additional costs associated with the proxy contest in which we are involved.
Research and product development, or R&D, expenses were $3.0 million for the three month period ended March 31, 2009, a decrease of $3.4 million as compared to $6.4 million for three month period ended March 31, 2008. This decrease reflects that, for the 2009 three month period, we made no contractual payments to Edison under the Edison agreement, we incurred no expenses related to the development of nalbuphine ER, we had lower compensation expenses due to staff reductions implemented in March 2008 and we recorded increased allocations of internal R&D costs related to our drug delivery technology collaborations, as noted above, to cost of collaborative licensing and development revenue.
