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Zogenix Reports Fourth Quarter And Full Year 2012 Financial Results

In this press release, Zogenix's financial results are provided both in accordance with accounting principles generally accepted in the United States (GAAP) and using certain non-GAAP financial measures. In particular, Zogenix provides its net loss and net loss per share for the three months and twelve months ended on December 31, 2012 and 2011, adjusted for certain non-cash or non-recurring items, which are non-GAAP financial measures. Management believes these non-GAAP financial results reflect the Company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in the Company's business, as they exclude certain income or other expenses that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial results provide useful information to investors and others in understanding and evaluating the Company's operating results and future prospects in the same manner as management, and in comparing financial results across accounting periods and to those of peer companies.. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. A reconciliation of the non-GAAP financial results to GAAP financial results is included in the attached financial statements.

SUMAVEL ®, DosePro ®, Relday TM and Zohydro TM ER are trademarks of Zogenix, Inc.

*Source Healthcare Analytics, Source® PHAST Prescription Monthly, January – December 2012

Zogenix, Inc.
Consolidated Financial Results
(in thousands, except per share amounts)
     
  Three Months Ended Twelve Months Ended
  December 31, December 31,
  2012 2011 2012 2011
  (unaudited)  
Revenues:        
Net product revenue  $ 9,496  $ 5,425  $ 35,864  $ 30,411
Contract revenue  --  2,476  8,462  7,165
Total revenues  9,496  7,901  44,326  37,576
         
Operating expenses:        
Cost of sales  6,018  4,961  19,496  19,293
Royalty expense  357  232  1,353  1,205
Research and development  5,409  5,503  21,414  33,043
Selling, general & administrative  11,920  17,818  49,494  60,459
Total operating expenses  23,704  28,514  91,757  114,000
Loss from operations  (14,208)  (20,613)  (47,431)  (76,424)
Total other income (expense)  13,565  (3,121)  50  (7,488)
Loss before income taxes (643) (23,734) (47,381) (83,912)
Income tax  --   29  (5)  9
Net loss  $ (643)  $ (23,705)  $ (47,386)  $ (83,903)
         
Net loss per share, basic and diluted  $ (0.01)  $ (0.36)  $ (0.59)  $ (1.96)
         
Weighted average shares outstanding, basic and diluted 100,714 65,215 80,558 42,712
         
Zogenix, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
  December 31, December 31,
  2012 2011
     
ASSETS    
Current assets    
Cash and cash equivalents  $ 41,228  $ 56,525
Trade accounts receivable, net  5,643  4,913
Inventory, net  12,886  16,776
Prepaid expenses and other current assets  1,968  2,210
Total current assets  61,725  80,424
Property and equipment, net  13,561  14,590
Other assets  5,400  5,626
Total assets  $ 80,686  $ 100,640
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities    
Accounts payable  $ 4,592  $ 5,168
Accrued expenses  18,569  14,553
Common stock warrant liabilities  9,493  345
Revolving credit facility  --   5,081
Long-term debt, current portion  --   9,758
Deferred revenue  --   8,462
Current liabilities  32,654  43,367
Long-term debt, less current portion  28,481  42,070
Other long-term liabilities  5,078  5,891
Stockholders' equity   14,473  9,312
Total liabilities and stockholders' equity   $ 80,686  $ 100,640
     
Zogenix, Inc.
Net Product Revenue
($ in thousands)
         
  Three Months Ended Twelve Months Ended
  December 31,  December 31, 
  2012 2011 2012 2011
  (unaudited) (unaudited)
         
U.S. Units Shipped  145,020  115,440  565,980  438,720
2010 Deferred Product Revenue Units  --   --   --   50,053
Total Product Revenue Units  145,020  115,440  565,980  488,773
         
         
Gross U.S. Wholesaler Product Sales  $ 13,549  $ 10,353  $ 51,309  $ 38,483
Gross 2010 Deferred Product Revenue  --  --  --  4,190
Total Gross U.S. Product Sales  13,549  10,353  51,309  42,673
         
Product Sales Allowances:        
Allowance for Product Sales Discounts  3,575  2,543  12,951  7,873
Allowance for Product Returns  518  2,387  2,934  4,394
Total Product Sales Allowances  4,093  4,930  15,885  12,267
         
U.S. Net Product Revenue  9,456  5,423  35,424  30,406
         
EU and Other Net Product Revenue  40  2  440  5
         
Total Net Product Revenue  $ 9,496  $ 5,425  $ 35,864  $ 30,411
         
Zogenix, Inc.
Other Income (Expense)
(in thousands)
         
  Three Months Ended Twelve Months Ended
  December 31,  December 31, 
  2012 2011 2012 2011
  (unaudited) (unaudited)
         
Interest income  $ 13  $ 16  $ 53  $ 37
         
Interest expense:        
Healthcare Royalty Partners interest expense 1  (1,444)  (1,442)  (5,577)  (2,666)
Imputed interest expense on Astellas tail payments  (136)  --  (550)  --
Oxford/SVB interest expense 2  --  (1,216)  (4,176)  (4,953)
Other interest expense  (3)  (2)  (10)  (25)
Total interest expense  (1,583)  (2,660)  (10,313)  (7,644)
         
Change in fair value of warrant liabilities 3  15,422  (101)  11,811  445
         
Change in fair value of embedded derivatives  (313)  (377)  (147)  (240)
         
Other income (expense)        
Warrant issuance costs 4  --  --  (1,423)  --
Other   26  1  69  (86)
Other income (expense), net  26  1  (1,354)  (86)
         
 Total other income (expense)  $ 13,565  $ (3,121)  $ 50  $ (7,488)
         
         
1. The Company accrues interest expense on the Healthcare Royalty Partners (previously called Cowen Healthcare Royalty Partners II, LP) debt obligation using an effective interest method at a rate in the mid-to-high teens, while actual quarterly revenue interest payments are made at a rate of 5.75% of net product revenue (prior to April 1, 2012, the rate was 5.0%). The revenue interest cash payments owed for the three and twelve months ending December 31, 2012 were $546,000 and $1,968,000, respectively.
         
2. The Company's debt obligations with Oxford Finance LLC and Silicon Valley Bank were repaid in July 2012, and the expenses relating to these obligations will not recur in future periods.
         
3. Change in fair value of warrants issued in the July 2012 public equity offering and the July 2011 financing agreement with Healthcare Royalty Partners. Income from this item during the three and twelve months ended December 31, 2012 was driven primarily by the decrease in the Company's stock price in December 2012.
         
4. This non-recurring expense consists of offering costs, including underwriters discounts and commissions, allocated to the warrants issued in the Company's July 2012 public equity offering.
         
Zogenix, Inc.
Non-GAAP Financial Results*
(in thousands, except per share amounts)
         
  Three Months Ended Twelve Months Ended
  December 31, December 31,
  2012 2011 2012 2011
  (unaudited) (unaudited)
         
Net loss (as reported, GAAP)  $ (643)  $ (23,705)  $ (47,386)  $ (83,903)
Net loss per share, basic and diluted (as reported, GAAP)  $ (0.01)  $ (0.36)  $ (0.59)  $ (1.96)
         
Adjustments for certain non-cash or non-recurring items:        
Change in fair value of warrant liability  $ 15,422  $ (101)  $ 11,811  $ 445
Change in fair value of derivatives (313) (377) (147) (240)
Warrant issuance costs 0 0 (1,423) 0
Total Adjustments to Net loss  15,109  (478)  10,241  205
         
Net loss adjusted for certain non-cash or non-recurring items  $ (15,752)  $ (23,227)  $ (57,627)  $ (84,108)
Adjusted net loss per share (non-GAAP)  $ (0.16)  $ (0.36)  $ (0.72)  $ (1.97)
         
Weighted average shares outstanding, basic and diluted 100,714 65,215 80,558 42,712
         
*Management believes these non-GAAP financial results reflect the Company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in the Company's business, as they exclude certain income or other expenses that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial results provide useful information to investors and others in understanding and evaluating the Company's operating results and future prospects in the same manner as management, and in comparing financial results across accounting periods and to those of peer companies.
         
CONTACT: INVESTORS:
         Zack Kubow | The Ruth Group
         646.536.7020 | zkubow@theruthgroup.com
         
         MEDIA:
         Caitlin Cox | The Ruth Group
         646.536.7033 | ccox@theruthgroup.com

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