Zogenix Reports Third Quarter 2012 Financial Results

Zogenix Reports Third Quarter 2012 Financial Results

       Growth Continues in Product Sales and Pipeline Remains on Track

       Conference Call and Webcast Today, November 8th, at 4:30 p.m. ET

SUMAVEL^® DosePro^® (sumatriptan injection) Third Quarter 2012 Highlights

  o$8.5 million net product revenue, 5% increase over the second quarter 2012
  oZogenix team generated approximately 20,000 total prescriptions in the
    third quarter*
  oTrained Mallinckrodt (Covidien) pain management sales force, who began
    full scale promotion of SUMAVEL DosePro in October
  oMaintained consistent refill rate for SUMAVEL DosePro at 43% from the
    second quarter 2012*

Recent Highlights and Milestones

  *On track with new product pipeline

    *Food and Drug Administration (FDA) Advisory Committee meeting for
      Zohydro™ ER (hydrocodone bitartrate extended-release capsules) on
      December 7, 2012; assigned PDUFA date of March 1, 2013
    *Relday™ phase 1 study completion expected by end of 2012

  *Strengthened financial position through $65.4 million equity offering and
    repayment of all outstanding loans with Oxford Finance LLC and Silicon
    Valley Bank

SAN DIEGO, Nov. 8, 2012 (GLOBE NEWSWIRE) -- Zogenix, Inc. (Nasdaq:ZGNX), a
pharmaceutical company commercializing and developing products for the
treatment of central nervous system disorders and pain, today reported
financial results for the third quarter ended September 30, 2012.

Roger Hawley, chief executive officer of Zogenix, stated, "The next several
months represent key developments for the Company's products. Our team
continues to drive SUMAVEL DosePro prescription growth while devoting time to
support the product launch with the Mallinckrodt sales force. Following the
close of their fiscal year end in September, the Mallinckrodt team has scaled
up promotion efforts on the brand and are excited to have the opportunity to
introduce the unique benefits of SUMAVEL DosePro to their customers." Hawley
continued, "During the quarter, we strengthened the Company through an equity
offering and debt repayment while also making significant progress on our
product pipeline and planning the commercialization of Zohydro ER."

Stephen J. Farr, Ph.D., president and chief operating officer of Zogenix,
said, "We continue to believe we are well positioned for the FDA Advisory
Committee meeting for Zohydro ER next month and the potential FDA approval in
March, followed by the commercial launch planned for late in the second
quarter of 2013. The Relday open-label, safety and pharmacokinetic (PK) trial
is ongoing and we remain on track to complete the study by year-end 2012.
These important upcoming milestones provide potential opportunities with
strategic commercialization partners for Zohydro ER and Relday."

Third Quarter 2012 Financial Results

Net product revenues for the third quarter 2012 were $8.5 million, compared to
$8.8 million in the third quarter 2011. During the third quarter 2011, total
revenues of $10.4 million also included $1.6 million in contract revenue
related to the Company's previous co-promotion agreement with Astellas which
ended March 31, 2012.

Cost of sales for the third quarter 2012 was $4.2 million, compared to $5.5
million in the third quarter 2011. Product gross margin was 50% in the third
quarter 2012, compared to 38% in the third quarter 2011. This improvement in
gross product margin is primarily due to a decrease in excess capacity
charges.

Royalty expense for the third quarter 2012 was $325,000, compared to $343,000
in the third quarter 2011, reflecting the impact of decreased net product
revenue.

Research and development expenses for the third quarter 2012 were $3.7
million, representing a 64% decrease from $10.1 million in the third quarter
2011. The decrease in research and development expenses was the result of
lower costs associated with the Phase 3 clinical trials for Zohydro ER, which
were completed in 2011. The third quarter 2011 also included a one-time $2.25
million up-front license payment to Durect made in connection with the
execution of the Relday development and license agreement and a $750,000
milestone payment to Alkermes made in connection with the completion of the
Phase 3 study (801) for Zohydro ER.

Selling, general and administrative expenses for the third quarter 2012 were
$10.9 million, representing a 26% decrease from $14.7 million in the third
quarter 2011. The decrease in selling, general and administrative expenses was
primarily the result of a $3.7 million decrease in service fees to Astellas
due to the termination of the co-promotion agreement on March 31, 2012 and a
decrease in advertising and promotional expenses. This was partially offset by
an increase in product sampling costs and field sales force costs.

Other expenses for the third quarter 2012 were $8.6 million, which includes a
$3.6 million non-cash mark to market adjustment in the fair value of the
Company's outstanding warrants. Also included are non-recurring costs
associated with repayment of the Company's debt obligations and issuance of
warrants in its July 2012 public equity offering. A table with a full
description of other expenses is included in this release.

Net loss for the third quarter 2012 was $19.3 million, or $0.21 per share,
compared to a net loss of $22.0 million, or $0.59 per share, for the third
quarter 2011. The weighted average shares outstanding were 90,370,000 for the
third quarter 2012. Non-GAAP net loss adjusted for certain non-cash or
non-recurring items for the third quarter 2012 was $0.16 per share as detailed
in the non-GAAP financial results table included in this release.

Cash and cash equivalents as of September 30, 2012, were $49.6 million. During
the third quarter 2012 the Company raised net proceeds of $65.4 million in an
equity offering and repaid $21.2 million of debt obligations to Oxford Finance
LLC and Silicon Valley Bank.

Ann Rhoads, chief financial officer of Zogenix, commented, "We have reduced
our loss from operations by nearly half as compared to the third quarter of
2011. Following the successful equity raise and debt repayment early in this
quarter, we are advancing our development programs while continuing to invest
in the growth of our commercial product, SUMAVEL DosePro, with the support of
our new co-promotion partner."

2012 Full Year Financial Guidance

The Company is refining its full year 2012 financial guidance as follows:

  *Total revenue expected to be approximately $45.5 million, at the low end
    of the previous guidance range

    *Net product revenue expected to be approximately $37 million, at the low
      end of the previous guidance range due to the disruption in sales focus
      during the co-promotion transition and prescription growth expected to
      be approximately 20% over 2011

  *Product gross margin expected to be approximately 48% - 49%, towards the
    high end of the previous guidance range
  *Research and development expenses expected to be approximately $22
    million, at the high end of the previous guidance range primarily due to
    expenses associated with preparing for the FDA Advisory Committee meeting
    for Zohydro ER
  *Selling, general and administrative expenses expected to be approximately
    $50 million, at the high end of the previous guidance range
  *Net interest expense to be approximately $10 million for 2012, unchanged
    from the previous guidance, reflecting the payoff of the debt obligation
    with Oxford Finance LLC and Silicon Valley Bank

Conference Call and Web Cast

Zogenix will hold a conference call today, November 8, 2012 at 4:30 p.m. ET to
discuss financial results and operational highlights for the third quarter
ended September 30, 2012.

To participate, please dial (866) 700-6293 (U.S.) or (617) 213-8835
(International); participant passcode: 68096593. To access the live webcast
please visit the Zogenix Investor Relations website at http://ir.zogenix.com.

A replay of the conference call will be available beginning November 8, 2012
at 6:30 p.m. ET (3:30 p.m. PT) until November 15, 2012, by dialing (888)
286-8010 (U.S.) or (617) 801-6888 (International); passcode: 41905564. A
replay of the webcast will also be accessible on the Investor Relations
website for one month, through December 8, 2012.

Discussion during the conference call may include forward-looking statements
regarding such topics as, but not limited to, the Company's commercial
activities relating to SUMAVEL DosePro, prescription trends, the Company's
financial status and performance, including 2012 financial guidance, the
Zohydro ER development program, the Relday development program and any
comments the Company may make about its future plans or prospects in response
to questions from participants on the conference call.

About Zogenix

Zogenix, Inc., with offices in San Diego and Emeryville, California, is a
pharmaceutical company commercializing and developing products for the
treatment of central nervous system disorders and pain. Zogenix's first
commercial product, SUMAVEL^® DosePro^® (sumatriptan injection) Needle-free
Delivery System, was launched in January 2010 for the acute treatment of
migraine and cluster headache. Zogenix's lead investigational product
candidate, Zohydro^TM ER (hydrocodone bitartrate) is an oral, novel
extended-release formulation of various strengths of hydrocodone without
acetaminophen intended for administration every 12 hours for around the clock
management of moderate to severe chronic pain. Zogenix's second DosePro
investigational product candidate, Relday^TM, is a proprietary, long-acting
injectable formulation of risperidone for the treatment of schizophrenia. In
May 2012, Zogenix submitted to the FDA a New Drug Application for Zohydro ER
and an Investigational New Drug Application for Relday. The FDA assigned a
PDUFA target action date of March 1, 2013 for the Zohydro ER NDA.

For additional information, please visit www.zogenix.com.

Forward Looking Statements

Zogenix cautions you that statements included in this press release and the
conference call that are not a description of historical facts are
forward-looking statements. Words such as "believes," "anticipates," "plans,"
"expects," "indicates," "will," "intends," "potential," "suggests,"
"assuming," "designed" and similar expressions are intended to identify
forward-looking statements. These statements are based on the company's
current beliefs and expectations. These forward-looking statements include
statements regarding: the progress and timing of the ongoing clinical trial
for Relday and results from such trial;; the expected sales growth of SUMAVEL
DosePro; the benefit that the elimination of amounts outstanding under the
loan agreement will have on Zogenix's financial results; the potential
opportunities to partner Zohydro ER and Relday; the timing of the FDA advisory
committee meeting; the target action date for the FDA to complete its review
of the Zohydro ER NDA; the potential approval of Zohydro ER and, if approved,
its commercial launch and the timing thereof; and financial guidance for 2012.
The inclusion of forward-looking statements should not be regarded as a
representation by Zogenix that any of its plans will be achieved. Actual
results may differ from those set forth in this press release due to the risk
and uncertainties inherent in Zogenix's business, including, without
limitation: the market potential for migraine treatments, and Zogenix's
ability to compete within that market; Zogenix's ability to successfully
execute its sales and marketing strategy for the commercialization of SUMAVEL
DosePro; Zogenix's reliance on Mallinckrodt to co-promote SUMAVEL DosePro;
inadequate therapeutic efficacy or unexpected adverse side effects relating to
SUMAVEL DosePro that could prevent its ongoing commercialization, or that
could result in recalls or product liability claims; the potential for Zohydro
to receive regulatory approval on a timely basis or at all; the potential for
adverse safety findings relating to Zohydro ER or negative publicity
concerning opioids in general to delay or prevent regulatory approval or
commercialization; the potential for delays associated with any additional
data required by the FDA to be submitted by Zogenix in support of the NDA; the
ability of Zogenix and its licensors to obtain, maintain and successfully
enforce adequate patent and other intellectual property protection of its
products and product candidates and the ability to operate its business
without infringing the intellectual property rights of others; difficulties in
identifying, negotiating and carrying out strategic transactions relating to
Zohydro ER and Relday; the inherent risks of clinical development of Relday
and Zogenix's dependence on its collaboration with DURECT Corporation to
develop Relday; and other risks described in Zogenix's filings with the
Securities and Exchange Commission. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof, and Zogenix undertakes no obligation to revise or update this press
release to reflect events or circumstances after the date hereof. All
forward-looking statements are qualified in their entirety by this cautionary
statement. This caution is made under the safe harbor provisions of Section
21E of the Private Securities Litigation Reform Act of 1995.

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 nine
months ended on September 30, 2012 and 2011, adjusted for certain non-cash or
non-recurring items, which are non-GAAP financial measures. These results are
provided as a complement to results provided in accordance with GAAP because
management believes these non-GAAP financial measures help illustrate
underlying trends in the Company's business, are important in comparing
current results with prior period results and provide additional information
regarding its financial position. Management also uses these non-GAAP
financial measures to establish budgets and operational goals that are
communicated internally, to manage the Company's business and to evaluate its
performance. 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 other 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, July –
September 2012


Zogenix, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
                                                                 
                              Three Months Ended      Nine Months Ended
                              September 30,           September 30,
                              2012        2011        2012        2011
                              (unaudited)             (unaudited)
Revenues:                                                       
Net product revenue            $8,453    $8,835    $26,368   $24,986
Contract revenue               --         1,563      8,462      4,688
Total revenues                 8,453      10,398     34,830     29,674
                                                               
Operating expenses:                                             
Cost of sales                  4,249      5,482      13,478     14,333
Royalty expense                325        343        997        972
Research and development       3,660      10,134     16,005     27,540
Selling, general &             10,857     14,701     37,574     42,642
administrative
Total operating expenses       19,091     30,660     68,054     85,487
Loss from operations           (10,638)  (20,262)   (33,224)   (55,813)
Total other income (expense)   (8,644)     (1,769)     (13,514)    (4,366)
Loss before income taxes       (19,282)    (22,031)    (46,738)    (60,179)
Income tax                     --       (7)        (5)        (20)
Net loss                       $(19,282) $(22,038) $(46,743) $(60,199)
                                                               
Net loss per share, basic and  $(0.21)   $(0.59)   $(0.63)   $(1.71)
diluted
                                                               
Weighted average shares        90,370      37,320      73,790      35,127
outstanding, basic and diluted



Zogenix, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

                                          September 30, December 31,
                                          2012          2011
                                          (unaudited)   
ASSETS                                                  
Current assets                                          
Cash and cash equivalents                  $49,552     $56,525
Trade accounts receivable, net             5,504       4,913
Inventory, net                             13,705       16,251
Prepaid expenses and other current assets  2,600        2,210
Total current assets                       71,361       79,899
Property and equipment, net                13,673       14,590
Other assets                               6,273        6,151
Total assets                               $91,307     $100,640
                                                       
LIABILITIES AND STOCKHOLDERS' EQUITY                    
Current liabilities                                     
Accounts payable                           $4,876      $5,168
Accrued expenses                           16,003       14,553
Common stock warrant liabilities           24,915      345
Revolving credit facility                  --          5,081
Long-term debt, current portion            --          9,758
Deferred revenue                           --         8,462
Total current liabilities                  45,794       43,367
Long-term debt, less current portion       28,413       42,070
Other long-term liabilities                3,811       5,891
Stockholders' equity (deficit)                          
Common stock                               101          65
Additional paid-in capital                 341,936      291,252
Accumulated deficit                        (328,748)   (282,005)
Total stockholders' equity                 13,289       9,312
Total liabilities and stockholders' equity $91,307     $100,640



Zogenix, Inc.
Net Product Revenue
($ in thousands)
                                                  
                                      Three Months  Nine Months
                                     Ended         Ended
                                      September 30, September 30,
                                      2012          2012
                                     (unaudited)   (unaudited)
                                                  
U.S. Units Shipped                    133,500      420,960
                                                  
U.S. Gross Product Sales              $11,975     $37,760
                                                  
Product Sales Allowances:                          
Allowance for Product Sales Discounts 2,986        9,376
Allowance for Product Returns         537          2,416
Total Product Sales Allowances        3,523        11,792
                                                  
U.S. Net Product Revenue              8,452        25,968
                                                  
EU Net Product Revenue                1            400
                                                  
Total Net Product Revenue             $8,453      $26,368



Zogenix, Inc.
Other Income (Expense)
(in thousands)
                                                        
                                     Three Months         Nine Months
                                    Ended                Ended
                                     September 30,        September 30,
                                     2012                 2012
                                    (unaudited)          (unaudited)
                                                        
Change in fair value of warrant      $(3,569)           $(3,611)
liability^1
Oxford/SVB interest expense^2        (1,940)             (4,176)
Healthcare Royalty Partners interest (1,429)             (4,133)
expense^3
Warrant issuance costs^4             (1,423)             (1,423)
Change in fair value of embedded     (202)               166
derivatives
Imputed interest expense on Astellas (93)                (414)
tail payments
Other income, net                    12                  77
Total other income (expense)         $(8,644)           $(13,514)
                                                        
                                                        
1. Change in fair value of warrants issued in the July 2012 public equity
offering and the July 2011 financing agreement with Healthcare Royalty
Partners (previously called Cowen Healthcare Royalty Partners II, LP).This
non-cash expense was driven primarily by the increase in the Company's stock
price during the reporting periods.
                                                        
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. The Company accrues interest expense on the Healthcare Royalty Partners
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. The revenue interest cash payments
for the three and nine months ending September 30, 2012 were $486,000 and
$1,516,000, respectively.
                                                        
4. This non-recurring expense consists of offering costs, including
underwriters discounts and commissions, allocated to 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      Nine Months Ended
                              September 30,           September 30,
                              2012        2011        2012        2011
                              (unaudited)             (unaudited)
                                                               
Net loss (as reported, GAAP)   $(19,282) $(22,038) $(46,743) $(60,199)
Net loss per share, basic and  $(0.21)   $(0.59)   $(0.63)   $(1.71)
diluted (as reported, GAAP)
                                                               
Adjustments for certain
non-cash or non-recurring                                       
items:
Change in fair value of        $(3,569)  $546      $(3,611)  $546
warrant liability
Change in fair value of        (202)       137         166         137
derivatives
Warrant issuance costs         (1,423)     0           (1,423)     0
Total Adjustments to Other     (5,194)    683        (4,868)    683
Income (Expense)
                                                               
Net loss adjusted for certain
non-cash or non-recurring      $(14,088) $(22,721) $(41,875) $(60,882)
items
Adjusted net loss per share    $(0.16)   $(0.61)   $(0.57)   $(1.73)
(non-GAAP)
                                                               
Weighted average shares        90,370      37,320      73,790      35,127
outstanding, basic and diluted

CONTACT: INVESTORS:
         Zack Kubow | The Ruth Group
         646.536.7020 | zkubow@theruthgroup.com
        
         MEDIA:
         Tracy Lessor | The Ruth Group
         646.536.7006 | tlessor@theruthgroup.com
 
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