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Zogenix, Inc. (NASDAQ:ZGNX)

Q2 2012 Earnings Call

August 8, 2012 4:30 PM ET

Executives

Catherine O’Connor – IR

Roger Hawley – CEO

Ann Rhoads – EVP, CFO, Treasurer and Secretary

Stephen Farr – President and COO

Analysts

Michael Tong – Wells Fargo Securities

Michael Schmidt – Leerink Swann

Josh (ph) – Stifel Nicolaus

Chris Holterhoff – Oppenheimer

Operator

Good day ladies and gentlemen, and welcome to the second quarter 2012 Zogenix, Inc. conference call. My name is Erica (ph) and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the presentation over to your host for today’s call, Ms. Catherine O’Connor. Please proceed.

Catherine O’Connor

Thank you, Operator, and thank you all for joining us this afternoon. With me on today’s call are Roger Hawley, our Chief Executive Officer; Dr. Stephen Farr, our President and Chief Operating Officer; and Ann Rhoads, our Executive Vice President and Chief Financial Officer.

Earlier today Zogenix issued a news release announcing the company’s financial results for the second quarter 2012. We encourage everyone to read today’s news release as well as Zogenix’s quarterly report on Form 10-Q which will be available on our website at www.Zogenix.com.

Roger will open the call with an update on SUMAVEL DosePro. Ann will then review our financial results for the second quarter 2012 and Steve will follow with an update on our development programs including the NDA filings for Zohydro. At the end of the prepared remarks we will open up the call for a question and answer session.

Please note that certain of the information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation and Reform Act. We caution listeners that during this call Zogenix management will be making forward-looking statements.

Actual results could differ materially from those stated or implied by the forward looking statements due to risks and uncertainties associated with the company’s business. These forward-looking statements are qualified by the cautionary statements contained in Zogenix’s news releases and SEC filings including its annual report on Form 10-K.

This conference call also contains time sensitive information that is accurate only as of the date of this live broadcast, August 8, 2012. Zogenix undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances after the date of this conference call.

Now I’d like to turn the call over to Roger Hawley, Chief Executive Officer of Zogenix.

Roger Hawley

Thank you Catherine, and thanks to everyone for joining us today for our second quarter 2012 conference call. The Zogenix team has been very active and we’re also very excited about our future. We’ve made solid progress in each of our product programs and in financing our operations to build the value of the company. We’ve reached several significant product-related milestones that enhance the long-term outlook for our business.

First, we entered into an exclusive co-promotion agreement for SUMAVEL with Mallinckrodt, the consumer division of Covidien. Second, we received confirmation from the FDA that they have accepted our NDA for review of our lead product candidate, Zohydro ER with a PDUFA date of March 1, 2013. Third, we’ve initiated our Relday Phase 1 Safety and PK study, and fourth, we’re launching our new DosePro technology co-marketing campaign with Battelle.

We also recently raised net proceeds of $65.5 million in an equity offering that gives us the resources to first repay our term debt and also to continue driving the growth of SUMAVEL DosePro with neurologists, headache specialists, and high prescribing physicians through our Zogenix sales team of 95 representatives and we’ll be supporting the re-launch with our new partner, Mallinckrodt.

Second, we’ll be moving forward with the pre-approval and pre-launch preparations for Zohydro ER, and pending approval, launch the first and only single entity extended release formulation of hydrocodone in the second quarter of 2013.

Third, to complete our Relday study by year end and assuming it demonstrates safety and long-acting therapeutic PK profile, we’ll leverage the study results to potentially enter a rest of world partnership that will support the remaining Relday product development while retaining US rights.

Then fourth, to continue advancing our early stage new product opportunities including through our DosePro technology marketing partnership with Battelle. With a strengthened balance sheet and adequate capital to execute our business plans, we are very pleased with our progress and believe we are now well-positioned to continue building value for our shareholders.

Now let me update you on SUMAVEL DosePro results and initiatives including progress with a co-promotion partner along with some brief comments on our strategy for Zohydro and Relday.

On SUMAVEL for the second quarter 2012, we drove over 20,000 total prescriptions in the quarter up 16% over the second quarter of the previous year without a co-promotion effort in the second quarter, total prescriptions were down only 6% from the first quarter of 2012 with the two key components being the Zogenix sales force increased total prescriptions by 6% from all physicians we now call on, including the specific primary care physicians transferred to our team for a total of 16,000 prescriptions generated by our team in the second quarter.

In this quarter, which was the first time without a co-promotion effort, we did see a decline in prescriptions for those primary care physicians which Zogenix was not calling on. We continue to see a strong refill rate of 43% compared to 39% in the previous quarter. We reported net product revenue from sales of SUMAVEL DosePro of $8 million which includes the impact of recording $630,000 increase in the reserve for future product returns in the second quarter.

While our product net revenue results for the quarter were lower than the first, the prescription trends driven by our Zogenix team were in line with our expectations given the importance of the new prescriptions to the brand, and the absence of any co-promotion effort and the related service fee savings from not having a co-promotion partner in the second quarter, we believe our Zogenix team had productive growth with positions they call on while executing an orderly transition of the primary care business in the second quarter. Accordingly, we are reiterating our full year revenue and prescription guidance for 2012 and will be in a better position to comment on the Mallinckrodt co-promotion effort on the third quarter conference call in November.

The progress made by our team with headache specialists, the neurologists, and recently adding more effort into the primary care market gives us even more of a reason to be optimistic about the opportunity to further expand prescription growth with our new partner. In June we entered into a multiyear co-promotion agreement with Mallinckrodt for SUMAVEL DosePro. Their pain management sales force more than doubles our reach into internal medicine pain centers and other high prescribing migraine offices. Their team has extensive experience in pain management with an existing portfolio that includes Exalgo and Pennsaid.

Since signing the agreement with them, we have been working collaboratively with their team on product training and selling tactics to highlight the unique benefits of adding SUMAVEL DosePro as a needed migraine treatment option for many patients still suffering disabling attacks on oral therapies. Their team is excited to have SUMAVEL to their sales bag and they are committed to using our full marketing campaign to support their customers’ education efforts and for starting new patients on SUMAVEL DosePro.

For the first time, this effort will include our new marketing campaign, the migraine toolbox, our Phase 4 study data, and the joint field collaboration on peer to peer programs to drive more awareness of the migraine treatment guidelines. Mallinckrodt is on track to begin promoting SUMAVEL DosePro to their customers, including a targeted group of high prescribers of triptans in late August.

We are optimistic about the launch and expect that their effort will begin to create an increase in new prescription activity near the end of the year with the primary incremental benefit being in 2013. Once the Mallinckrodt sales force has launched, our team of 95 representatives will remain engaged with neurologists, headache specialists, and other key prescribers, including select high prescribers in the primary care segment where we have an existing relationship.

We will also work closely with their team in the field to leverage our strong relationships with thought (ph) leading specialists around the country who are already trained to conduct effective peer to peer programs that focus on enhancing patient outcomes by the appropriate use of the right triptan for specific attacks.

Now let me just turn briefly to our pipeline. We are continuing to move forward with Zohydro ER and the Relday development program which both represent significant new market opportunities for Zogenix and both have the potential to allow us to further leverage our commercial infrastructure and our capabilities. We are preparing for the commercialization of Zohydro ER while we continue to fully evaluate all of our commercial options, including potentially bringing on a US commercialization partner or leveraging our internal sales force to launch the product.

In either scenario, with or without a partner, we do not plan to expand the Zogenix sales force prior to FDA approval and we believe we will be well-positioned for success in the chronic pain market given Zohydro’s unique profile as the only extended release single entity hydrocodone product.

For Relday, we announced in July the beginning of the patient enrollment and our new Phase 1 Relday clinical trial. Assuming these results are positive for both the PK profile of the once monthly formulation and the overall safety of subcutaneous administration, we will be in an excellent position to leverage the data to attract a rest of world partner before moving forward with the Relday development program. Our current objective is to retain US commercialization rights for Relday.

I’ll now turn the call over to our CFO, Ann Rhoads, for her financial review.

Ann Rhoads

Thank you, Roger. During the course of our discussion I will be referring to today’s press release and to the attached unaudited statements of operation and balance sheets. I’ll be rounding numbers for purposes of this call, so please refer to these documents for the precise figures.

Net product revenue on sales of SUMAVEL DosePro for the second quarter 2012 was $8.0 million, down 7% compared to the $8.7 million in the second quarter of 2011. Net product revenues for the second quarter were reduced by a $630,000 increase in the reserve for future product returns. As of June 30, 2012, our return reserve balance was $2.9 million. The resulting decrease in the average net selling price compared to the second quarter 2011 was partially offset by a 14% increase in unit volume.

We had no contract revenue for the second quarter 2012 compared to contract revenue of $1.6 million in second quarter 2011. Contract revenue in 2011 reflected the amortization of license and milestone payments received Astellas. We recognized all of the remaining Astellas license and milestones payments in the first quarter of 2012 and as previously reported, there will not be any additional contract revenue recognized related to Astellas.

Cost of sales for the second quarter in 2012 was $4.2 million, compared to $4.0 million in the second quarter of 2011. Gross margin was 48% in the second quarter of 2012, compared to 54% in the second quarter of 2011. The decrease in gross margin was primarily due to a lower average net selling price, partially offset by lower per unit cost of sales.

Royalty expense for the second quarter 2012 was $315,000, reflecting royalties to Airadyme (ph) on sales of SUMAVEL and this compares to $333,000 in the second quarter of 2011.

Our research and development expenses for the second quarter of 2012 were $6.4 million, a 28% decrease from $8.9 million in the second quarter of 2011. The decrease in research and development expenses was driven by lower costs associated with the company’s Phase 3 clinical trials for Zohydro which were completed in 2011.

Selling, general and administrative expenses for the second quarter 2012 were $12.1 million, a 20% decrease from $15.0 million in the second quarter 2011. The decrease in SG&A was due primarily to the end of the company’s co-promotion agreement with Astellas on March 31 and lower sampling costs, partially offset by the expansion of the Zogenix sales force which was completed in the fourth quarter.

As a reminder, going forward, we will begin paying a quarterly service fee to Mallinckrodt that is calculated as a percentage of net sales over a base line amount to their prescriber audience.

Other expense for the second quarter 2012 was $2.3 million, which includes the cost of interest expense on our debt obligations with Oxford and Silicon Valley Bank. We recently used $21.2 million of the $65.5 million net proceeds from our July equity offering to fully repay our outstanding debt to Oxford and Silicon Valley Bank and close our revolving credit facilities. This will significantly reduce our interest expense going forward and eliminate approximately $3.5 million per quarter in principal and interest payments.

Also included in other expense are royalty payments and non-cash mark-to-market adjustments for derivatives and warrant liabilities related to the financing agreement with Healthcare Royalty Partners. The company records interest expense on this particular debt obligation on an effective interest method at a rate in the mid-to-high teens, while actual quarterly royalty payments are made at a rate of 5.75% of net product revenues, or other cash-based revenues.

Our net loss for the second quarter 2012 was $17.2 million, or $0.26 per share, compared to a net loss of $19.2 million, or $0.56 per share, for the second quarter 2011. The weighted average shares outstanding for the second quarter were 65,449,000 shares. I would note that this does not include the 35,058,300 shares issued in conjunction with the closing of our equity offering announced in July 2012.

We finished the quarter with cash and cash equivalents of $22 million. This does exclude the net proceeds of $65.5 million from the equity offering and the subsequent $21.2 million repayment of our debt obligations to Oxford and Silicon Valley Bank as I mentioned earlier.

Now we turn to financial guidance. We are reiterating our revenue prescription growth and operating expense guidance for the full year 2012. We anticipate total revenues to be in the range of $45.5 million to $48.5 million. We expect growth of 25% – 30% in total prescriptions for 2012. Our estimate for net product revenue based on sales to wholesale distributors and retailers is $37 million to $40 million plus $8.5 million of contract revenue from the Astellas co-promotion agreement that was recognized in the first quarter 2012. No further contract revenue relating to this agreement will be recognized.

Product gross margin is expected to be 46% to 50% for 2012. Research and development expenses are expected to be $20 million to $22 million for the full year, and selling, general and administrative expenses are expected to be $48 million to $50 million for 2012, reflecting the elimination of the Astellas service fees beginning in the second quarter.

We are also reiterating our annual guidance of approximately $10 million for net interest expense with additional guidance on quarterly timing. The recent repayment of our debt obligations to Oxford and Silicon Valley Bank will reduce our ongoing interest expense. This will be offset by a one-time charge in the third quarter of 2012 for a write off of the related unamortized debt discounts and debt acquisition costs as well as the prepayment premiums.

I’ll now turn the call over to Stephen Farr for an update on our product pipeline.

Stephen Farr

Thanks, Ann, and good afternoon all. Today I’ll provide a brief update on our Zohydro and Relday investigational programs, as well as our progress with the DosePro technology and our relationship with Battelle.

As Roger mentioned, the FDA officially accepted for review the Zyhdro NDA and provided a PDUFA dates of March the 1st next year. We are very pleased that this brings us another step closer to bringing our second novel product to the US market.

We are confident the clinical efficacy and safety data and supporting materials in our NDA support the potential approvability of Zohydro, which could be the first available extended release hydrocodone product without acetaminophen for the treatment of moderate to severe chronic pain in patients requiring around the clock opioid therapy.

In addition to the pre-commercialization activities, we are actively preparing for an advisory committee which will be convened later in the NDA review period. Assuming there are no changes to the timeline, we remain on track to potentially launch Zohydro in the second quarter of 2013.

For Relday, our next DosePro product candidate, we have begun enrollment in our first IND study to evaluate safety and (inaudible) kinetics in patients with schizophrenia. The first group of patients were dosed earlier this week, and we remain on track to have the study results towards the end of the year. We believe positive results from this initial human trial will support continued product development and position us to begin seeking a rest of the world development and commercialization partner.

We also have a significant opportunity to further leverage DosePro technology platform through the exclusive co-marketing agreement and technology development auction with Battelle.

Our partner formerly launched the marketing campaign targeting the world’s leading pharmaceutical and government-sponsored research and development teams. The campaign theme, Less is More, highlights the simplicity and benefits of DosePro and its ability to provide instantaneous subcutaneous drug delivery without a needle.

Both the marketing communication and business development activities are now in full swing, to enhance our ability to secure technology licensing opportunities for DosePro, particularly for the delivery of high value biologics, and we look forward to provide you with updates as appropriate.

I’ll now turn the call back to Roger, for his closing comments.

Roger Hawley

All right, thanks, Steve. I’ll just quickly summarize and we’ll move into questions. But we’ve achieved several important goals that enhance the company’s growth potential. We’ve demonstrated positive traction with our new SUMAVEL DosePro sales campaign, we drove sequential growth in our specialist segment while transitioning primary care, and we’ve partnered with an experienced organization to further capitalize on the opportunity with SUMAVEL.

We’re excited to have Mallinckrodt launch SUMAVEL DosePro later this month, and I’m really pleased to report that their team has shared our enthusiasm about the launch, and our commercial teams are really working very well together. Personally, I can’t wait to attend their launch meeting next week.

On the development side, we now have the PDUFA date set for the Zohydro ER to further refine our pre-commercialization, timeline, and planned activities. The Relday clinical trial is underway and we expect to have full data before the end of the year, which will be another important milestone for us. Both products have the potential to be preferred treatment options for the respective indications.

We are also pleased with our progress with Battelle and look forward to continuing to work with them on execution of new opportunities for DosePro. Having raised $65.5 million in an equity offering, we’ve now extended our cash runway beyond the potential Zohydro approval and launch, and provided capital to continue investing in SUMAVEL commercialization and other pipeline initiatives.

This gives us several potential opportunities to continue attracting both new business partners and new investors for the company and building shareholder value. We look forward to updating you on our progress during the year, and now I’ll turn the call over to the Operator and open it up for Q&A.

Question-and-Answer Session

Operator

(Operator instructions) Our first questions comes from the line of Michael Tong with Wells Fargo Securities. Please proceed.

Michael Tong – Wells Fargo Securities

Hi, good afternoon and congratulations on the progress. Just a couple of questions on Zohydro, number one, I know it’s early in the NDA submission process; has there been any discussions about potential REMS programs related to that product since it’s going to be the first single-entity controlled release hydrocodone on the market, potentially?

And then secondly, as it relates to the October Adcom about hydrocodone scheduling, would a change in the scheduling status for hyrdrocodone products potentially affect the launch timing given possibly the necessity for securing DEA quotas? Thanks.

Stephen Farr

Hi Michael, it’s Steve, I’ll address the question. I’m sure Roger might pop in as well and talk a little bit about your second question. So regarding discussion around REMS there’s been nothing about that since we submitted the NDA, but we’ve had very active discussion at the pre-NDA meeting even before that about the REMS program that we would submit for Zohydro.

And it really – what will happen is that the product, if approved, will fall under what is now the standard REMS for all the extended release long acting opioid products, so it’ll fall into the class wide REMS that the FDA approved just over a month ago, so there’s nothing unusual there that we would expect for Zohydro.

Regarding the scheduling, could you just repeat that question again for me?

Michael Tong – Wells Fargo Securities

Yes, I’m thinking about potentially if the schedule status for hydrocodone changes as a result of the Adcom meeting, and then post approval typically you do need to secure DEA quota. So from the perspective, does that change the timing of the launch because sometimes it’s several months before you can actually get the quota?

Stephen Farr

Yeas, I just want to make the point here that Zohydro if approved will be a schedule two drug, so it won’t be a schedule three drug like the current combination products that have that exemption. So everything that we need to do with respect to DEA has already been done. It’s actually been done by our partner Alchemy, so there’s nothing there that would come out of that particular advisory committee meeting that impact our launch preparations.

Roger Hawley

Yes Michael, this is Roger. I would just add that the whole thing about scheduling, there was a senate amendment to the PDUFA legislation that was trying to address the exemption that the combo products have today as schedule three products. It didn’t make it in the final bill; there was obviously some opposition.

I don’t see that out of this Adcom that the scheduling itself would change immediately, given it just had some sort of regulatory review and scrutiny;. However, we have always believed that we will be schedule two with the REMS and without acetaminophen and we think the Adcom that’s coming up will really give the market participants, who may not be as familiar with all of the issues around the pain market, to really differentiate the current schedule three products from what we’re going to be doing with Zohydro.

Michael Tong – Wells Fargo Securities

Great. Thank you very much.

Operator

Our next question comes from the line of Michael Schmidt with Leerink Swann. Please proceed.

Michael Schmidt – Leerink Swann

Hi, thanks for taking my question. On SUMAVEL DosePro you mention the Zogenix sales force was able to drive a 6% increase essentially in scripts.

Is that a reasonable rate going forward that we can assume for the Zogenix portion of the commercial team? And I think you mention the Mallinckrodt team would potentially double the call points. Would that translate into a potential doubling of scripts at some point and how much of the economics of that would you be able to capture?

Roger Hawley

Yes, good question. So first on the 6% growth for our team in second quarter, our previous growth had actually been higher but remember, we had a number of primary care physicians that our team got introduced to for the very first time in the first quarter, as Astellas completed their co-promotion effort in Q1.

So Q2, there was a lot of additional effort going on by our team with new customers and beginning working with more accounts than they had called on previously, so you can expect anytime you disrupt a sales force that there is some pullback. But we really felt transitioning the key primary care offices was critical to our long-term success and many of those accounts we’ve retained on our team and will be calling on going forward. So we felt it was a good utilization of our time.

And then as to your second question, yes, it does basically double the call points adding the Mallinckrodt team. If you go back to the initial launch of our product, it does take a while to get some traction and they’ve got some offices that are currently prescribing and some offices that have not been called on before for SUMAVEL DosePro.

So we’ll need to give them time. We think they can be very effective and I will say it’s the first time our new campaign and our complete campaign, the toolbox and our Phase 4 data and the guidelines and everything else that we use is being used in many of the offices that they go in.

So it’s a little early for us to tell what the productivity is going to be, which is one of the reasons we haven’t changed the guidance. We need to give them time. Let’s see, there’s script trends, as they will be monitoring that closely.

And then on the economic split, we have not given the specific details as far as percentage terms. But if you were familiar with the way our prior agreement worked, we said time and time again we liked that contract structure, which means they were paid on prescriptions generated in their offices by their team a quarter and arrears and we like that approach to the way that contract worked.

Michael Tong – Wells Fargo Securities

Okay, and what’s the current net price per unit? How do you think that will develop going forward and how do you expect gross margin to improve given the new partnership?

Stephen Farr

Well, as I mentioned earlier, and Ann talked a little bit about – and I’ll let Ann give you the specifics – but we did have an adjustment in the quarter building our balance sheet reserve for future return products.

And so that does cause an in-the-quarter net impact on selling price based on that full adjustment. So it did pull it down for the quarter. We don’t anticipate that being the permanent rate going forward of our net selling price, so I’ll let Ann give you the specifics on what the situation is there.

Ann Rhoads

Sure. Hi, Michael. So NSP for the quarter after taking into consideration that additional return reserve that Roger mentioned was $58.12 per unit and if you were to think about it kind of an ongoing basis without that incremental return reserve charge it would have been $62.69 a unit.

Again, I think on your gross margin question – well, let me back up. On the NSP, I think that NSP absence of one-time return reserve is a good place to think about for the remainder of the year.

And then as it relates to gross margin, again, we reiterated the guidance at 48% to 50% and I think we’re still feeling like that is a good estimate for the year. Clearly we’re going to be watching sales trends and, as Roger mentioned, I think when we talk to you on the third quarter call we’ll have a better sense about the initial traction that the Covildien team is having in the marketplace.

Michael Tong – Wells Fargo Securities

Okay, great. Thanks for your questions – answers to my questions.

Roger Hawley

You bet.

Stephen Farr

Thanks.

Operator

Our next question comes from the line of Annabel Samimy with Stifel Nicolaus. Please proceed.

Josh (ph) – Stifel Nicolaus

Hi, guys, this is Josh sitting in for Annabel. I have a couple of questions. The first question is considering kind of your depressed 2Q results, I was wondering if you can kind of just comment a little bit on your top line revenue guidance and how you kind of plan to hit that.

And the next question is, considering all the money you’ve raised pre to the hydro launch, can you kind of give us a little bit more detail as to what you plan to invest that in considering you’re not planning to expand the hydro sales force in any way?

Roger Hawley

Yes, well, I’ll be happy to take that. Let’s start with the last one. And so (ph) hydro investment regarding the amount of capital that we’ve raised, as we said, during the raising of that capital and talking to investors, we have not made a decision about whether we will or will not partner.

We’re going to evaluate those options in the weeks and months ahead. We have had inbound interest, so we will give every consideration to partnering.

That clearly makes a difference on whether we would expand and, if we did expand, how large the expansion would be. I have indicated before that if we did go alone, our team would probably be in the size of 165 to 175, so up from about 95 territories today so we could grow to 165 to 175.

If anything, that would be a little bit on the high side and also we said we will not be expanding our team in any circumstances with or without a partner prior to the approval. So with a March PDUFA date, our plan, if we went alone, and planned an expansion would be to – if we were headed in that direction, to have contingent offers out to people and then to bring them onboard and then train them and get them in their territory after approval.

And then Ann, do you want to address the first …

Ann Rhoads

Sure, I’d be happy to. So again, as we stated earlier, we are reiterating the top line guidance for the year. If you do the math and you start to back out where we’ve been in the first half of the year, clearly we’re anticipating an increase in top line sales in the third and fourth quarter.

I think one of the things that Roger mentioned that’s very important to us is that along with the Covildien team for the first time we’re going to be able to have peer-to-peer physician programs in place in the market.

We think that that’s going to be helpful in terms of starting to introduce new doctors to SUMAVEL DosePro and has a potential to drive top line sales.

And then our team continues to expand in the market as it relates to scripts, physicians, et cetera. I think the 6% growth that we talked about in the quarter, very helpful and we’re feeling positive as we go into the second half of the year.

Josh (ph) – Stifel Nicolaus

Okay, great guys, thanks.

Roger Hawley

Yes, I would just add one comment there. When we first gave the guidance our first quarter number was I think $9.9 million in product sales. And at that time we got asked, well, was our guidance too low? But obviously we knew we were going to have this at least one quarter of disruption, really, transitioning (stealth) at our team taking full responsibility.

And so we were expecting some softness in our revenue with the guidance that we gave. I mentioned earlier that about at least 15% of our business was at risk. We knew we couldn’t call on and with the dependence on new prescriptions with this brand, we’re clearly going to have some impact from not having a co-promotion partner.

The other side of that, the way you look at top line revenue, we also did not incur the co-promotion fee for the second quarter and then Q1 I believe that number was about $1.7 million and we had basically been paying to Astellas about 20% of the top line of net sales.

So they weren’t here. We didn’t incur that obligation. So if you look at the overall profitability of the brand during the quarter, it actually was not negatively impacted.

Josh (ph) – Stifel Nicolaus

Okay, thanks.

Roger Hawley

You bet.

Operator

(Operator Instructions) Our next question comes from the line of Chris Holterhoff with Oppenheimer. Please proceed.

Chris Holterhoff – Oppenheimer

Thanks, guys. Most of my questions were answered, just a few on SUMAVEL DosePro and I think you really just addressed this. But you maintain your 2012 guidance despite having a new co-promo partner.

So I guess I’m wondering if that’s a signal that you expect kind of only modest contribution from (inaudible) for the rest of the year or maybe are you just – is that your attempt to be a little conservative in your guidance?

Roger Hawley

No, we really haven’t dialed anything specifically in for Mallinckrodt. If you look at when they’re starting – as I mentioned, the launch meeting is next week. They would be in the field actually beginning selling the product late in this month.

We give a sample for a new patient start, so there is some time before you start seeing prescriptions. And quite honestly, with the unexpected outcome we had in our last co-promote, we don’t – we’re very enthusiastic about the new team but we also don’t want to get ahead and think that we know exactly what’s going to happen from the results of the other team.

So we think we’re doing the appropriate team by staying with our current guidance. Give us a chance to look at some script trends and if we feel that needs to be updated, we would do that at the end of – in our third quarter call.

Chris Holterhoff – Oppenheimer

Got it, thanks. And then just another one on SUMAVEL. The level of inventory in your channel, does that kind of remain the same within that two to three-week range?

Roger Hawley

It did. I think we were right at three weeks at the end of the second quarter, so nothing unusual going on there.

Chris Holterhoff – Oppenheimer

Got it, okay. Okay, great, that’s really all I had. Thanks a lot for taking my questions.

Roger Hawley

Okay.

Ann Rhoads

Thank you.

Roger Hawley

You bet. Thanks, Chris.

Operator

And we have no further audio questions at this time. I will now turn the call back over to Roger Hawley for any closing remarks.

Roger Hawley

All right, thanks, everyone, for joining us today and for giving us your questions. We appreciate your interest. We’re excited about what we’ve accomplished and where we’re at going forward, really pleased with the equity offering and to have the capital that we need to give us the options to do the right things with our programs and to partner from a position of strength if we do that.

So we’re very optimistic about moving forward now that capital will do it. Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. Everyone may now disconnect and have a great day.

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