UPDATED -- Struggling drugmaker Zogenix Inc. (Nasdaq: ZGNX) has sold its Zohydro ER business, which makes painkillers, to Pernix Therapeutics Holdings Inc. (Nasdaq: PTX) for $80 million.

Zohydro ER is an extended-release, opioid-derived medication for pain management. As Mergers & Acquisitiosn previously reported, Zogenix won a lawsuit in 2014 to sell the medication in Massachusetts after former Gov. Deval Patrick issued an executive order prohibiting its sale, saying that it could lead to drug-abuse problems. Opioid-based painkillers have been widely linked the resurgence of heroin in the U.S.

The sale of Zohydro also comes with the possibility for Zogenix to receive up to $283.5 million in additional cash payments based in milestones, including $12.5 million if the U.S. Food & Drug Administration approves an abuse-deterrent, extended-release hydrocodone tablet that is in development right now. The FDA already approved Zohydro.

San Diego-based Zogenix is also shedding 100 employees through the deal, which will transfer over to Pernix. The company also plans to cut 16 more jobs because of the sale, it says, and will end up with about 60 employees.

Pernix is making the acquisition through subsidiary Ferrimill Ltd.  The new owner says it will actively work to develop the abuse-deterrent medication. Leerink Partners LLC was Zogenix's financial adviser, and Latham & Watkins LLP provided legal advice for the transaction, which closed April 24.

The divestiture allows Zogenix to significantly reduce its operating expenses. The company is planning to use proceeds from the sale to fund development of Relday, a schizophrenia drug.

"With the upfront proceeds from this transaction, and without assuming future milestone payments related to Zohydro ER, the Company plans to use the capital to fund the current Relday clinical program to the end of Phase 2 meeting with the [FDA]," says Catherine O'Connor, Zogenix's senior director of corporate communications.

As part of the sale, lenders Oxford Finance LLC and Silicon Valley Bank amended Zogenix's loan to add a covenant that requires the business to maintain a liquidity ratio of 1.25 to 1, according to a filing with the U.S. Securities and Exchange Commission.

Zogenix has incurred recurring losses from operations and negative cash flows, which caused its accountant, Ernst & Young, to raise substantial doubt about the company's ability to continue as a going concern, or without the threat of liquidation, according to a SEC filing. The company has functioned primarily through equity and debt financings, and has raised $417.5 million from stock sales.

For the previous edition of Turnaround Tuesday, see Struggling Behavioral Health-Services Provider Catasys Raises Cash.

For more struggling companies, check out Mergers & Acquisitions Distressed Company Watch List

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