Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

POZEN Inc. (NASDAQ:POZN)

Q3 2008 Earnings Call Transcript

October 29, 2008, 11:00 am ET

Executives

Fran Barsky – IR Director

John Plachetka – Chairman, President and CEO

Marshall Reese – EVP of Product Development

Bill Hodges – CFO, SVP of Finance and Administration

Analysts

Angela Larson – SFG

Ken Trbovich – RBC Capital Market

Ian Sanderson – Cowen & Co.

Michael Tong – Wachovia Capital

Operator

Good morning. My name is Leslie and I’ll be your conference operator today. At this time, I would like to welcome everyone to Pozen’s third quarter 2008 earnings conference call. All participants have been placed on a listen-only mode. And the floor will be open for questions following the presentation.

(Operator instructions) I would now like to introduce to your host for today’s call, Ms. Fran Barsky, Director of Investor Relations. Ms. Barsky, you may begin.

Fran Barsky

Thank you, Leslie, and good afternoon. On behalf of Pozen, I would like to welcome everyone to today’s third quarter conference call. By now, you should’ve already received a copy of the company's press release. However, if you do not have it, you can access one on the home page of our website at www.pozen.com. You can also access a replay of this conference call on the home page of our website.

Before we begin, I need to remind you that various remarks that we may make about future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

In particular, any observations that we may make about the expected timing and amounts of royalty payments from GlaxoSmithKline and other revenue expected from our collaboration partners, the prospects for approval of any of our drug candidates or the way in which the FDA may consider our new drug applications or any particular trial results, future trial plans and the likelihood of results of any future trials, the adequacy of financial resources to accomplish our goals or future revenues are based on our current expectations and are subject to a number of risks and uncertainties.

Including our inability to know with certainty what standards the FDA will use to evaluate drug candidates and how that may change or evolve over time, how the FDA evaluates data, what the results of future trials may be, whether those trials will cost much more than we have estimated that they will cost or than they have historically cost, how the FDA weighs risks of drugs, such as the current uncertainty regarding primary clinical endpoints for our PN & PA program, including risks of drugs that have been in use for many years, the decisions of our collaboration partners, our dependence on our collaboration partners for the sales and marketing of our products once approved, including our dependence on GlaxoSmithKline for the sales and marketing of Treximet and whether our resources will be depleted by events other than clinical trials and efforts to obtain regulatory approvals such as the lawsuit that has been filed against POZEN and certain individuals.

Additional factors that affect our forward-looking statements are discussed in our most recent quarterly report on Form 10-Q, which is on file with the SEC. In addition, these forward-looking statements represent only the company's expectations as of today. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the company's estimates or views as of any date subsequent to today.

With us today from management, we have Dr. John Plachetka, Chairman, President and Chief Executive Officer, Dr. Marshall Reese, Executive Vice President, Product Development, and Bill Hodges, Chief Financial Officer, Senior Vice President of Finance and Administration. At this point, I would like to turn the call over to Dr. Plachetka.

John Plachetka

Thanks, Fran, and good morning to everybody out there. Thanks for joining us today. Let me first revise some disparity on a couple of questions that were asked during our call two weeks ago. At that time, there were some questions regarding the recent modifications made to the AstraZeneca agreement, and basically, they were minor amendment to the agreement that not allow those who receive faster payment for work performed under the agreement, and it fine lines the studies performed under the agreement including the two Celebrex studies for PN400. So as I said back then, they were minor changes to the agreement but any change to material agreement for company like Pozen, a small company resuscitates a formal SEC filing to reflect those changes. So hopefully that gives you a little bit more information there.

Look at that tracks and map, we continue to see scripts increasing week over week, and that’s a really good thing. We are now the fifth ranked Oral triptan [ph] out of the eight triptans in the market. The branded promotion materials were approved by the FDA and started appearing in late September, in both print and television ads. And it’s going to take a little time for these ads to be seen by patients. And then, for the patients to begin their appointment to see their doctor, and then to get a track on their prescription, but I think you can clearly see an increase in the script data, and that increase appears to coincide with the DTC. So, it sure looks though like it’s having an effect.

According to the IMS Health weekly prescription data, over the past six weeks, Treximet has been the fastest growing of all triptans. It has enjoyed consistently strong prescription drugs since the first week in September, which is when some of these things started to happen. And while the overall total of new prescription volumes has experienced a five-week average decline, and that’s per total triptan, the decline is 0.5% and 0.7% respectively. Treximet, on the other hand, total in new prescription volume increased; and increase is 5.4% and 4.9% during the same period, so pretty good contrast there. Treximet new prescription share of Oral sumatriptan rose from 4.8% in the week ending September 5, which is the Labor Day week to 7% in the week ending October 17. And likewise, the share of total prescription of Oral sumatriptan increased from 2.8% to 4.3%. So, we’ve seen some really good activity that coincides with the more aggressive approach we’ve seen in the marketplace on promotion.

Now, before I turn the call over to Dr. Reese, I’d like to talk a little about the impact FDA’s internal discussions regarding the use of endoscopic gastric ulcers could have on our program. With respect to PN400, we have an SPA and we intend to stay with our original plan to file an NDA this summer. And with respect to PA, we didn’t get approved or hold off initiating large clinical trials until the first half of next year when we expect the FDA to reach their decision. So as Bill is going to discuss a little bit later, next year’s expenses will be more like post as typical annual expense. I’m not saying – I think they were always planned to be in this range, about $30 million to $35 million before non-cash charges. Let me turn the call over to Dr. Reese, who will give us an update on our PN400 and PA programs. And then, we’ll go to Bill, and I’ll come back and we’ll deal with questions.

Marshall Reese

Thanks, John. The PN400 program continues on schedule and we expect to have top line results from both pivotal trials by the end of this year, and be able to report the results during first quarter of next year. We believe the entire program remains on track for mid-year NDA filing. As we indicated on October 17, the FDA is reevaluating endpoints from several therapeutic categories including the GI division or our PN/PA program will be reduced.

We have agreements in writing from the FDA stating that gastric ulcers is the agreed endpoints for both the PN and the PA programs, and we hope that their internal meeting during the first quarter of ’09 will uphold the appropriate note of this endpoint for our program.

With respect to FDA’s comment to public safety, we respect the FDA’s comment to public safety and their desires to insure that clinical trial endpoint produce the most meaningful result possible. To that end, at our recent meeting with FDA, they invited Pozen to provide them with the scientific rationale as to why gastric ulcers should remain an appropriate endpoint for our programs.

On our last call, we stated that we’re preceding full speed ahead to finish all of the studies and file the PN NDA on schedule next summer. This is a significant endeavor for Pozen and we’re putting detail plans in place to insure that the joint project team made this commitment to both AZ and Pozen. We’re working very closely with our partner to share data and agree on its interpretation as soon as it becomes available. We also mix frequently the (inaudible) and as well face-to-face to insure that the 200 miles to 202 companies will not slowdown the NDA process.

Now, let me turn to our PA programs. When we met with the FDA earlier this month, they assured us that we were not on clinical hold and that we could start our efficacy trials at our own risk, however, John mentioned, we will await the outcome of the FDA decision on the gastric ulcer endpoint before initiating our phase III efficacy program. We have reduced the phase III protocol with the FDA via the special protocol assessment or the SPA, and have reached agreement with all statuses of the protocol except for final agreement on the use of gastric ulcers as the primary endpoint. Once the FDA made a final decision and assuming a successful resolution, we will then be able to position to start our phase III efficacy trials. We expect this decision during first quarter, so we will plan our phase III program later at the first half of the year.

Pozen remain on track to start the exploratory program for new product concept this quarter as well as next. And in addition, we are looking at possible studies in colorectal cancer with our PA formulation. We are planning to meet with the FDA next year to discuss possible development program in order to gain approval for PA formulation in this new therapeutic area. There’s no doubt that aspirin provides beneficial effect in patients suffering from colorectal cancer based on many trials such as though published by the National Institution of Health and the National Cancer Institution.

The primary problem is the GI toxicity often associated with the continued use of aspirin and we believe with our PA formulation that that GI toxicity maybe considerably diminished. Now, let me turn over the call back over to John.

John Plachetka

Thanks, Marty. I’m going to give it over to Bill Hodges to talk about our financial results.

Bill Hodges

Thank you, John. Looking at our financial statements for the third quarter of 2008, revenue totaled $11.1 million as compared to $27.6 million for the same period in 2007. A decrease in revenue was primarily due to the prior year receipt of $20 million milestone payment from AstraZeneca in September of 2007 for the successful completion of certain studies for PN.

The royalty income from GSK for Treximet totaled $370,000 during this quarter. Total operating expenses were $19.5 million as compared to $11.9 million in the same period in 2007. Increase in operating expenses over the third quarter of 2007 resulted primarily from a $5.4 million increase in the phase III development cost for PN400, and $1 million increase in our exploratory development program spending. We’re still on target to complete the PN400 pivotal study this year and we believe we’ll file the NDA in mid 2009.

Noncash stock option-based expenses were $1.7 million in the third quarter of 2008 versus $400,000 in the third quarter of 2007, as a result of the forfeiture of the Treximet performance-based option in 2007 period. The net loss for the third quarter 2008 was $7.9 million or $0.26 loss per diluted share, compared to a net profit of $14.8 million or $0.48 per diluted share in the third quarter 2007.

Now, looking at the nine months ended September 30, 2008 revenue totaled $52.1 million as compared $47.2 million in 2007. The increase in revenue is primarily due to development work performed under the AstraZeneca agreement. Total operating expenses were $55.7 million as compared to $39 million for the same period in 2007. The increase in operating expenses is primarily due to $15.2 million in the cost associated with the PN program. Noncash stock-based expenses were $4.4 million for the first nine months of 2008 versus $2.9 million in 2007; again, due to the forfeiture of the Treximet performance-based option in 2007.

Net loss for the nine months ended September 30, 2008 was $1.9 million or $0.06 loss per diluted share, compared to a net profit of $8.9 million or $0.29 per diluted share in the same period in 2007. At September 30, 2008, the cash, cash equivalent and short term investments totaled $62 million compared to $73.9 million at December 31, 2007. We have a $7.7 million receivable balance due from our partners AstraZeneca and GSK at September 30, 2008.

Pozen expects total revenue to be in the range of $62 million to $64 million for 2008, which includes $20 million milestone payment already received from GSK earlier this year. We are currently estimating Treximet royalty to be in the range of $1.6 million to $2.6 million for 2008. Revenue for development work performed under the AstraZeneca agreement is expected to be in the $25 million to $27 million range for 2008.

Total operating expenses for 2008 are expected to be in the range of $73 million to $75 million. This range has increased in conjunction with the revenue for development work under the AZ agreement due to our PN development cost for studies performed on behalf of AstraZeneca, and is also increased because we planned again some exploratory development studies on two new product concepts (inaudible) as Marty mentioned.

Noncash stock-based compensation expense of approximately $6 million is included in our operating expense estimates. The estimated cash bond for expenses net of payments for work performed under our agreement is forecasted to be approximately $42 million for the 2008 year. This is high in previous years due to the higher cost of the PN400 phase III trials in 2008. As you’re aware, we have had higher expenses in 2007 and 2008 to run the PN400 phase III trials, however, looking forward to 2009 and beyond, we anticipate that we will return to a more historical spending pattern as Dr. Plachetka said $30 million to $35 million per year excluding noncash compensation expenses.

Given the challenges in the economy in the financial market, we are challenging all of our future proposed spending to insure that it is efficient and have the highest expected return for our shareholders, and we are focusing on conserving cash, those were our financial results and outlook. Let me now turn the call back over to Dr. Plachetka. John?

John Plachetka

Thanks, Bill. And operator, we can open it up for questions now.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Angela Larson of SFG. Your line is open.

Angela Larson – SFG

Good morning and thanks for taking questions.

John Plachetka

Good morning

Angela Larson – SFG

Good morning. I was hoping you could remind us a little bit about how you booked the Treximet royalty if you booked it on sales or shipment?

Bill Hodges

We can’t hear you. We’re having trouble in the phone here.

Angela Larson – SFG

Okay. I was hoping you could remind us how you booked the Treximet royalty if it’s on sales or shipments, and the timing of the Imitrex generic?

Marty Reese

The question was how we record the Treximet royalty. Angela, we record those on net sales and we do get a report in time to report those – that they are not delayed a quarter or anything like that. They are net sales for the quarter as reported from GSK.

John Plachetka

Angela, what was the question on the Treximet generic?

Angela Larson – SFG

I was wondering if you could give us some color on the timing of the expected Imitrex generics.

John Plachetka

The Imitrex generics?

Angela Larson – SFG

And how will the Treximet campaign be adjusting at that time?

John Plachetka

We have no indication that the introduction of Imitrex generic is going to make any difference on Glaxo’s plan for Treximet, either in terms of their promotional activities or what the else they’re currently doing. The introduction of the generic is so far, as we know, is still expected to happen in December, is that right?

Marty Reese

Like November 2009.

John Plachetka

November or early December and who was that again?

Marty Reese

Dr. Reddy [ph] as I understand will come in late November 2008 and Ranbaxy [ph] – it’s possible that Ranbaxy will come in December of 2008.

John Plachetka

Okay. It’s speculation that he’ll actually show up.

Angela Larson – SFG

Okay, great. Thank you very much.

John Plachetka

Sure. Thanks, Angela.

Operator

Our next question comes from Ken Trbovich of RBC Capital Market. Your line is open.

Ken Trbovich – RBC Capital Market

Yes, John, I was looking at the run rate for Treximet and I just wanted to run through the numbers whether you make sure you are on the right page, and get some insights in the commercial milestones that you might also earn on Treximet? Looking at the numbers, it looks like that you guys are approaching the $100 million run rate on Treximet at this point. Is there a sense for what magnitude increase we need to see for the first commercial milestone to be triggered?

Marty Reese

We won’t get there on that level, and even at twice that we’re not going to get there on the first commercial milestone.

Ken Trbovich – RBC Capital Market

Okay. And then just as it relates to the discussion of the gastric ulcers as an endpoint, I know the question that come up, when you hosted the call about other endpoints that you’re looking at. I just didn’t know – I’m sorry, secondary endpoints that you already have included in the study, I just didn’t know if those might include things perhaps along the severity of the ulcer, whether it’s perforation or bleeds that frankly the ulcer is really a precursor to preventing.

Marty Reese

Yes. I mean, that is a really good question Ken. Most experts believe that ulcers are a precursor to perforations and bleeds, which is why most investigators and other companies also look at gastric ulcers as the primary endpoint. Not just for prevention but as a matter of fact for healing as well. I mean, the entire landscape of approval approach on proton pump inhibitors is that endoscopic ulcers. The only difference is that they were symptomatic and detected on adapt to after the symptoms. So along those lines, we collect symptoms data. We collect laboratory data. We can detect small amounts of bleeding chronically by looking at hemoglobin and hematocrit.

But relative to the big outcome such as deaths, hospitalizations, GI bleed and transfusions, we just don’t see those in our clinical trials with any frequency whatsoever. I think exert their SAEs from our standpoint. I think in the entire database that we’ve seen so far, I think we have one of those. Of course, we’re still blinded but we only have one of those, so that’s not going to be something that’s going to be very easy to do, in terms of detecting in clinical trials that only includes 500 patients.

Ken Trbovich – RBC Capital Market

Sure.

Marty Reese

If you go back and you look at the class trials for instance or the Vioxx registration trials, they were arthritis trials, and they were demonstrating endoscopic reduction in ulcers that’s in their label. But they were not able to show reduction and outcome. Certainly, Celebrex wasn’t able to. But that didn’t keep them from putting the ulcer data in their label or getting the drug approved. So in order to let this play out, obviously, we’re in communication with the agency. We’ve had some discussions of what other things might be acceptable. We look at our own database. We have some additional information that we think is interesting and clearly supportive of the benefit of the patient beyond asymptomatic changes in gastric ulcer, but I don’t want to get ahead of the game here. I think at the end of the day they’ll do what’s correct both ethically and scientifically, and also consistent with regulatory history.

Ken Trbovich – RBC Capital Market

Sure. I appreciate it. And I guess, you mentioned obviously the outcomes at least in some genetics from the – I’m assuming that’s from the pivotal study. Is that also true for the Celebrex competitor study, because it seems that those studies are actually larger than the pivotal study?

Marty Reese

Yes, they are. But the difference between an outcome trial in an endoscopy or even in arthritis trial like the Celebrex even the comparative one, you’re not going to find anything and say get up to the 10,000 patient enrolment rate. These are relatively were event in this population. On the other hand, if you go to a different population much higher risk, then you might have a chance of finding it. But then you’re faced with more or less an ethical dilemma of knowing gastric ulcers are precursor to this. If you find it, do you leave it untreated? So there’s some other issues that are sitting around here. You’re almost in the top five. If you do an outcome trial, you’re going against the grain for the recommendation of the Heart Association, the Arthritis Association, Rheumatologist, and I’ll remind everybody when the FDA and Pfizer and the Cleveland Clinic agreed on a protocol for the precision trial which test naproxen versus Celebrex. Every patient was required to take Nexium, every patient. They must have a reason for that. So, I think when it does sells here, all these facts would have been considered.

Ken Trbovich – RBC Capital Market

Okay. And then just a final question and I think it’s been asked before but I just want to confirm the Celebrex studies is really a non-inferiority study in terms of the primary endpoint, the design there?

Marty Reese

Yes, that’s correct.

Ken Trbovich – RBC Capital Market

Okay. Thank you.

Operator

Your next question comes from the line of Ian Sanderson of Cowen & Company. Your line is open.

Ian Sanderson – Cowen & Co.

Good morning. Thanks for taking the question.

John Plachetka

Good morning, Ian.

Ian Sanderson – Cowen & Co.

I may have miss this earlier in the call, but can you provide any additional color on the two new product concepts that were mention by Bill in the financial guidance?

John Plachetka

Well, one of them is a product that we’re looking at to treat reflux esophagitis. We’re in the process of doing some formulation work and we hope to be doing an acid secretory study in the fourth quarter and first quarter next year. It’ll take a little bit of time. It’ll probably span the year. And in the other one is looking at alternative uses our PA for other indications outside the cardiovascular. And so, we’re looking now at a higher does. Looking at endoscopy from endoscopic damage the way we’ve done the proof of concept study for the PN, all the different PN concepts and a lower dose forms of PA.

Ian Sanderson – Cowen & Co.

Okay. And the second, Bill, I miss this. Can you repeat the cash spending guidance?

Bill Hodges

The cash burn net of payments from AstraZeneca for development work done on their behalf is estimated to be $42 million for 2008 year.

Ian Sanderson – Cowen & Co.

Okay.

John Plachetka

I think, just to be clear about what we have, we – our cash balance today is $72 million.

Bill Hodges

$62 million.

John Plachetka

$62 million, sorry, with a receivables of almost $7 million or something, and the burn rate that Bill has given you doesn’t mean we’re going to reduce that by $40 million.

Bill Hodges

We said in the press release that we expect to finish the year with over $53 million cash and investments.

Ian Sanderson – Cowen & Co.

And does that estimates include receipt of the $7 million in receivables or not?

Bill Hodges

Yes, yes. We will receive that about the end of the year.

Ian Sanderson – Cowen & Co.

Okay.

Bill Hodges

But we have new receivable.

Marty Reese

Yes, we’ll have new receivable as we continue to do work.

John Plachetka

Right. So the cash balance will be in $53 million but we’ll also have receivable and I don’t think we gave the guy (inaudible).

Marty Reese

No.

John Plachetka

But it’ll be – it won’t be an insignificant number. It’ll be million probably.

Ian Sanderson – Cowen & Co.

Okay. Thank you very much.

John Plachetka

Sure.

Operator

Your next question comes from the line of Michael Tong of Wachovia Capital. Your line is open.

Michael Tong – Wachovia Capital

Hi, good morning. Bill, just to clarify, actually following along Ian’s question. When you said ’09 and on $30 million to $35 million, is that R&D expense number excluding stock compensation?

Bill Hodges

$30 million to $35 million is total expenses including stock compensation.

Michael Tong – Wachovia Capital

Can you repeat that please?

Bill Hodges

$30 million to $35 million is total expenses excluding the noncash stock compensation. It’s not just R&D, its SG&A as well.

Michael Tong – Wachovia Capital

Okay. And then just a question for John, has the FDA given you any indication that they’re at all concern that cool formulating naproxen and Nexium, whether that – could conceivably reduced the effectiveness of naproxen as an analgesic, even though you’ve proven bio-equivalents?

John Plachetka

Never been raised? The answer to that is no. We have no indication and I will also indicate or go back to and suggest that we have the active comparative with Celebrex, and I think the goal there was obviously put it in perspective relative to Celebrex in terms of arthroscopy. So I think we’re covered on that from the marketing perspective. And the FDA, it’s not a concern to them.

Michael Tong – Wachovia Capital

Great, thank you.

John Plachetka

We have really nice level of naproxen and our profile is different than regular naproxen, but it’s much steadier. And I think that also contributes to the reduction in ulcers as well as the nice efficacy that’s – we’re real please with the whole overall profile.

Operator

(Operator instructions) There are no further questions. We will turn the call back over to Dr. Plachetka for any closing or additional remarks.

John Plachetka

Let me just go back to the question about the R&D spend. From the historical perspective, $15 million to $20 million is what we spend in our research programs. Because we use the outsource model here at Pozen, just salaries and the cost of doing business is usually around $15 million, give or take a little bit.

As one of the advantages of the company, obviously, is that we have a business model that allows us to ramp up and ramp down and this helps us consider our cash. And we’ve been able to use this in the difficult times for or five years ago. We’ve been in business since ’96 and the current economic situation is not the only tough times that faced the BioTech Business, but we’ve got a good business model. It’s very resilient. We have cash in the bank. We’re not considering running out of cash. We, obviously, would like to continue to advance our program, and we intend to do so even our exploratory program. And I think that puts us in a very interesting, an advantageous position relative to other companies.

So, I just want to close with that remark. We are continuing to make progress. We’re happy with the information that we’ve been generating that we’re taking a look at as we go forward here. And I want to thank everybody for listening and participating. And we will get back to you as wanted. So thanks. Signing off, operator.

Operator

Thank you for participating in today’s Pozen third quarter 2008 earnings conference. You may now disconnect. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: POZEN Inc. Q3 2008 Earnings Call Transcript
This Transcript
All Transcripts