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POZEN, Inc. (NASDAQ:POZN)

Q4 2008 Earnings Call

February 25, 2009 11:00 AM ET

Executives

Stephanie Bonestell - Investor Relations

John R. Plachetka, Pharm.D. - Chairman, President and Chief Executive Officer

William L. Hodges - Senior Vice President Finance and Administration and Chief Financial Officer

Analysts

Ken Trbovich - RBC Capital Market

Lucy Lu - Citigroup Investment Research

Ian Sanderson - Cowen & Co.

Operator

Good morning. My name is Christi and I will be your conference operator today. At this time, I would like to welcome everyone to POZEN's Fourth Quarter Year-end 2008 Conference Call. All participants have been placed in a listen-only mode and the floor will be opened for questions following the presentation. (Operator Instructions). As a reminder, today's conference call will be recorded.

I would now like to introduce your host for today's conference, Ms. Stephanie Bonestell with Investor Relations. Ms. Bonestell, you may begin.

Stephanie Bonestell

Thank you, Christie and good morning. On behalf of POZEN, I would like to welcome everyone to today's fourth quarter conference call.

By now you should have already received a copy of the company's press release. If you do not have it, you can access one on the homepage of our website at www.POZEN.com, where you can also access a replay of this conference call.

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.

Such statements include 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 or timing of 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 may have historically cost; how the FDA weighs risks of drugs, including risks of drugs that have been used for many years; the decision 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 approval, such as the lawsuits we have filed against generic companies seeking to market generic versions Treximet prior to the expiration of our patent.

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 statement should not be relied upon as representing the company's estimates or views as of any date subsequent to today.

With us from management we have Dr. John Plachetka, Chairman, President and Chief Executive Officer and Bill Hodges, Chief Financial Officer, Senior Vice President, Finance and Administration.

At this point, I would like to turn the call over to Dr. Plachetka.?

John R. Plachetka, Pharm.D.

Thank you, Stephanie and good morning to everybody. Thanks for joining us today. Well, it's been an exciting year, 2008 as it has been for everybody, but we're very happy at POZEN. Despite the macro economic environment, some very good things happened to us during 2008 and we expect more good things in 2009 and we'll talk a little bit about those today.

Treximet was approved in April, which was long awaited and was great news. This was our first new product approval in the United States and we're pleased that we've been able to bring that new medicine available to the millions of migraine sufferers in the United States. Although sales have not met our expectations for the product, it is the only migraine product proven to be superior to the market leader.

Leading the explanation for this performance is that unexpectedly GSK has been unable to get FDA approved promotional materials in the hands of the field sales force during 2008. There are other factors of course, and I think one additional one is that there was some restructuring at GSK in 2008 that may have also been a distraction.

Whatever the case, many of the advantages of Treximet over sumatriptan, which include more patience pain free at two hours, greater pain relief at two hours, better overall symptom relief, a lower relapse rate and other benefits. We have not communicated as effectively as we had hoped for.

However, we now understand that GSK... from GSK that FDA approved promotional materials have been sent off to sales rep selling Treximet, that they have received training on their use earlier this year and that the DTC will continue to inform patients about the availability of Treximet.

We also understand that formulary status (ph) continues to improve and that there has been steady progress in getting Treximet in to tier two as formulary committees have an opportunity to review the data package.

And so we believe in the GSK sales reps as they always have when they have right tools and a well differentiated product to sell. And, we believe that Treximet is the best migraine medicine available today. So in short we believe that Treximet sales should improve this year as a result of GSK's new initiatives.

We can also tell you that the approval of Treximet in the U.S. has created interest in our MT 400 product which contains a lower dose of sumatriptan with naproxen, from companies who could sell MT 400 outside of the U.S. Total triptan sales in major EU markets and Canada were approximately $1 billion in 2008. And that's figure is after several years of the availability of generic sumatriptan in those markets.

So it looks like there could be a substantial market opportunity for this product outside of the US. And we will continue to explore ways to obtain additional value from this asset.

Turning to our PN 400 program, the big news is that gastric ulcers continue to be an unacceptable end point for us. And we were informed by FDA in late January that the evaluation they undertook is over and that the GI division will adhere to their previous standards regarding the suitability of endoscopic gastric ulcers, as the clinical end point. So we are continuing with our preparations to file the PN400 NDA, this summer.

Now As a reminder, we announced in December, that we hit our primary end point in both of our two PN 400 pivotal trials, 301 and 302, in which there was a highly significant difference in favor of PN 400 versus EC naproxen on the primary end point. In addition, we are nearing completion of two phase III b studies 307 and 309 and a long term safety trial. So after AstraZeneca makes its final determination regarding submission, we plan to submit the NDA as quickly as possible.

We also continue advance our PA 32540 program and as soon as we received the news regarding the continue acceptability of gastric ulcers we requested FDA to sign off on the final question unanswered in our FDA process which was the acceptability of endoscopic gastric ulcers as the primary end point. And just in time for this update the FDA responded affirmatively.

So, we now consider the SPA complete and we have confidence that the regulatory path way we undertook for PN 400 will also be acceptable for PA32540 and we are moving diligently to get the PA32540 Phase III programs started later this year. We anticipate that we should be able to start enrolling patients in these several trials by late summer.

So, in summary, we are well positioned for 2009. We are proud of being able to say that we have no debt. We have an approved product generating cash for us, another product which could generate a one time $10 million milestone payment upon FDA acceptance of NDA this year and royalties once approved and if approved in the years to come and a third product entering phase III development.

All in all we think POZEN is looking pretty good. It's important to also point out that our spending for 2009 is estimated to be significantly less than the 2008 level by about half and that means we're going to return to our historical levels of spending.

Bill Hodges will have more to say about that in a minute. So let me the turn the call over to Bill who is our CFO as Stephanie said. And he is going to review the past year financials and provide insight into 2009.

William L. Hodges

Thank you, John. We ended the year with $61.7 million in cash and short-term investments and have no debt. In these difficult economic times it's critical to use cash wisely and we continue to have strong performance in our cash management.

We have not borrowed or raised money since our IPO in 2000 and we have no plans to do so in 2009. Looking at our financial statements for the fourth quarter of 2008 revenue totaled $14 million as compared to $6.2 million in the same period for 2007.

The fourth quarter includes, fourth quarter revenue includes 5.2 million of licensing revenue which includes $1.2 million of fourth quarter Treximet royalties and $8.8 million of revenue for development work performed under the AstraZeneca agreement.

Total operating expenses were $18.5 million as compared to $12.4 million for the same period in 2007. The increase in operating expenses over the fourth quarter of 2007 resulted primarily from a $5 million increase in the development costs for our PN 400 program.

Non cash stock based compensation expenses were $1.6 million for the fourth quarter of 2008. The net loss for the fourth quarter of 2008 was $4.8 million or $0.14 per share on a diluted basis compared to a net loss of $4.2 million or $0.14 per share on a diluted basis in 2007.

So now let us move to the full year results. For the 12 months ended December 31 2008, revenue totaled $66.1 million as compared to $53.4 million for the same period in 2007. The increase in revenue was primarily due to earning $10.8 million more in revenue for development work performed under the AstraZeneca agreement and royalties on Treximet of $2.4 million.

Total operating expenses were $74.2 million as compared to $51.4 million for the same period in 2007 and this increase in operating expenses was primarily due to an increase in costs associated with the PN400 development program.

Non-cash stock based compensation expenses were $6 million for the year ended December 31 2008. The net loss for the year was $6 million or $0.20 loss per share on a diluted basis compared to a net income of $4.7 million or $0.15 per share on a diluted basis for the same period in 2007.

Our revenue and expenses are slightly over our previous guidance due to higher revenues and costs for development work performed under the AstraZeneca agreement. So at the end of the year cash, cash equivalent and short-term investments totaled $61.7 million as compared to $73.9 million at the end of December 31st, 2007 and we also have an $8.1 million receivable balance due from our collaboration partners, AstraZeneca and GlaxoSmithKline.

With regard to our outlook for 2009, we are planning to advance our priority programs as quickly as possible. But it is our intention to manage our cash balance so that we end the 2009 year with a balance of at least $45 million.

And As John mentioned our net cash expenses will return to historical levels of 30 to $35 million. We will be completing all activities related to the PN studies and our planning on filing the NDA in the middle of the year and we also plan to start the PA 32540 phase III pivotal clinical studies during the summer and to advance other exploratory development programs as we have the resources do so.

So those are our financial results and outlook. Now let me turn the call back over to Dr. Plachetka.

John R. Plachetka, Pharm.D.

Thanks, Bill. Let me expand just a bit on Bill said about our strategy for this year in general. Our key milestone for the year includes filling the PN 400 NDA this summer, advancing the PA 32540 program in to Phase III during the second half of the year. And continue to explore new and innovative development programs such as our '08 65020 program.

And we will continue to watch Treximet sales as GSK rolls out their arsenal of tools this year. As most of you know the royalty rate for Treximet will increase significantly from its current level, starting January 1, 2010. So, any increase in sales this year will be amplified in its effect on our cash flow next year.

Let me just take a second and mention that we're going to be presenting at Cowen's Annual Health Care Conference which is... we will be there on March 16 and it's in Boston. And Citi's Annual Biotech Day on April 1 in New York.

I look forward to meeting many of you there if you have are attending. And in closing today I want to thank Dr. Marty Reese for his four years of service here in POZEN. As noted in our recently released 8-K, Dr. Reese will be retiring from POZEN, March 31 and will continue to consult with POZEN until at least the PN 400 NDA submission. In anticipation of Marty's retirement Dr. Eric Goldmanth (ph), our Senior Vice President Development will be in charge of all of our development programs. And I have full confidence in Eric's ability to move these new programs forward. So, again thanks Dr. Reese and congratulations to Dr. Goldmanth.

So, operator lets open the line for some questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Ken Trbovich with RBC Capital Market. Your line is open.

Ken Trbovich - RBC Capital Market

Thanks for taking the question. I guess first one, Bill just is relates to the fourth quarter. Could you walk us through the license revenue and any changes that occurred to recognizing the deferred milestones.

William Hodges

The licensing revenue at 5.2 million is obviously the royalty that we received as well as amortization of upfronts. The one thing that I didn't mention is there is a million dollar MT 300 milestone that we pulled through this quarter. So that's probably the missing piece for you.

Ken Trbovich - RBC Capital Market

Okay. And so that's a non-recurring piece?

William Hodges

It's a non-recurring piece, yes.

Ken Trbovich - RBC Capital Market

And then just as relates to the filing from an accounting perspective if you file PN 400 and are able to get a priority review would that change the amortization periods for these upfronts?

William Hodges

We amortize through the period that we expect our obligations to end which is subsequent to approval. We have to transition in NDA to our partners. So, we generally go over that period. So if we would receive a priority review, a shorter review we would have to reevaluate the amortization period.

Ken Trbovich - RBC Capital Market

Sure, and I guess sort of I'm asking is do you reevaluate that upon received the priority review or upon receipt of the approval?

John Plachetka, Pharm.D.

I mean that's more of a total software (ph) question, it's not an accounting question. I wouldn't change anything beyond the standards.

Ken Trbovich - RBC Capital Market

Okay. And then just with regard to the application itself, what are the critical time points here? Is there a period in which AstraZeneca has an opportunity to sort of go through the formatting of the NDA and providing any comment or feedback before you actually submit? I mean what procedurally is left to do between now and the filing.

John Plachetka, Pharm.D.

Well I think we mentioned is in the past so let me go back through this. AstraZeneca has an internal decision to make on the filing of the NDA, they look at the overall profile of the product that was in the original contract. And has to do with meeting their target product profile, which by the way we think we have done, but it's still got to go through their system. We're doing the filing. We're collaborating with them on the filing. There is a joint effort underway. But the technical filing is actually coming out of POZEN shop. Their internal reviews are heavier on using that result of content of course the study reports and they're very involved of course in the manufacturing component.

So there is enough work to go around on both parties, but we are targeting filing this summer, and all parties still believe that that's a good date.

Ken Trbovich - RBC Capital Market

And is that dependent upon received the data from the Celebrex comparative study?

John Plachetka, Pharm.D.

Well, those studies are fully enrolled and what we haven't gotten the final reports on those things. Yeah we're planning on putting that data in the NDA. So it would be a requirement. And we'll have to have the information but I don't see a delay there. I see that we're on schedule. It's an aggressive schedule but we're on schedule. And I think we'll be able to make the filing as we said.

Ken Trbovich - RBC Capital Market

Okay. And then just final question on PA I know the plan had been all along to getting approval of SPA, is that still on track to be completed that process to essentially open the door for the initiation of trials later this year?

John Plachetka, Pharm.D.

Yeah as I said in the body of my comments, but let me call it out specifically. We have one outstanding issue in the SPA which was suitability of gastric ulcers. We have this wonderful surprise of an early decision by the agency in January. They said gastric ulcers are fine for the PN program. We immediately went in for finalization of SPA and earlier this week we got acknowledgment that gastric ulcers continue to be fine in the PA program also.

So, our SPA is finished. We are going to proceed with the planning for kicking off the PA 32540 program which will mirror the program from an endoscopic standpoint, not from the comparative study, as we did for PN.

So the two Phase III pivotal's will be PA 32540 versus enteric-coated aspirin, looking at reductions in gastric ulcers over a certain period of time and there rest of the SPA which I think they had six or seven questions all suitably answered. So we think we're done with the SPA and we're we getting ready to kick off the phase III program.

It's nice as we finish one, we're able roll into the other one and somebody asked me earlier about the delay and I look for the silver lining here. It's given us more bandwidth, it's delayed some of the expenditures we would have made. So I think from a financing standpoint, it's going to be easier for us to handle as we go forward into the phase III program. So, there is silver lining in everything. And I really wanted to thank the agency and the people who participated in the review, not only did they come to a decision that we though clearly was a great decision, but they did so on a very timely fashion.

I maybe the only CEO in small pharma biotech, who ever said the agency beat their timelines by at least a month or so but they did and we're really grateful.

Ken Trbovich - RBC Capital Market

And then just final question on the funding side. Are these trails you are planning to self fund them and that's included in the guidance, are you expecting then that the costs is going to be comparable with a sort of 30, 40 million that we saw for the actual development of PN?

John Plachetka, Pharm.D.

Well we're going to give you a little bit more guidance as we run through the set up to those trail camps later in the year. That's one of things we're looking at, just what it is actually going to cost. I don't think its going to be anymore. We are looking at clinical trail sides and other suppliers who work in our business actually sharpening their pencils.

So if anything we're looking to hold those costs at the same level or maybe even try and get some economies.

Ken Trbovich - RBC Capital Market

Okay, thank you.

John Plachetka, Pharm.D.

Yeah, you bet.

Operator

Our next question comes from the line of Lucy Lu from Citi. Your line is open.

Lucy Lu - Citigroup Investment Research

Great, thank you. Thanks for taking my question. The first one is for the PA program I know the allocations take aspirin and Plavix together and I know there is some recent controversy in terms of how Plavix interferes either with pyrocyclomaxium (ph). I am wondering in your phase III study design are you going to allow patients to take Plavix at the same time or how do you control for that?

John Plachetka, Pharm.D.

Well, that's a really good question. We're into that discussion. We'll have more to say about that as we roll out the study design. So I don't want to preempt that. I will say this about the interaction, I think there is more emotion than fact out there right now. I know the agency has taken a hard look at this. There is some information been collected, I know from both the Myers and Santa Fe, relative to the implications of this interaction.

It's a simple interaction to overcome. You only have to phase the two drugs out a little bit because they compete for the same enzyme, relatively short half life drugs. If you just separated them by four or five hours on my opinion this interaction wouldn't occur. The other thing is, it's quite symbolic to overcome competitive interaction by giving a little bit more of the drug which theoretically is inhibited. So it's not a all or none type phenomenon in my opinion. But those are some of the ways around it, if people still take the combination going forward. Let's wait and hear what the agency has to say about that as well but we aware of it. We're looking after it and we'll take appropriate steps in our protocol.

Lucy Lu - Citigroup Investment Research

Okay and then the second question is on Treximet. I am just wondering the initial prescribers, do they tend to be neurologists that treat very complex migraine headaches or do they tend to be primary physicians that are more probably more sensitive to promotion? Thank you.

John Plachetka, Pharm.D.

Well, that's the question I, don't have data for, because GSK is handling the marketing, that would be better directed to them. My impression, just from looking at the way the drug has been rolling out, is that there is higher usage pattern right now in neurologist which is typical of all new products. But I don't know about the specifics of GP prescribers.

Lucy Lu - Citigroup Investment Research

All right, thank you.

John Plachetka, Pharm.D.

Okay.

Operator

And our next question comes from Ian Sanderson with Cowen. Your line is open.

Ian Sanderson - Cowen & Co.

Hi, good morning thanks for taking the question. John, could you elaborate on your statement of roughly having the expense base in 2009. It does seem to be little a bit inconsistent with those operating cash burn guidance and... if you can touch on that. And then secondly on the bill... the Q4 R&D revenues from AstraZeneca of $8.8 million. Is that kind of final splurge and where we should we look for that roughly on a quarterly basis in 2009?

John Plachetka, Pharm.D.

Thanks Ian, I hope I didn't mis-state as we go back through the numbers. We historically stand between $30 and 35 million in cash expenses, not the non-cash expenses. This year we were almost... I think we were over 60, 65 million in that number.

William Hodges

68

John Plachetka, Pharm.D.

68 million so that's the basis for that, Ian. If I said something, I miss read the script, I apologize. And then the other question I am going to direct to Bill

William Hodges

Yeah the 8.8 million is the studies... 307, 309 studies mainly that John mentioned, the Phase III B studies. And those are ramping up in this quarter. So you'll see some additional cost in the first quarter but then it'll basically go away.

Ian Sanderson - Cowen & Co.

Okay. And, you John, do you bear the cost of those studies and they reimburse you. So is that kind of flow through and will give the same thing on your R&D expense side?

John Plachetka, Pharm.D.

Correct. We get paid for the studies and we get paid for our people, Ian. So we make a slight profit on it. But it's basically our revenue and expense also.

Ian Sanderson - Cowen & Co.

Okay. And then a follow up on this formulary access for Treximet, I don't if you can answer this John. But you mentioned that they are making progress. Do you have any quantification of where that stands?

John Plachetka, Pharm.D.

I do not. We asked the question from GSK and the answer from our standpoint is that they are making progress. I would suspect they will not quantify that.

Ian Sanderson - Cowen & Co.

Okay. Thank you.

John Plachetka, Pharm.D.

Okay. Thanks.

Operator

(Operator Instructions). It looks like there are no further questions. I'll now turn the call back over to your host for any concluding remark.

John Plachetka, Pharm.D.

Thank you, operator and I want to thank everybody for tuning in today. We had a really good year in 2008. We hit our corporate goals. We're in progress on our programs. And we have a very nice plan for 2009 and we'll talk to you as we do each quarter with an update on things and look forward to seeing those of you who can attempt the conferences coming up.

So let me just sign off and thank everybody for tuning in today

Operator

Thank you so much. This concludes our conference call for today. You may now disconnect your lines.

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