Gilda Thomas - Senior Vice President and General Counsel
John Plachetka - Chairman, President and Chief Executive Officer
Elizabeth Cermak - Executive Vice President, Chief Commercial Officer
William Hodges - Senior Vice President, Finance and Administration and Chief Financial Officer
Bert Hazlett - ROTH Capital
Jason Napodano - Zacks
Pozen, Inc. (POZN) Q3 2013 Earnings Call November 6, 2013 11:00 AM ET
Greetings and welcome to the POZEN's third quarter 2013 earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host Gilda Thomas, General Counsel. Ms. Thomas, you may begin.
Thank you, Stacy, and good morning. On behalf of POZEN, I would like to welcome everyone to today's third quarter results conference call. By now you should have received the copy of the company's press release. If you do not have it, you can access it 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 we may make about the future expectations, and 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 forecast or assumptions about the potential size or market opportunity, the prospect for approval or timing of approval of any of our drug candidates including PA32540 and PA8140, any observations that we may make about the expected timing and amounts of royalty payments from AstraZeneca and other revenue expected from our collaboration partners, the timing of our future NDA or MAA filing or the way in which the FDA may consider our new drug application or any other particular clinical trial results, the prospects of timing for any collaboration agreements including those relating to our PA product candidates, results relating to any pending litigation, future clinical trial plans and the likelihood of results of any future trial, our potential commercialization plans and those of our commercialization partner, including potential sales and revenue forecast for our product candidates, the likelihood timing of magnitude of any future distributions to stockholders and anticipated reductions of operating expenses.
The adequacy of financial resources to accomplish our goals for future revenues, future distributions of cash to stockholders and reductions in operating expenses are based on our current expectations and are subject to a number of risks and uncertainties, including our inability to know what certainty, what standards the FDA will use to evaluate drug candidates, including PA32540 and PA8140 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 had estimated that they will cost or than they have historically cost; how the FDA weighs risks of drugs, including risks of drugs that haven't 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 AstraZeneca for the sales and marketing of VIMOVO; and our dependence on outside of the U.S. for the sales and marketing of PA32540 and PA8140 in the United States if approved and whether our resources will be depleted by events other than clinical trials and efforts to obtain regulatory approvals, such as the expenses relating to the lawsuits we have filed against generic companies seeking to market generic versions of the VIMOVO prior to the expiration of our patent.
Additional factors that may affect our forward-looking statements are discussed in our most recent Quarterly Report on Form 10-Q. In addition, these forward-looking statements represent only the company's expectations as of today, November 6, 2013. While the company may elect to update these forward-looking statements, we specifically disclaim 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; Liz Cermak, Executive Vice President and Chief Commercial Officer; and Bill Hodges, Senior Vice President and Chief Financial Officer.
I will now turn the call over to Dr. John Plachetka.
Thanks, Gilda. For those of you, who listen to our calls regularly, you noticed Stephanie did not read the disclosure statement this morning. She is under the weather. So thanks, Gilda, for filling in. And Good morning to everybody. We had a great third quarter and there's a lot to talk about today. And first let's start off with the PA agreement.
We are very pleased to have Sanofi U.S. commercialize the PA family of cardiovascular products here in United States. Now, Sanofi met all our key target criterias for an ideal partner, and most importantly we feel, they are solidly behind this product. And they've got a great track record in cardiovascular marketplace, have been responsible for most of the success of Plavix.
And as many of you know Plavix is still regarded as the non-aspirin antiplatelet agent of choice for many cardiovascular patients. And Liz is going to have more to say about Sanofi U.S. and PA's commercial potentials in a few minutes. But I know that all of us who've chosen, really look forward to working with Sanofi U.S., it's been great so far and we couldn't be more pleased.
So having said that, we continue to work at partnering our unpartnered assets, which include mainly the ex-U.S. PA cardiovascular doses, and we've also demonstrated proof-of-concept for the higher pain-relieving dose of PA, and we talked about that in the past and it's now ready to go into Phase 3.
But having said that, I want to reiterate that we remain focused on preserving capital and delivering maximum value to our shareholders, and as a result have decided not to spend additional funds on development of our pipeline products, until they are partnered, other than completing the European MAA for the ex-U.S. cardiovascular PA products and some ongoing CMC work for various doses of PA.
In addition to the cardiovascular indication for PA, through an EU MAA, POZEN is exploring pursuing scientific advice from the EU on new indications for PA. And as we mentioned in the past, there is a large volume data that supports the use of aspirin as a preventive strategy for the recurrence of different cancers, in particular colorectal cancer and additional information continues to enter the scientific literature virtually every month.
And although, aspirin is not recommended in many of the clinical guidelines as a preventive treatment for cancer, that is in part due to the toxicity, including the bleeding, we believe, of long-term aspirin therapy. And we demonstrated in our Phase 3 trials with the 325 milligrams dose of the PA, PA32540 will reduced some of the toxicity of the long-term aspirin, thereby improving the benefit-to-risk ratio for aspirin in this patient population.
So the objective in the scientific advise will be to determine ways in which the PA data generated by POZEN, along with the other published and available data on the efficacy of aspirin in cancer prevention could be compiled and in an EU MAA to support a cancer prevention indication. We plan to speak to this scientific advised in the first half of 2014, but I want to reiterate, POZEN intends to complete no cancer trials. We're going to rely on the information that's already out there or there could be forthcoming clinical trials conducted by other parties.
Now, once we start to PA140 and PA8140, we continue to conduct CMC stability studies on those formulations, and the formulations we expect will be marketed for these products. And as a reminder, the PA8140 stability program was started about 12 months ago, as a result of our agreement with FDA to include the PA8140 dose in the NDA packet. So we'll continue to evaluate those results as they come in and we'll submit updates to FDA in a timely fashion.
We're also continuing to answer questions and provide information requested by the FDA during its review of the NDA for PA32540 and PA8140. And as we mentioned in our release this morning, the FDA has requested a teleconference, which has been scheduled for mid-November, during which we will discuss and address the FDA's request for information relating to the clinical pharmacology data for PA8140.
And with respect to PA development activities in the EU, we will be conducting the last study needed to fulfill the MAA submission requirement, as we understand those requirements now, based on our conversations with our target Reference Member State. And once that study is finished, we anticipate spending no additional funds other than those required to support submitting the MAA, which now we're planning for mid-2014.
Although we understand the marketing difficulties facing all new drugs in EU, we believe that obtaining EU approval for the 104 dosage form will enable potential partner to more easily obtain approval in many other countries around the world, that use a 100 milligrams of aspirins as a primary dose, especially those in high potential emerging markets.
So let me summarize some of the stuff we just talked about. POZEN's strategic objective is going forward on a maximize income or working to partner all unpartnered assets, reduce expense, while reducing headcount and foregoing new clinical programs that are not fully paid for by a partner. I'll also say that the management team and the board of directors are evaluating what is the best thing to do with our surplus cash and by that I mean, all cash not required to operate our business or achieve our strategic objective.
And while no final decision has been reached at this time, we are focused on shareholder return and are considering several options including distributing some of this cash to shareholders as a return of capital.
So I'll pass it over to Bill Hodges, and he'll give you more specifics about our recent financials. And then Liz will have a few words to say about the PA deal and a few other topics. So let's hear from Bill.
Thank you, John. In the third quarter of 2013, we recorded revenue of $2.6 million compared to $0.9 million in the third quarter of 2012. The 2013 revenue is comprised of royalty from sales of VIMOVO of $1.6 million and $1 million of amortization of the upfront payment on the Sanofi U.S. license, whereas the prior year revenue included $0.9 million of the VIMOVO royalty.
We will be amortizing the $15 million upfront payment from Sanofi U.S. over 15 months starting in September 2013, which is the estimated time, over which POZEN has deliverables under the contract. We realize that this is the longer timeframe than some of our analysts assumed in their models. But based upon the contract with Sanofi, the longest obligation we have relates to the transfer of all manufacturing know how and processes, and we are estimating that this will be completed by quarter four of 2014.
Total third quarter net sales of VIMOVO as defined under our agreement were $23 million, which represents growth of 72% from the third quarter 2012, which is down 1% from the prior quarter. The U.S. sales were down 20% quarter-on-quarter with half being volume decline and half being gross-to-net adjustments. But as we expected the rest of world continues to grow, 5% overall and 11% quarter-over-quarter in countries with continuing promotion.
As we understand it, AstraZeneca plans to continue co-pay cards and sample program in the US, but has discontinued detailing with the contract sales force. The majority of promotion has ceased in the EU, other than Spain and Portugal, where there are existing contractual arrangements, but it continues in many countries in the rest of the world. We will continue to monitor as they will implement changes to promotional support for VIMOVO over the next few quarters, but having said that, the VIMOVO is exceeding our internal forecast for 2013, specifically in the rest of world sales.
Operating expenses were $7.4 million for the third quarter of 2013 compared to $6.7 million for the third quarter of 2012. We had $1.6 million of third quarter one-time expenses related to the license with Sanofi U.S. in 2013, which more than offsets what would have been a decrease to the third quarter of 2012. These one-time expenses include consulting in legal fees, the staff bonus for the deal, which we announced in our 8-K and a non-cash compensation charge for the performance-based equity awards divested when the deal with Sanofi was completed.
Our net loss for the quarter was $4.8 million or $0.16 loss per share compared to a net loss of $5.7 million or $0.19 loss per share for the third quarter of 2012. Our revenue for the nine months of 2013 was $5.6 million, which is comprised of $4.6 million of VIMOVO royalty revenue and $1 million of amortization of the upfront payment from Sanofi U.S. for PA.
Revenue for the first nine months of 2012 was $4 million, which included $0.5 million licensing revenue for MT 400 and $3.5 million for VIMOVO royalty.
Our operating expenses for the first nine months of 2013 totaled $20.2 million, which is down $3.2 million from the first nine months of 2012 and the primary reason for the decline is lower PA development and pre-commercialization cost in 2013, which is partially offset by $1.8 million of one-time costs related to the licensing of PA with Sanofi in U.S. over the nine months.
The net loss for the first nine months of 2013 was $14.5 million or $0.48 loss per share compared to the loss of $19.2 million or $0.64 loss per share in the first nine months of 2012. At September 30, 2013 our balance sheet remain strong with $89.7 million in cash and cash equivalents, which is $2.4 million more than we had at the end of 2012. So year-to-date, we had positive cash flow.
So with that, that concludes our financial results for the third quarter of 2013. So I will turn the call over to Liz.
Thank you, Bill. As Dr. Plachetka said, we are very pleased to have Sanofi U.S. in the PA cardiovascular products for the U.S. marketplace. And since signing the licensing agreement with Sanofi U.S., we've been working on getting them fully educated on all the aspects of PA, clinical, regulatory, medical affairs, supply chain and of course commercial.
We've been quite pleased and impressed at the excitement on the Sanofi U.S. team, the quality of the resource that they're assigning to the brand and the speed with which they are engaging with our team and putting together their launch plans. They are not only uniquely qualified to make PA a success from the cardiovascular heritage, but are now proving that they are fully-engaged, excited and motivated to do so.
And as you know, we've always believed PA to be a sizeable opportunity. And while Sanofi U.S. will have their own internal projections, the statistics on the market sides are clear, as that the interest in PA validated by our extensive quantitative market research that we've conducted over the last few years with healthcare providers, patients and payers.
There are 24 million secondary prevention patients in the U.S., most of them take or should take daily aspirin and 20% of them are at risk for some upper GI adverse event. In addition to this substantial GI risk, 12% of these patients discontinued their aspirin therapy, which leads to a threefold risk of a subsequent event. That's why many of the over 3,000 doctors, over 3,000 patients and over 100 payers in our market research reacted positively to the product profile of PA. In short, we think it's a great product with a lot of potential.
I want to thank my team for the great work that they did in putting together a robust commercial picture of PA and initializing a launch preparations that are not being transitioned to Sanofi U.S. It was an outstanding piece of work and I was fortunate enough to have gotten a topnotch team to make it happen. So thank you to my team.
With that I will turn the call back over to Dr. Plachetka.
Thanks, Liz. That's quite a bit of information to digest from today's call. But I can't leave without making a few comments about Liz Cermak and her team. Liz was recruited to POZEN after very successful career at Johnson & Johnson. She has been our Chief Commercial Officer, the only one we ever had, as we developed the PA franchise, as an extremely valuable member of our executive team. Once we decided to partner PA, Liz took the lead and we're diligently with her team, especially Dennis McNamara, to get the best deal possible for our shareholders and I think she has done that.
As we fulfill our obligations to Sanofi U.S., our entire commercial team will be moving on to other challenges. All of them have done outstanding job for us, while the POZEN, Liz will be retiring at the end of the year to join her husband, Bob, who has been retired for a few years now and both of them will be living a good life at the Carolina coast. We'll all miss her, but wish her well, as we do for every member of her team who have contributed so much to getting PA to where it is today.
I'm also happy to announce that Dennis McNamara will lead our Business Development efforts going forward as well as the in charge of all our strategic alliances. He's been an integral member of the POZEN team for over the 15 years, and we wish Dennis well in his new post.
So that's the end of our prepared remarks. Operator, we can now open the line for questions.
(Operator Instructions) Our first question comes from Bert Hazlett with ROTH Capital.
Bert Hazlett - ROTH Capital
My first comment is actually congratulations to Liz Cermak, and to Dennis and their team on helping to materially manifest the value of the PA franchise. Liz, I'm going to actually congratulate you directly on the effort. Thank you very much for all your efforts and wish you the best in retirement.
Thank you very much.
Bert Hazlett - ROTH Capital
Then secondly a couple of questions, first on the teleconference with FDA, regarding their request for additional clinical pharmacology data. John, could you characterize that any more? I don't want to say it sounds ominous, but could you frame that a little bit more? And then I have a question on the MAA and cancer prevention.
I mean in general terms it was a request about the clinical pharmacology. I don't know if we said in the release that it was request for new data. I don't think we did. So it was really a discussion question and it's an information request. We'll obviously be able to answer a lot better after we talked to them. In terms of the world we live in today, we're living in a full disclosure world.
Could it be good or could it be bad, yes, could be both, but obviously wanted to let it out there and let people know that its there. Unfortunately, until we can give you more information after we talk to them, you're kind of going to be in the same situation that I think everybody else in is. You won't know until after we have our teleconference.
Bert Hazlett - ROTH Capital
Is there a potential for any more pharmacology work that might need to come from this discussion?
I think until the review is done there is always a potential for new staff, but there is an equal opportunity for other things as well. I shouldn't say equal, because that implies that it's of similar magnitude. We just really don't know, Bert. And I know it's hard for people to be patient until after we talk to the agency. But clearly our preference is to get as much as information out as possible. But we wanted to be accurate with information.
Right now, we're planning a response to the information request that consist of existing information that's pulled together from various parts of the NDA. And most of you who have had any experience with this, these NDAs are extremely voluminous and they have bits and pieces in different places reviewed by different parts of the FDA review team. We think we can put together a very, very valuable summary of all this information that can address the information request. If that's successful, off we go and they'll just complete their review.
On the other hand there is always the possibility that they say, that wasn't good enough and we'd like you to do something else. But from the good news perspective clinical pharmacology studies are in fact just that, they're short, typically involve very short dosing, very few people, very low costs, there is specifically not any request in there, any questions that we'd have to deal with longer-term like Phase 3 types study.
Bert Hazlett - ROTH Capital
And then just with regard to the MAA and I guess, discussion of the cancer prevention utilization in the EU. How might that progress? What's the course you expect to chart? And I know from the initial meetings, it might take a number of different courses, but how do you expect that discussion to go at this point?
I've had a great interest in this, as you know and some of you I've talked to privately about this, but literally the scientific literature is raining information about aspirin's use in cancer. There were three articles published in a recent journal of Lancet about the specific effect of aspirin, involvement in platelets with metastases, just in cancers, especially solid tumors.
The mechanism by which aspirin can have a valuable effect that not only preventing primary cancers but secondary cancers is becoming better understood as time goes on. There are people with gene-specific responsive cancers to aspirin therapy from epidemiologic studies that have 90% reduction in recurrence.
Now, if we were talking about a new cancer drug that has that profile. We believe that regulated would be all over, right now, because there is really no company out that stands to benefit, because aspirin is generic, PA is not generic and PA has a different toxicity profile. We think it's worth having a conversation. We've been very encouraged and we've had cancer experts come to us and ask us to go forward with this particular strategy.
So the cost is relatively low. We think the upside is tremendous. I mean I think if you look back over the history of aspirin for cardiovascular use, it started pretty much the same way as this cancer thing could be go in that there is epidemiologic study. There was no single company behind that particular one. It was the antiplatelet trial put all the data together eventually and eventually got the claims.
We think that that's likely to be the path that we would follow. And we've specifically looked at the EU, because there is also trials out that are coming forward, the epidemiologic trials, showing how much of the cost benefit is, because it could do the same thing as these relatively new biologic therapies that are costing tens of thousands of dollars here at a much, much lower rates.
So we think that there is a cost benefit for many of the countries there. We think that the approval process in Europe is expert driven, and many of these wonderful groundbreaking studies are actually happening in Europe. So that's why we're looking at that. I want to say more about that probably in the n next six months as we make our plans going forward and we actually talk with some of these folks. Obviously, we will update you as things become material.
Bert Hazlett - ROTH Capital
So just in terms of the process, it's to have the discussion, hopefully, develop a pathway as much as you can, and then partner the asset; that's the steps?
Yes. I mean I think it's another opportunity. We believe that there is a vulnerable partner [indiscernible] here with a 100 milligram per cardiovascular, but if we can produce medicine that has not only a cardiovascular prevention, secondary prevention claim, but maybe also a cancer secondary intervention, we just think that's a wonderful public health benefit and one that we like to bring to the marketplace through a partner.
Our next question comes from Jason Napodano with Zacks.
Jason Napodano - Zacks
Let me ask, kind of follow-up on Bert's question, about the pharmacology data. Can you give us a sense of the data that exists for PA8140 in the application versus 32540 in the application? Specifically, I guess the FDA is asking about 8140. So what is the difference in the data or lack thereof data that would kind of bringing that to attention?
In terms of clinical pharmacology, we had one trial with 8140 and we did the entire program, extreme characterization with the 32540, which fairly similar is not nearly the same ratio, as what we had for the VIMOVO high and low dose. They just need a bit more understanding of the pharmacology. They are trying to use the 32540 data to approve the lower dose, just as they did with VIMOVO, used the high dose and for the low dose.
And so the question is they've asked us, from a scientific standpoint it's quite reasonable. We think the information that we have in the NDA is there. We think we need to pull them together and present it in a whole different format perhaps. But in terms of full disclosure, we don't know if it's going to suffice. And that's why we obviously put out the note.
Jason Napodano - Zacks
Will you guys be providing an update back to investors and analysts after that call or should we assume no news is good news? I mean how do you kind of expect to relay that information to us?
Well, I think that you'll hear from us. When we have a discussion with them and we get confirmation, we'll communicate that. Now, having said that, we may wait for the written communication from them to make sure that it's what we think. On the other hand, if we're all pretty confident that there is no more questions and it's not ambiguous, then you'll probably hear right away. But I'll just put that caveat out there, sometimes wait for the minutes of these things, just to be sure we got it right.
Jason Napodano - Zacks
And then just with respect to the MAA for the cancer prevention, what is it about Europe that kind of make that an opportunity, but not the U.S.? Is Europe just kind of more amenable to that type of data than the FDA?
Well we've been encouraged by the Europeans more so than the U.S. I mean we were approached by a country's multi-center cancer study group to provide PA as a clinical trial material for use in one of their secondary prevention trials. Obviously, that's very encouraging, that there is a great deal of interest over there. But drug approvals in Europe are very expert-based. If the expert report and experts in general find that this is good clinical practice that carries a lot of weight with the regulators.
United States system is a little different than that. Generally they look at two well-controlled studies, et cetera. But I'm not ruling out United States. We're just further ahead with the MAA process in our thinking. Anything we would do in the U.S. would not have to include Sanofi, because this includes the doses that we're talking about.
Now, their thoughts on this will be private for the time being other than to say that our orally discussions with them are really focused on getting this cardiovascular program out the door. And they are obviously interested in longer-term benefits that this could have another indication. But I'll not comment any further. Let's get this one approved and out the door and see where it goes from there.
Jason Napodano - Zacks
And then just last question. With respect to a decision on surplus cash, I don't suspect any decision would be coming from you guys or any announcement would be coming from you guys until after the PDUFA?
Well, I wouldn't say that that's necessarily the case. As Bill said, I think we're almost at $90 million. We have grown our P&L for the next three to five years. We know what we're going to spend and there is literally tens of millions of dollars that we're not going to spend. And so some of that could find its way to shareholders sooner rather than later and I would not even rule out still in 2013.
So I wouldn't presume that we're going to wait till after the PDUFA date. We've made assessments based on the likely things that we would need to do, even including this latest request. And we have more than enough cash to handle any possibility that would occur, even including ongoing expenses, if the NDA was delayed for sometime.
But we just don't think holding on to that much cash in earning is literally nothing. It is the best use of that cash for our shareholders. Our board is very interested in looking at ways to maximize shareholder return and return of capital especially in the year where there's a loss has advantages, and I wouldn't rule it out.
There are no further questions at this time. I'd like to turn the floor back over to Dr. Plachetka for closing comments.
Well, thanks, operator. We did cover a lot of territory today. Obviously, people are interested in what's going to happen with the telecon and we'll be back to you with any material developments there. Let me reemphasize our strategic objectives going forward, paying attention to those, paying attention to our plan to deal with our excess cash as we talked about today. And then as we continue to control our expenses especially now that the thing is that the PA is partner with Sanofi, our expenses will be considerably lower going forward. So please focus on the key elements of our call about that today.
And then we'll be in New York City, Piper Jaffray's conference is early in December. I think it's the 3, 4, and I think we're schedule for Tuesday morning on the 3. So we'll see you there, and we may actually get up to the city a little early, we might do some one-on-one with people who are interested. Give us a call, we'll be happy to stop by. So with that operator, we're signing off.
This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.
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