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Executives

Stephanie Bonestell – Manager-Investor and Public Relations

John R. Plachetka – Chairman, President and Chief Executive Officer

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

Analysts

Bert C. Hazlett – ROTH Capital Partners LLC

Keay T. Nakae – Ascendiant Capital Markets LLC

Jason Napodano – Zacks Investment Research, Inc.

Pozen, Inc. (POZN) Fourth Quarter 2013 Mid-Quarter Update Conference Call November 19, 2013 11:00 AM ET

Operator

Greetings and welcome to POZEN’s Mid-Quarter Update Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Stephanie Bonestell with Investor Relations. Please proceed.

Stephanie Bonestell

Thank you, Danielle and good morning. On behalf of POZEN, I would like to welcome everyone to today’s mid-quarter update conference call. By now you should have received a 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 that we may make about 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 of the market opportunity, the prospects for approval or timing of approval of any of our drug candidates including PA8140 and PA32540 and 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 future NDA or MAA filing or the way in which the FDA may consider our new drug application or any particular clinical trial results, the prospects of timing for any collaboration agreements including those relating to our PA product candidate, results relating to any pending litigation, future clinical trial plans and the likelihood of results of any future trials, our potential commercialization plans, and those of our commercialization partners including potential sales and revenue forecast for our product candidate, the likelihood, timing or magnitude of any future distribution to stockholders and anticipated reduction of operating expenses.

The adequacy of financial resources to accomplish our goals for future revenues, future distributions of cash to stockholders and reduction in operating expenses 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 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 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 AstraZeneca and Horizon for the sales and marketing of VIMOVO; and our dependence on Sanofi US 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 VIMOVO 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. In addition, these forward-looking statements represent only the Company’s expectations as of today, November 19, 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 from management we have Dr. John Plachetka, Chairman, President and Chief Executive Officer; and Bill Hodges, Senior Vice President and Chief Commercial Officer.

I will now turn the call over to Dr. John Plachetka.

John R. Plachetka

Thanks, Stephanie. Good morning. I’m pleased to talk with you today about the news that AstraZeneca entered into an agreement to sign the U.S. rights for VIMOVO to Horizon Pharma. We’ve been encouraging AstraZeneca to take a look at the adoption for sometime and we’re very pleased that this transaction is now closed.

As required by the terms of the original license with AstraZeneca POZEN retain the right to consent to this assignment and we have done so. From our perspective we evaluated this assignment and based our decision to consent, our belief that it will help us to achieve our goal to maximize royalty payments from VIMOVO to POZEN shareholders. So we’re pleased and like in previous years POZEN shareholders will now be entitled to guaranteed minimum royalty payments from Horizon with the understanding that these will continue so long as our patents remain in effect and that our generic VIMOVO enters the marketplace and these potential minimum royalty payments are quite a bit higher than one would have estimated based on the trajectory of U.S. sales of VIMOVO over the past 18 months.

Over the next five years, for example, just looking at the difference and what we estimated AZ would sell in United States having stopped active promotion and what the minimum royalties will be from Horizon, with the added benefit of reduced legal costs per POZEN, we believe the transaction will result in substantial increase in potential cash flow to POZEN.

Now for those of you doing the math, we reported recently that our royalty through the third quarter of 2013 for U.S. sales of VIMOVO was $1.7 million. So the minimum royalty in 2014 which is $5 million and forward even more will be a multiple of the current 2013 estimated full year royalty.

Okay, let’s get to some of the details. Under the terms of the agreement, POZEN will continue to receive a 10% royalty on net sales of VIMOVO sold in United States with guaranteed annual minimum royalty payments from Horizon of $5 million in 2014 and $7.5 million each year thereafter provided that the patents owned by POZEN, which cover VIMOVO are in effect and no generic forms of VIMOVO are on the market.

Also under the agreement, Horizon has assumed AstraZeneca’s right to leave the on-going Paragraph IV litigation for VIMOVO and will assume all patent-related defense costs relating to such litigation, including reimbursement for a specified amount of the cost of counsel retained by POZEN.

So I am pleased to say that this also benefit shareholders of POZEN both from an economic standpoint of lowering our legal expenses, but really because we believe that VIMOVO will be a more key strategic asset for Horizon than it was for AstraZeneca in United States.

Now having said that, we wish to emphasize that AstraZeneca will continue to have rights to commercialize VIMOVO outside the United States and we expect them to continue to execute their strategic plan for that part of the world.

AstraZeneca has already reported that ex-U.S. sales of VIMOVO through the third quarter were $50 million and these have grown over 80% year-over-year from last year and as a reminder, our royalty rate for ex-U.S. net sales is 6% currently, but that ramps up to 10% beginning January 2016.

So in summary, we are very pleased that Horizon Pharma has taken over the sales and marketing of VIMOVO in the United States and we are committed to helping Horizon maximize sales of VIMOVO here at the U.S. just as we were committed with AstraZeneca as evidenced by their experience in the osteoarthritis market, both at Horizon Pharma, but in their previous careers, we believe that the management team and the employees of Horizon are uniquely qualified to significantly increase sales of VIMOVO.

I know that Horizon had a call this morning about this transaction and I’d encourage each of you to listen to the replay or read the transcript to see what they had to say.

And now with respect to our interactions with FDA that we mentioned in our earnings call a few weeks ago, until we complete our discussions with the agency and reach agreement on next steps, which may need confirmation and meeting minutes, we don’t have anything more to say about this and we are not there yet. So this morning we have nothing to say.

Now this is the end of our prepared remarks. Operator, so we can open up the line for questions about the VIMOVO transaction.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Bert Hazlett with ROTH Capital Markets. Please proceed with your question.

Bert C. Hazlett – ROTH Capital Partners LLC

Thanks, congratulation on a nice deal folks. That’s usually helpful…

John R. Plachetka

Thanks, Bert.

Bert C. Hazlett – ROTH Capital Partners LLC

…in terms of getting it in the hands of people who care about it, that’s spectacular. Could you remind us, and I did not have a chance to listen to Horizon call. Could you remind us that the patents are in effect until when specifically? And if there is any ability to extend those and or if there are any – is there any additional IP under construction and then I have another one there.

John R. Plachetka

Yes. So the patent that’s listed in the Orange Book I think has a 2023 expiration date. There are always way to look for new intellectual property either through enhancements of non-existing enhancements of the technology and delivery system. We will see how that all works out. I know that Horizon management team has been very creative with DUEXIS and we welcome them to the VIMOVO team and we’re fairly certain that they are going to have some creative ways to deal with the situation.

So I think it’s a good question for the CEO, Tim Walbert at Horizon, but we welcome them as partners in the intellectual property defense.

Bert C. Hazlett – ROTH Capital Partners LLC

Terrific, and then is there any contemplation of any over-the-counter versions of this. It would seem that that might make some sense. And if so do you retain any rights to VIMOVO brand?

John R. Plachetka

I don’t know about the over-the-counter rights, Bill do you remember?

William L. Hodges

Liz is not here this morning and on that question, but let me put you on mute for just a second, hang on there.

John R. Plachetka

Bert’s we’ll keep go. We are going to go in few week and check real quick, but my understanding is that if there is an OTC moving on that, we would continue to receive royalty payments.

Bert C. Hazlett – ROTH Capital Partners LLC

Okay. Well, I appreciate that. Again congratulations with the – on the – I am sorry.

John R. Plachetka

We are still here.

Bert C. Hazlett – ROTH Capital Partners LLC

I am sorry, I’ll just repeat back on the line. Congratulations on maximizing or minimizing, or having a floor to the payments and you again getting into the hands of people who really care about the asset. That’s fabulous. We look forward to more interaction with FDA on your PA program.

John R. Plachetka

Thanks Bert.

Operator

Now our next question comes from the line of Keay Nakae with Ascendiant Capital. Please proceed with your question.

Keay T. Nakae – Ascendiant Capital Markets LLC

Yes, good morning. Can you talk a little bit about how the transition will occur from AZ to Horizon?

John R. Plachetka

Yes, from our standpoint it’s going to be pretty seamless, we get our check every quarter from them, there were some issues that I know Horizon needs to work forward or work through with AstraZeneca in terms of supply and we’re going to picked up the manufacturing and how they handle stock already in the chain and things like that.

And I think that Tim probably talked about some of that as he went through his call. So I’ll direct you back to that. But my understanding is that they’re going to pick up total responsibility and I’d say starting in 2014 and in my guess is they’ll pick that up as soon as they can and maybe from day one in January.

Keay T. Nakae – Ascendiant Capital Markets LLC

Okay, and yes, POZEN is not having benefit of having been on their call, but as far as their marketing plan and maybe more specific their plans for pricing the product what can you tell us about that.

John R. Plachetka

Yes, I again, I think they’ve covered off on that. They in a nutshell have said that their pricing is going to be on a par with DUEXIS and the other product in that particular realm of therapeutics. And so I think you’re going to see a change, but they also have a very interesting pharmacy benefit program and the cost to consumer is something they are really concerned about, which they’ve also covered off on their call.

They’ve instituted a very innovative program for DUEXIS. And our expectation is they’ve done their call this morning but also on previous comments that they have made publicly that they’re going to move VIMOVO into the same sort of program that they’ve instituted for DUEXIS, so that’s going to be a real advantage we think, and it shows the kind of creativity and dedication to the space, but also understanding the therapeutic area and the market that Tim and his team bring to this particular space.

They’ve got extremely deep history of marketing. I think Tim has personally been involved with selling virtually every major inset and also let me do one of the biologics as well. John Fort is here, who is our Medical Director. So I mean there really isn’t a company in the field today that has more resident experience selling inset. So we’re quite pleased. They were really an excellent choice going forward.

Keay T. Nakae – Ascendiant Capital Markets LLC

Okay, if you do listen to their call, they’ve really lay out their plan quite well on the call.

John R. Plachetka

It’s also in their press release this morning as well.

Keay T. Nakae – Ascendiant Capital Markets LLC

Okay, yes, I’ll do that. And just a final question and I know you don’t have any updates on PA, but should we have an expectation of when you might be able to communicate with us the results of your schedules with the FDA. Is that something we should expect to hear from you before the end of the year?

John R. Plachetka

Well, we just don’t have any update to give you. The prepared remarks we had today said as soon as we have confirmation in the meeting minutes and we’ve reached agreement on the next step. We’ll have something to say and I can’t predict when that’s going to be.

Keay T. Nakae – Ascendiant Capital Markets LLC

Okay. Thanks.

John R. Plachetka

Sure.

Operator

(Operator Instructions) Our next question comes from the line of Jason Napodano with Zacks. Please proceed with your question. Your line is live.

Jason Napodano – Zacks Investment Research, Inc.

Hi, guys, John, I just want to see if I heard you correctly. In your prepared remarks, did you say the first nine-month sales of the year for VIMOVO ex-U.S. were $50 million?

John R. Plachetka

No, no.

William L. Hodges

Yes.

John R. Plachetka

Sorry. That’s right. Yes, ex-U.S.

William L. Hodges

$50 million U.S., $50 million ex-U.S.

Jason Napodano – Zacks Investment Research, Inc.

Okay. So that guaranteed minimum royalty payments they’re paying is just probably three times what the current trajectory is in POZEN. One of that’s nine months. So it means at least, probably twice what the current trajectory is.

John R. Plachetka

Yes, we’re all smiling. We went from a trajectory that was descending obviously, into something that – although this is a transformative deal for Horizon, it’s extremely good for POZEN. We did not have minimum guarantees, as everybody knows from AstraZeneca and this would equate to bumping up to sales as dollar for dollar to the minimum of 2.5 fold over and above where –actually three fold almost where AstraZeneca might have been able to take this thing in 2014.

So it’s a really good situation. And then if you’re looking the out years, I mean, if one were to just hold constant the rest of the world sales and look at where we would be in 2014, 2015 and 2016, by 2016 we get into, I think somewhere neighborhood of $13 million to $15 million with the guaranteed minimum. So it’s quite a significant increase for POZEN’s shareholders and then coupling that with our strategic decision to control expenses and to work through distributing excess cap back to shareholders, this is really good thing.

Jason Napodano – Zacks Investment Research, Inc.

I agree, guys. Congrats on the deal.

William L. Hodges

Jason, just one more thing on the Horizon’s call, they’re projecting net revenue next year $190 million to $205 million. They’re tracking with their products. I think the last quarter was $26.2 million, if I’m right. So the minimum royalty is good, but if they’re going to grow sales dramatically a lot of that’s going to come from VIMOVO. So just get you to look at that, look at what they are doing and what they are projecting and coming up with new model.

Jason Napodano – Zacks Investment Research, Inc.

Absolutely. Thanks for it guys.

John R. Plachetka

Yes, and so what we look on is the minimum payments, our worst-case going forward.

Jason Napodano – Zacks Investment Research, Inc.

Yes.

Operator

Our next question ladies and gentlemen comes from Bert Hazlett with ROTH Capital Markets. Please proceed with your question.

Bert C. Hazlett – ROTH Capital Partners LLC

Thanks for taking the follow-up. Just a quick question on price. Maybe the Horizon folks had a question on how – had a comment on how they were handling that or how do you, maybe think that might be handled with regard to the franchise?

John R. Plachetka

Yes, they’re going to make some adjustments to price. They’re going to do very different strategy than AstraZeneca had done, but they’ve shown us what they were able to do with DUEXIS and our understanding is they’re going to follow that playbook. It’s instructed to go back through their last to 12 to 15 months and what they’ve been able to do while keeping the merits in affordable in terms of company-pays for the patients and I think they even had a program. I think it’s a $20 program for people who don’t have insurance, that are able to get due access.

William L. Hodges

Prescriptions made easy, they call it. So they are going to put VIMOVO in that same program as DUEXIS. So they kind of guarantee that the doctors and the patients co-pay will be limited to $20, $25 whatever the number is.

John R. Plachetka

Yes, and I think this is really one of the innovative things that Horizon Pharma has been able to do because there is a lot of effort that goes into getting a physician to write a prescription, but as we all know managed care has done everything in it’s power to kind of staple the introduction of newer products.

The reality is there are so many people at risk for gastric ulcers who take NSAID. And our belief continues to be that naproxen is probably the most individual of all the NSAID with respect to its cardiovascular risks. It’s twice a day product. DUEXIS is a good product, but it’s three times a day. And what we understand is that there are individuals who prescribe primarily ibuprofen and others who prescribe naproxen. We understand these two subsets of physicians overlap a little bit but there is a lot of distinct upside just promoting each of those products to say perversion of apparent NSAID. So we’re very excited about this and we’ll not feel any of their Horizon is under but, yes, they are going to do some price changes, but I think they are going to grow the business as well, we’ve seen them do with DUEXIS.

Bert, while I got you listening as specifically there is no specific provision on the OTC rights, but the royalty carry forward if it does go OTC.

Bert C. Hazlett – ROTH Capital Partners LLC

Okay. Thank you for the clarification. And just a follow-up on the last subject we’re talking. So it’s fair to say that there is potential for it to move from a premium priced product to an affordably priced product. Is that a fair way to think about it?

John R. Plachetka

I think there is the price that patients pay and then there is the price that the medicine is reimbursed from the insurance company. So I’ll just not get into the – I am not a marketing guy. I am going to redirect it if I could Bert, to go to the Horizon people and have them explain it.

Bert C. Hazlett – ROTH Capital Partners LLC

Fair enough. Thank you. Congrats on the deal again. Thanks

John R. Plachetka

Yes.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. I‘d like to turn the floor back over to Dr. Plachetka.

John R. Plachetka

Yes, it’s a pleasure to talk to everybody and it’s been an exciting past few couple of weeks working through this program with both AstraZeneca and Horizon. We’re pleased to have Horizon take over the United States marketing VIMOVO as we said and we think this is a tremendous deal for them but an excellent deal for our shareholders. So with that we’ll sign off.

Operator

Thank you. Ladies and gentlemen, this concludes today’s conference. You may disconnect your lines at this time. Thank you all for your participation.

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