Pozen's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar. 5.14 | About: Pozen, Inc. (POZN)

POZEN Inc. (NASDAQ:POZN)

Q4 2013 Earnings Conference Call

March 5, 2014 11:00 a.m. ET

Executives

John Plachetka – Chairman, President and Chief Executive Officer

Bill Hodges – Senior Vice President and Chief Financial Officer.

Stephanie Bonestell – Manager, Investor Relations & Public Relations

Analysts

Keay Nakae – Ascendiant Capital

Bert Hazlett – ROTH Capital

Jason Napodano – Zacks Investment and Research

Operator

Greetings and welcome to the POZEN's fourth quarter and year end 2013 earnings conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow a 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. Thank you, you may begin.

Stephanie Bonestell

Thank you, Diego and good morning. On behalf of POZEN, I would like to welcome everyone to today's fourth quarter and year end results 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 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 market opportunities, the prospects for approval or timing of approval of any of our drug candidates including PA8140 and PA32540.

Any observations that we may make about the expected timing and amounts of royalty payments from AstraZeneca and Horizon Pharma 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 applications 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 trials, our potential commercialization plans and those of our commercialization partner, including potential sales and revenue forecast for our product candidates, the likelihood timing or magnitude of any future distributions 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 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 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 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, March 5, 2014. 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 and Bill Hodges, Senior Vice President and Chief Financial Officer. I will now turn the call over to Dr. John Plachetka.

John Plachetka

Thank you, Stephanie. Good morning to everybody. 2013 was a great year for POZEN. We made substantial progress on our PA programs, submitting the NDA for both dosage forms in the spring and securing Sanofi U.S. as our partner to market PA32540 and the 8140 tablet in the United States.

In addition, we worked with AstraZeneca to get VIMOVO in the hands of Horizon Pharma and I’ll have more to say about that in a little bit. We’re also proud of the fact that we paid a substantial special distribution of $1.75 per share at the end of 2013 and while this is highly unusual for small pharma companies, we hope that investors take this as a strong signal of our intention to do what we believe is best for shareholders with our excess cash and that we will continue to evaluate this option in the future when we have excess cash on hand.

And up to that end, we continued our efforts to lower our ongoing operating costs during the fourth quarter and as Bill will review in a few minutes, it's our intension to continue to manage our expenses at the lowest level that allows us to support our ongoing business activities including our partnership obligations and our responsibilities as a publicly traded entity.

At the risk of repeating myself, let me reiterate that it's our strategic goal to maximize shareholder return and that includes operating as efficiently as we possibly can, foregoing any new spending on R&D projects unless they are fully paid for by a partner and looking at all options including returning cash to shareholders as a dividend or special distribution when we have more cash-on-hand than we need to execute our plan.

Now, let me say a few words about VIMOVO. VIMOVO had strong growth overseas last year registering nearly $70 million in annual sales and grew almost 80% year-over-year. Now this is the type of growth we had anticipated from this product and we believe that growth should continue in 2014 and beyond. United States on the other hand, registered little over $21 million in sales in AstraZeneca’s hands.

However, since Horizon has taken over, new prescriptions have started to grow again and new prescriptions for the month of January 2013 increased 10% versus December, I should say January of 2014. Now according to FHA we’ve continued momentum in February based on weekly prescription data. In Horizon's January press release they announced the following. All required FDA transfers are complete. Horizon's NDC labeled product has been approved and is now in pharmacies. Horizon has completed the expansion of their field force and all representatives had been trained on VIMOVO.

Horizon's Prescriptions Made Easy specialty pharmacy program is in place for VIMOVO. And approximately 97% of commercially insured patients taken VIMOVO have had their copay brought down to a zero copay in the first month Horizon managed the product. And Horizon's entire sales organization began promoting VIMOVO on February 3rd.

So based on this excellent start to 2014, we expect that Horizon will reverse the decline we saw in the United States VIMOVO sales in 2013. We are very impressed with the team at Horizon and we look forward to working with them to realize the full potential of VIMOVO here in United States. And as you hear about the progress we’re making with VIMOVO, remember that POZEN is guaranteed a minimum royally payment this year of $5 million. But that we will receive 10% of net sales if it exceeds $5 million.

And as we look at the first month, we saw VIMOVO sales in 2014, the current prescription trends show a real possibility that POZEN could receive royalty in excess of the minimum royalty payment of $5 million.

Now, with respect to the PA NDA you'll remember that based on our discussions with FDA, POZEN agreed to conduct a relative bio-availability study between PA32540 and PA8140 and to submit the data before the end of March, everything looks on schedule for us to meet that goal, which should allow the FDA to meet their PDUFA date of April 25.

So we are excited as we enter the home stretch for PA and we've enjoyed all our interactions with our new Sanofi U.S. team as we helped them prepare wherever we can prepare for their launch of the PA franchise. So we believe this will be an important new option for cardiovascular patients who need aspirin therapy and are at risk for developing gastric ulcers.

So let me move on now to the financial update and we’ll turn it over to Bill.

Bill Hodges

Thank you, John. In the fourth quarter of 2013, we recorded revenue of $4.7 million compared to $1.4 million in the fourth quarter of 2012. The 2013 revenue was comprised of royalty from sales of VIMOVO of $1.7 million and $3 million amortization of the upfront payment from the Sanofi U.S. license, whereas the prior year revenue included $1.4 million of VIMOVO royalty. We’re amortizing $15 million upfront payment from Sanofi over 15 months starting in September 2013, which is the estimated time over which POZEN has deliverables under the contract.

So total fourth quarter net sales of VIMOVO as defined under our agreement were $25 million, which represents growth of 36% from the fourth quarter of 2012 and 9% from the prior 2013 quarter. Our U.S. sales were down 15% quarter-on-quarter and down 31% from quarter four 2012, but as we expected, the rest of world sales continued to grow 15% over the prior quarter and 69% over the fourth quarter of 2012. As John mentioned Horizon Pharma is now selling VIMOVO in U.S. and we are pleased with the focus and effort they are putting forth on the product.

Our operating expenses were $6.9 million in the fourth quarter 2013 compared to $7.5 million for the fourth quarter of 2012. The costs are down due to lower pre-commercialization costs, but the decrease is partially offset by higher manufacturing and study costs for PA as we did this final study and higher patent litigation costs as our attorneys had to increase their work to transition and bridge the VIMOVO litigation to Horizon.

So our loss for the quarter was $2.2 million or $0.07 loss per share compared a net loss of $6.1 million or $0.20 loss per share on the fourth quarter of 2012. So turning to the full year, our revenue for the full year of 2013 was $10.3 million which is comprised of $6.3 million of VIMOVO royalty revenue and $4 million of amortization of the upfront payment from Sanofi US for PA.

Revenue for 2012 was $5.3 million which included $0.5 million of licensed revenue for MT 400 and $4.8 million of VIMOVO royalty. Our operating expenses in 2013 totaled $27.1 million, which is down $3.8 million from 2012, the primary reason for the decline is lower PA development and pre-commercialization costs in 2013, which is partially offset by $1.8 million of onetime cost relating to the licensing of PA with Sanofi US and $0.9 million increase in patent litigation costs.

The net loss for 2013 was a loss of $16.7 million or $0.55 loss per share compared to a net loss of $25.3 million or $0.84 loss per share in 2012. At December 31, 2013 our balance sheet remained strong with $32.8 million in cash and cash equivalents after paying out $53.6 million as a distribution on December 30.

We are down to 16 employees in POZEN and plan to further reduce head count as development activities are completed and we fulfill our obligations under the Sanofi agreement. We are very focused on cost control and expect to further decline in expenses in 2014. And assuming we received FDA approval of PA and the approval milestone from Sanofi, we would be both profitable and have positive cash flow in 2014. So we will keep you informed of our progress as we work through the year.

That concludes our financial results for the fourth quarter and 2013 year. So I'll turn the call back over to John.

John Plachetka

Thanks, Bill. That's the end of our prepared remarks. So operator we can now open the line for any questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Keay Nakae with Ascendiant Capital. Please state your question.

Keay Nakae – Ascendiant Capital

Yes. Good morning. Thanks. John, what's left to complete on the bio-availability study before you submit all that information to the FDA?

John Plachetka

That's a good question, Keay. We are scheduled to send in the final data to the agency by the end of March. And so, we're working towards that and so, where we stay in now is the clinical part is done and we're collecting the data and put it in play and doing the analysis and then writing a study report.

Keay Nakae – Ascendiant Capital

Okay. And, you know, there always back and forth while the products under review, do you have the sense then that this is the last item they need to check the box off of before they can make a decision?

John Plachetka

Well, that's -- our understanding is that we’re going to go from this point then into labeling discussions with them. We’ve already talked to them about a day at which we’re going to begin those labeling discussions. So I think that’s really the last bit. We submitted in our NDA a draft label. I think they’ll look of these results and get to us. But all this is geared to be finished -- I’ll remind everybody, this is a rolling review and so this is all geared to be finished in time to allow us to begin the labeling discussions in time for them to make the PFUDA date which is April 25.

So I think we’re going to jump on this with them as soon as possible. We’re ready. If they’re ready, we’re ready.

Keay Nakae – Ascendiant Capital

Okay. You sound pretty confident about it. So that’s a good sign.

Operator

Our next question comes from Bert Hazlett with ROTH Capital. Please state your question.

Bert Hazlett – ROTH Capital

Thanks. Congratulations on all the progress in 2013, looking forward to more in 2014 and just any updates on deal -- ex-US for PA.

John Plachetka

I don’t have any updates for you. We’ve got interest from multiple players. I’ll put it that way. That’s our focus for this year. And I’m confident that we’re going to get into due diligence with more than one player. And hopefully, this will turn out well for us and for all our shareholders. We are continuing on with the study in Europe with a 100 mg, 40 dosage form. This is a clinical pharmacology study. This would be a gating event. Bert, as you remember the recommendations from the Netherlands which is going to be our reference state, was to do a pharmacodynamic study.

So we’re into that. Things operate a little slower in Europe than they do in the United States, they’re of the same sort of CRO operations there as there are here at least, there are cultural differences. So it takes a little bit longer. But we should have that finished around the mid-year. And I think that will actually quicken things a little bit because there are always some questions about getting that particular end point for the registration. But we’re still guiding towards the second part of 2014 for that.

Bert Hazlett – ROTH Capital

Okay, thank you. And just a quick one; is there any ability to have any tax advantages to shareholders with regard to the income distribution that’s expected going forward?

John Plachetka

I’m going to let Bill talk about that but it’s certainly one of the things that we look at. I mean since we’re obviously in a position now, we’re getting close to positive cash flow and profitability going forward. Clearly paying taxes is the big bite out of that. And so I’m going to let Bill talk about some of the options that we’re considering in this regard.

Bill Hodges

So one of the reasons we made the distribution in 2013 is, it was a return of capital. If the corporation has no cumulative or current earnings and profits as defined under IRS code, it’s a return of capital, so doing that in 2013 made all of that being return of capital. Distribution moving forward -- if you have earnings in a year, whatever earnings you have would be a dividend and that would be taxed at, now 20% federal, any distribution above that would be a return of capital. So given the choice or the opportunity, I mean return of capital is better for shareholders because it defers any tax until they sell the stock. So those are the things that will be focused on.

Again, we can look at -- potentially at the right time monetizing assets to return more cash to shareholders which could get you in a situation where you had more return of capital. But it’s got to be the right thing for the business to do that, the right returns. So we’re aware of taxes. I think we’ve shown that by making the distribution in 2013 and we’ll continue to try to make it as tax efficient as we can. Hopefully that answers your question, Bert.

Bert Hazlett – ROTH Capital

Yeah, thank you for the color.

Bill Hodges

Okay.

Operator

[Operator Instructions] Our next question comes from Jason Napodano with Zacks Investment and Research. Please state your question.

Jason Napodano – Zacks Investment and Research

Good morning. Just from a modeling standpoint, the $20 million in pre-commercialization milestone still coming from Sanofi if PA gets approved; I believe that’s two separate payments. I’m just wondering, Bill if that’s going to come in -- two separate transactions on the income statement or if we’ll see that essentially all in one?

Bill Hodges

I mean they’ll be separated. The first one is on the approval. Second one is commercial readiness and we’re still working out -- working on that one. I mean that actually could come in 2015 depending on the dating we get on the FDA approval because we’ve got certain required dating. We need to deliver the product on, so we will certainly have a better view. But they’ll come in two different periods because obviously we won't start manufacturing products until we get the approval and know the dating. The first one on approval, the second one on really delivery of all of launch quantities there. So that one could slip into 2015 and we’ll know more when we get the dating on the product.

Jason Napodano – Zacks Investment and Research

Okay, so you wouldn’t expect Sanofi to be in position to launch the product until later this year or 2015.

Bill Hodges

Right.

Jason Napodano – Zacks Investment and Research

Okay. And then just another question on the milestones; I don’t know if you guys have disclosed back end milestones or whether or not there’s anything there you can kind of share with us?

John Plachetka

We haven’t disclosed that yet. I think when we get closer to that we’ll obviously be more transparent. But there are sales, threshold milestones. If you hit a certain level in a year there is a payment. So there is sales threshold milestone and royalties, so I think we’ll provide more color when we get closer to that.

Jason Napodano – Zacks Investment and Research

Okay. Well, thanks for taking the questions and stay warm there in snowy Raleigh, North Carolina.

John Plachetka

It’s not terrible. It’s not the streets of Wisconsin, that’s for sure.

Operator

There are no further questions at this time. I’ll turn over to Dr. Plachetka for closing remarks, thank you.

John Plachetka

Yeah, thanks operator and thanks for the questions guys and thanks to all of our folks listening or going to listen on the rebroadcast. I’ll just point out that Bill and I are going to be at the 26th Annual ROTH Banking Conference which is in California at Dana Point. POZEN’s presentation is Monday and we’re going to have a full-fledged one-on-one that day. But we can work you in if you’re interested in listening and we’ll be there for a couple of days. So that’s it and thanks again for listening and it won't be very long until we get to the end of the first quarter call which is, I think scheduled for early in May. So thanks operator. That’s it for us today.

Operator

Thank you. This concludes today’s call. All parties may disconnect. Have a great day.

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