POZEN's (PZN) CEO John Plachetka on Q1 2014 Results - Earnings Call Transcript

May. 8.14 | About: Pozen, Inc. (POZN)

POZEN Inc. (NASDAQ:POZN)

Q1 2014 Earnings Conference Call

May 8, 2014 11:00 AM ET

Executives

Stephanie Bonestell – IR

John Plachetka – Chairman, President and CEO

Bill Hodges – SVP, Finance and Administration and CFO

Analysts

Jason Napodano – Zacks Investment and Research

Keay Nakae – Ascendiant Capital

Anthony Salsy – AH Salsy Investment

Operator

Greetings and welcome to the POZEN first quarter 2014 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Stephanie Bonestell with Investor Relations. Thank you. You may begin.

Stephanie Bonestell

Thank you, Melisa [ph] and good morning. On behalf of POZEN, I would like to welcome everyone to today’s first quarter 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 home page of our website at www.pozen.com where you can also access the 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 forecasts 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 or Horizon and other revenue expected from our collaboration partners.

The timing of future NDA or MAA filings or the way in which the FDA may consider our new drug applications or any 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 partners, including potential sales and revenue forecast for our product candidates, the likelihood, timing or magnitude of any future distributions to stock holders 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 risk 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 have estimated that they will cost or that 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 third-party manufacturers and suppliers for the manufacture of our products and dependence on our collaboration partners for the sales and marketing of our products once approved including our dependence on Astra Zeneca 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 annual report on Form 10-K. In addition, these forward-looking statements represent only the company’s expectations as of today, May 8, 2014. While the company may elect to update these forward-looking statements, we specifically disclaim 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 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. Plachetka.

John Plachetka

Thank you, Stephanie. Good morning to everybody and thanks for joining us today. Let me start by commenting on the first quarter results for VIMOVO. What a great change for this product and our thanks to the commercial team at Horizon Pharma and also to AstraZeneca for allowing this promising asset to go to a new home. Horizon Pharma has their earnings call tomorrow so I won’t have any more to say about VIMOVO’s performance but I suggest you listen in to their call if you want to hear more about this.

For the rest of the world, there was a modest decline in VIMOVO sales from AstraZeneca but we believe this was due to seasonal buying patterns by wholesalers and stocking associated with the launch of new packaging configurations in some countries. Be assured that we’re doing what we can to keep in touch with AZ about their rest of the world plans and if a new owner emerges for VIMOVO outside United States, we will do all we can to help maximize the sales potential by working with the new owner if possible as we have done with Horizon.

We’re hoping to have more to say [indiscernible] about the PA complete response letter with respect to the timing for responding and whether it will be a two or six-month review but that’s not possible at this time. However, we learned this week that the third party active ingredient supplier plans to respond at the FDA inspectionary [ph] report by the end of this week with their plan to remedy all the items noted. We won’t know until the FDA makes this assessment of that permission [ph] if these actions will suffice and how long that will take is unknown at this time. So, we will continue to monitor the situation and communicate when we have more definitive information.

Now, as we said in our press release, other than this outstanding issue regarding the manufacturer of API, there’s very little left to do along with the complete response letter we received draft labeling that we feel comfortable with for both doses. For now we’re continuing to work with Sanofi to help them get ready for the launch of both doses of PA one these are resolved. And although the timing of the launch is entirely up to Sanofi, as we said in our press release, it was April 25, the complete response letter did not identify any outstanding safety or efficacy issues with either dose. But I want to remind everyone that there is no guarantee of getting this NDA approved.

So let me close by commenting about our overall strategy and our expectations for 2014 and then I’ll turn it over to Bill for some specific comments. We’ve reduced our staff to match the workload as we said we would. And we have minimized spending wherever we could as we said we would while continuing to meet all our obligations. As a result of these expense control measures, and assuming that VIMOVO sales continue as we saw in the first quarter, we believe POZEN will be profitable in 2014. And it will only get better if the first milestone payment is earned from Sanofi in this calendar year, because then POZEN would also be cash flow positive. And if that happens, our board will again review how best to maximize shareholder value including the option to distribute cash directly to shareholders in the most tax-efficient way.

As a reminder, we have no plans to undertake any new spending on any new research program, so any excess cash we have on our balance sheet will also be evaluated in this light. So let me ask Bill now to provide more details on this great financial performance to start off 2014.

Bill Hodges

Thank you, John. In the first quarter of 2014, we recorded revenue of $7.5 million compared to $1.4 million in the first quarter of 2013. The 2014 revenue is comprised of royalty from sales of VIMOVO with $4.5 million and $3 million amortization of the upfront payment on the Sanofi US license whereas the prior year revenue included $1.4 million of VIMOVO royalty.

As John mentioned, Horizon Pharma is now selling VIMOVO in the US and we are contractually obligated not to report sales before Horizon reports so you can tune in to their call tomorrow and get a full update. With that said, we’re obviously pleased with the focus and effort they’re putting forth on VIMOVO.

Operating expenses were $4.6 million for the first quarter of 2014 compared to $7.2 million for the first quarter of 2013. The cost are down due to lower free commercialization cost and the fact that we paid our NDA filing fee in this first quarter of 2013 and that was approximately $1.95 million.

We have reduced our staff levels in 2013. We’ll continue to reduce staff in 2014 as activities are completed. So with revenues up and expenses down, we’re profitable for the quarter and as John mentioned based on our current estimate, we expect to be profitable for the year. We had net income for the quarter of $2.9 million or $0.09 per share compared to a net loss of $5.8 million or $0.19 loss per share for the first quarter of 2013. So with that, that concludes the financial results for the first quarter so I’ll turn the call back over to John.

John Plachetka

And that’s the end of our prepared remarks. Operator, we can now open the line for any questions that people may have out there.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question comes from the line of Jason Napodano with Zacks Investment and Research. Please proceed with your question.

Jason Napodano – Zacks Investment and Research

Hey, guys, how are you doing?

John Plachetka

Good, Jason. How are you?

Jason Napodano – Zacks Investment and Research

Good, good. Thanks, and congrats on a great quarter. It’s good to see profitability even before PA approval. So that’s good. So I understand you’re not getting a brake out to the sales of VIMOVO but maybe you could just give us a sense a little of where the growth in VIMOVO is coming from. Obviously, the US, but just in a sense of the dynamics of that, I understand Horizon increased their size of their sales force. I understand they increased the price. Maybe you could just kind of comment on that a little bit.

John Plachetka

Yeah, I’m not going to – we really can’t make any comments. We have a little bit of an anomaly this quarter because we’re reporting a day ahead of Horizon and we’ll get the fixed in the future quarters so that they can actually put the color out for that. But that’s really Horizon’s business and I think people are going to be really happy to listen to the call tomorrow and figure out just where this transformation took place. From our standpoint, we’re thrilled.

Jason Napodano – Zacks Investment and Research

Okay.

John Plachetka

We’re very, very happy with what’s going on. The last year before Horizon took this over, there was quite a downward drift in total script volume and we think just in general, and Tim has mentioned this on his other call that they’re taking steps to get that reversed and I’ll just leave it at that. And I think it’s a good time to tune in tomorrow and get the rest of the picture. But if they can reverse the decline that AstraZeneca had over the last year or so, there can be some substantial growth in this product going forward, but I’ll let Tim figure out the rest of that and comment tomorrow.

Jason Napodano – Zacks Investment and Research

Okay. I think – I may be – what you said, and it’s going forward in the future quarters I think it might be – it would be helpful to have them report first.

John Plachetka

Yeah, well –

Jason Napodano – Zacks Investment and Research

This way we can grill you with questions.

John Plachetka

Yeah, we were supposed to get it coordinated and they’re just – something happened that got us out of sync and it was unavoidable this time, but we’re working on it. We’ll get it squared away in the future.

Jason Napodano – Zacks Investment and Research

Okay, let me ask you a question about PA.

John Plachetka

Yeah.

Jason Napodano – Zacks Investment and Research

That’s good info that the third-party supplier plans to respond by the end of the week. Can you just kind of give a sense of how that plays out? Is there another inspection that needs to take place after they respond or is there another essentially after – is there, after the inspection, is there another refilling that needs to take place?

John Plachetka

Yeah, so, those are some of the issues that the agency is going to have to communicate back to the third party. We’ve done some checking around and obviously talked to these folks and other people who’ve been in similar situations. Sometimes they reinspect, sometimes they don’t.

You can tell by the response, the nature of this response that they’re able to get this together pretty quickly and our expectation is that hopefully the agency will also get to this pretty quickly. Now, the average time for this sort of thing, I don’t want to speculate because I don’t want to set expectations. But I think the best guide is to take a look at a similar situation if there is any. Now, just to be clear about this, this is an API or the factors that makes the API. This is not like some other places where there’s got a device problem where there’s actually a problem with the dosage form itself. I know that there have been other manufacturing issues that took a long, long time to get squared away, but I think those were more specific to the product.

So, I’m hopeful that this is going to go forward pretty quickly from our standpoint, as I said, I mean, we’re basically in a position to send back the typical stuff you send back when you get a letter and move right to approval. So there’s not a lot for us to do but there is a re-file that takes place – not a re-file but there is a submission that takes place. And how long that takes depends, again, on the agency, but I’ll just leave it at that. As soon as we have the FDA’s response to what the third party sent in [ph], I think we’ll be in a better position to kind of give some more guidance on timeline.

Jason Napodano – Zacks Investment and Research

Okay. Maybe just two more questions and I’ll jump out.

John Plachetka

Yeah.

Jason Napodano – Zacks Investment and Research

Number one, any reason at this point to maybe try to go out and find another supplier for that API? And then, number two, can you give us a sense of how quickly Sanofi would be able to move following an approval.

John Plachetka

Well, the last question is a question from Sanofi and my guess is that they’re not going to comment. They just don’t, and I can’t because I don’t know. And then the second question about another API, yeah, I mean, I think there is always an opportunity to do those sort of things. It’s not something we’re seriously considering given our view of what’s taking place. It just doesn’t seem to rise to that level of concern. But it’s always something that one could take a look at.

Jason Napodano – Zacks Investment and Research

Got you. Thanks a lot.

John Plachetka

Yeah.

Operator

Thank you. Our next question comes from the line of Keay Nakae with Ascendiant Capital. Please proceed with your question.

Keay Nakae – Ascendiant Capital

Yes, thank you. John, back to the CRO, it sounds like the language related to labeling is acceptable to you. So did I hear you right in saying that? And if so, really, once the manufacturing issue is done, there’s, as you’ve said, there’s not much left to resolve.

John Plachetka

Yeah, I mean, I think, we were working with the agency over the last month or so on all of the typical things you work on including the labeling and driving for an action on our PDUFA dates. And the draft label that they sent us in the CRO we like a lot. So could it be tweaked? Yeah, maybe, but I don’t really want to comment as to whether we’re going to accept it as is or not but we’re not at all unhappy with where we are with the draft that we saw.

Keay Nakae – Ascendiant Capital

Okay, it’s good to know. Second, with respect to a re-filing and a timing for getting that done, it seems like there’s endpoints of two versus six months. What determines whether to two months re-review if you will or six months?

John Plachetka

Well, I don’t know what determines but I know who determines and it’s the agency. So their own criteria are – without being too flipped [ph] about it, if it’s a lot of work it’ll be six months. If it’s a little bit of work, it’ll be two months and I’ll just leave it at that. In the circumstance we find ourselves in, I think the real guidance here is what happens to the agency – sorry – what happens with the agency response to the third-party manufacturer’s response they’re going to send in, in the next couple of days.

Keay Nakae – Ascendiant Capital

Okay, well, maybe just logistically you get to a point where you’re able to re-file.

John Plachetka

Yeah.

Keay Nakae – Ascendiant Capital

Does the agency then have another 30 days to tell you we’ve accepted your re-filing and at that point do they tell you whether it’s going to be two months or six months?

John Plachetka

Yeah, I think that they do give you an indication within a couple of weeks after you re-filed whether it’s a six-month timeline or a two-month timeline.

Keay Nakae – Ascendiant Capital

Okay, that’s helpful.

John Plachetka

Yeah, so –

Keay Nakae – Ascendiant Capital

And –

John Plachetka

Yes, go ahead.

Keay Nakae – Ascendiant Capital

Well, go ahead.

John Plachetka

No, I’m sorry, I didn’t have any other comments there.

Keay Nakae – Ascendiant Capital

Okay, no – but that’s helpful. And then, just finally back to VIMOVO, I understand you can’t talk about any US sales front [ph], are you able to talk in more detail about the OUF [ph] sales from AZ and what those numbers were?

John Plachetka

I think under the present circumstance, we probably better not. And I realized that’s a little awkward and we apologize for getting ahead of the crowd here. I did say that they had a modest decline. There was some changes in certain markets, some packaging configurations, but they’re not dramatic.

Keay Nakae – Ascendiant Capital

Okay. So no reason to think outside of the potential M&A over there that the trends we’ve been seeing in OUFs [ph] should change.

John Plachetka

Well, again, I know you need additional information but I can’t really give any at this point in time. I will say that we’re watching the situation with AZ and Pfizer very carefully but we also knew that there was a good chance that AstraZeneca was going to move this asset anyway because it was no longer a core asset for them, a strategic asset and if it goes – if something happens and Pfizer picks this up, clearly they’ve got a lot of pain experience around the world, we think that would be a good thing. But who knows what will happen if they take a look and say, well, it’s not a core asset but it’s got a long life. It’s being sold in what, 50 countries still, 55 countries? Even after the reprioritization, I think there’s still a whole boat load of those.

Keay Nakae – Ascendiant Capital

Yeah.

John Plachetka

It was going to get approved in 70 plus countries. And so, if this asset changes hand and somebody has a lot of focus in the pain area whether it’s Pfizer or anybody else, what happens to VIMOVO should continue. And it actually might even pick up for the rest of the world but it could go the other way also. But we’re looking at the situation, it’ll be interesting to see what happens with this asset.

Keay Nakae – Ascendiant Capital

Yeah, okay. And then just finally for Bill, if you look at your OpEx in Q1, 4.6 million, $4.7 million, are there any other outside expenses we might expect to see incurred or are these numbers pretty good and possibly diminishing as we go forward.

Bill Hodges

Yeah, pretty good and possibly diminishing. If we make staff reductions, I mean, we transition people so there may be a blip on severance amount in a quarter but then it would go down in the future. So I think they’re pretty good at estimates going forward.

Keay Nakae – Ascendiant Capital

Okay, well, very good. Thanks.

John Plachetka

Okay.

Operator

Thank you. (Operator instructions) Our next question comes from the line of Anthony Salsy [ph] with AH Salsy Investment [ph]. Please proceed with your question.

Anthony Salsy – AH Salsy Investment

Good morning gentlemen. One quick question, there has been some talk, the FDA is citing any type of aspirin having an effect on patient’s ability to receive the medication as it exist and with your product, it seems like, that will resolve any issue with people that might have a terrible stomach to take aspirin. Why don’t you think there has been more exposure on POZEN’s we have to put that out to the public? So, people will know that POZEN [indiscernible] have a resolution to the FDA’s concern.

John Plachetka

So your question is why isn’t POZEN doing more to –

Anthony Salsy – AH Salsy Investment

Yeah, at this state, hey, our drug will resolve this issue, and I think the FDA came out of this at the latter part of last week and they were saying that – we really don’t recommend for patients to take aspirin for a stroke or for a heart attack because it does cost bleeding within the stomach or the cavity wall of a stomach. And if you do have ulcers or if you do have GERD, this is not the proper medication. However, there are medications that are in the FDA process. How come POZEN hasn’t put out there in terms of marketing that – hey, look, we have the resolution to that problem.

John Plachetka

Yeah, I think your question is an interesting question. I’ll have to sort of be careful here because we don’t have an approved product yet. So we’re limited in what we can ever say about any drug in development.

Anthony Salsy – AH Salsy Investment

Well, I mean, couldn’t you say potentially, we do have a resolution for that problem?

John Plachetka

Yeah, well, I think there’s a lot of guidelines about what you can and can’t say about drugs that aren’t yet approved. But clearly, we are focused on the problems associated with aspirin. There’s virtually a week or a month that does buy whereas some of the new research on aspirin cancer comes [ph] off and some of the benefits. And they all point out the GI toxicity of aspirin. So in our market research both with consumers and physicians, the knowledge that aspirin causes gastric toxicity and specifically which is what our product designed to [ph] is extremely high consumer and docs [ph].

So I think that that point is clearly an important point and one that I think will continue to be made over time. Not knowing by us but other folks. Our circumstance, we’re very pleased, the benefits of aspirin, the wonder drug, the miracle drug continue to expand as new research comes in we think that our product is a good solution for people who have the potential to develop gastric ulcers who need this medicine for the secondary prevention of heart attacks and stroke which, clearly the FDA is very much in support of.

Now, last week they came out with a bit of a caution for people taking aspirin on their own and not having it prescribed by their physician. So we think our product would be very helpful from a public health standpoint because it is designed as a physician-prescribed product so it would be beneficial. But a lot of this is going to come out as soon as the product is approved and Sanofi will do its job, we’re confident, to educate both consumers and prescribers.

Anthony Salsy – AH Salsy Investment

Well, with all that in mind, it seems like the market becomes a different market for you. It seems like you might have – budget it and include it in to your expectations certain values, but now with this new FDA concern, have you adjusted your forward guidance because of it?

John Plachetka

Well, number one, we don’t give forward guidance and number two, I think there might be some confusion about the FDA’s concern was. What I remember reading last week was the FDA cautioning people about taking aspirin without recommendation of a physician.

FDA has not changed their position at all. This was a restatement of their current position that aspirin is not indicated for primary prevention which means giving it to people who don’t have risk factors just to prevent a potential heart attack or a stroke. So I think we need to be real clear on the information. We’re very confident what we’re – all about what aspirin is potentially capable of doing and the benefits of our products if it ever gets to the approval.

Operator

Thank you. Dr. Plachetka, there are no further questions at this time. I’d like to turn the floor back to you for closing comments.

John Plachetka

Okay, well, thanks a lot to everybody for listening in today and I don’t know the time or the calling coordinates for Horizon but I think there’s going to be a lot of interest there. So I’m sure if you go in their website, you’ll be able to get that information. And thanks again to them for having a great start to the year and putting VIMOVO back on the map for us.

So that’s it and we will catch up with you when we have more to say about the PA complete response letter.

Operator

Thank you. This concludes today’s teleconference, you may disconnect your lines at this time and have a wonderful day. We thank you for your participation.

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