Executives
Stephanie Bonestell - Manager, IR and Public Relations
John Plachetka - Chairman, President & CEO
Liz Cermak - EVP & Chief Commercial Officer
Bill Hodges - CFO, SVP - Finance and Administration
Analysts
Keay Nakae - Ascendiant
Bert Hazlett - ROTH Capital
POZEN Inc. (POZN) Mid-Quarter Update Conference Call September 5, 2013 11:00 AM ET
Operator
Greetings and welcome to POZEN’s Conference Call to discuss its License and Collaboration Agreement with Sanofi for the commercialization of PA8140 and PA32540 in the United States. 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. Thank you, Ms. Bonestell, you may begin.
Stephanie Bonestell
Thank you, Rob and good morning. On behalf of POZEN, I would like to welcome everyone to today’s conference call to discuss our agreement with Sanofi US for both PA8140 and PA32540. 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, 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 potential size or market opportunity, any observations that we may make about the expected timing and amounts of royalty payments from AstraZeneca and Sanofi US and other revenue expected from our collaboration partners. The timing of our NDA filing, the prospects for approval or timing of approval of any of our drug candidate 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 related to our PA product candidate, results relating to any pending litigation, future clinical trial plans and the likelihood of results of any future trials and our potential commercialization plans, including potential sales and revenue forecast for our product candidate.
The adequacy of financial resources to accomplish our goals for future revenues 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 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 for the sales and marketing of VIMOVO and including our dependence on Sanofi US for the sales and marketing of PA8140 and PA32540 in the United States 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, September 5, 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. Plachetka.
John Plachetka
Thank you, Stephanie, and good morning everyone and thank you for joining us on a very exciting morning for POZEN. We are very pleased to announce the signing of an exclusive license agreement for the United States commercialization for both PA8140 and PA32540 with Sanofi US and we believe that Sanofi is an outstanding partner for us particularly given their preeminent cardiovascular heritage.
Right off the bat I can tell you that we believe that Sanofi is strongly committed to the product and you see as a key foundation for growth of their cardiovascular franchise going forward. So, for any new listeners who maybe on the call, PA uses POZEN’s proprietary, coordinated-delivery tablet technology and contains immediate-release omeprazole and enteric-coated aspirin intended for the secondary prevention of cardiovascular disease.
We submitted our new drug application for both PA8140 and PA32540 in late March of this year. And in May, we announced that the FDA had accepted the NDA for review and the sign of PDUFA action date of January 24, 2014. If both doses are approved the products will provide dosing flexibility and cover the needs of most of the potential patients, who take daily aspirin for secondary prevention of cardiovascular events and who are at risk for developing gastric ulcers. It also ensures that a patient, who needs aspirin and gastric protection can get the appropriate dose of aspirin, which was something that FDA indicated they felt strongly about during our pre-NDA meeting. So, we look forward to working with Sanofi. We are thrilled to have them as our partner and we hope that together we’ll bring these important new therapies to patients.
So with that, I will turn the call over to Liz to review the terms of the agreement.
Liz Cermak
Thank you, John. As John had said, we are very pleased to announce Sanofi US as our commercialization partner in the U.S. for PA8140 and PA32540. As I’m sure many of you know, Sanofi is an integrated global healthcare company with leadership and a very long heritage of commitment to cardiovascular disease.
When we began the search for our partner, you may recall that we setout with specific partnership criteria. We outlined that the ideal partner would have strong cardiovascular experience and expertise so they would have demonstrated commercial capabilities and the financial resources to successfully market PA in the U.S. We also wanted a partner that would embrace our affordable pricing philosophy that we have found in our market research was important to PAs success. And last but not least, we wanted that partner to view PA as a priority asset. We see Sanofi US as fulfilling all this criteria and so are quite pleased with the outcome otherwise using process.
Let me walk you through some of the deal terms. Under the terms of the agreement, Sanofi US has exclusive rights in the U.S. to commercialize all PA combinations that contains 325 milligrams or less of enteric-coated aspirin. In consideration of those rights, POZEN will receive an upfront payment of $15 million and will be eligible for pre-commercial milestone payments of up to $20 million. In addition, POZEN will be eligible to earn additional milestone payments and also royalties on product sales.
Sanofi US will have responsibility for all sales, marketing and ongoing manufacturing for the licensed PA products and also for any future development for licensed products in the U.S. after approval. POZEN will retain responsibility for obtaining FDA approval of the NDA, after which time we will transfer the NDA to Sanofi US. As John said, we have a PDUFA date of January 24, 2014.
It’s been clear throughout the negotiating process with Sanofi US that they are committed to the therapeutic area and see PA as a key asset with which to grow their presence in the category. With their strong commercial capability and experience we very much look forward to Sanofi US bringing PA to the U.S. market next year and making it available to patients who need it.
And now let me turn the call over to Bill Hodges, who will update you on our revised expected net cash burn for the year and on the accounting treatment of the upfront payments for financial reporting purposes.
Bill Hodges
Thanks, Liz.
With the receipt, the expected receipt of the $15 million upfront payment we now expect our net cash burn to be less than $7 million in the 2013 year and with regards to the amortization period of the upfront payment for financial reporting purposes we have to evaluate the multi element arrangement of the contract and all the POZEN deliverables to determine the proper amortization period. So we will confirm our determination of amortization period in our third quarter call and explain this in detail in our third quarter 10-Q.
So, with that I’ll turn the call back over to Dr. Plachetka. John.
John Plachetka
Thanks, Bill and really a special thanks to Liz and her team especially Dennis McNamara and Gilda Thomas. They did a outstanding job getting this taking care off and striking a really, really exciting deal for POZEN. I’m excited to share this news with you today and I’m looking forward to working with Sanofi on this exciting new therapy and I’ll add that we still have a lot of work left to do, our NDA is under review. So we are responding to FDA questions along the way, we have done so and we’ll continue to do so until the PDUFA date, if any arise. Sanofi US will be gearing up for launch and of course the product still need to be sold. So while we are confident with Sanofi US’ abilities we still have a good ways up before those results can be seen.
We also continue to see throughout the world partners but we do not expect to see the results of that effort in the short-term. We’ll continue to develop resources to all of these efforts but we also will continue to find ways to manage our expenses and our cash. So this is the end of our prepared remarks. So operator we can now open the line for questions and I’ll be happy to answer them.
Question-and-Answer Session
Operator
Thank you. We will now be conducting the question-and-answer session. (Operator Instructions) Thank you. Our first question comes from the line of Keay Nakae of Ascendiant. Please proceed with your question.
Keay Nakae - Ascendiant
Yes. Thank you. Maybe more for Liz but can you talk a little bit more in detail about Sanofi’s commitment to the proposed pricing that you’ve guys have been talking about all along basically a dollar day cost.
Liz Cermak
So we’ve been pleased as part of this negotiation process to have Sanofi share with us their capabilities and their general strategy and approach for PA, its really part of the process so we can get comfortable that they are going to be able to take this asset to where we think it can go. More clearly, we can’t comment on what their pricing is planning to be they’ve seen the market research that we have done based on their own market research and it’s clear that this is the right strategy take forward and we expect that they will.
Keay Nakae - Ascendiant
Okay. And to the extent you can with respect to the royalty I know you talked about in double-digit but should we view that as simply where we confidently see where the royalty is tiered and you increased the royalty based on cumulative sales or how should we think about that?
Liz Cermak
Yes, it’s a traditional royalty, secured royalty stream as we’ve described it.
Keay Nakae - Ascendiant
Okay. That’s all I have.
Operator
Thank you. Our next question comes from the line of Bert Hazlett with ROTH Capital. Please proceed with your question.
Bert Hazlett - ROTH Capital
Thanks. Congratulations on striking the deal. I know it was an important and looks like a great partner and congratulations on the terms. Just want to continue on the discussion about the tiering and the milestones. I would take the position in general both John and Liz that this is a material asset to you I think you would agree with that and given that the disclosure of a bit more with regard to the milestones and the economics might be required here rather than just a kind of a development agreement with double-digit royalties given the status of what this means to you given the status of the program and given that you’re right at FDA with a couple of months toward an approval date. That said, you’ve given a little bit of color in terms of the tiering, can you give us anymore. And then can you discuss what the milestones might be triggered by? Thanks.
John Plachetka
Yes, Bert that’s a really good question and yes, these are very significant features for us. I’m going to ask Liz to go through this a little bit more in detail because she is very familiar with the terms and the breakpoints and stuff. So, Liz, we’re going to go through the royalties and any --
Liz Cermak
Sure. I mean obviously, we’re not at liberty to disclose everything but I can give an idea what the royalties look like. So, the range is 12.5% to 22.5%. And so that’s on as we said tiered royalty at different sales delivery levels. There also sales milestones, there is also payments that are based on that which we’re not at this point comfortable or at liberty to share what those are but they’re pretty normal in the pharmaceutical industry. So, I think that you can figure those out.
And of course the upfront is the upfront and the milestone that’s up to $20 million milestone is actually in two parts, one is on approval and the other is on when we transition the supply from Patheon to Sanofi to be in charge of that. So, there is two levels of that. Does that help?
Bert Hazlett - ROTH Capital
That is hugely helpful color and congratulations on that 22 and change percent top level we’ll have to adjust our models north.
So, that said, in terms of one other just general question, are any of the additional milestones tied to additional indications that are outside of cardiovascular potential oncology indications or is that not contemplated in this agreement?
John Plachetka
Well, we thought it would be an easier thing to do to take this as it comes in the royalty. And so if there are new indications being developed, Sanofi is going to pay for those and so they should obviously take the leadership role in that, that wouldn’t earn out the milestone because we wouldn’t have done any investment in that particular one.
But having said that, this is a typical, we have confidence in our product type deals the more that Sanofi sells the more money we make, we get to the higher tiers in the royalties with the expectations that we laid out before in our previous presentations about where we thought the potential could be. And there are still with the 50 million people in United States that take aspirin and Harmony for secondary prevention.
So, there is a very significant upside here and we’re very pleased that Sanofi with their great experience and success with Plavix is our partner. They know this stage. They know this stage better than anybody knows this stage and we couldn’t be more thrilled.
I’ll also say that Sanofi because they’re such a great global company, we look at their portfolio, we see a lot of strategic overlap there. I mean they got a huge diabetes franchise diabetes is a major risk factor for cardiovascular disease. Most diabetic patients should be on aspirin. We believe diabetic patients form a unique risk profile for gastrointestinal ulcers and so we think that’s a very good strategic fit.
But relative to the oncology area, I’ll remind you that Sanofi has a huge commitment to oncology as well. And so if you’re looking for a multinational company that today to make PA successful as an antiplatelet agent with gas protection but also has the opportunity within their own portfolio and all their strategic interest to make this product be a much, much bigger product than we could ever done or that we think any of the other companies that we entertain could have done either. So, Sanofi is our number one choice. We have targeted them when we started this process and great credit to Liz and her team for landing it.
Bert Hazlett - ROTH Capital
Well, congratulations again. And just to follow on the international discussion, this is a U.S. specific agreement. Can you discuss anything about the status of the potential for an international license at this point as well?
John Plachetka
Well, every market is different and I’m sure you are aware of where Western Europe is with their own healthcare system. The commercial opportunity is going to be very, very different in other parts of the world. So, this is something that we’ll continue to work on getting the rest of the world partner, but it would not -- it would certainly not going to be something that we’re expecting in the short-term. And I believe that the launch of PA will be very important going forward to the United States in developing additional interest for this in the rest of the world. But it all comes down to pricing and healthcare dollars available and so those markets are going to be very, very different than the United States’ market.
Bert Hazlett - ROTH Capital
Well, that’s all I have. I hop back and congratulations on a great deal. Well done.
John Plachetka
Sure.
Liz Cermak
Thank you.
Operator
Thank you. (Operator Instructions) Thank you. Our next question is a follow-up from the line of Bert Hazlett of ROTH Capital. Please proceed with your question.
Bert Hazlett - ROTH Capital
If nobody is going to take the ball I will. Just my, just in terms of the length of time of this agreement and that was another element of the agreement that was may be not as over as it could be, can you provide any additional detail in terms of how we should think about the end years and then is an OTC version contemplated in this agreement?
Liz Cermak
Okay. So there is lot of parts to that. So if you look at the case essentially -- upon the latest of the expiration of the last expired patent covering the product or that’s by number of years, I mean from a legal perspective I don’t know for previous disclosure but is what you would expect in a deal of this size.
In terms of OTC, the way we structure the deal is pharmaceutical product that are 325 milligrams or less as part of that. So there quite possibly could be an OTC component.
Bert Hazlett - ROTH Capital
And your royalty is the same at that point and I guess that there -- these questions were kind of aligned so if you -- if your intellectual property seeks to exist for an ethical version but it goes OTC as the brand, do you still get the royalties or how does that work I just want to make sure I understand how that dynamic might take place?
Liz Cermak
Yes, I mean we’re not at liberty to disclose those details at this point.
Bert Hazlett - ROTH Capital
Okay. Thanks.
Operator
Thank you. Dr. Plachetka, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.
John Plachetka
Okay. We appreciate the questions that we had and I think you guys will be more detailed over the time as we produce more quarterly information. Of course, Bill and I will be back at the end of the third quarter with our results and we’ll update our financials at that time for the year and any additional information that we can have.
I thank you for tuning in today and again, I want to reward with acknowledgements of the business development team here at POZEN and also send out a thank you to the Sanofi team they were very, very professional and good to work with and we’re excited for the commercial folks at Sanofi as they get ready to meet with our folks and get this ball rolling.
So thanks to all of them and all the development people here at POZEN, this is the project that has taken a long time to get to this point and we’re looking forward to FDA action in January.
So with that I’ll sign off and we’ll talk to you guys at the end of the third quarter.
Operator
This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
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