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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 000-31719
POZEN Inc.
(Exact name of registrant as specified in its charter)
Delaware 62-1657552
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1414 Raleigh Road
Suite 400
Chapel Hill, North Carolina 27517
(Address of principal executive offices, including zip code)
(919) 913-1030
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [_] No
The number of shares outstanding of the registrant's common stock as of April
15, 2003 was 28,240,339.
POZEN Inc.
(A Development Stage Company)
FORM 10-Q
For the Three Months Ended March 31, 2003
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (unaudited)
Balance Sheets as of March 31, 2003 and December 31, 2002 ................. 1
Statements of Operations for the Three Months Ended
March 31, 2003 and 2002 and Period From
Inception (September 26, 1996) Through March 31, 2003 ..................... 2
Statements of Cash Flows for the Three Months Ended
March 31, 2003 and 2002 and Period From
Inception (September 26, 1996) Through March 31, 2003 ..................... 3
Notes to Financial Statements.............................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 5
Item 3. Quantitative and Qualitative Disclosures About Market Risk. ............... 14
Item 4. Controls and Procedures.................................................... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. ......................................... 14
Signature and Certifications .......................................................... 15
Exhibit Page .......................................................................... 18
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POZEN Inc.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
March 31, December 31,
2003 2002
--------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents .............................................................. $ 45,973,619 $ 50,056,251
Prepaid expenses and other current assets .............................................. 499,384 553,371
------------ ------------
Total current assets ................................................................ 46,473,003 50,609,622
Equipment, net of accumulated depreciation ................................................ 396,654 425,369
------------ ------------
Total assets ........................................................................ $ 46,869,657 $ 51,034,991
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................................... $ 385,162 $ 179,374
Accrued expenses ....................................................................... 1,835,928 1,657,074
------------ ------------
Total current liabilities ........................................................... 2,221,090 1,836,448
Common stock, $0.001 par value, 90,000,000 shares authorized;
28,155,412 and 28,147,039 shares issued and outstanding at
March 31, 2003 and December 31, 2002, respectively ..................................... 28,155 28,147
Additional paid-in capital ................................................................ 144,040,164 144,036,491
Deferred compensation ..................................................................... (231,041) (510,130)
Deficit accumulated during the development stage .......................................... (99,188,711) (94,355,965)
------------ ------------
Total stockholders' equity ............................................................. 44,648,567 49,198,543
------------ ------------
Total liabilities and stockholders' equity ............................................. $ 46,869,657 $ 51,034,991
============ ============
See accompanying Notes to Financial Statements.
1
POZEN Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
Period From
Inception
(September 26,
1996) Through
Three Months Ended March 31, March 31,
-------------------------------- --------------
2003 2002 2003
---- ---- ----
Operating expenses:
General and administrative ......................... $ 1,863,151 $ 1,757,501 $ 24,878,678
Research and development ........................... 3,112,864 5,579,444 80,049,746
----------- ------------ -------------
Total operating expenses .............................. 4,976,015 7,336,945 104,928,424
Interest income, net .................................. 143,269 316,672 6,674,191
----------- ------------ -------------
Net loss .............................................. (4,832,746) (7,020,273) (98,254,233)
----------- ------------ -------------
Non-cash preferred stock charge ....................... -- -- 27,617,105
Preferred stock dividends ............................. -- -- 934,478
----------- ------------ -------------
Net loss attributable to common stockholders .......... $(4,832,746) $ (7,020,273) $(126,805,816)
=========== ============ =============
Basic and diluted net loss per common share ........... $ (0.17) $ (0.25)
=========== ============
Shares used in computing
basic and diluted net loss per common share ...... 28,150,319 28,038,315
=========== ============
See accompanying Notes to Financial Statements.
2
POZEN Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
Inception
(September 26, 1996)
Three Months Ended Through
March 31, March 31,
-------------------------------- -------------------
2003 2002 2003
--------------- -------------- -------------------
Operating activities
Net loss ......................................................... $ (4,832,746) $ (7,020,273) $ (98,254,233)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ............................................... 32,616 14,253 428,385
Loss on disposal of equipment .............................. -- -- 27,495
Amortization of deferred compensation ...................... 279,089 744,334 10,644,240
Noncash financing charge ................................... -- -- 450,000
Changes in operating assets and liabilities:
Prepaid expenses, accrued interest receivable,
and other assets ........................................ 53,987 (81,146) (499,384)
Accounts payable and accrued expenses ...................... 384,642 660,211 2,221,090
-------------- -------------- -------------
Net cash used in operating activities ...................... (4,082,412) (5,682,621) (84,982,407)
Investment activities
Purchase of equipment ............................................ (3,901) (90,662) (852,534)
-------------- -------------- -------------
Net cash used in investing activities ............................ (3,901) (90,662) (852,534)
-------------- -------------- -------------
Financing activities
Proceeds from issuance of preferred stock ........................ -- -- 48,651,850
Proceeds from issuance of common stock ........................... 3,681 147,384 79,314,695
Proceeds from notes payable ...................................... -- -- 3,000,000
Proceeds from stockholders' receivables .......................... -- -- 1,004,310
Payment of dividends ............................................. -- -- (162,295)
-------------- -------------- -------------
Net cash provided by financing activities ........................ 3,681 147,384 131,808,560
-------------- -------------- -------------
Net (decrease) increase in cash and cash equivalents ............. (4,082,632) (5,625,899) 45,973,619
Cash and cash equivalents at beginning of period ................. 50,056,251 73,958,724 --
-------------- -------------- -------------
Cash and cash equivalents at end of period ....................... $ 45,973,619 $ 68,332,825 $ 45,973,619
============== ============== =============
Supplemental schedule of cash flow information
Cash paid for interest ........................................... $ -- $ -- $ 190,790
============== ============== =============
Supplemental schedule of noncash investing
and financing activities
Conversion of notes payable to preferred stock ................... $ -- $ -- $ 3,000,000
============== ============== =============
Preferred stock dividend ......................................... $ -- $ -- $ 772,183
============== ============== =============
Forfeiture of common stock options and warrants .................. $ -- $ -- $ 314,379
============== ============== =============
Conversion of preferred stock warrants to common stock ........... $ -- $ -- $ 1,080,001
============== ============== =============
See accompanying Notes to Financial Statements.
3
POZEN Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization
POZEN Inc. ("POZEN" or the "Company") was incorporated in the state of Delaware
on September 25, 1996. The Company is a pharmaceutical development company
committed to building a portfolio of product candidates with significant
commercial potential. Our initial focus is the multi-billion dollar global
migraine market. In addition, we intend to leverage our pharmaceutical product
development expertise by acquiring, in-licensing and/or developing commercially
attractive products in therapeutic areas outside of migraine.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Statements--The accompanying unaudited interim
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and applicable Securities and Exchange
Commission ("SEC") regulations for interim financial information. These
financial statements are unaudited and, in the opinion of management, include
all adjustments necessary to present fairly the balance sheets, statements of
operations and statements of cash flows for the periods presented in accordance
with accounting principles generally accepted in the United States. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to SEC rules and
regulations. It is presumed that users of this interim financial information
have read or have access to the audited financial statements and footnote
disclosure for the preceding fiscal year contained in the Company's Annual
Report on Form 10-K. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003.
Stock-based Compensation--The Company accounts for non-cash stock-based
compensation in accordance with the provisions of Accounting Principles Board
Opinion No. ("APB") 25, "Accounting for Stock Issued to Employees," which states
that no compensation expense is recognized for stock options or other
stock-based awards that are granted to employees with an exercise price equal to
or above the estimated fair value of the Company's common stock on the grant
date. In the event that stock options are granted with an exercise price below
the estimated fair market value of the Company's common stock at the grant date,
the difference between the fair market value of the Company's common stock and
the exercise price of the stock option is recorded as deferred compensation.
In connection with the grant of stock options to employees, the Company recorded
no deferred compensation in the three months ended March 31, 2003. Deferred
compensation recognized in prior periods was recorded as a component of
stockholders' equity and is being amortized as charges to operations over the
vesting period of the options using the straight-line method. The vesting period
of the options is generally three or four years. The Company recorded
amortization of deferred compensation of $279,089 and $744,334 for the
three-month periods ended March 31, 2003 and 2002, respectively.
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
4
Year Ended
Three Months Ended March 31, December 31,
---------------------------------- --------------
2003 2002 2002/1/
---- ---- -------
Net loss attributed to common stockholders as reported $ (4,832,746) $ (7,020,273) $ (24,554,910)
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects 279,089 744,334 2,908,079
Deduct: Total stock-based employee compensation expense
determined under the fair value-based method for all
awards, net of related tax effects (1,097,252) (2,198,325) (5,716,748)
------------- ------------- -------------
Pro forma net loss attributed to common stockholders $ (5,650,909) $ (8,474,264) $ (27,363,579)
============= ============= =============
Earnings per share
Net loss per common share as reported - basic and diluted $ (0.17) $ (0.25) $ (0.87)
Net loss per common share pro forma - basic and diluted $ (0.20) $ (0.30) $ (0.97)
Weighted-average shares used in computing basic and diluted
net loss per common share 28,150,319 28,038,315 28,110,352
/1/ The Company has revised its calculation of pro forma net loss attributable
to common stockholders for the year ended December 31, 2002. The above
information supersedes the information enclosed in the Company's 2002 Annual
Report on Form 10-K.
Net Loss Per Share--Basic and diluted net loss per common share amounts are
presented in conformity with Statement of Financial Accounting Standards No.
("SFAS") 128, "Earnings per Share," for all periods presented. In accordance
with SFAS 128, basic and diluted net loss per common share amounts have been
computed using the weighted-average number of shares of common stock outstanding
for the three months ended March 31, 2003 and 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion of our financial condition and the results of operations should
be read together with the financial statements, including the notes contained
elsewhere in this Form 10-Q, and the financial statements, including the notes
thereto, contained in our Annual Report on Form 10-K for the year ended December
31, 2002, as filed on March 28, 2003.
This report includes "forward-looking statements" within the meaning of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, but are not limited to, statements about our
plans, objectives, representations and contentions and are not historical facts
and typically are identified by use of terms such as "may," "will," "should,"
"could," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential," "continue" and similar words, although some forward-looking
statements are expressed differently. You should be aware that the
forward-looking statements included herein represent management's current
judgment and expectations, but our actual results, events and performance could
differ materially from those in the forward-looking statements. The
forward-looking statements are subject to a number of risks and uncertainties
including those discussed herein under "Factors That May Affect Our Results." We
do not intend to update any of these factors or to publicly announce the results
of any revisions to these forward-looking statements.
Overview
We are a pharmaceutical development company committed to building a portfolio of
product candidates with significant commercial potential. Our initial focus is
the multi-billion dollar global migraine market. In addition, we intend to
leverage our pharmaceutical product development expertise by acquiring,
in-licensing and/or developing commercially attractive products in therapeutic
areas outside of migraine.
5
Our business activities since inception have included:
. product candidate research and development;
. the design and funding of clinical trials for our product candidates;
. regulatory and clinical affairs;
. intellectual property prosecution and expansion; and
. business development, including product acquisition and/or licensing
activities.
MT 100 is being developed as an oral, first-line treatment for migraine pain and
associated symptoms. We have completed all planned Phase 3 pivotal clinical
trials for MT 100, which consistently demonstrated MT 100's effectiveness in
treating migraine pain. In October 2002, we submitted a Marketing Authorization
Application ("MAA") for MT 100 to the Medicines Control Agency ("MCA") in the
United Kingdom ("UK"). If approved in the UK, we will seek approval in selected
European countries through the European Union Mutual Recognition Procedure. We
plan to submit a New Drug Application ("NDA") to the U.S. Food and Drug
Administration ("FDA") for MT 100 in mid-2003, and complete the NDA submission
by submitting final carcinogenicity data in early 2004.
MT 300, a proprietary formulation of injectable dihydroergotamine mesylate
("DHE") in a pre-filled syringe, is being developed to provide long-lasting pain
relief for patients needing a convenient injectable therapy for severe migraine
attacks. We have completed all planned Phase 3 pivotal clinical trials for MT
300, which consistently demonstrated MT 300's effectiveness in treating migraine
pain. In December 2002, we submitted an NDA to the FDA for MT 300. The NDA was
accepted for filing by the FDA in February 2003 and is under review.
MT 400 is being developed as a co-active acute migraine therapy, combining the
activity of a triptan with that of a long-lasting non-steroidal
anti-inflammatory drug ("NSAID"). In 2002, we completed a 972-patient Phase 2
clinical trial in which MT 400 showed statistically significant superiority over
placebo and its components, including an oral triptan, on the identified primary
and secondary outcome measures. Once we have identified the most suitable
triptan for MT 400, we will initiate Phase 3 clinical trials.
Historically, we have financed our operations and internal growth primarily
through private placements of preferred stock and our initial public offering
rather than through collaborative or partnership agreements. Therefore, we have
no research funding or collaboration payments payable to us nor have we received
any payments that are refundable or subject to performance milestones.
We have incurred significant losses since our inception and have not generated
any revenue. As of March 31, 2003, our accumulated deficit was $99,188,711. Our
historical operating losses have resulted principally from our research and
development activities, including Phase 3 clinical trial activities for our
product candidates MT 100 and MT 300, Phase 2 clinical trial activities for our
product candidate MT 400, and general and administrative expenses. We expect to
continue to incur operating losses over the next several years as we complete
our development of MT 100, MT 300 and MT 400 and apply for regulatory approval,
develop other potential product candidates, and acquire and develop product
portfolios in other therapeutic areas. Our results may vary depending on many
factors, including:
. the progress of MT 100, MT 300 and MT 400 in the clinical and regulatory
process;
. the establishment of collaborations for the development and
commercialization of any of our migraine product candidates; and
. the acquisition and/or in-licensing, and development, of other
therapeutic product candidates.
Our ability to generate revenue is dependent upon our ability, alone or with
others, to successfully develop our migraine and other product candidates,
obtain regulatory approvals and, alone or with others, successfully manufacture
and market our future products.
Three months ended March 31, 2003 compared to the three months ended March 31,
2002
Net loss per share: Net loss attributable to common stockholders for the quarter
ended March 31, 2003 was $4,832,746 or $0.17 per share, as compared to a net
loss of $7,020,273, or $0.25 per share, for the quarter ended March 31, 2002.
Revenue: We generated no revenue during the quarters ended March 31, 2003 and
2002.
6
Research and development: Research and development expenses decreased 44.2% to
$3,113,000 for the first quarter of 2003, as compared to $5,579,000 for the same
period of 2002. The $2,466,000 decrease was due primarily to a decrease in
development costs for MT 100, MT 300 and MT 400. Costs associated with the
development of MT 100 decreased $899,000 primarily due to a reduction in
clinical trial and toxicology activities as compared to the same period of 2002.
MT 300 costs decreased by $670,000, primarily due to a reduction in Phase 3
clinical trial activities, as compared to the same period of 2002. MT 400 costs
decreased by $1,067,000, primarily due to decreased costs associated with
obtaining drug substance and related formulation development activities, as
compared to the same period of 2002. Additional research and development costs,
including departmental expenses, increased $170,000, net of a $268,000 decrease
in the amortization of deferred stock compensation. Total amortization of
deferred stock compensation included in research and development expenses was
$58,000 and $326,000, for the quarters ended March 31, 2003 and 2002,
respectively. We have included in our research and development expenses the
personnel costs related to our research activities and costs related to product
development, clinical trial and toxicology activities, and regulatory matters.
General and administrative: General and administrative expenses increased 6.0%
to $1,863,000 for the first quarter of 2003, as compared to $1,758,000 for the
same period of 2002. The $105,000 increase was due primarily to an increase in
the costs associated with our business development and public company activities
and the cost of administrative personnel, offset by a decrease in the
amortization of deferred stock compensation. Total amortization of deferred
stock compensation included in general and administrative expenses was $221,000
and $418,000 for the quarters ended March 31, 2003 and 2002, respectively.
General and administrative expenses consisted primarily of the costs of
administrative personnel, facility infrastructure, business development expenses
and public company activities.
Interest income: Interest income decreased to $143,000 for the first quarter of
2003, from $317,000 for the quarter ended March 31, 2002. Interest income
decreased primarily due to a decrease in levels of cash and cash equivalents
available for investing along with a decline in interest rates during the
quarter ended March 31, 2003, as compared to the same period of 2002.
Income Taxes
As of March 31, 2003, we had federal and state net operating loss carryforwards
of approximately $82,573,000 and research and development credit carryforwards
of approximately $4,361,000. These federal and state net operating loss
carryforwards and research and development credit carryforwards begin to expire
in 2012. The utilization of the loss carryforwards to reduce future income taxes
will depend on our ability to generate sufficient taxable income prior to the
expiration of the net loss carryforwards. In addition, the maximum annual use of
net loss carryforwards is limited in certain situations where changes occur in
our stock ownership.
Liquidity and Capital Resources
Since our inception, we have financed our operations and internal growth
primarily through private placements of preferred stock and our initial public
offering, resulting in aggregate net proceeds to us of $131,809,000. As of March
31, 2003, cash and cash equivalents totaled $45,974,000 a decrease of $4,083,000
as compared to December 31, 2002. The decrease in cash and cash equivalents
resulted primarily from expenses associated with our operating activities.
Cash used in operations of $4,082,000 during the three months ended March 31,
2003 represented a net loss of $4,833,000 offset by non-cash charges of
$312,000, a decrease in prepaid and other assets of $54,000 and an increase in
accounts payable and accrued liabilities of $385,000.
Cash used in investing activities of $4,000 during the three months ended March
31, 2003 reflected the purchase of equipment. Since inception through March 31,
2003, approximately $853,000 has been spent on furniture, equipment and
leasehold improvements.
Cash provided by financing activities during the three months ended March 31,
2003, which totaled $4,000, was generated by the exercise of stock options.
We believe that our existing liquidity and capital resources, including the
proceeds from our initial public offering, will be sufficient to complete our
on-going and planned clinical trials, to conduct appropriate development
studies, and to satisfy our other currently anticipated cash needs for operating
expenses for the next two years.
7
Factors That May Affect Our Results
Our business is subject to certain risks and uncertainties, each of which could
materially adversely affect our business, financial condition, cash flows and
results of operations. Additional risks that are not presently known to us or
that we currently believe to be immaterial may also adversely affect our
business.
We depend heavily on the success of our product candidates, which may never be
approved for commercial use. If we are unable to develop, gain approval of or
commercialize those product candidates, we may never be profitable.
We anticipate that for the foreseeable future our ability to achieve
profitability will be dependent on the successful development, approval and
commercialization of our current product candidates, particularly MT 100 and MT
400. Many factors could negatively affect the success of our efforts to develop
and commercialize our product candidates, including:
. negative, inconclusive or otherwise unfavorable results from any studies
or clinical trials;
. an inability to obtain, or delay in obtaining, regulatory approval for
the commercialization of our product candidates;
. an inability to establish collaborative arrangements with third parties
for the manufacture and commercialization of our product candidates, or
any disruption of any of these arrangements, if established;
. a failure to achieve market acceptance of our product candidates;
. significant delays in any required studies or clinical trials;
. any demand by the FDA that we conduct additional clinical trials or other
studies and the expenses relating thereto; and
. significant increases in the costs of any studies or clinical trials.
We have incurred losses since inception and anticipate that we will continue to
incur losses for the foreseeable future. We do not have a current source of
product revenue and may never be profitable.
We have incurred losses in each year since our inception and we currently have
no source of product revenue. As of March 31, 2003, we had an accumulated
deficit of approximately $99.2 million. We expect to incur significant and
increasing operating losses and do not know when or if we will generate product
revenue.
We expect that the amount of our operating losses will fluctuate significantly
from quarter to quarter as a result of increases and decreases in development
efforts, the timing of payments that we may receive from others, and other
factors. Our ability to achieve profitability is dependent on a number of
factors, including our ability to:
. develop and obtain regulatory approvals for our product candidates;
. successfully commercialize our product candidates, which may include
entering into collaborative agreements; and
. secure contract manufacturing and distribution services.
If we, or our collaborators, do not obtain and maintain required regulatory
approvals, we will be unable to commercialize our product candidates.
Our product candidates under development are subject to extensive domestic and
foreign regulation. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, record keeping, labeling, storage,
approval, advertisement, promotion, sale and distribution of pharmaceutical
products. If we market our products abroad, they are also subject to extensive
regulation by foreign governments. None of our product candidates have been
approved for sale in the United States or any foreign market.
A separate NDA must be filed with respect to each indication for which marketing
approval of a product is sought. Each NDA, in turn, requires the successful
completion of preclinical, toxicology, genotoxicity and carcinogenicity studies,
as well as clinical trials demonstrating the safety and efficacy of the product
for that particular indication. We may not receive regulatory approval of any of
the NDAs that we file with the FDA. If we are unable to obtain and maintain FDA
and foreign governmental approvals for our product candidates, we will not be
permitted to sell them.
Approval of a product candidate may be conditioned upon certain limitations and
restrictions as to the drug's use, or upon the conduct of further studies, and
is subject to continuous review. The FDA may also require us to conduct
additional post-approval studies. These post-approval studies may include
carcinogenicity studies in animals or further human clinical trials. The later
discovery of previously unknown problems with the product, manufacturer or
manufacturing facility may result in criminal prosecution, civil penalties,
recall or seizure of products, or total or partial suspension of production, as
well as other regulatory action against our product candidates or us. If
approvals are withdrawn for a product, or if a product is seized or recalled, we
would be unable to sell that product and our revenues would suffer.
8
We and our contract manufacturers are required to comply with the applicable FDA
current Good Manufacturing Practices ("cGMP") regulations, which include
requirements relating to quality control and quality assurance, as well as the
corresponding maintenance of records and documentation.
Further, manufacturing facilities must be approved by the FDA before they can be
used to manufacture our product candidates, and are subject to additional FDA
inspection. We, or our third-party manufacturers, may not be able to comply with
cGMP regulations or other FDA regulatory requirements, resulting in a delay or
an inability to manufacture the products.
Labeling and promotional activities are subject to scrutiny by the FDA and state
regulatory agencies and, in some circumstances, the Federal Trade Commission.
FDA enforcement policy prohibits the marketing of approved products for
unapproved, or off-label, uses. These regulations and the FDA's interpretation
of them may impair our ability to effectively market products for which we gain
approval. Failure to comply with these requirements can result in regulatory
enforcement action by the FDA. Further, we may not obtain the labeling claims we
believe are necessary or desirable for the promotion of our product candidates.
Similarly, the above considerations and risks apply to regulatory approvals in
foreign markets, including the application with respect to MT 100 submitted to
the MCA in the UK.
We depend on collaborations with third parties for the development of our
products, which may reduce our product revenues or restrict our ability to
commercialize our products.
Our ability to develop, manufacture, and obtain regulatory approval of our
existing and any future product candidates depends upon our ability to enter
into and maintain contractual and collaborative arrangements with others.
We have, and intend in the future to continue to have, contract manufacturers
and clinical trial investigators. In addition, the identification of new
compounds or product candidates for development may require us to enter into
licensing or other collaborative agreements with others, including
pharmaceutical companies and research institutions. These third-party
contractual or collaborative arrangements may require us to grant rights,
including marketing rights, to one or more parties. These arrangements may also
contain covenants restricting our product development or business efforts in the
future, or other terms that are burdensome to us, and may involve the
acquisition of our equity securities. Collaborative agreements for the
acquisition of new compounds or product candidates may require us to pay license
fees, make milestone payments and/or pay royalties.
We cannot be sure that we will be able to maintain our existing or future
collaborative or contractual arrangements, or that we will be able to enter into
future arrangements with third parties on terms acceptable to us, or at all. If
we fail to maintain our existing arrangements or to establish new arrangements
when and as necessary, we could be required to undertake these activities at our
own expense, which would significantly increase our capital requirements and may
delay the development of our product candidates.
We are subject to a number of risks associated with contractual and
collaborative arrangements with others:
. We may not have day-to-day control over the activities of our contractors
or collaborators.
. Third parties may not fulfill their obligations to us.
. We may not realize the contemplated or expected benefits from
collaborative or other arrangements.
. Business combinations and changes in the contractors or their business
strategy may adversely affect their willingness or ability to complete
their obligations to us.
. The contractor or collaborator may have the right to terminate its
arrangements with us on limited or no notice and for reasons outside of
our control.
. The contractor or collaborator may develop or have rights to competing
products or product candidates and withdraw support or cease to perform
work on our products.
. Disagreements may arise regarding breach of the arrangement, ownership of
proprietary rights, clinical results or regulatory approvals.
These factors could lead to delays in the development of our product candidates,
and disagreements with our contractors or collaborators could require or result
in litigation or arbitration, which would be time-consuming and expensive. Our
ultimate success may depend upon the success and performance on the part of
these third parties. If we fail to maintain these relationships or establish new
relationships as required, development of our product candidates will be
delayed.
9
We will need to enter into agreements with third parties that possess sales,
marketing and distribution capabilities, or establish internally the capability
to perform these functions, in order to successfully market and sell our future
drug products.
We have no sales or distribution personnel or capabilities. If we are unable to
enter into collaborations with established pharmaceutical or pharmaceutical
services companies to provide those capabilities, or alternatively, we are
unable to develop internally sales and distribution capabilities, we will not be
able to successfully commercialize our products. To the extent that we enter
into marketing and sales agreements with third parties, our revenues, if any,
will be affected by the sales and marketing efforts of those third parties.
Further, we cannot guarantee that, should we elect to develop our own sales and
distribution capabilities, we would have sufficient resources to do so, or would
be able to hire the qualified sales and marketing personnel we would need.
We need to conduct preclinical, toxicology, genotoxicity and carcinogenicity
studies and clinical trials on our product candidates. Any unanticipated costs
or delays in these studies or trials, or the need to conduct additional studies
or trials or to seek to persuade the FDA to evaluate the results of a study or
trial in a different manner, could reduce or delay our revenues and
profitability.
Generally, we must demonstrate the efficacy and safety of our product candidates
before approval to market can be obtained from the FDA. Our product candidates
are in various stages of clinical development. Depending upon the stage at which
a product candidate is in the development process, we will need to complete
preclinical, toxicology, genotoxicity and carcinogenicity studies, as well as
clinical trials, on these product candidates before we submit marketing
applications in the United States and abroad. These studies and trials can be
very costly and time-consuming. In addition, we rely on third parties to perform
significant aspects of our studies and clinical trials, introducing additional
sources of risk into our development programs. It should also be noted that
results from preclinical testing and early clinical trials are not necessarily
predictive of results obtained in later clinical trials involving large scale
testing of patients in comparison to control groups.
The completion of clinical trials depends upon many factors, including the rate
of enrollment of patients. If we are unable to recruit sufficient clinical
patients during the appropriate period, we may need to delay our clinical trials
and incur significant additional costs. We also rely on the compliance of our
clinical trial investigators with FDA regulatory requirements and noncompliance
can result in disqualification of a clinical trial investigator and data that is
unusable. In addition, the FDA or Institutional Review Boards may require us to
conduct additional trials or delay, restrict or discontinue our clinical trials
on various grounds, including a finding that the subjects or patients are being
exposed to an unacceptable health risk. Even though we have completed all
planned Phase 3 pivotal clinical trials for MT 100 and submitted an NDA for MT
300, and even if we may have completed all planned clinical trials for a product
candidate and submitted an NDA for that product candidate, we may be required to
conduct additional clinical trials and studies to support our NDAs to the FDA.
We may determine to seek to persuade the FDA to evaluate the results of a study
or trial in a manner that differs from the way the FDA usually evaluates
results. For example, approval of MT 300 will require positive FDA action on our
request that secondary endpoints be evaluated based upon sustained response. In
addition, we may have unexpected results that require us to reconsider the need
for certain studies or trials. For example, results from a genotoxicity study
involving MT 400 may require us to conduct chronic toxicology and
carcinogenicity studies. Once submitted, an NDA would require FDA approval
before we could distribute or commercialize the product described in the
application. Even if we determine that data from our clinical trials,
toxicology, genotoxicity and carcinogenicity studies are positive, we cannot
assure you that the FDA, after completing its analysis, will not determine that
the trials or studies should have been conducted or analyzed differently, and
thus reach a different conclusion from that reached by us, or request that
further trials, studies or analyses be conducted. For example, the FDA may
require data in certain subpopulations, such as pediatric use, or may require
long-term carcinogenicity studies, prior to NDA approval, unless we can obtain a
waiver to delay such studies.
Our costs associated with our human clinical trials vary based on a number of
factors, including:
. the order and timing of clinical indications pursued;
. the extent of development and financial support from collaborative
parties, if any;
. the need to conduct additional clinical trials or studies;
. the number of patients required for enrollment;
. the difficulty of obtaining sufficient patient populations and
clinicians;
. the difficulty of obtaining clinical supplies of our product candidates;
and
. governmental and regulatory delays.
Even if we obtain positive preclinical or clinical study results initially,
future clinical trial results may not be similarly positive.
10
We currently depend and will in the future depend on third parties to
manufacture our product candidates. If these manufacturers fail to meet our
requirements or any regulatory requirements, the product development and
commercialization of our product candidates will be delayed.
We do not have, and have no plans to develop, the internal capability to
manufacture either clinical trial or commercial quantities of products that we
may develop or are under development. We rely upon third-party manufacturers to
supply us with our product candidates. We also need supply contracts to sell our
products commercially. There is no guarantee that manufacturers that enter into
commercial supply contracts with us will be financially viable entities going
forward. If we do not have the necessary commercial supply contracts, or if our
current manufacturer is unable to satisfy our requirements or meet any
regulatory requirements, and we are required to find an alternative source of
supply, there may be additional costs and delays in product development and
commercialization of our product candidates or we may be required to comply with
additional regulatory requirements.
If our competitors develop and commercialize products faster than we do or if
their products are superior to ours, our commercial opportunities will be
reduced or eliminated.
Our product candidates will have to compete with existing and any newly
developed migraine therapies. There are also likely to be numerous competitors
developing new products to treat migraine and the other diseases and conditions
for which we may seek to develop products in the future, which could render our
product candidates or technologies obsolete or non-competitive. Our primary
competitors will likely include large pharmaceutical companies, biotechnology
companies, universities and public and private research institutions. We face,
and will continue to face, intense competition from other companies for securing
collaborations with pharmaceutical companies, establishing relationships with
academic and research institutions, and acquiring licenses to proprietary
technology. These competitors, either alone or with collaborative parties, may
succeed with technologies or products that are more effective than any of our
current or future technologies or products. Many of our actual or potential
competitors, either alone or together with collaborative parties, have
substantially greater financial resources, and almost all of our competitors
have larger numbers of scientific and administrative personnel than we do. Many
of these competitors, either alone or together with their collaborative parties,
also have significantly greater experience than we do in:
. developing product candidates;
. undertaking preclinical testing and human clinical trials;
. obtaining FDA and other regulatory approvals of product candidates; and
. manufacturing and marketing products.
Accordingly, our actual or potential competitors may succeed in obtaining patent
protection, receiving FDA approval or commercializing products before we do. Our
competitors may also develop products or technologies that are superior to those
that we are developing, and render our product candidates or technologies
obsolete or non-competitive. If we cannot successfully compete with new or
existing products, our marketing and sales will suffer and we may not ever be
profitable.
If we are unable to protect our patents or proprietary rights, or if we are
unable to operate our business without infringing the patents and proprietary
rights of others, we may be unable to develop our product candidates or compete
effectively.
The pharmaceutical industry places considerable importance on obtaining patent
and trade secret protection for new technologies, products and processes. Our
success will depend, in part, on our ability, and the ability of our licensors,
to obtain and to keep protection for our products and technologies under the
patent laws of the United States and other countries, so that we can stop others
from using our inventions.
Our success also will depend on our ability to prevent others from using our
trade secrets. In addition, we must operate in a way that does not infringe, or
violate, the patent, trade secret and other intellectual property rights of
other parties.
We cannot know how much protection, if any, our patents will provide or whether
our patent applications will issue as patents. The breadth of claims that will
be allowed in patent applications cannot be predicted and neither the validity
nor enforceability of claims in issued patents can be assured. If, for any
reason, we are unable to obtain and enforce valid claims covering our products
and technology, we may be unable to prevent competitors from using the same or
similar technology or to prevent competitors from marketing identical products.
In addition, due to the extensive time needed to develop and test our products,
any patents that we obtain may expire in a short time after commercialization.
This would reduce or eliminate any advantages that such patents may give us.
We may need to license rights to third party patents and intellectual property
to continue the development and marketing of our product candidates. If we are
unable to acquire such rights on acceptable terms, our development activities
may be blocked and we may be unable to bring our product candidates to market.
11
We may enter into litigation to defend ourselves against claims of infringement,
assert claims that a third party is infringing one or more of our patents,
protect our trade secrets or know-how, or determine the scope and validity of
others' patent or proprietary rights. As a result of such litigation, our patent
claims may be found to be invalid, unenforceable or not of sufficient scope to
cover the activities of an alleged infringer.
If we are found to infringe the patent rights of others, then we may be forced
to pay damages sufficient to irreparably harm the Company and/or be prevented
from continuing our product development and marketing activities. Regardless of
its eventual outcome, any lawsuit that we enter into may consume time and
resources that will impair our ability to develop and market our product
candidates.
We have entered into confidentiality agreements with our employees, consultants,
advisors and collaborators. However, these parties may not honor these
agreements and, as a result, we may not be able to protect our rights to
unpatented trade secrets and know-how. Others may independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets and know-how. Also, many of our scientific and
management personnel were previously employed by competing companies. As a
result, such companies may allege trade secret violations and similar claims
against us.
If we fail to acquire, develop and commercialize additional products or product
candidates, or fail to successfully promote or market approved products, we may
never achieve profitability.
As part of our business strategy, we plan to identify and acquire product
candidates or approved products in areas in which we possess particular
knowledge. Because we do not directly engage in basic research or drug
discovery, we must rely upon third parties to sell or license product
opportunities to us. Other companies, including some with substantially greater
financial, marketing and sales resources, are competing with us to acquire such
products. We may not be able to acquire rights to additional products on
acceptable terms, if at all. In addition, we may acquire new products with
different marketing strategies, distribution channels and bases of competition
than those of our current products. Therefore, we may not be able to compete
favorably in those product categories.
Any of our future products may not be accepted by the market, which would limit
the commercial opportunities for our products.
Even if our product candidates perform successfully in clinical trials and are
approved by the FDA and other regulatory authorities, our future products may
not achieve market acceptance and may not generate the revenues that we
anticipate. The degree of market acceptance will depend upon a number of
factors, including:
. the receipt and timing of regulatory approvals;
. the availability of third-party reimbursement;
. the indications for which the product is approved;
. the rate of adoption by health care providers;
. the rate of product acceptance by target patient populations;
. the price of the product relative to alternative therapies;
. the availability of alternative therapies;
. the extent of marketing efforts by us and third-party distributors and
agents;
. the publicity regarding our products or similar products; and
. the extent and severity of side effects as compared to alternative
therapies.
If we do not receive adequate third-party reimbursements for any of our future
products, our revenues and profitability will be reduced.
Our ability to commercialize our product candidates successfully will depend, in
part, on the extent to which reimbursement for the costs of such products and
related treatments will be available from government health administration
authorities, such as Medicare and Medicaid in the United States, private health
insurers and other organizations. Significant uncertainty exists as to the
reimbursement status of a newly approved health care product, particularly for
indications for which there is no current effective treatment or for which
medical care is typically not sought. Adequate third-party coverage may not be
available to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in product research and development. If
adequate coverage and reimbursement levels are not provided by government and
third-party payors for use of our products, our products may fail to achieve
market acceptance.
12
Our future revenues, profitability and access to capital will be affected by the
continuing efforts of governmental and private third-party payors to contain or
reduce the costs of health care through various means. We expect that a number
of federal, state and foreign proposals will seek to control the cost of drugs
through governmental regulation. We are unsure of the form that any health care
reform legislation may take or what actions federal, state, foreign and private
payors may take in response to the proposed reforms. Therefore, we cannot
predict the effect of any implemented reform on our business.
If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities and may be required to limit commercialization of our
product candidates.
The testing and marketing of pharmaceutical products entails an inherent risk of
product liability. Product liability claims might be brought against us by
consumers, health care providers, pharmaceutical companies or others selling our
future products. If we cannot successfully defend ourselves against such claims,
we may incur substantial liabilities or be required to limit the
commercialization of our product candidates. We have obtained limited product
liability insurance coverage only for our human clinical trials. However,
insurance coverage is becoming increasingly expensive, and no assurance can be
given that we will be able to maintain insurance coverage at a reasonable cost
or in sufficient amounts to protect us against losses due to liability. We may
not be able to obtain commercially reasonable product liability insurance for
any products approved for marketing. If a plaintiff brings a successful product
liability claim against us in excess of our insurance coverage, if any, we may
incur substantial liabilities and our business may fail.
We may need substantial additional funding and may not have access to capital.
If we are unable to raise capital when needed, we may need to delay, reduce or
eliminate our product development or commercialization efforts.
We may need to raise additional funds to execute our business strategy. We have
incurred losses from operations since inception and we expect to incur
additional operating losses. Our actual capital requirements will depend upon
numerous factors, including:
. the progress of our research and development programs;
. the progress of preclinical studies, clinical and other testing;
. the time and cost involved in obtaining regulatory approvals;
. the costs of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights;
. the effect of competing technological and market developments;
. the effect of changes and developments in our collaborative, licensing
and other relationships;
. the terms and timing of any new collaborative, licensing and other
arrangements that we may establish; and
. our ability to arrange for the commercialization of our product
candidates.
We may be unable to raise sufficient funds to execute our business strategy. In
addition, we may not be able to find sufficient debt or equity funding on
acceptable terms. If we cannot, we may need to delay, reduce or eliminate
research and development programs.
The sale by us of additional equity securities or the expectation that we will
sell additional equity securities may have an adverse effect on the price of our
common stock. In addition, collaborative arrangements may require us to grant
product development programs or licenses to third parties for products that we
might otherwise seek to develop or commercialize ourselves.
We depend on key personnel and may not be able to retain these employees or
recruit additional qualified personnel, which would harm our research and
development efforts.
We are highly dependent on the efforts of our key management and scientific
personnel, especially John R. Plachetka, Pharm.D., our Chairman, President and
Chief Executive Officer. Dr. Plachetka signed an employment agreement with us on
April 1, 1999, as amended and restated on July 25, 2001, for a three-year term
with automatic one-year renewal terms. As of July 25, 2001, we also entered into
employment agreements with certain of our other key management personnel, each
of which provides for a two-year term with automatic one-year renewal terms. If
we lose the services of Dr. Plachetka or the services of any of our other key
personnel, or are unable to replace the services of our key personnel who may
leave the Company, or if we fail to recruit other key scientific personnel, we
may be unable to achieve our business objectives. There is intense competition
for qualified scientific personnel. Since our business is very science-oriented,
we need to continue to attract and retain such people. We may not be able to
continue to attract and retain the qualified personnel necessary for developing
our business. Furthermore, our future success will also depend in part on the
continued service of our other key management personnel.
13
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Our proceeds from our initial public offering and private placements have been
invested in money market funds that invest primarily in short-term, highly-rated
investments, including U.S. Government securities, commercial paper and
certificates of deposit guaranteed by banks. Under our current policies, we do
not use interest rate derivative instruments to manage our exposure to interest
rate changes. Because of the short-term maturities of our investments, we do not
believe that a decrease in market rates would have a significant negative impact
on the value of our investment portfolio. However, declines in interest rates
reduced our interest income during the three-month period ended March 31, 2003
as compared to the same period of 2002. Declines in interest rates will reduce
our interest income while increases in interest rates will increase our interest
income.
Item 4. Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of May 7, 2003 was carried out by the
Company under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures have
been designed and are being operated in a manner that provides reasonable
assurance that the information required to be disclosed by the Company in
reports filed under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. A controls system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the controls system are met,
and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected.
Subsequent to the date of the most recent evaluation of the Company's internal
controls, there were no significant changes in the Company's internal controls
or in other factors that could significantly affect the internal controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification by the Chief Executive Officer and Chief Financial
Officer Relating to a Periodic Report Containing Financial Statements.
(b) Reports on Form 8-K
We filed no reports on Form 8-K during the quarter ended March 31, 2003.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POZEN Inc.
----------
(Registrant)
May 12, 2003 By: /s/ JOHN R. PLACHETKA
-------------------------
John R. Plachetka
President and Chief Executive Officer
May 12, 2003 /s/ MATTHEW E. CZAJKOWSKI
-------------------------
Matthew E. Czajkowski
Chief Financial Officer
(Principal Financial Officer)
May 12, 2003 /s/ JOHN E. BARNHARDT
---------------------
John E. Barnhardt
Vice President, Finance and Administration
(Principal Accounting Officer)
15
Certifications
I, John R. Plachetka, Pharm.D., certify that:
1. I have reviewed this quarterly report on Form 10-Q of POZEN Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ John R. Plachetka
-----------------------------
John R. Plachetka, Pharm.D.
Chief Executive Officer
16
I, Matthew E. Czajkowski, certify that:
1. I have reviewed this quarterly report on Form 10-Q of POZEN Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ Matthew E. Czajkowski
---------------------------------
Matthew E. Czajkowski
Chief Financial Officer
17
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
99.1 Certification by the Chief Executive Officer and Chief Financial
Officer Relating to a Periodic Report Containing Financial Statements.
18