Two Small-Cap Biotechs With Strong Cash Positions

Zacks Small Cap Research

By Jason Napodano, CFA

On August 1, 2012, Pozen (NasdaqCM:POZN) reported financial results for the second quarter 2012. Pozen reported revenues in the second quarter of $1.8 million, driven by $1.3 million royalties on $16.6 million in worldwide sales of Vimovo at AstraZeneca and full recognition of a $0.5 million payment from Desitin Arzneimittel GmbH for the license, development and commercialization of Pozen’s MT-400 for the 27 countries of the European Union, as well as Switzerland and Norway. Pozen reported a net loss in the second quarter 2012 of $5.1 million, or $0.17 per share. This was slightly better than our model which estimated the net loss at $0.26 per share.

Pozen exited the second quarter ended June 30, 2012 with $95.3 million in cash and investments. We expect that Pozen will exit 2012 with over $80 million in cash and investment. This estimate includes no upfront payment from a commercialization partnership on PA. Management has reiterated its goal to have a partnership in place before the end of the year. Based on the current share count, Pozen currently holds $3.16 per share in cash, or roughly 50% of the total market value.

On August 2, 2012, Depomed (NasdaqGS:DEPO) reported financial results for the second quarter 2012. Total revenues in the quarter were $14.1 million, a tad below our estimate of $15.5 million based on lower licensing and collaborative revenues.

Revenues consisted of $3.2 million in sales of Gralise. Gralise sales were dead-on with our estimate. During the second quarter there were approximately 29k prescriptions for the drug. For the week ending July 20, 2012, Gralise total prescriptions were 2,736, which annualizes to a run-rate of approximately $18 million. Gralise current holds 0.33% of the total gaba-molecule market. To date, over 6,000 physicians have written prescriptions for Gralise.

Revenues in the second quarter also consisted of $9.6 million in royalties, of which $9.4 million was from Glumetza sales at Santarus (at around $32 million) and $0.2 million as from Janumet-XR sales at Merck. Santarus recently took a price increase on Glumetza and increase the number of reps promoting the product. As a result, Depomed management now sees full year 2012 royalties from Glumetza eclipsing $40 million. Depomed receives 29.5% royalty on sales of Glumetza at Santarus. We note the royalty rate is set to jump up in 2013 to 32% and to 34.5% in 2015.

Net loss for the second quarter 2012 was $15.8 million, or $0.28 per share. Depomed exited the second quarter 2012 with $89.0 million in cash, investments, and marketable securities and no debt. This number is down significantly from the first quarter 2012 which was $128.6 million. During the second quarter Depomed acquired the rights to Zipsor by paying $25.9 million in cash to privately-held Xanodyne Pharmaceuticals. We expect that Depomed will exit 2012 with $70.2 million in cash and investments, in-line with management’s new guidance for cash and investments between $65 and $80 million at year end. Based on the current share count, Depomed currently holds $1.60 per share in cash, or roughly 30% of the total market value.

For reports on Pozen and Depomed can be downloaded at the links below.

Depomed Inc. DEPO_Napodano-8/3/2012

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