In the speculative world of biotech investing, investors look to get in stocks early before positive, market moving company events happen. These events are usually connected to FDA decisions or product launches. It is not uncommon to see a biotech company rise over 200% within days after positive news provides a huge catalyst to increase the stock price.
Thankfully for risk tolerant investors, these speculative biotech opportunities come along very often if you are listening to the right catalyst clues and doing important due diligence. The challenge for investors is to pick the right investment opportunities that carry the most reward with less risk.
POZEN Inc. (POZN) engages in the development of pharmaceutical products for the treatment of acute and chronic pain, and other pain-related conditions. The company has a collaboration agreement with GlaxoSmithKline (GSK) for Treximet, which is used for the acute treatment of migraine attacks with or without aura in adults. It also has a collaboration and license agreement with AstraZeneca (AZN) for VIMOVO, a proprietary fixed dose combination of the proton pump inhibitor esomeprazole magnesium with the naproxen in a single tablet for the management of pain and inflammation associated with conditions, such as osteoarthritis and rheumatoid arthritis in patients who are at risk for developing non-steroidal anti-inflammation drug-associated gastric ulcers.
PA Product Portfolio
POZEN's active PA product portfolio is focused on designing cost-effective, integrated aspirin therapies that enable the full power of aspirin by reducing its potential gastrointestinal damage. The PA product portfolio has the potential to benefit the millions of Americans who use daily aspirin to treat cardiovascular disease, osteoarthritis and potentially other diseases.
The first candidates within the PA product portfolio are PA8140 and PA32540. They are coordinated-delivery tablets combining immediate-release omeprazole (40 mg), a proton pump inhibitor (PPI), layered around pH-sensitive enteric-coated aspirin (81 mg or 325 mg) core.
PA32540 is designed to be a GI-safer form of aspirin to be administered orally once a day, at a cost of 1 dollar per day. PA32540 prevents secondary cardiovascular disease in patients at risk for aspirin-associated gastric ulcers.
Aspirin's side effects as per Drugs.com:
Gastrointestinal side effects have included epigastric distress (in as many as 83% of patients treated with regular aspirin), abdominal discomfort or pain, endoscopically identifiable gastric mucosal lesions, nausea, and vomiting. More serious gastrointestinal effects include hemorrhage, peptic ulcers, perforation, small bowel enteropathy, and esophageal ulcerations.
In an article written by analyst Jason Napodano for Propthink, he writes:
Amazon.com (AMZN) sells a 500 tablet bottle of 325 mg aspirin for $11.00, or 2.2 cents per day. One can also buy 42 20 mg tablets of OTC Prilosec (omeprazole) for $23.95, or around 57 cents per pill. To re-create Pozen's PA32540, a patient would spend approximately $1.16 per day (taking two Prilosec pills plus an aspirin).
Pozen's drug is clearly superior than taking aspirin and Prilosec separately. PA32540 would cost less at 1 dollar a day versus buying both drugs separately for $1.16.
License Agreement for PA with Sanofi
On September 4th, an agreement was announced:
Sanofi US (SNY) and POZEN Inc. announced the signing of an exclusive license agreement for the commercialization of POZEN's proprietary, investigational, coordinated-delivery tablets combining immediate-release omeprazole, a proton pump inhibitor (PPI), and enteric-coated (EC) aspirin in a single tablet ("PA"), PA8140 and PA32540. Under the terms of the agreement, Sanofi will have exclusive rights to commercialize all PA combinations that contain 325 mg or less of enteric-coated aspirin in the United States. POZEN will receive an upfront payment of $15MM and will be eligible for pre-commercial milestone payments of up to $20MM and other future milestone payments and royalties on product sales.
Q3 Conference Call
Some important information was divulged yesterday at the conference call:
1) As part of POZEN's ongoing interactions and requests for information from the FDA during its review of the NDA for PA8140/PA32540, the FDA has requested a teleconference, which has been scheduled for mid-November. POZEN will discuss and address the FDA's request for information with respect to the existing clinical pharmacology data on PA8140.
As stated by the CEO in the conference call, the company feels that they have more than enough information to satisfy the FDA question, and feel that the worst outcome would be a small quick pharmacology study which would not effect the Prescription Drug User Fee Act (PDUFA) on January 24th/14.
2)POZEN's management team and board of directors are evaluating possible ways of returning value to shareholders, including cash distributions of surplus corporate cash.
If you go to the 31:45 mark of the CC, you will hear Jason Napodano (well renowned bio expert) ask a question about the distribution of surplus cash. POZN's CEO is looking at giving a special dividend by the end of 2013. Jason believes that it will be a special one time $2.00 dividend.
Here are some tweets:
1.Jason Napodano, CFA @JNapodano 6h
I think the market is overly worried about this $POZN/FDA teleconf. It's a minor issue. Focus on the PDUFA and potential for $2+ cash div.
2.Jason Napodano, CFA @JNapodano 9h
$POZN considering returning "surplus cash" to shareholders in the form of a distribution or dividend. I estimate this could be $2/share.
The stock will run up until the Prescription Drug User Fee Act (PDUFA) on January 24/14 and will realize a more reasonable valuation. The company has close to $90 million in cash, not to mention revenue from other drugs in their pipeline as seen above. Currently the market cap is around 180 million (30 million shares x $6.00 price per share) and deserves a much higher one. If you consider that PA32540 is taken once a day at $1.00/day. That would make it $365/year x 4 million users = $1.46 billion. 20% of royalties ($1.46 billion) would equal $292 million in revenue for POZN. Therefore, POZN merits a price per share of $10 to $12 based on the above findings. Not to mention the CEO stating that they would like to distribute the excess cash that the company has accumulated ($2.00 special one time divy). The 10% drop yesterday was and is a huge buying opportunity due to investor's overreacting to a minor event.
POZN Institutional Ownership 58.49%
|Total Shares Out Standing (millions):||30|
|Market Capitalization ($ millions):||$107|
|Price (as of 09/30/2013)||5.98|