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Headquartered in Chapel Hill, NC, Pozen, Inc. (POZN) is a pharmaceutical company engaged in the research and development of drugs for afflictions such as migraine headache attacks and neuropathic pain. The company also seeks to license and collaborate on drug development activities and has several clinical stage candidates under development.

The main product candidate is Trexima. Trexima is an oral formulation with potential for use in acute migraine therapy for reducing pain and associated symptoms of migraine. The U.S. Food and Drug Administration [FDA] granted Trexima approvable in June 2006. Pozen and development partner Glaxo (GSK) have since re-filed information in early February 2007 and are now expecting approval in early August 2007.

Pozen is expected to receive a royalty on worldwide sales of Trexima. In August 2006 the company signed a new collaboration with AstraZeneca for PN-based products. PN is a fixed-dose combination of the proton pump inhibitor [PPI] esomeprazole magnesium (Nexium) with the non-steroidal anti-inflammatory drug [NSAID] naproxen. Pozen will also receive a tiered royalty on worldwide sales of PN-products ranging from mid-single digit to mid-teens.

Trexima is a single pill containing 85mg sumatriptan succinate (Glaxo's Imitrex) and 500mg naproxen sodium (sold over-the-counter as Aleve, by Bayer). The Imigran/Imitrex franchise posted global sales of £711 million ($1,315 million) at Glaxo in 2006, £551 million ($1,019 million) of which was in the U.S. Imitrex dominates the migraine headache market with an estimated 60% market share.

However, Imitrex growth has stalled to single-digit growth and generic manufacturers such as Teva Pharmaceuticals (TEVA) and Dr. Reddy are lining up to bring a generic Imitrex to market in 2008. Therefore, Glaxo will aggressively seek to convert Imitrex patients to the newer Trexima upon approval. Pozen is eligible for a stepped-up royalty on Trexima worldwide sales. The company will receive a high single digit royalty (we assume 8%) on Trexima sales through 2009.

Starting in 2010, Pozen's royalty rate will increase to high-teens (we assume 17%). We estimate that Glaxo can convert 50-60% of the total branded Imitrex market in the U.S. within three years after the launch. This means that the timing of the launch will be very important given the potential for generic Imitrex. We expect Glaxo to price Trexima at a premium to Imitrex (currently priced about $15/pill) and begin to immediately push the drug as the next-generation superior option using the existing Imigran/Imitrex filed force.

On June 9, 2006 Pozen and development partner GlaxoSmithKline received an approvable letter from the U.S. Food and Drug Administration [FDA] on Trexima. The FDA has determined that Trexima is effective as an acute treatment for migraine headaches, but the agency has requested additional safety information on the drug. Pozen and Glaxo met with the FDA in July 2006 to discuss the approvable letter and determine the appropriate next steps to gain final approval. At the meeting Pozen presented additional safety data from phase IIIb trials conducted by Glaxo not previously submitted to the FDA.

Two additional in vitro non-clinical studies were also submitted to the FDA in a complete response letter filed on November 9, 2006. On December 13, 2006 the FDA responded to the November 9th filing with the request for additional information helping compare the newly submitted phase IIIb data with previously submitted phase III data in the original NDA. We believe the FDA is looking for an apples-to-apples comparison of the data, focusing on key demographic profiles such as sex and age to determine safety. Pozen and Glaxo responded to this request in early February 2007.

At this time, we do not expect Pozen and Glaxo to have to conduct additional clinical trial work. We believe the FDA concerns over Trexima stem from the possible gastrointestinal or cardiovascular risks of naproxen, or the potential effect of naproxen on sumatriptan pharmacologic profile and visa versa. The FDA is no doubt concerned with the cardiovascular risk of taking naproxen daily. In a post-Vioxx market, the FDA has become very stringent on the approval of potentially risky non-steroidal anti-inflammatory drugs [NSAID]. However, we would be surprised if the FDA made Pozen and Glaxo conduct a long-term (2-3 year) safety trial on Trexima given that naproxen has been well studied in previous trials compared to Cox-II inhibitors.

The cardiovascular risk is an issue, but we believe it is already well understood. The GI risk of naproxen has also been well studies in the past. Therefore, we believe the FDA is probably most concerned with the potential drug-drug interaction between naproxen and sumatriptan. We are hoping that the response in February 2007 was enough to allay any FDA concerns.

Our current model assumes a PDUFA in early August 2007. Approval of Trexima will result in a $20 million milestone payment from Glaxo to Pozen ($10 million for approval + $10 million for intent to commercialize). We now model the launch during the third quarter of 2007 with a modest $40 million in sales for the second half of the year. We see $575 million in Trexima sales in 2010. We estimate peak sales for Trexima are around $1 billion, about 75% of the Imitrex market.

Trexima Background Info:
On April 5, 2006, Pozen and GSK presented two new clinical studies at the 58th Annual Meeting of the American Academy of Neurology [AAN]. The results in migraine sufferers showed that a single tablet of Trexima containing sumatriptan 85mg and naproxen sodium 500mg provides superior results for patient satisfaction and workplace productivity compared to the acute treatment of migraine with either sumatriptan or naproxen sodium alone. In addition, a long-term safety study of 12 months showed that the single tablet was well-tolerated.

On September 20, 2006, at the 16th Migraine Trust International Symposium [MTIS] in London, Glaxo and Pozen were very active in presenting follow-up data on Trexima. One study demonstrated that the 85mg of sumatriptan found in Trexima had a similar peak blood levels to the 100mg of sumatriptan in Imitrex two hours after dosing, but the Trexima pill achieved the peak level an average of 53 minutes earlier. For migraine sufferers, the rate at which their migraine medications are absorbed into the blood stream may make a difference in how fast the medicines work. This is encouraging data in Trexima's favor.

Another study demonstrated that earlier use of Trexima resulted in lower symptoms and less potential for recurring attacks versus waiting until the pain is more severe. Migraine sufferers frequently cite lack of recurrence of migraine symptoms as one of the most desired attributes of an acute migraine treatment. Glaxo and Pozen will market for quick use of Trexima on the first signs of migraine pain. This should promote rapid uptake.

Finally, at MTIS, Glaxo and Pozen presented efficacy and safety data from a large study examining more than 4,200 migraine attacks in more than 1,100 patients taking Trexima. The data was encouraging with respect to relief of migraine pain and time to return to normal daily activities. The data also demonstrated good tolerability with low and mild adverse events.

Animal data suggests that current migraine treatments alone do not address all of the components of migraine progression. Specifically, triptans cannot block the central neuronal sensitization that results from stimulation of the main sensory nerve (trigeminal nerve). Triptans works by stimulating receptors called serotonin (or 5HT) receptors that are found in the brain. In this study, investigators found that naproxen was effective at suppressing central neuronal sensitization. Recent data also suggested that Trexima is superior to both Imitrex and naproxen with regard to sustaining pain-free relief on a two-hour scale. We believe this is because of the both immediate impact (the sumatriptan succinate component) and sustained relief benefit (the naproxen sodium component) of Trexima. Finally, Trexima kept patients vomit-free (a common side-effect of migraine headaches), while reducing the feelings of nausea. We have witnessed no major safety concerns during the phase III trial that would lead us to believe the FDA has serious issues with the drug.

AstraZeneca (AZN) Licenses PN:

In early August 2006 Pozen announced that it has signed an exclusive global collaboration agreement with AstraZeneca for the co-development and commercialization of proprietary fixed dose combinations of the proton pump inhibitor [PPI] esomeprazole magnesium (Nexium), with the non-steroidal anti-inflammatory drug [NSAID] naproxen, in a single tablet. Under the terms of the agreement, AstraZeneca has paid Pozen an upfront fee totaling $40 million, and has the potential to pay aggregate milestone payments of $160 million for certain development and regulatory milestones; and $175 million of potential sales performance milestones, if certain thresholds are achieved.

Royalties will be paid on net sales on a tiered royalty structure that ranges from mid-single digits to midteens. Pozen will be responsible for the development and filing of the New Drug Application [NDA] in the United States, while AstraZeneca will have full responsibility for development activities outside of the U.S. as well as all aspects of manufacturing, marketing, sales and distribution on a worldwide basis. AstraZeneca will also be responsible for all non-U.S. regulatory filings. We view the deal as extremely favorable for Pozen. The company s PPI partner in AstraZeneca is the industry leader, and Pozen has established itself as a credible mid-stage development company attractive to large-cap pharmaceutical companies seeking novel ideas.

PN Background Info:

The PN tablets are designed to provide immediate release of the PPI component in the stomach to enable local as well as systemic effects on the acid pumps that line the stomach lumen. The NSAID component contains a pH sensitive layer and is released only in an environment with decreased presence of acid. PN will be indicated for the management of pain and inflammation associated with conditions such as osteoarthritis and rheumatoid arthritis in patients who are at risk for developing NSAID-associated gastric ulcers.

Prior to the collaboration, Pozen was working on two PN candidates that combined PPI s with naproxen. PN-100 was tested with Prevacid (lansoprazole) and PN-200 with Prilosec (omeprazole). In short-term proof-of-concept studies conducted by Pozen, PN drug candidates produced significantly less gastric mucosal injury compared to a similar regimen of enteric coated naproxen.

On April 20, 2006, the company announced that it had reached agreement with the U.S. Food and Drug Administration [FDA] on a New Drug Application program for PN-200, which included a Special Protocol Assessment [SPA] for the pivotal phase III trials. Pozen and AstraZeneca have met with the FDA to confirm that the core development program and the SPA already agreed upon will apply to this new product which will combined Nexium (esomeprazole) and naproxen now called PN-400. In the mean time, Pozen has enrolled a pilot study with PN-200 to help better design the pivotal trials for the new Nexium-based PN product later this year. Enrollment in the PN-200 pilot study completed earlier in the year, far ahead of expectations. We believe this is a sign of potential strong demand for such a product. The primary outcome of the trial will be significant reduction in gastric ulcers. Pharmacokinetic and safety data will also be studied and applied to the next-generation PN-400 product.

Pozen is currently planning several phase I trials on PN-400 to test bioequivalence and food interaction. Pozen will also conduct a phase II dose-finding study around mid-year. Should these prove to be positive, a pivotal phase III program on PN-400 should begin in the third quarter of 2007. Pozen is expected to receive two developmental milestones either late 2007 or early 2008 totaling $20 million. The first will be based on the outcome of the phase III pilot study on PN-200, and the second will be based on the profile determined in phase I trials for PN-400. We currently model these payments in early 2008 to be conservative. We are very excited about the PN-400 product. We estimate that Pozen and AstraZeneca can seek to file in 2008 and potentially launch PN-400 in 2009. Potential peak sales of PN-400 are $500 million.

PA Background Info:

Pozen is now looking to branch out with proton-pump inhibitor products to include a PA aspirin product. The PA product candidate combines aspirin with a PPI for cardiovascular protection along with the potential reduction in the risk of colorectal cancer and adenomas. Adenomas are precursors of most colorectal cancers and prevention of adenomas will most likely also prevent colorectal cancer, as reported in the New England Journal of Medicine in March 2003. The PA product candidate is intended to provide fewer gastrointestinal side effects and complications compared to an NSAID or enteric coated aspirin taken alone. A successful PA product will combine all the benefits of daily low-dose aspirin (i.e. both cardiovascular and adenoma benefit) with lower gastrointestinal [GI] risk. In our view this safer aspirin is another potential blockbuster idea.

In March 2007 Pozen released data from a proof-of-concept program dubbed PA-385 that tested aspirin with omeprazole. The trial was a 28 day study that involved two groups of 40 subjects over the age of 50. Each subject was treated with either once a day commercially available enteric coated aspirin 325mg or PA-325. The primary endpoint was gastrointestinal damage as measured by the Lanza scoring system used in previous PN studies. The results were highly significant with 10% of the PA group having Lanza 3 or 4 gastrointestinal damage, whereas 57.5% of the enteric coated aspirin group had this level of gastrointestinal damage. Furthermore, no ulcers were seen in the PA group, while 20% of subjects in the enteric coated aspirin 325mg group developed a gastric ulcer during the study.

This is highly encouraging data and grounds for a potential phase II program to begin later this year. Pozen will seek to partner the PA program for phase III trials when necessary. We can think of numerous potential partners for this program, including AstraZeneca or Glaxo, as well as several other large pharmaceutical companies that are major players in either PPI or aspirin Johnson & Johnson, Wyeth, Abbott, etc... Pozen commented that the initial target indication for PA will be secondary prevention of heart attack or stroke. Prevention of angina or acute coronary syndrome, as well as for prevention of colon cancer are other potential enormous opportunities for PA.

Lornoxicam Background Info:

Pozen also exercised its option agreement regarding Lornoxicam, an NSAID which is available outside the U.S. Lornoxicam is a member of the oxicam family of NSAIDs and has been described as a highly potent balanced dual inhibitor of the human cyclooxygenase [COX] -1 and COX-2 enzymes. This balance may provide the benefits of reducing inflammation without causing excess cardiovascular risk.

In laboratory tests, lornoxicam has been shown to be up to 3000 times more potent that aspirin in tests measuring inhibition of COX enzymes and is up to 400 times more potent than ibuprofen in these assays. Pozen aims to enter into phase III studies with in the next year. Lornoxicam will be developed both as a single agent and in combination with other drugs, for the treatment of acute pain (post surgical) and severe migraine indications.

RECENT NEWS
March 7, 2007: Pozen Inc. reported financial results for the fourth quarter and full year 2006. For the fourth quarter of 2006, Pozen reported revenue of $7.0 million resulting from the amortization of upfront payments received pursuant to our collaboration agreements with AstraZeneca and GlaxoSmithKline and revenue from development work performed under those agreements, as compared to $22.2 million for the fourth quarter ended December 31, 2005. For the twelve months ended December 31, 2006, Pozen reported revenue of $13.5 million compared to $28.6 million for the same period in 2005.

Pozen reported a net loss of $0.4 million, or $0.01 per share on a diluted basis, for the fourth quarter of 2006, compared to net income of $16.1 million, or $0.54 per share on a diluted basis, for the fourth quarter of 2005. Pozen reported a net loss of $19.3 million, or $0.66 per share on a diluted basis, for the twelve month period ended December 31, 2006, compared to net income of $2.0 million, or $0.07 per share on a diluted basis, for the same period in 2005. At December 31, 2006, cash, cash equivalents and short-term investments totaled $62.6 million.

March 6, 2007: Pozen Inc. announced top-line results of its "Safer Aspirin" PA-325 proof-of-concept study conducted during the fourth quarter of 2006. PA 325 is a patented formulation of 325mg of aspirin surrounded by a 20mg coating of an immediate release formulation of a proton pump inhibitor. The PA-325, 28 day study, involved two groups of 40 subjects over the age of 50. Each subject was treated with either once a day commercially available enteric coated aspirin 325mg or PA-325.

The primary endpoint was gastrointestinal damage as measured by the Lanza scoring system used in our previous PN studies. The results were highly significant with 10 percent of the PA group having Lanza 3 or 4 gastrointestinal damage, whereas 57.5 percent of the enteric coated aspirin group had this level of gastrointestinal damage. Furthermore, no ulcers were seen in the PA group, while 20 percent of subjects in the enteric coated aspirin 325mg group developed a gastric ulcer during the study. This difference was also statistically significant. Source: Pozen, Inc.

VALUATION
Although the approval process for Trexima has been a rather tumultuous one, we believe that Pozen and Glaxo may now finally be in position for an approval in early August 2007. Glaxo has stated they are in position to launch Trexima shortly after approval. We model $40 million in sale in 2007. This should be a year ahead of generic Imitrex expected late 2008 plenty of time to solidify the market in our view. We believe that Glaxo can capture at least 50% of the Imitrex/Imigran market ($1,315 million in 2006) by 2010.

The signing of the PN licensing deal with AstraZeneca now seems to have taken investor focus away from previous mishaps with MT-100, MT-300, and Trexima. The upfront milestone payment of $40 million with the potential for an additional $335 million in milestones truly is a transformational deal for Pozen. Nexium-naproxen (PN-400) has the potential to be a multi-hundred million dollar product. Pozen now has two of the largest pharmaceutical companies in the world funding development of its internally developed candidates.

What's even more exciting is that Pozen has a potential blockbuster in early-stage trials with its Safer Aspirin PA product. Knowledge learned from the PN trials should help Pozen expedite PA development and potentially sign yet another lucrative collaboration, similar to the AstraZeneca deal, in 2008. By 2009, Pozen has the potential to have both Trexima and PN on the market. Pozen will collect royalties on both products with no manufacturing and little distribution or marketing costs. This has the potential to turn Pozen into a highly profitable company. We currently rate the shares Buy with a $22 price target. We arrive at this target by applying an industry average 25x our 2011 EPS of $2.56 (fully-taxed) and then discounting back to present at 20%.

RISKS
The biggest near-term risk would be the FDA delaying approval of Trexima. We model approval in early August 2007. Much of our 2007 financial statement is based around this event. Approval will trigger two $10 million milestone payments from Glaxo to Pozen, as well as royalties on sales expected to start shortly after approval. A delay by the FDA would require a significant revision of our model and potentially rating and target price. Another risk to the company would be failure of the PN-200 pilot study or failure in a few of the early-stage bioequivance or dose-ranging studies for PN-400. This would cause a delay in the initiation of the pivotal trial for PN-400 and our launch assumptions in 2009.

KEY POINTS
We are upgrading our rating on Pozen to Buy with a price target of $22 per share (was Hold, $20). Our upgrade is based on several recent positive events.

  • Firstly, we are pleased to see that Pozen and Glaxo have responded to the most recent FDA request on Trexima in early February 2007. The agency has pledged a six-month review and we now expect an action date in early August 2007. At that time we expect Trexima approval. This should be a significant catalyst for the shares Pozen is due a $20 million milestone on Trexima approval and launch ($10 million for each).
  • Secondly, Pozen and AstraZeneca have enrolled the pilot study for PN-200 (naproxen + omeprazole) significantly ahead of schedule. We believe that data from this trial will help the duo better design the pivotal phase III program on PN-400 (naproxen + esomeprazole) expected to commence in the third quarter of 2007. Throughout the year we look for positive data on PN-200 and early-stage trials on PN-400 to act as a catalyst for the shares.
  • Finally, in early March the company reported positive data from a proof-of-concept study on PA (omeprazole + aspirin) showing an impressive reduction in gastrointestinal damage with PA verse enteric coated aspirin. The trial also demonstrated that patients taking PA have no ulcers verse roughly 20% for enteric coated aspirin. This should form the basis for additional trials in 2007.
  • The several recently positive events listed above lead us to raise our price target from $20 to $22 per share (based on discounting forward earnings of $2.56 in 2011), all while the stock has declined 10% so far in 2007. We now recommend investors purchase Pozen given several potential positive catalysts and a low relative valuation.

    POZN 1-yr chart:

    Source: Pozen: On Track With New Pain Medications