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Pozen Inc. (POZN), a pharmaceutical company that focuses on developing products that treat chronic and acute pain and other pain-related conditions, is on the verge of a sharp recovery in its stock price. In my view, POZN combines a very attractive valuation at $10 with a superior risk return profile, given the impending FDA decision on Trexima and two robust drugs in the pipeline.

Investors bid down POZN stock more than 50% in the first week of August 2007 after FDA granted an "Approvable Letter" for the second time in place of an "Approval" in the Phase 3 trial of POZN's lead drug candidate Trexima. I believe that investors became over-pessimistic and missed the fact that FDA did not disapprove the drug but requested more safety data to calm its concerns surrounding the drug's genotoxicity effects.

POZN has partnered with Glaxo Smithkline (GSK), the British pharmaceutical major, to develop and market Trexima. GSK's blockbuster migraine drug Imitrex, which clocked $1.3 billion in 2006 sales, is the current leader in the $4.3 billion migraine drug market, but it loses patent protection in 2008. Both GSK and POZN are racing to get FDA approval for Trexima, as GSK seeks to switch consumers from Imitrex to Trexima before the aforesaid patent expires. I believe that FDA's concerns about Trexima's genotoxicity are unfounded. POZN's CEO has indicated that according to POZN's scientists the genotoxic finding is an anomaly not confirmed in three other tests in the same Phase 3 trial. More importantly, FDA did not refer to Trexima's cardiovascular safety in its second "Approval Letter", as it had in its first "Approvable Letter" issued in January 2007. Furthermore, on October 5, 2007, POZN stated it intends to submit additional safety data to FDA in the next 10 days to calm FDA's concerns. While the FDA can take as long as six months to review the newly submitted data, I expect that FDA will undertake an expedited review by December 2007, as requested by POZN.

Investors should also note the potential of POZN's another promising drug candidate, PN 400, that is developed in collaboration with AstraZeneca, a leading global pharmaceutical corporation. By combining AstraZeneca's leading gastro-intestinal drug, naproxen (the key ingredient in Nexium), PN 400 offers a more effective treatment option against osteo-arthiritis and rheumatoid arthritis with fewer debilitating gastro-intestinal side effects. In September 2007, based on positive results of the late stage PN 400 clinical trial, POZN announced plans to conduct a Phase 3 trial. At the same time, POZN also negotiated the total payout upward from $175 million to $345 million under the amended agreement with AstraZeneca. I view this renegotiation of terms as an endorsement of PN 400's potential

Another interesting dug candidate from POZN is PA 325, which is similar to the daily aspirin tablet, but without the accompanying gastro-intestinal effects. In March 2007, POZN announced positive results of PA 325's preliminary "proof of concept"trial. Because of its lower gastro-intestinal side effects, PA 325 has the potential to replace the daily aspirin pill used to reduce cardiovascular risks. Both PN 400 and PA 325 hold the potential to become big blockbuster drugs.

In spite of significant regulatory and competitive risks as well as inherent difficulty in valuing biotech stocks, I believe that POZN can jump to as high as $16-$18, or an upside of about 55%-70%, if FDA approves Trexima by December 2007. Investors should note that any delay by FDA to approve Trexima can severely impact my price target. Nevertheless, patient investors who hold POZN for the long-term will not regret investing in this stock.

Disclosure: Author has a long position in POZN

Source: Pozen, Inc. on the Verge of Recovery