On April 26, 2012, Pozen (NASDAQ:POZN) filed an 8K updating investors on the status of the planned New Drug Application (NDA) for its PA-325/40 product. As a reminder, PA-325/40 is Pozen's fixed-dose "safer aspirin" product comprised of 325 mg enteric-coated aspirin and 40 mg omeprazole. Pozen recently successfully completed two parallel phase 3 trials in 1,049 patients with PA-325/40 demonstrating a statistically significant reduction in the cumulative incidence of gastric ulcers following administration of PA-325/40 vs. 325 mg enteric-coated aspirin over six months. The phase 3 trial also demonstrated a reduction in gastroduodenal ulceration as well as a reduction in discontinuation due to upper gastrointestinal adverse events in favor of PA-325/40 compared to 325 mg enteric-coated aspirin.
Following the release of the top-line data from the phase 3 program, Pozen met with the U.S. FDA to discuss the planned NDA filing. At that meeting, the FDA suggested that Pozen also seek approval for a lower dose formulation of the product containing 81 mg of enteric-coated aspirin as part of its NDA for PA-325/40. The FDA further notified Pozen that absent the availability of such a lower dose formulation in the market, if PA-325/40 is approved, the label indication may be limited to use in post coronary artery bypass graft surgery (CABG) with a treatment duration not to exceed one year.
...Still A Big Market, But Not Nearly As Big...
Pozen has previously told investors it planned to seek an indication for the secondary prevention of cardiovascular disease in patients at risk for gastric ulcers. This is potential huge reduction in the eligible patient population for PA-325/40. Over 50 million American's use daily aspirin therapy. Of the 50+ million Americans that take daily aspirin therapy, as many as 50% are at risk for major complications due to gastric bleeding. Roughly 25% of the people that start a daily aspirin therapy will discontinue or reduce frequency or dose due to serious gastrointestinal side-effects. The same less-than-optimal use is found in stroke patients. This would be a target patient population of 15 to 20 million Americans.
According to the CDC's Health Data Interactive, there were approximately 415,000 CABG surgeries in the U.S. in 2009. There were another 605,000 ballon angioplasty of the coronary artery and 528,000 insertions of a coronary artery stent. The American Heart Association estimates approximately 1 million CABG procedures took place worldwide in 2011. Pozen is looking at one-tenth of the potential target market if the FDA approves PA-325/40 with this narrower indication.
...What's All The Fuss...
Pozen believes that the FDA is concerned that, without a formulation containing a lower dose of aspirin, physicians will not have a full range of dosing options available to prescribe in accordance with current cardiovascular treatment guidelines, which recommend doses of 81 mg or 162 mg of aspirin for most indications. Despite the AHA guidelines, approximately 21% of all patients taking daily 81 mg aspirin still develop gastric and duodenal Lanza 3 / 4 scores in as little as two weeks.
The company has generated clinical pharmacology data and chemical, manufacturing and controls (CMC) data for a product which contains 81 mg of enteric coated aspirin and 40 mg of omeprazole in a single tablet (PA-81/40). Management intends to file this existing data, together with additional CMC data to be generated and evidence from the scientific literature relating to the ulcerogenic risk of 81 mg of aspirin as part of its NDA for PA-325/40.
Pozen does not intend to conduct a phase 3 clinical trials for PA-81/40. Management anticipates that the data package submitted for PA-81/40 will be similar to that used to gain approval for a lower dosage formulation of Vimovo, a fixed-dose formulation of naproxen and esomeprazole, containing 375 mg of naproxen.
...A Slight Delay...
Pozen believes that generation of additional data with respect to PA-81/40 and incorporation of data into the NDA for PA-325/40 may delay submission of the NDA for approximately 6 months from the original planned submission date in the third quarter of 2012. Although, we caution investors that this is management "best guess" as of today.
Pozen is assessing what additional development activities with respect to PA-81/40 will be required and the costs thereof. As a reference, the phase 3 clinical trials with PA-325/40 began in November 2009 and offered top-line data in March 2012. We estimate the cost of the program was around $20 to $25 million. We think a phase 3 trial on PA-81/40 can be completed quicker than the 28 months for PA-325/40, as it would most likely not need to enroll over 1,000 patients in parallel form like PA-325/40. Costs would be significant less than the $20-25 million noted above.
The FDA will decide on the fate of PA-325/40 after Pozen files the NDA, now schedule for the first quarter 2013. We note this isn't the first curveball the FDA has thrown Pozen with respect to PA-325/40. Earlier in 2012, the FDA requested that Pozen perform an additional phase 1 study to assess the bioequivalence of PA-325/40 to enteric-coated aspirin 325 mg with respect to acetylsalicylic acid (ASA). Pozen has previously conducted such a study with repeat to salicylic acid (SA). In Pozen's recent annual report (Form 10K), the company notes the risk inherent in such study:
Enteric coated products such as PA-325/40 and aspirin 325 mg have highly variable pharmacokinetics. As a result, there is a risk that this Phase 1 study may not demonstrate bioequivalence. However, if successful, we believe that by demonstrating bioequivalence to a marketed aspirin product, our PA product will likely receive the appropriate cardio- and cerebrovascular secondary prevention claims of aspirin. We have initiated this additional Phase 1 study.
On October 3, 2011, Pozen retained Keelin Reeds LLC to assist in the strategic partner search for PA-325/40. Keelin Reeds is a global expert in helping life science companies value assets, develop business development strategies and execute partnership transactions. Pozen believes it has added substantial value to the asset by executing the critical NDA development and pre-commercialization phases around PA-325/40. Management intends to secure a relationship with one or more strategic partners in order to maximize the sales potential of the drug in both the U.S. and globally. The ideal strategic partner for Pozen is one who embraces the company's philosophy of affordable pricing and shares management's vision for the brand.
We sat down with management at Pozen (CEO John Plachetka & CFO Bill Hodges) on January 9, 2012. Mr. Plachetka reiterated his goal on signing a commercialization partnership for PA-325/40 this year. We previously believed that the deal would be superior to the Vimovo transaction with AstraZeneca that provided $40 million upfront, $45 million in approval milestones, and potentially $290 million in sales milestones plus roughly 10% royalties on sales. Now, we are unsure.
It is possible that Pozen can still close a deal for PA-325/40 later this year, but an asset that we previously viewed as very low risk - considering that both phase 3 programs were run under an SPA and the U.S. FDA has already approved Pozen's similar product in Vimovo - just got a lot riskier. There are essentially three outcomes after Pozen files the NDA:
1 - The FDA approves PA-325/40 and PA-81/40 with a full label for secondary prevention of cardiovascular disease in patients at risk for gastric ulcers.
2 - The FDA approves PA-325/40, only with a limited patient population of post coronary artery bypass graft surgery (CABG) with a treatment duration not to exceed one year.
3 - The FDA rejects PA-325/40 with a complete response letter asking Pozen to conduct a phase 3 trial with PA-81/40.
Considering the FDA approved a lower dose Vimovo without a phase 3 program, there is clear precedent for Outcome #1 above. However, we have not seen the additional clinical pharmacology and CMC data on PA-81/40 that Pozen plans to submit in the NDA. Prudence suggests we revise our valuation model on Pozen to narrow the launch indication to incorporate Outcome #2. We have previously written that we believe Pozen, pre a commercialization partnership on PA-325/40, is worth $7 per share. The stock traded briefly above $8 per share on April 26th, as investors clearly believe a partnership is near. Outcome #3, at this point, seems unlikely.
With this narrowed indication, we think Pozen's stock is worth around $6 per share. We believe Pozen can still close a deal on PA in 2012, but management will most likely have to give up some of the upfront payment in lieu of backend milestones contingent on sales levels and label expansion. Under this scenario, Pozen can still eclipse our $7 target, but we do not expect significant upside beyond this level until visibility improves.