Download E - Morgan Joseph

BIOTECHNOLOGY
M
Eugene Trogan, Ph.D.
212-218-3839
[email protected]
OR G AN
J OSEPH
Andrew Peters
212-218-3992
[email protected]
INITIATION OF COVERAGE
May 31, 2007
Pozen, Inc.
Key Metrics
POZN - NASDAQ (as of 5/30/07)
Price Target
52-Week Range
Shares Outstanding (mm)
Market Cap. ($mm)
3-Mo. Average Daily Volume
Institutional Ownership
Debt/Total Capital (3/07)
ROE (12/06)
Book Value/Share (3/07)
Price/Book Value
Dividend Yield
$15.81
$24.00
$5.26-18.25
29.47
$465.9
489,890
62.2%
NM
NM
$0.80
19.8X
NM
EQUITY RESEARCH
EPS FY 12/31
1Q
2Q
3Q
4Q
Year
P/E
2006A
($0.22)
($0.29)
($0.14)
($0.01)
($0.66)A
NM
Prior
2007E
Curr.
2007E
($0.07)A
($0.13)E
$0.45E
($0.20)E
$0.05E
NM
Prior
2008E
Curr.
2007E
Prior
2008E
Curr.
2008E
$0.08E
NM
Revenue ($mm)
2006A
1Q
2Q
3Q
4Q
Year
$2.24
$0.87
$3.42
$6.97
$13.5A
Prior
2007E
$7.66A
$7.50E
$26.50E
$9.11E
$50.8E
Curr.
2008E
$62.0E
Company Description: Pozen, Inc. is a specialty pharmaceutical
company focused primarily on combination products for treatment of
acute and chronic pain that improve on efficacy, safety, and/or patient
convenience relative to currently available medications. Lead candidate
Trexima (combination of Imitrex and naproxen) for migraine is being
developed as a potential follow-on therapy to GlaxoSmithKline’s
blockbuster migraine drug Imitrex. Pozen is also developing a protonpump inhibitor (Nexium) and naproxen combination product (PN400)
for chronic pain, expected to go into Phase III in 3Q07.
POZN – NASDAQ – BUY
Trexima for Migraine is Key Driver;
Partner GSK to Bring to Market in 3Q07
Following FDA Approval
Investment Highlights
ƒ We are initiating coverage of Pozen, Inc. with a Buy rating
and a $24.00 price target. Lead product candidate, Trexima, for
migraine treatment, has an expected PDUFA date of August 1st.
We believe that Pozen’s Trexima will be approved and, with
development partner GlaxoSmithKline (GSK - $52.72 – NYSE),
will be commercially successful, as it is poised to replace GSK’s
blockbuster Imitrex (which had $1.1bn in 2006 sales and 51% of
the migraine market) and dominate the migraine market.
ƒ Trexima represents a large market opportunity. Trexima is a
combination product of naproxen sodium (Aleve) and GSK’s
Imitrex. We believe that partner GSK will be able to aggressively
market Trexima since: (1) the drug has superior efficacy and
comparable safety to Imitrex; and (2) GSK will lose its patent
exclusivity on Imitrex in 4Q’08. We note that in switching
patients from 2X per day Wellbutrin SR to once per day
Wellbutrin XL, GSK achieved ~30% conversion in 3 months, and
an ~85% conversion by 12 months. We estimate that Pozen will
likely receive a $20mm milestone payment in 2H07 following the
commercial launch and an additional $80mm in sales milestones.
It will also collect a mid-single-digit royalty (we assume 5%)
through 2009 and a high-teen royalty rate (we assume 17%)
thereafter, which we estimate will translate into royalty payments
to the company of $2.6mm in 2007, $22.0mm in 2008, $27.8mm
in 2009, and $107.2mm in 2010.
ƒ Existing pipeline has significant value. Pozen is partnered
with AstraZeneca (AZN - $53.35 - NYSE) in a late-stage
program that combines a PPI with the NSAID naproxen, for
chronic pain. One such combination, PN400, is likely to have
comparable efficacy to other NSAIDs while reducing the
common GI side effects. We believe PN400 stands to capture a
significant share of the pent-up demand created by the market
withdrawal in 2004 of COX-2 inhibitors Vioxx and Bextra. Pozen
stands to receive $160mm in development and regulatory
milestones, $175mm if certain (undisclosed) sales milestones are
achieved, and a royalty ranging between mid-single-digits and the
mid-teens. We assume that PN400 will enter the market in 2010
and provide Pozen with estimated royalty revenue of $15.0mm
that year. Pozen also recently announced positive data for its
phase I PA325 “safer aspirin” program that couples a PPI with
aspirin.
The Disclosure section may be found on pages 27-28 of this report.
The Valuation section may be found on page 7 of this report.
Pozen, Inc.
May 31, 2007
Investment Thesis
We are initiating coverage of Pozen, Inc. with a Buy rating and $24.00 price target.
We believe that the key to Chapel Hill, North Carolina-based Pozen’s story is its lead
product candidate, Trexima, which is currently under FDA review for migraine treatment
with a decision (PDUFA) date of August 1st. We believe that Pozen’s Trexima will be
approved and, with development partner GlaxoSmithKline, will be commercially
successful, as we believe it is poised to replace GSK’s blockbuster Imitrex (which had
$1.1bn in 2006 sales and 51% of the migraine market) and dominate the migraine market.
Trexima is a combination product of naproxen sodium (Aleve) and GlaxoSmithKline’s
blockbuster drug sumatriptan (Imitrex) for treatment of migraines. We believe that
partner GSK will be able to effectively market Trexima since: (1) the drug has superior
efficacy and comparable safety to Imitrex; and (2) GSK will lose its patent exclusivity on
Imitrex in 4Q’08 and is therefore likely to aggressively market Trexima in order to
achieve maximal conversion prior to generic competition. We conservatively estimate a
30% conversion rate during the first 12 months, growing to 50% in the second year after
market launch (in 2003-2004, in switching patients Wellbutrin SR to Wellbutrin XL,
GSK achieved ~30% conversion in 3 months, and an ~85% conversion by 12 months).
Pozen will likely receive a $20mm milestone payment in 2H07 following the FDA’s
approval of, and GSK’s notice of, its intent to commercialize, as well as an additional
$80mm in sales milestones. Pozen will also collect a mid-single-digit royalty (we assume
5%) through 2009 and a high-teen royalty rate (we assume 17%) thereafter, which we
estimate will translate into royalty payments to the company of $2.6mm in 2007,
$22.0mm in 2008, $27.8mm in 2009, and $107.2mm in 2010.
In addition to Trexima, Pozen is partnered with AstraZeneca in a late-stage program that
combines a proton-pump inhibitor (PPI) with the non-steroidal anti-inflammatory drug
(NSAID) naproxen, for chronic pain. The program’s lead candidate, PN400
(incorporating AZN’s blockbuster Nexium [esomeprazole] and Aleve [naproxen]) is
likely to have comparable efficacy to other NSAIDS while reducing gastrointestinal side
effects (by 65% vs. naproxen alone), which occur in about 2% of the 60 million U.S.
patients who regularly use NSAIDs. In 3Q07, Pozen and AZN are expected to make a
key go/no-go decision towards PN400 Phase III development based on an interim data
review of an ongoing trial of a related candidate drug (PN200). We believe that PN400
stands to capture a significant share of the pent-up demand for safer, non-steroidal
analgesics as a result of the FDA market withdrawal in 2004 of COX-2 inhibitors Vioxx
and Bextra. Pozen has already received $40mm in upfront payments, and stands to
receive an additional $160mm in development and regulatory milestones, $175mm if
certain (undisclosed) sales milestones are achieved, and a royalty ranging between midsingle-digits and the mid-teens. We assume that PN400 will enter the market in 2010 and
estimate it will provide Pozen with royalty revenue of $15.0mm that year.
Incorporating a similar strategy to that employed in the Trexima and PN programs, the
company’s phase I PA325 “safer aspirin” program couples a PPI with aspirin for chronic
pain in order to reduce the GI-effects associated with chronic aspirin use for chronic pain.
This program remains unpartnered, however, Pozen does plan to partner it in the near
future. Our model does not include any milestones or royalty payments from this
program, thus potentially providing further upside to our estimates and $24 price target.
We derive our 12-month price target of $24.00 by applying a 22X P/E multiple to our
2010 fully-taxed EPS of $1.86 and discounting back two years at 30%. We believe that a
30% discount rate is appropriate given that a substantial portion of Pozen’s profits in
2010 are derived from Trexima, which has yet to be approved by the FDA. We base our
valuation on 2010 since it represents the first year in which both Trexima and PN400
should be on the market. Upside could come from achievement of sales-based milestones
for Trexima or PN400 in addition to a partnership announcement for the PA325 program.
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Pozen, Inc.
May 31, 2007
Investment Positives
Trexima Shouldn’t Give Us Headaches Into PDUFA
Pozen’s Trexima will likely replace GlaxoSmithKline’s $1.1bn Imitrex franchise.
Key to Pozen’s success is the commercialization of its lead product candidate, Trexima,
currently under FDA review with a decision (PDUFA) date of August 1st. A combination
product of naproxen sodium (Aleve) and GlaxoSmithKline’s blockbuster drug
sumatriptan (Imitrex), Trexima is poised to replace GSK’s blockbuster Imitrex, in our
view. We believe that Pozen’s Trexima, with development partner GSK, will be
commercially successful, if approved, as it leverages a key strength of the partner
company. If GSK promotes Trexima as a follow-on therapy to Imitrex, we believe it will
dominate the migraine treatment landscape much as Imitrex currently does. Imitrex
posted U.S. sales for full-year 2006 of $1.1bn, capturing about 51% of the entire $2.1bn
U.S. migraine market. Even though Imitrex is one of seven triptan-based migraine
therapies currently available, we attribute the majority of the Imitrex market share to the
well-known branding of Imitrex in the physician community, as well as to the powerful
sales and marketing muscle of GSK. Since Trexima has been shown to have superior
efficacy and comparable safety to Imitrex, we believe GSK should be able to quickly
convert its Imitrex franchise to Trexima. Furthermore, since GSK will lose its patent
exclusivity on Imitrex in 4Q’08, we believe GSK is likely to aggressively market
Trexima, once approved, to achieve the maximal Imitrex-to-Trexima conversion rate
during the 12-month period prior to the expected loss of Imitrex patent exclusivity, and
limit the loss of market share to Imitrex generics. We conservatively estimate a 30%
conversion during the first 12 months, growing to 50% in the second year after market
launch. As an analogy, while switching patients during 2003-2004 from its 2X per day
anti-depressant Wellbutrin SR to 1X per day Wellbutrin XL to stave off the effect of
generic competition on the SR product, GlaxoSmithKline achieved approximately a 30%
conversion in 3 months, and an 85% conversion by 12 months.
Pozen stands to receive significant milestone and royalty revenue from the Trexima
partnership with GlaxoSmithKline. Pozen has already received $60mm in milestone
payments under this agreement. In addition, it stands to receive an additional $20mm
milestone payment in 2H07 following the FDA’s expected approval of Trexima and
GlaxoSmithKline’s notification of its intent to commercialize. Pozen is also eligible to
receive $80mm in sales milestones as well as a mid-single-digit royalty (we assume 5%)
through 2009 and a high-teen royalty rate (we assume 17%) thereafter. Based on our
royalty and market penetration assumptions of the GlaxoSmithKline collaboration, we
estimate Pozen will receive royalty payments of $2.6mm in 2007, $22.0mm in 2008,
$27.8mm in 2009, and $107.2mm in 2010.
Recently published data from both pivotal phase III trials of Trexima show it to be a
more efficacious treatment of migraine compared to the current standard of care.
In early April of 2007, the full data from the two replicate, randomized, double-blind,
single attack, parallel-group studies conducted in almost 3,000 patients was published in
the Journal of the American Medical Association.1 In both Phase III studies, Trexima
was shown to be superior to Imitrex alone or naproxen alone in the evaluated primary
endpoint of sustained pain-free response (refer to Table 7 and page 13-14 for detailed
discussion of trial results). Ultimately, Trexima was shown to have favorable clinical
benefits compared to monotherapy, with either of the two components of Trexima
administered individually (Imitrex and naproxen), as well as placebo. In addition,
according to Pozen’s 10K filings, the June 2006 approvable letter reflected that the “FDA
had determined that Trexima is effective as an acute treatment for migraine headaches.”
1
Brandes, JL, Kudrow, D, Stark, SR, et al. Sumatriptan-Naproxen for Acute Treatment of
Migraine: A Randomized Trial. Journal of the American Medical Association. 2207; 297:14431454.
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Pozen, Inc.
May 31, 2007
Importantly, the side effect profile observed in the trials was no different than those
found in treatment with either monotherapy, and was shown to be safe and well tolerated.
Additional data from a 12-month open-label safety and tolerability study of Trexima have
supported the safety profile of the drug, as the adverse event profile for patients taking
Trexima did not differ from those expected for the individual components alone. Given
the competitive advantages of superior efficacy and comparable safety of Trexima
relative to Imitrex, we believe that Trexima, once approved, will serve as the new
treatment paradigm for migraine headaches.
The proven safety of Trexima’s component ingredients minimizes safety risks with
Trexima approval. Pozen’s lead development program, Trexima, is a unique
formulation of Imitrex and naproxen (Aleve), two already approved drugs that are widely
used to treat migraines. As such, we believe safety concerns for the drug are largely
mitigated relative to more traditional development programs, and because of this, we
believe Trexima is likely to be approved by August 1st. Although lingering concerns
exist for the drug after the multiple missteps Pozen has had in its regulatory development,
we believe the company has properly addressed the remaining safety concerns of the
FDA. Trexima has been shown to be both safe and efficacious in all clinical studies to
date, showing no materially different side effects compared to its individual components
taken separately. Additionally, a 12-month, multi-center, open label study of 600 patients
showed that Trexima was well-tolerated, with the type and frequency of reported AEs
being similar to those reported in long-term studies of Imitrex. We note that the safety of
long-term use of sumatriptan is well established, and although no large studies have been
published to assess the long-term use of naproxen, safety concerns of the drug are
relatively minor, as it has been available over-the-counter since 1994. In addition,
triptans (sumatriptan was first in its class) have been on the market since 1992, and now
there are six second-generation commercially available triptans as well (refer to Table 5
on page 11).
Trexima’s approvable letter, in our opinion, was based on the FDA requiring
greater clarity on acute coronary syndrome (ACS). We believe this risk is no greater
than that for already marketed triptans. We believe that the FDA had previously
requested additional safety primarily because 1 patient in the 12-month, open-label,
safety trial had ACS that was judged as potentially related to Trexima. The 47-year-old
woman had used oral Imitrex before enrolling in the study, had been enrolled in the study
for 7 months, and had treated multiple migraine attacks with Trexima. She experienced
chest discomfort and shortness of breath about 2 hours after taking the study drug. The
patient ended up undergoing a coronary angioplasty and was withdrawn from the study.
We believe that this patient should not have been enrolled to the study since she was
obese (35.7 BMI), had abnormally high cholesterol levels, had a family history of
coronary artery disease, and, on further evaluation via angiography, was found to have
coronary artery disease. We note that triptans are not recommended for patients who have
uncontrolled hypertension, ischemic heart disease, and/or are at risk of developing
coronary artery disease. We believe that the patient who had ACS should have been
excluded from the study based on her cardiovascular disease risk. In addition, even with
this one case of ACS (out of approximately 6,000 patients), we believe that Trexima’s
cardiovascular safety profile is no different from other marketed triptans. We note that for
Imitrex (2 out of 6,348 patients), Axert (almotriptan; 1 out of 3865), and Maxalt
(rizatriptan; 1 out of 3700), the number of reported ACS events reported in the label of
each drug is in-line with or greater than Trexima’s.
PN for Chronic Pain – Late-Stage Program Partnered
with AstraZeneca
In a Post-Vioxx/Bextra environment with safety risks of COX-2 inhibitors, the PN
program may provide for a much desired, safer NSAID alternative. We believe
Pozen is in a unique position among specialty pharmaceutical companies in that, along
with Trexima for migraines, it has an additional phase III program in what potentially
represents another billion-dollar indication. Pozen’s Phase III PN program for chronic
4
Pozen, Inc.
May 31, 2007
pain, combining a proton-pump inhibitor (PPI) with the non-steroidal anti-inflammatory
drug (NSAID) naproxen, is partnered with AstraZeneca and is expected to go into Phase
III in 3Q’07. The PN400 program aims to develop a safer treatment for chronic pain,
incorporating AZN’s blockbuster Nexium (esomeprazole) and naproxen. PN400 offers
the potential benefit of having comparable efficacy of other NSAIDS while reducing GI
side effects (e.g., nausea, vomiting, gastrointestinal bleeding, ulceration and/or
perforation of the stomach), which occur in about 2% of the 60 million U.S. patients who
regularly use NSAIDs.
Patients who use NSAIDs chronically are at a significantly higher risk of having
gastrointestinal complications (e.g., nausea, vomiting, gastric ulcers, bleeding, etc). For
example, approximately 107,000 patients are hospitalized annually for NSAID-related GI
complications and more than 16,500 NSAID-related deaths occur each year in arthritis
patients alone. The side effects with NSAIDs are so significant that newer medicines,
particularly the COX-2-selective class of pain medicines (NSAIDs target both COX-1
and COX-2) were developed. However, in 2004, the use of the COX-2-class of drugs,
was brought to the forefront due to data emerging suggesting an increased cardiovascular
risk, in particular with Merck’s (MRK - $52.71 – NYSE) Vioxx and Pfizer’s (PFE $27.41 – NYSE) Bextra, both of which were later removed from the market. The loss of
these very successful drugs resulted in a Y/Y revenue decline in 2005 of about $3bn from
the COX-2 class.
We believe that PN400, if approved, stands to capture a significant share of this void
given that PN400 is likely to provide much of the same safety and efficacy benefits as the
COX-2 inhibitor class. In two Phase II pilot studies, the combination of naproxen and one
of two forms of PPIs (lansoprazole or omeprazole) reduced the risk of gastrointestinal
damage by 65% compared to either naproxen alone or the separate co-prescription of an
equivalent dose of naproxen and a PPI. In addition, at least one recent study showed that
compared to Pfizer’s popular Celebrex ($1.58bn in 2006 U.S. sales), a naproxen + PPI
combination achieved a comparable reduction in stomach ulcers, with a lower rate of GI
discomfort (i.e., dyspepsia) observed vs. Celebrex (5.7% vs. 15%).2 Therefore, based on
these results and our channel checks, we believe that in patients with an increased risk of
NSAID-related ulceration and with concomitant cardiovascular disease, physicians may
chose to prescribe a combination of a non-selective NSAID and a PPI rather than a COX2 inhibitor for control of chronic pain.
Pozen’s PPI + Naproxen (PN) program with partner AstraZeneca has the potential
to bring significant milestone and royalty revenue, in our view. Pozen has already
received a $40mm upfront payment, and stands to receive an additional $160mm in
development and regulatory milestones, as well as an additional $175mm if certain
(undisclosed) sales milestones are achieved. In addition, Pozen will receive royalties
based on annual sales by AstraZeneca of PN400, with the royalty rate ranging between
mid-single-digits to the mid-teens depending on certain (undisclosed) sales thresholds.
We assume that PN400 will enter the market in 2010 and, based on a blended royalty rate
of 8%, we estimate will provide Pozen with royalty revenue of $15.0mm that year.
Pozen’s Business Model of Improving Formulations
of Successful Drugs and Partnering with Big Pharma
Removes Significant Regulatory & Marketing Risk
Pozen’s considerable pipeline is augmented by a smart and conservative
development strategy. The company almost exclusively develops follow-on therapies to
currently marketed treatments. As with both Trexima and the PN program, the company
identified deficiencies in the current treatment, (often the standard of care in the space)
and strategically developed a patent portfolio behind newer and improved medicines that
2
Lai KC. et al. Celecoxib compared with lansoprazole and naproxen to prevent
gastroinstestinal ulcer complications. Am. J. Med. 2005; 188:1271-1278.
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Pozen, Inc.
May 31, 2007
would allow the company to take advantage of the already-established market. This
strategy allows Pozen to keep development costs low, as their strategy is often to partner
the product early, and utilize accelerated FDA review processes to shorten development
timelines. Because the products used in Pozen’s proprietary combinations have already
been approved and well established in the market, the FDA (under a 505(b)2 application)
allows a shortened development timeline toward approval. The combination of relatively
low risk development and strong partners (often the makers of the products it hopes to
replace), makes Pozen’s development strategy potentially highly successful, as it is able
to keep costs low, and secure significant royalty streams for potentially blockbuster
products.
The company has approximately 35 employees, an exceptionally small number
considering it has two phase III clinical programs in multi-billion dollar indications.
They are able to achieve this through an outsourcing model, where only the most critical
components of their organizational structure are internal, with the remaining components
of drug development outsourced to third parties. In addition, given that Pozen will not
incur a COGS expense for either Trexima or PN400 (100% gross margins), even with
mid-single-digit royalty rates in the first three years (high-teen royalty rate thereafter)
after market launch several of Trexima, we estimate it will be highly profitable in 2010
with projected EPS of $1.86.
Although very early stage, Pozen’s remaining pipeline looks promising as well.
Incorporating a similar strategy to that employed in the Trexima and PN programs, the
company’s phase I PA325 “safer aspirin” program recently reported promising proof-ofconcept data. The drug is being developed as a replacement for the chronic use of aspirin
for both chronic pain as well as prophylactically against heart disease. Like the PN
program, it aims to couple the aspirin with a PPI, thereby reducing the GI-effects
associated with chronic use of aspirin. Although the company has not conducted
extensive trials with the compound, we believe previous experience with the PN program
is highly indicative for the potential outcome and likelihood of success for PA 325, and
we remain confident that its development will continue in the future. Our model does not
include any milestones or royalty payments from this program, which may provide for
further upside for our estimates and our price target of $24.00.
Investment Risks
If FDA grants Trexima anything but an outright approval by August, shares of
Pozen would likely see significant downside as the company is heavily dependent on
Trexima for future milestone/royalty payments to reach profitability. We believe
anything short of an outright approval into the August PDUFA date would be viewed by
the street as negative, and would be reflected in significant downturn (>50%) in stock
price. We remind investors that on the day of the announcement of the Trexima
approvable letter on June 9, 2006, Pozen’s shares closed 61% below the prior day’s close.
The company’s shares have rebounded back to $15, aided by GSK’s continued
commitment in the Trexima program as well as the AstraZeneca PN400 collaboration,
announced in August 2006.
Trexima’s migraine market penetration risk. One of the risks to Pozen is the similarity
in terms of effectiveness between Trexima and the individual components of the drug
taken together as separate tablets, as was done in the phase II trial. Physicians may not
accept a combination product that will most likely be priced at a premium to generic
alternatives if the efficacy of the premium product is not markedly superior to the much
cheaper generic components that can be taken separately. In addition, according to the
company’s 10K filings, GSK may reduce, but not eliminate, the royalty payment to
Pozen if generic competitors attain a pre-determined share of the market. These
concerns, however, are largely mitigated, in our view, by the strong branding that GSK
carries, as well as its marketing power, which will enable Trexima to be successful in the
marketplace even if similar generic alternatives are available. Additionally, we believe
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Pozen, Inc.
May 31, 2007
physicians generally prefer a combination therapy to two separate medicines from a
compliance perspective.
PN400 development and market risk. If the small, PN200 pilot study, that is being
used by Pozen, and its partner AstraZeneca, to make a go/no-go decision on the PN400
program, is not successful, the development will likely stop on the combination
naproxen/ Nexium tablet. The significant potential the program has on future revenue for
Pozen makes this outcome especially risky for the company, and is why the 3Q07 interim
review of the pilot study data is especially important. Furthermore, though we do not
believe it will be the case, the FDA may nevertheless view PN200 (omeprazole +
naproxen) sufficiently different from the PN400 (esomeprazole + naproxen) candidate
that Pozen is currently advancing and therefore may not extend the SPA which the
company already has for PN200 to the PN400 program. There is a risk that the
development timelines for the program may be significantly extended as a result,
especially if the FDA requires other PN400 studies in addition to those already planned.
In addition, though data to date suggest otherwise, the drug may not provide a sufficient
benefit advantage over physicians’ preference to separately titrate and combine a PPI and
naproxen doses or to separately prescribe generic combinations. For example, TAP
Pharmaceuticals (private) currently markets a combination package, branded as
PREVACID NapraPac containing the two individual drug products, the PPI PREVACID
(lansoprazole) and the NSAID Naprosyn (naproxen). We also note that the Pozen’s
agreement with AstraZeneca provides for certain reductions to the PN400 royalty rate
based on loss of market share due to generic competition.
Pozen’s product development is heavily reliant on partners. Pozen is dependent on its
partnerships with GlaxoSmithKline and AstraZeneca for the development of Trexima and
PN400, respectively. There is a risk that these partners may terminate their collaborative
agreements with Pozen if their priorities shift, or if they determine that the agreements no
longer provide for favorable economics, or for no reason at all. Both GlaxoSmithKline
and AstraZeneca have the right to terminate their agreements if certain delays occur or if
specified development and regulatory milestones are not met or upon 90 days’ notice for
any reason.
Valuation
We are initiating coverage on Pozen with a Buy rating and a 12-month price target of
$24.00. Our price target is derived by applying a 22X multiple to our 2010 fully-taxed
EPS estimate of $1.86 and discounting back at 30%. We believe that 2010 is an
appropriate year upon which to base our valuation since it is the first year that we
estimate both Trexima and PN400 will be on the market. We believe that a 30% discount
is warranted given that Trexima, as well as PN400, have yet to be approved. Upside
could come from better-than-expected sales of Trexima, or PN400, or from milestone
payments from PN400 and PA325, both of which are not included in our model.
Market Model Assumptions
Trexima
Pozen has already received $60mm in milestone payments under the terms of its
collaborative agreement with GlaxoSmithKline. In addition, it stands to receive an
additional $20mm milestone payment in 2H07 following FDA’s approval of Trexima and
GlaxoSmithKline’s notification of its intent to commercialize. Pozen is also eligible to
receive $80mm in sales milestones as well as a mid-single-digit royalty (we assume 5%)
through 2009 and a high-teen royalty rate (we assume 17%) thereafter.
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Pozen, Inc.
May 31, 2007
Table 1: Pozen/GSK Trexima-related Milestones
Milestones
Amount
Status
Upfront milestone payment
$25 million
June 2003
Initiate Phase III Trexima program
$15 million
May 2004
Acceptance of NDA
$20 million
October 2005
NDA approval
$10 million
Est. 3Q07
GSK notification of "intent to market"
$10 million
Est. 3Q07
Sales performance milestones based on achievement of
certain sales threshold
$80 million
Pending
Source: Company reports
We project Trexima will receive approval from the FDA by August 1, 2007 and for the
drug to be launched in 3Q07. We model a 3% yearly growth in the overall migraine
market, which currently is at $2.1bn. We conservatively model that GlaxoSmithKline
will achieve peak 24% market share with Trexima by 50% conversion of its Imitrex sales
to Trexima within the first two years after launch. As an analogy, in switching patients in
2003-2004 from its 2X per day anti-depressant Wellbutrin SR to 1X per day Wellbutrin
XL to stave off the effect of generic competition on the SR product, GlaxoSmithKline
achieved approximately a 30% conversion in three months, and an 85% conversion by 12
months.
Assuming similar pricing for Trexima as Imitrex, this translates to Trexima sales for
2007-2010 of $52.1mm, $439.1mm, $556.7mm, and $630.8mm. We note that Pozen has
no COGS expense related to Trexima since, per the collaboration agreement,
GlaxoSmithKline is solely responsible for manufacturing. Based on our royalty and
market penetration assumptions of the GlaxoSmithKline collaboration, we estimate
Pozen will receive royalty payments of $2.6mm in 2007, $22.0mm in 2008, $27.8mm in
2009, and $107.2mm in 2010.
Table 2: Trexima Revenue Model (2006 – 2010)
Pozen, Inc (POZN-NASDAQ)
Trexima Revenue Model (2007 - 2012)
$ in thousands
Migraine Market
Imitrex Base Sales
Imitrex to Trexima Conversion Rate
Trexima Sales
% of Migraine Market
2006A
$2,100,000
$1,019,000
0%
$0
Q107A
Q207E
Q307E
Q407E
$267,000
0%
$0
$260,857
0%
$0
$260,857
0%
$0
$260,857
20%
$52,171
Royalty Rate
Trexima Royalty
5%
$2,609
2007E
$2,163,000
$1,049,570
5%
52,171
2.4%
2008E
$2,227,890
$1,081,057
41%
$439,090
19.7%
2009E
$2,294,727
$1,113,489
50%
$556,744
24.3%
2010E
$2,363,569
$1,146,893
55%
$630,791
26.7%
5%
$2,609
5%
21,954
5%
27,837
17%
107,235
Source: Morgan Joseph & Co, Inc. estimates
PN400
Pozen entered into a collaborative and license agreement with AstraZeneca for PN400 in
August 2006 granting AstraZeneca an exclusive, worldwide fee-bearing license, except
for Japan. AstraZeneca may elect to include Japan in the licensed territory at no
additional cost within 2 years after the effective date of the agreement. Pozen has already
received a $40mm upfront payment, and stands to receive an additional $160mm in
development and regulatory milestones, as well as an additional $175mm if certain
(undisclosed) sales milestones are achieved. In addition, Pozen will receive royalty based
on annual sales by AstraZeneca of PN400, with the royalty rate ranging between midsingle-digits to the mid-teens depending on certain (undisclosed) sales thresholds. In our
estimates, we assume a blended royalty rate of 8%.
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Pozen, Inc.
May 31, 2007
Table 3: Pozen/AZN PN400-related Milestones
Milestones
Amount
Status
Upfront milestone payment
$40 million
August 2006
Development & regulatory milestones
$160 million
Pending
Sales performance milestones based on achievement of
certain sales threshold
$175 million
Pending
Source: Company reports
Upcoming Events and Milestones
Pozen has several important catalysts over the next 12 months, the most important of
which is Trexima’s FDA decision (PDUFA) date of August 1, 2007. The company’s lead
product, developed jointly with GSK, is a major value driver for the stock, and we
believe that if Trexima is approved in August, POZN’s share price should increase at
least by 40% from present levels. Assuming Trexima approval in 3Q07, we expect GSK
to launch the drug during the same quarter. In addition to the Trexima PDUFA, the
company’s other late-stage program has a critical go or no-go decision for PN400 that it
expects to make in 3Q07 based on an interim review of data from the phase II/III pilot
PN200 study. Advancement of PN400 into Phase III will be a key indicator of the
potential of the PPI/NSAID combination approach, and a clear indicator that pilot study
PN200-301 showed a good safety profile and clear signal of efficacy, however, we note
that a Phase III trial would not be required to show efficacy in pain, as the primary
endpoint will be a measure of reduction in ulcers with the combination product vs.
naproxen alone. The PA “safer aspirin” program is likely to progress further based on the
promising results of the recently reported Phase I pilot study. We expect for the
development plan for PA325 to be better defined and for Pozen to initiate a Phase II trial
in 4Q07 or early 1Q08. In addition, a potential partnership for this program remains on
the horizon, and the likelihood of more favorable deal terms will only be increased with
the approval of Trexima, which would serve to validate Pozen’s PPI combination strategy
for creating better tolerated and patient adhered therapeutics.
Table 4: Upcoming Events and Milestones
Event
Trexima PDUFA Date
Date
August 1, 2007
PN 200 Pilot Trial Interim Analysis
2Q07
Initiate PN400 Phase 3 trial
3Q07
Potential US launch of Trexima by partner GlaxoSmithKline
3Q07
PN 200 data from completed 6-mos study
4Q07
Initiation PA325 Safer Aspirin Trial
4Q07/1Q08
Potential PA325 partnership
2007/2008
Source: Company reports and Morgan Joseph & Co, Inc. research
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Pozen, Inc.
May 31, 2007
Company Background
Pozen, Inc, based in Chapel Hill, North Carolina, is a specialty pharmaceutical company
focused primarily on combination products for the treatment of acute and chronic pain
and other pain-related conditions. The company is dedicated to developing drugs that
improve the efficacy, safety, and/or patient convenience relative to currently available
medications.
The company’s lead product candidate for treatment of migraines, Trexima, is under
FDA review with an FDA decision (PDUFA) date of August 1, 2007. Trexima is being
developed in collaboration with GSK as a follow-on therapy for GSK’s blockbuster
Imitrex. Trexima is based on Pozen’s MT technology platform, which is focused on
combining the non-steroidal anti-inflammatory drug (NSAID) naproxen with other
approved compounds to provide safer or more efficacious alternatives than either
component alone. Trexima is a single combination tablet of 500mg naproxen and 85mg
sumatriptan (Imitrex), formulated with GSK’s proprietary RT formulation technology.
RT technology, currently used for Imitrex, is GSK’s proprietary method to enhance the
gastric dissolution and dispersion of oral tablets. In addition, the two components of
Trexima target two separate pathways thought to be involved in migraines, namely
vasodilation (targeted by sumatriptan) and inflammation (targeted by naproxen).
In addition to Trexima, Pozen also has several other development programs that leverage
the strengths of the company’s capabilities. Pozen, along with its development partner
AstraZeneca AB is developing a product that is a combination of an NSAID and a proton
pump acid inhibitor (PPI) intended to provide management of pain and inflammation in
patients with osteoarthritis, rheumatoid arthritis, and ankylosing spondylitis, who are at
risk of developing NSAID-associated ulcers. The PN program, as the platform is named,
has several product candidates, with PN400 expected to go into phase III trials in 3Q07.
Based on our review of early proof-of concept and Phase II studies, we believe the PN
program shows great promise given its comparable efficacy to other NSAIDs and its
significantly reduced GI side effects. Earlier stage product development programs include
the development of a “safer aspirin” (the PA program), as well as a new combination
product containing lornoxicam, to treat pain or other pain-related indications.
Migraine Program
Migraine – Disease Background
Trexima, the company’s lead product candidate, is partnered with GSK and is being
developed for the treatment of migraines. Migraines are characterized by chronic,
recurring headaches lasting between 4 to 72 hours (untreated), which can also be
accompanied by visual, auditory, and gastrointestinal disturbances such as nausea and
vomiting. Approximately 28 million people in the US are affected by migraines. The
incidence of migraines in the U.S. is approximately 6.5% of men and approximately
18.2% of women3. Of recurrent migraine sufferers, most patients (62%) suffer at least
one attack per month, 37% have one to three attacks per month, and 11% of these
recurrent migraine sufferers have at least one attack per week. Additionally, it is
estimated that migraines are among the four conditions that cause the highest levels of
individual disability (the other three being acute psychosis, dementia, and quadriplegia).
This high prevalence and the marked impairment of the patients' quality of life culminate
in a major societal burden with high healthcare costs as well as indirect costs such as
unemployment and loss of work productivity. Indirect and direct costs related to loss of
productivity as a result of migraines have been estimated at approximately $13bn per
year, according to one study.4
3
American Migraine Study II, 1999
Hu, HM, et al., Burden of Migraine in the United States: Disability and Economic
Costs. Archives of Internal Medicine. 1999; 159:813-818.
4
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Pozen, Inc.
May 31, 2007
Migraine – Current Treatment Options
While a large number of people suffer from the disease, relatively few effective treatment
options exist for many patients. It is believed that only 41% of migraine sufferers
(diagnosed) receive prescription medication for the migraine attacks, while the remaining
patients (59%) use widely available over-the-counter (OTC) medications to control their
symptoms, or no medications at all.
Current acute therapy for migraines includes simple (e.g., acetaminophen) and compound
analgesics (e.g., acetaminophen, aspirin, and caffeine; acetaminophen with codeine), nonsteroidal anti-inflammatory drugs (NSAID—e.g., naproxen, ibuprofen), migraine-specific
therapies such as ergots (ergotamine and dihydroergotamine [DHE]) and triptans
(serotonin [5-HT] 1B and 1D, 5-HT1B/1D agonist), and adjuvant therapies such as
metoclopramide for gastrointestinal disturbances. Over-the-counter non-specific therapies
are well suited for a low-severity migraine, but patients with more disabling attacks are
better served with migraine-specific agents.
Triptans
Triptans are considerably more effective in treating migraine attacks than standard
NSAIDs. GlaxoSmithKline’s Imitrex (sumatriptan), approved in 1992, was the first drug
specifically indicated and developed to treat migraines. The drug is a serotonin 5HT-1
receptor agonist, and by constricting blood vessels and nerves in the brain, it serves to
block the pain stimuli that characterize migraine attacks. Imitrex is available as an oral,
nasal, and injectable formulation. The injected form of the drug works the fastest, and is
effective in most migraine attacks, but the pain and inconvenience, combined with a
general patient reluctance to use injectable products, limits its use in the migraine
population. While GSK’s Imitrex is the clear market leader, with 50% of sales in the
overall migraine market, a number of 2nd-generation triptans have been developed since
the introduction of Imitrex. Drugs such as Maxalt (rizatriptan), Amerge (naratriptan),
Zomig (zolmitriptan), Axert (almotriptan), Frova (frovatriptan), and Relpax (eletriptan)
all have similar efficacy and side effect profiles compared to Imitrex, but GSK has been
able to retain significant market share due to name recognition, and a slightly superior
pharmacokinetic / pharmacodynamic profile (see Table 5). As a class, long-term triptan
use has been associated with the occurrence of cardiovascular related events, including
chest pain/discomfort, throat discomfort and warm/cold sensations. Due to triptans’
vasoconstrictive properties, their use is contraindicated in patients with coronary artery
disease or uncontrolled hypertension.
Triptan sales in the U.S. in 2006 were approximately $2.1bn, with GSK’s Imitrex
capturing $1.1bn or about 50% of the market share.
Table 5: Marketed Triptans and 2006 IMS sales
Generic name
Almotriptan
Eletriptan
Frovatriptan
Naratriptan
Rizatriptan
Sumatriptan
Zolmitriptan
Brand name
Axert
Relpax
Frova
Amerge
Maxalt
Imitrex
Zomig
Company
Johnson & Johnson
Pfizer
Vernalis/Endo Pharma
Glaxosmithkline
Merck
GlaxoSmithKline
AstraZeneca
2006 IMS sales ($mm)
$64
$213
$53
$5
$324
$1,100
$213
Source: Company reports and IMS
Trexima (MT 400)
Pozen and its development partner, GSK, are developing Trexima to be the nextgeneration treatment for migraines. In October 2006, GSK and the Indian generic drugmaker, Dr. Reddy’s Laboratories (RDY - $16.21 – NYSE), settled a Paragraph IV
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Pozen, Inc.
May 31, 2007
dispute over generic Imitrex, permitting Dr. Reddy’s to enter the market with a generic
Imitrex no earlier than 4Q08. If approved by the August 1, 2007, PDUFA date, we
believe that GSK will have a very strong incentive to convert the current Imitrex
franchise to Trexima during the 15-month period prior to generic market entry.
In June 2003, Pozen signed an agreement with GSK for the development and
commercialization of proprietary combinations of a triptan and a long-acting NSAID.
Under the signed joint development agreement, GSK has exclusive rights in the U.S. to
commercialize all combinations that combine GSK’s triptans, including Imitrex and
Amerge with a long-acting NSAID. Pozen is responsible for the development of the first
combination product, while GSK would be responsible for formulation development,
manufacturing, and commercialization for the drug. Trexima is the proposed brand name
for the combination of 85 mg Imitrex (sumatriptan succinate) and 500 mg of the NSAID
naproxen sodium in a single tablet, formulated with GSK’s RT Technology.
Although GSK is positioning Trexima to replace its widely prescribed Imitrex franchise,
it is more than a follow-on product, as clinical studies have consistently shown it superior
to the current “Gold-standard” Imitrex. Trexima targets two separate pathways thought to
be associated with migraines. The triptan alters the constriction of the blood vessels,
which correlates to the relief of migraine pain, whereas the NSAID inhibits the enzyme
responsible for the production of prostaglandins, which are the mediators of pain and
inflammation, thereby enhancing the speed, effectiveness and duration of migraine
symptom relief. The combination of both drugs gives an enhanced delivery and efficacy
profile compared to currently available migraine medications, including the current gold
standard, GSK’s Imitrex. The tablet is formulated so that it provides a faster onset of
pain relief, has longer duration of action, and fewer recurrences of headaches, while at
the same time maintaining a similar safety profile to Imitrex.
Two Phase III trials (MT400-301 and -302) run by Pozen and GSK have positively
differentiated Trexima from Imitrex. Pozen was able to show superiority over the current
standard of care in virtually all 2- and 4-hour efficacy endpoints, as well as for longer
periods up to 24-hours. To support an NDA for Trexima, Pozen has conducted five
phase I trials, a Phase II trial, two pivotal phase III trials, and one 12-month, open-label
safety trial. Below, we review the key findings of the Phase II and the two Phase III trials.
MT 400 – Phase II
In 2001, the company completed a 972-patient, phase II double-blind, placebo-controlled,
single-dose clinical trial, where an early incarnation of Trexima showed a statistically
significant superiority over placebo and its components. The four-arm study randomized
patients to receive one of four treatments: (1) 50 mg sumatriptan capsule and 500 mg
naproxen tablet; (2) 50 mg sumatriptan capsule and a placebo tablet; (3) a placebo
capsule and a 500 mg naproxen tablet; or (4) a placebo capsule and a placebo tablet.
Patients were instructed to take the study medication following the onset of a moderateto-severe migraine. The primary measure in the trial was sustained pain relief over 24
hours. In the sumatriptan plus naproxen sodium group, 46% of subjects achieved 24hour pain relief response (primary endpoint), which was significantly more effective than
sumatriptan alone (29%), naproxen sodium alone (25%), or placebo (17%) (P < .001). Twohour headache response also significantly favored the sumatriptan plus naproxen combination
therapy (65%) versus sumatriptan (49%), naproxen sodium (46%), or placebo (27%) (P <
.001). A similar pattern of between-group differences was observed for 2-hour pain-free
response and sustained pain-free response (P < .001). The incidence of headache recurrence
up to 24 hours after treatment was lowest in the sumatriptan plus naproxen sodium group
(29%) versus sumatriptan alone (41%; P = .048), versus naproxen sodium alone (47%; P =
.0035), and versus placebo (38%; P = .08). The incidences of the associated symptoms of
migraine were significantly lower at 2 hours following sumatriptan 50 mg plus naproxen
sodium 500 mg treatment versus placebo (P < .001). Importantly, the frequencies and types of
adverse events reported did not differ between treatment groups.
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Pozen, Inc.
May 31, 2007
Table 6: Results of Phase II MT 400 Trial
Sumatriptan 50mg +
Naproxen Sodium 500mg
N=250
Pain response (%)
0.5 hr
1 hr
2 hrs
4 hrs
Pain-Free (%)
0.5 hr
1 hr
2 hrs
4 hrs
Additional Endpoints
24-Hr Sustained Pain Response
24-Hr Sustained Pain-Free
Headache Recurrence
Rescue Medication use (2-24 Hrs)
Adverse Event Rate
Sumatriptan 50mg
N=226
Naproxen Sodium
500mg
N=248
Placebo
N=241
5%
29%
65%
74%
8%
23%
49%
56%
8%
27%
46%
48%
3%
12%
27%
29%
1%
8%
34%
54%
0%
4%
20%
35%
0%
3%
18%
27%
0%
1%
6%
14%
46%
25%
29%
35%
23%
29%
11%
41%
51%
24%
25%
12%
47%
52%
17%
17%
5%
38%
64%
15%
Source: Smith et al. Sumatriptan and Naproxen Sodium for the Acute Treatment of
Migraine 2005. Headache 45: 983-991.
This trial, in addition to previous phase I clinical work, prompted the company to
complete a 505(b) (2) application, under which the FDA allows a reduced development
program. After the acceptance by the FDA of this application, Pozen then began
developing MT 400 specifically with sumatriptan, and eventually landing upon the
current Trexima formulation after considerable phase I pK/pD testing. The reduced
clinical development under the 502(b) allowed the company to begin its two pivotal
phase III trials once the appropriate formulation for the combination product had been
selected, and a partnership established with GSK, which markets sumatriptan (Imitrex).
MT 400-301 – First Pivotal Trexima Trial
The first pivotal trial of Trexima for the acute treatment of migraine, which commenced
in 2H04, was a double-blind, four parallel group at-home study of 1,875 screened patients
(1,677 randomized); with each group containing approximately 434 patients. Patients
were approximately equally randomized to the following four arms: (1) Trexima
(sumatriptan and naproxen sodium); (2) sumatriptan only; (3) naproxen sodium only; and
(4) placebo. The Trexima formulation evaluated was the current formulation of 85mg
sumatriptan combined with 500mg of naproxen as a single tablet using GSK’s RT release
technology.
The trial was conducted at 118 U.S. study sites, with patients instructed to treat the attack
when pain intensity was moderate to severe, as judged by the individual patient using a 4point pain scale. The primary objective of the study was to determine whether the
combination of sumatriptan and naproxen is efficacious vs. placebo, as assessed by
headache relief, sensitivity to light (photophobia), sound (phonophobia), and nausea 2
hours after dosing. The study was also designed to compare the efficacy of sumatriptannaproxen combination with each monotherapy, using sustained pain-free response as the
outcome measure. The first four endpoints (percent of patients with headache relief 2hours after dosing, absence of photophobia, absence of phonophobia, and absence of
nausea) were all compared against placebo, while the remaining two endpoints, designed
to meet the FDA’s “combination drug rule” consisted of a comparison of Trexima to each
individual component (sumatriptan or naproxen) on the 24-hour sustained pain-free
response criteria.
Trexima (23%) showed superiority to sumatriptan (14%; P<0.001) and naproxen (10%;
P<.001) alone, and to placebo (7%; P<0.001) for sustained-pain free response. In
addition, Trexima was superior to placebo at 2 hours for pain, photophobia, and
phonophobia, P<0.001, and nausea (P=0.007). There were no statistically significant
differences on nausea at 2 hours between Trexima and any of the comparator groups,
though Trexima did show superiority to placebo (48% vs. 28%) at least 3 hours which
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Pozen, Inc.
May 31, 2007
was sustained to 24 hours. The lack of significance on the nausea-free at 2 hours endpoint
may be related to baseline imbalances in incidences in nausea, since there was a greater
percentage of patients in the Trexima arm whose migraines were characterized with
nausea (56%) compared with any of the active control (48% for both sumatriptan or
naproxen) and placebo (49%).
MT 400-302 – Second Pivotal Trial of Trexima
The second Trexima pivotal phase III trial was, for the most part, a replica of the MT
400-301 study, having the same primary and secondary endpoints as the prior study.
The trial showed statistically significant improvement in each of the first four primary
endpoints, with 65% of patients having pain relief at 2-hours in the Trexima arm,
compared to just 28% for placebo (p-value less than 0.001). The other primary
endpoints, including nausea-free at 2 hours, comparing Trexima to placebo were also met
with a high degree of statistical significance (P< 0.001). Compared to monotherapy, the
incidence of pain-free response was 25% for Trexima, compared to 16%, 10%, and 8%
for sumatriptan, naproxen, and placebo, respectively (P<0.001).
Table 7: MT 400-301 and MT 400-302 Pivotal Trial Data
Primary Endpoints
Number of Patients
Headache Relief at 2-Hrs
Absense of Nausea at 2-Hrs
Absense of Photophobia at 2-Hrs
Absense of Phonophobia at 2-Hrs
Sustained Pain-free Response
Secondary Endpoints
Pain-free at 2-Hrs
Headache Relief at 4-Hrs
Absense of Nausea at 4-Hrs
Absense of Photophobia at 4-Hrs
Absense of Phonophobia at 4-Hrs
Sustained Headache Relief
Sustained Absense of Nausea
Sustained Absense of Photophobia
Sustained Absense of Phonophobia
Any Vomiting to 24-Hrs Post Dose
Use of Rescue Medication
MT 400-301
362
Trexima
a,b
57%
65%
a
50%
a
56%
a,b,c
23%
a,b
30%
a,b
72%
a
73%
a,b
50%
a,b
56%
a,b
44%
a
48%
a,b
37%
a,b
41%
a,b
4%
a,b
23%
362
364
Sumatriptan Naproxen
50%
43%
64%
68%
46%
41%
52%
44%
14%
10%
23%
61%
69%
46%
52%
33%
44%
30%
33%
9%
38%
16%
54%
68%
41%
44%
28%
41%
27%
29%
5%
29%
MT 400-302
382
Placebo
29%
64%
32%
34%
7%
10%
37%
56%
32%
34%
17%
28%
16%
18%
11%
58%
364
361
Trexima Sumatriptan
a,b
65%
55%
a
71%
66%
a,b
58%
48%
a,b
61%
50%
a,b,c
25%
16%
a,b
34%
a,b
78%
a,b
81%
a,b
74%
a,b
75%
a,b
48%
a,b
56%
a,b
46%
a,b
49%
a
4%
a,b
22%
25%
66%
71%
61%
63%
35%
44%
35%
36%
7%
32%
356
Naproxen
44%
70%
47%
51%
10%
360
Placebo
28%
64%
36%
38%
8%
15%
55%
67%
57%
60%
30%
44%
31%
36%
5%
38%
9%
37%
55%
38%
41%
18%
33%
21%
21%
10%
53%
Note: (a) statist. significant vs. placebo, (b) statist. significant vs. sumatriptan, (c) statist. significant vs. naproxen sodium
**Note: All primary endpoints except "Sustained Pain-free Response" require statistical significance against placebo; the last primary endpoint requires
significance against monotherapy components of Trexima
Source: Brandes et al. Sumatriptan-Naproxen for Acute Treatment of Migraine: A Randomized
Trial. JAMA 2007: 297 (13) 1443-1454
In summary, in both trials, Trexima showed superiority compared with sumatriptan or
naproxen in sustained pain-free response, the endpoint we believe is most important for
approval. In addition, with the exception of 2 hr nausea-free in the -301 study, Trexima
met all other primary and secondary endpoints compared to placebo. We do not regard
the miss on the 2-hr nausea-free endpoint in the -301 study as concerning since (1) there
was an imbalance in group baseline characteristics, with the placebo group having lower
rates of nausea than the Trexima group; (2) sumatriptan also did not show a change in
this endpoint vs. placebo; (3) Trexima did show a significant reduction in nausea at 4 and
24 hrs vs. placebo in both trials; (4) Trexima achieved significant nausea reduction (at 2
hours) in the second (MT 400-302) trial (P=0.007); and (5) in the June 9, 2006 FDA
approvable letter, the FDA acknowledged that Trexima is effective as an acute treatment
of migraine headaches.
Trexima was generally safe and well tolerated. There were no statistically significant
differences between Trexima and sumatriptan monotherapy (Imitrex) in either of the two
pivotal trials. In addition, there were no serious adverse events attributed to Trexima in
the two trials.
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May 31, 2007
Open-Label Twelve-Month Tolerability Study
In addition to MT 400-301 and MT 400-302, Pozen and development partner GSK
conducted a one-year, multi-center, open-label safety study assessing the safety of the
long-term use of Trexima to treat migraine attacks of moderate to severe intensity.5 A
total of 600 patients were enrolled in the trial, with 94% being treated for at least one
migraine. Of the patients who used Trexima to treat a migraine attack over that period,
73% completed six months of therapy, while 64% completed a full year of follow-on
open label treatment. The vast majority of attacks (70%) were successfully treated with a
single dose of Trexima, with the majority of patients averaging a little more than one
attack per week (five attacks per month).
Trexima was well-tolerated, with nasopharyngitis (9%) and sinusitis (8%) being the most
common adverse events. The type and frequency of adverse events reported in this longterm study are similar to those reported in long-term studies of Imitrex up to two years of
duration that were part of the basis of approval. Additionally, for those patients who were
unable to successfully treat the attack with one dose, when an additional dose was given
to counter the acute attack, the rates of adverse events reported were no higher than what
was observed with one course of treatment. All the serious adverse events were judged as
unrelated to Trexima, with the exception of one case of acute coronary syndrome that
was judged as potentially related to treatment. The 47-year-old woman had used oral
Imitrex before enrolling in the study. The patient had been enrolled in the study for seven
months and had treated multiple migraine attacks with Trexima. She experienced chest
discomfort and shortness of breath about two hours after taking the study drug. The
patient ended up undergoing a coronary angioplasty and was withdrawn from the study.
We believe that this patient should not have been enrolled to the study since she was
obese (35.7 BMI), had abnormally high cholesterol levels, had a family history of
coronary artery disease, and on further evaluation via angiography, was found to have
coronary artery disease. We note that triptans are not recommended for patients who are
at risk of developing coronary artery disease, unless a cardiovascular evaluation
determines that a patient is relatively free of serious underlying cardiovascular disease.
Trexima’s Regulatory Roller-Coaster; August 1 PDUFA is the Ride’s Climax.
Pozen had a pre-NDA meeting with the FDA in April 2005 and, in August of that year, it
submitted an NDA for Trexima. In October, Pozen announced the FDA’s acceptance of
the NDA, which would be reviewed under the normal 10-month period. In June 2006, the
company received an approvable letter as the FDA, while recognizing the efficacy of the
drug, requested additional safety data (we believe triggered by the one case of acute
coronary syndrome observed in the Phase IIIb trial). After a July 2006 FDA meeting,
Pozen, along with development partner GSK, submitted a response to the approvable
letter in November 2006. This response included data from Phase IIIb studies conducted
by GSK and two in-vitro studies. However, in December 2006, the FDA notified the
company that it required additional information, including a more detailed analysis of
patient baseline characteristics to compare Trexima’s safety profile with that of Imitrex.
In February 2007, Pozen submitted a complete response to the FDA’s approvable letter,
which was subsequently accepted for review, and a PDUFA date of August 1, 2007, was
established.
5
Winner, P. et al. Twelve-Month Tolerability and Safety of Sumatriptan-Naproxen
Sodium for the Treatment of Acute Migraine. Mayo Clinic Proc. 2007; 82(1):61-68.
15
Pozen, Inc.
May 31, 2007
Table 8: Historical Development Timeline for Pozen’s Trexima
Date
August 2005
June 9, 2006
November 9, 2006
December 2006
February 2007
March 22, 2007
Timeline
POZN submits Trexima NDA
FDA grants Approvable Letter for Trexima requesting
addional safety data
POZN submits response to Approvable Letter
FDA renders POZN response as incomplete; requests
additional information
POZN submits complete response
FDA accepts POZN's amended response; PDUFA date
August 1, 2007
Source: Company reports and MJ research
PN Program – Chronic Pain Indications
NSAID Use Risk and Pozen’s “Safer NSAID” PN Program
We believe Pozen is in a unique position among development stage biotechnology
companies, in that, along with Trexima, it has another late-stage clinical program
addressing a blockbuster indication. The company refers to the proton pump inhibitor
(PPI)/naproxen single tablet combination program as the PN program. The PN program
addresses a large market opportunity by potentially offering a safer non-steroidal antiinflammatory drug (NSAID) alternative that significantly decreases the rate of GI side
effects commonly associated with long-term NSAID usage. The PN program aims to
provide pain and inflammation relief associated with conditions such as osteoarthritis and
rheumatoid arthritis. Osteoarthritis alone affects an estimated 20-30 million people in the
U.S. and represents one of the most frequent causes of disability.
Patients who use NSAIDs chronically may develop major gastrointestinal complications,
including gastric ulcers and other painful and debilitating side effects (primarily in the GI
tract). In addition, according to the ARAMIS study,6 approximately 107,000 patients are
hospitalized annually for NSAID-related GI complications and more than 16,500
NSAID-related deaths occur each year in arthritis patients alone. These side effects from
NSAIDs use (even for short periods of time) are significant enough that newer medicines,
particularly the COX-2 class of pain medicines, were developed as alternatives. Whereas
NSAIDs target both the COX-1 (protects the stomach’s mucosa) and COX-2 (causes
inflammation), the COX-2 selective inhibitors were designed to provide the antiinflammatory benefits of NSAIDS without the risk of ulcers. The use of the COX-2-class
of drugs, however, was questioned in 2004 as a result of an emergent increased
cardiovascular risk for Merck’s Vioxx and Pfizer’s Bextra, which offset the
gastrointestinal benefit that may have been derived. Both of these products were later
removed from the market, which resulted in a Y/Y revenue loss of about $3bn from the
COX-2 inhibitor class between 2004 and 2005. Therefore, since, PN400, if approved,
would target the mild-to-moderate segment of the pain market, we believe it stands to
capture a significant share of this $3bn void created by the removal of Bextra and Vioxx.
Proton-Pump Inhibitor (PPI)-Naproxen Combination (PN) Program
Pozen’s PN program, partnered with AstraZeneca, combines a PPI and the NSAID
naproxen into a single tablet. To date, the company has conducted clinical programs on
three different combinations, PN100 (a combination of the PPI Prevacid [generic name,
lansoprazole] and the NSAID naproxen), and PN200 (a combination of the PPI Prilosec
[generic name, omeprazole] and naproxen) and the lead formulation PN400. PN400, the
next-generation product of the collaboration and the current focus of development in the
company’s PN program, is a combination of the PPI esomeprazole magnesium (Nexium)
with naproxen in a single tablet. Pozen is developing the drug for pain and inflammatory
6
Singh, G. Recent Considerations in NonSteroidal Anti-Inflammatory Drug Gastropathy.
American Journal of Medicine. 1998. 105:31S-38S.
16
Pozen, Inc.
May 31, 2007
conditions associated with both osteoarthritis and rheumatoid arthritis, and anticipates it
will begin phase III pivotal trials with PN400 in 3Q07.
Pozen independently began its PN program with the development of PN100. The focus
was soon changed to PN200. Preliminary phase I and phase II safety and efficacy trials
were carried out by the company, giving a clear signal for the potential of the program.
Concurrent with PN200 development, Pozen was in active partnership discussions for the
PN program. In addition, Pozen was able to obtain a special protocol assessment (SPA)
for a proposed Phase III design for PN200. However, under the partnership terms it
reached with AZN on August 1, 2006, Pozen would use AZN’s Nexium (esomeprazole)
as the PPI since AZN maintains exclusivity for this branded product.
Pozen is currently conducting a six-month PN-200 comparative study using PN200
(omeprazole + naproxen) as compared to enteric coated naproxen (EC Naproxen) in
chronic pain. The primary endpoint of the trial is the cumulative incidence of gastric
ulcers over six months of treatment. Because final results will not be available until
4Q07, Pozen plans to conduct an interim review of this trial in 3Q07, and if deemed to be
successful, will initiate Phase III studies with PN400.
PN100/PN200
In early 2006, Pozen submitted a special protocol assessment (SPA) to the FDA for the
company’s pivotal phase III trials for PN200. An agreement was reached on the SPA in
April 2006 to evaluate the use of PN200 to treat the signs and symptoms of osteoarthritis,
rheumatoid arthritis, and ankylosing spondylitis in patients at risk of developing NSAIDassociated gastric ulcers. Additionally, the agency agreed that the development program
and study design proposed for PN200 would be applicable to a product that contained an
isomer of omeprazole combined with naproxen. We believe that the SPA Pozen secured
for PN200 should apply to PN400, however, the company intends to verify this in a
meeting planned for this quarter.
We believe that PN400 carries a lower risk than typical early-stage pipelines as both
components of PN400 are already marketed and widely used. In addition, Pozen has
conducted two pilot studies with earlier versions of PN400, PN100, and PN200. In study
PN 100-103, 60 normal healthy volunteers aged 40-65 years were randomized into three
treatment groups: (A) PN100 (15 mg lansoprazole + 500 mg naproxen) B.I.D. (two times
per day); (B) enteric coated (EC) naproxen 500 mg B.I.D.; (C) lansoprazole 15 mg every
morning and naproxen 500 mg B.I.D. The primary endpoint was a measurement of GI
damage as assessed by the Lanza scoring scale (see Figure 1) at day 14.
Figure 1: Lanza Scoring Scale for Gastrointestinal Lesions
Source: Company reports
As shown in Figure 2 below, PN100 demonstrated a statistically significant improvement
in GI safety compared to EC naproxen. After 14 days of treatment, only 25% of patients
in the PN100 arm had a Lanza score of 3 or 4 compared with about 80% in the EC
naproxen group (P<0.001). Comparable results were observed in a similarly designed
17
Pozen, Inc.
May 31, 2007
study (PN 200-101) of 40 healthy volunteers equally randomized to PN200 (omepazole +
naproxen) or to EC naproxen. After 15 days of treatment, about 25% of PN200-arm
patients had Lanza scores of 3 or 4 compared with about 65% of patients in the EC
naproxen arm (P=0.022).
Figure 2: PN100-103 and PN200-101 Pilot Study Results- PPI + NSAID Reduce GI Damage vs.
Naproxen alone
Source: Company reports
It is important to note that reduced GI ulcer risk was noted not only compared to
naproxen alone, but also against the individual components of PN100 (lansoprazole and
naproxen) co-prescribed separately. Whereas only 25% of PN100 patients had a Lanza
score of 3 or 4, about 70% lansoprazole + naproxen co-prescribed patients did so
(P<0.01), showing that a single combination tablet provides significant reduction in GI
damage, which cannot be mimicked via the individual components prescribed separately.
Figure 3: PN100 vs. Standard Co-Therapy: PPI + NSAID Single Tablet Combination Provides
Added GI Protection vs. Co-Therapy of Individual Components
Source: Company reports
18
Pozen, Inc.
May 31, 2007
PN400
On March 2, 2007, Pozen filed an Investigational New Drug (IND) application with the
FDA for PN400 and, last month, initiated a Phase 1 study with the drug. Pozen, in
partnership with AstraZeneca, is currently also conducting a six-month comparison trial
with PN200 in patients undergoing chronic NSAID therapy, compared to enteric-coated
naproxen. This trial now serves as a pilot trial for PN400 and an interim look at the data
in 3Q07 will allow Pozen and AstraZeneca to make a “go/no-go” decision for
commencing Phase III trials for PN400 in 3Q07. The primary endpoint of the PN200 trial
is the cumulative incidence of gastric ulcers over six months of treatment.
Pozen plans to conduct two Phase III pivotal trials with PN400 versus EC naproxen in
arthritis patients at risk. In addition, the company plans to conduct an additional trial in
arthritis patients at high risk, versus approved therapy, data from which, if successful,
will be used to expand the label of the drug, once approved. The primary endpoint of the
two pivotal trials and the additional label extension trial is incidence of gastric ulcers at
six months.
We note that both PN200 and PN400 will only have a safety primary endpoint (i.e.,
reduction of gastric ulcers) and not efficacy. PN400 is expected to assume all of the pain
management claims of naproxen by a demonstration of bioequivalence. In addition,
Pozen only has to complete a 12-month open-label, and not a long-term, cardiovascular
safety study. The company hopes to position the combination product as a safer
alternative to commonly used NSAIDs, offering compliance advantages, as well as
potential clinical advantages based upon unique formulations and administration
advantages that PN400 offers over the current formulations of its individual components.
For example, Pozen has shown that if the two products are taken individually, the NSAID
is released first, followed by the PPI. This is counter-productive, as the PPI serves to
protect the patient from the potentially harmful side effects of the NSAID. Because
Pozen’s products are uniquely formulated to release the protective PPI first, followed by
the NSAID (refer to Figure 4), the gastrointestinal system is protected, and the benefit of
the reduction in the number of gastric ulcers may be observed.
Figure 4: RT Technology Achieves Controlled Release of PPI Followed by NSAID
Source: Company reports
We believe that PN400, once approved, will significantly increase the likelihood of
patient compliance with the combination drug vs. a PPI and naproxen taken separately.
According to one study,7 32% of patients are less than 80% compliant with concomitantly
prescribed PPI and naproxen. Moreover, compared to patients with adherence of >= 80%,
patients with 20-40% adherence to concomitant PPI and NSAID therapy were 4X more
7
Goldstein, JL, et al. The Effectiveness of Concomitant PPI Therapy in Preventing NSAID-Related
Gastroduodenal Mucosal Injury: Does Adherence Matter? Gastroenterology. 2005; 128(4) Suppl 2.
Abs. 860, p. A138.
19
Pozen, Inc.
May 31, 2007
likely, and those with adherence <20% were 6X more likely, to have GI complications. In
addition, according to a marketing survey conducted by the company, 90% of physicians
surveyed preferred a single, combination tablet.
PA325 “Safer Aspirin” Program
Pozen is also developing several other products leveraging the company’s strengths to
enter sizable markets with bioequivalent products offering superior safety or efficacy
profiles. The most advanced of the early-stage products in POZN's pipeline is the
company’s “safer aspirin” program, known as PA325, which combines a PPI
(omeprazole) and aspirin as a single tablet. Similar to the PN program, PA325 is intended
to have fewer GI complications compared to an aspirin taken alone, in patients at risk for
developing aspirin-associated gastric ulcers. PA 325 is not covered under the
AstraZeneca agreement for PN400 and Pozen continues to retain full rights to this
program.
Numerous studies have concluded, and it is well accepted, that low doses of aspirin (75325 mg) every day can significantly reduce the risk of cardiovascular disease, including
heart attacks, unstable angina, and stroke as well as potentially reduce the risk of
gastrointestinal cancer. In fact, aspirin is the only NSAID that has been clinically proven
to help reduce cardiovascular risk. Despite the well-recognized benefits of chronic aspirin
use, one of the barriers to this cardiovascular disease risk-lowering aspirin regimen has
been the harmful gastrointestinal side effects that are commonly associated with chronic
aspirin ingestion, which include, for example, nausea, vomiting, and stomach ulcers, as
well as reduction in blood clotting ability. Despite this, however, according to the Center
for Disease Control, 26 million people in the U.S. take aspirin daily for its
cardioprotective benefits, accounting for $350mn of aspirin sales.
The goal of Pozen’s PA325 program is to develop an aspirin-based NSAID that helps
reduce the risk of cardiovascular disease while also reducing or eliminating the GI side
effects that are normally seen with chronic aspirin use. The proprietary formulation of a
PPI and aspirin permit the PPI to be released first, which helps to protect the stomach and
ease irritation on the stomach’s mucosal lining. The program currently is unpartnered,
though we believe that a potential partnership could be announced by the end of this year.
We are encouraged by recent Phase I pilot trial data and believe that PA325 shows
significant potential. However, we do not include PA325 into our financial model given
the relatively early stage of this program. Therefore, any revenue generated from PA325,
if approved, or upfront or developmental milestones from a partnership, would represent
additional upside to our revenue and earnings estimates. Assuming that development of
PA325 remains on track, we believe that PA325 could reach the market as early as 2010.
The company announced phase I proof-of-concept data in 1Q07, from a small phase I
study involving 80 patients treated for 28 days with either PA325 q.d. (one per day) or
325 mg of enteric-coated (EC) aspirin. The primary endpoint was gastrointestinal damage
as measured by the Lanza scoring system used in previous trials for the PN program. The
results in this study were highly significant, with 10% of the patients taking PA325
having Lanza 3 or 4 GI damage, compared to 57.5% of the placebo (enteric-coated
aspirin) group showing this level of GI damage (see Figure 5). Further establishing a
preliminary efficacy profile, is that no ulcers were observed in the PA325 group, while
20% of enteric-coated aspirin patients developed a gastric ulcer in the study. The
company recently completed the dosing phase of a second proof-of concept study with
PA325 as compared to a lower dose of aspirin (i.e., 81 mg), and expects to complete the
analysis of results this quarter. Pozen has also suggested that it has requested a meeting
with the FDA to review the pilot trial data and determine a Phase III development path.
20
Pozen, Inc.
May 31, 2007
Figure 5: “Safer Aspirin” PA325 Proof of Concept Study Results
Source: Company reports
Other Pipeline Products
Pozen also has an earlier stage program focusing on the development of novel product
candidates containing lornoxicam alone or in combination with other active ingredients.
The company is developing this product platform for the treatment of pain, and related
indications, and is partnered with Nycomed. Pozen hopes to create a “better NSAID”
with efficacy similar to comparable opioids, without the narcotic side effects.
Lornoxicam is marketed by the brand name Xefo in Europe and Japan.
Pozen has filed INDs for two formulations of lornoxicam containing products. The first,
an oral tablet formulation, was filed with the FDA in 2003, and has completed early
clinical trials in patients undergoing dental surgery. Data from this study provided
preliminary evidence of the efficacy of the drug. Because of the established efficacy
profile of NSAIDs, safety is the primary regulatory concern for the company, and Pozen
has indicated it plans to continue the development of oral lornoxicam products focusing
on the long-term safety of the oral tablet.
An injectable formulation is also being developed by Pozen. The company filed an IND
in 2005, and has completed one phase I pK study, as well as two phase II studies
evaluating the injectable formulation for management of acute post-operative
bunionectomy pain, as well as for the management of severe migraine symptoms. In the
phase II trials, both doses of drug studied demonstrated a superior profile relative to
placebo, however, in the migraine trial, the drug failed to demonstrate a similar result.
The company is continuing the development of the lornoxicam program, although it is no
longer pursuing a migraine indication.
Financial Results & Projections
Pozen Inc. was incorporated in 1996 and went public via an initial public offering (IPO)
on October 11, 2000, pricing 5.75 million shares at $15, resulting in net proceeds of
$78.3mm. Pozen has not raised capital in the open market since the 2000 IPO, leaving it
with only 29.5mm shares outstanding.
21
Pozen, Inc.
May 31, 2007
FY2007 Financial Guidance
Revenue. Pozen management has provided 2007 financial guidance. Pozen plans to
generate revenue for the year in the range of $50-$55mm. This range includes a $10mm
milestone payment from GSK related to the expected approval of Trexima in 3Q07, an
additional $10mm milestone payment upon GSK’s formal intent to commercialize
Trexima, which must occur within 30 days of approval, $12mm amortization of PN
program milestone from AstraZeneca, $14-$18mm in reimbursement from AZN for
R&D expenses related to the PN program, and $1.9mm in remaining amortization related
to Trexima.
Earnings. The company has guided that it will breakeven in 2007, which assumes
operating expenses of $50-55mm and approval and commercial launch of Trexima in
3Q07. This guidance does not assume the receipt of any milestones related to the PN
program with AstraZeneca or any additional payments received from a potential
collaborative agreement for the PA program, which is currently unpartnered.
Historical Results and Morgan Joseph Estimates
Income Statement. Pozen reported 1Q07 and YE06 net loss of $2.09mm and $19.3mm
or EPS of ($0.07) and ($0.66), respectively, based on revenue for the corresponding
period of $7.66mm and $13.5mm, which were mainly comprised of licensing revenue
and milestone payments from GlaxoSmithKline and AstraZeneca.
Our revenue estimates are $7.5mm for 2Q07, $26.5mm for 3Q07, $9.1mm for 4Q07, and
$50.8mm for the full-year 2007. Our revenue assumptions include the receipt of
$48.2mm in milestone payments, which also includes $20mm from GSK as part of the
“intent to commercialize” milestone payment as per agreement. For fiscal 2008-2010, our
revenue forecast calls for $62.0mm, $67.8mm, and $162.2mm for the corresponding
periods.
Balance Sheet. Pozen had $58.2mm in cash and cash equivalents and no debt at the end
of 1Q07 or net cash per share of about $2. Given our projections, we believe that the
company’s cash balance will be sufficient to fund operations through 2010 and beyond.
Management Team
John R. Plachetka, Pharm.D., President, Chairman, and Chief Executive Officer.
Prior to founding POZEN in 1996, Dr. Plachetka was vice president of development at
Texas Biotechnology Corporation for two years, where he led the development of
argatroban, a novel thrombin blocker. Previously, he served for two years as president
and chief executive officer of Clinical Research Foundation-America, and had a nineyear career at Glaxo Inc. where Dr. Plachetka held various executive positions including
director of cardiovascular clinical research and led the U.S. development program for
Imitrex®, Trandate®, and a thromboxane antagonist. He earned his bachelor's degree in
pharmacy from the University of Illinois College of Pharmacy and holds a doctor of
pharmacy degree from the University of Missouri-Kansas City.
William L. Hodges, CPA, Senior Vice President, Finance and Administration and
Chief Financial Officer. Prior to joining the company in 2004, Mr. Hodges was senior
vice president and chief financial officer of Pergo, Inc., the leading U.S. laminate flooring
manufacturer. Previously, he spent 16 years in the pharmaceutical industry, culminating
as senior vice president and chief financial officer at Glaxo Wellcome, Inc. He also
worked four years as vice president, corporate planning and business support at Glaxo
Wellcome where he worked closely with the commercial and technical operations of the
company. Mr. Hodges spent over two years in London, United Kingdom, with Wellcome
plc., where he served as regional controller - Northern Europe and Japan, and manager group financial analysis. At Burroughs Wellcome he held various financial management
positions, including director of procurement, with responsibility for the U.S. and certain
global operations. Mr. Hodges received his bachelor's degree in Business
22
Pozen, Inc.
May 31, 2007
Administration/Accounting from the University of North Carolina at Chapel Hill and is a
certified public accountant.
Kristina M. Adomonis, Senior Vice President of Business Development.
Prior to joining the company in 1999, Ms. Adomonis was vice president of global
business development and licensing for the Over-The-Counter (OTC) business sector at
Novartis Consumer Health and was a member of the U.S. Executive Committee. She was
also director of business development at Glaxo Wellcome's U.S. operations and prior to
that served on the Canadian Executive Committees of Burroughs Wellcome and Abbott
Laboratories, where she managed the business development units for both operations.
She joined the industry in 1980 with F. Hoffmann-La Roche Ltd. Ms. Adomonis
received her bachelor's degree in chemistry from Tufts University and an MBA from
McGill University.
Marshall E. Reese, Ph.D., Executive Vice President, Product Development.
Dr. Reese is responsible for overseeing all of the company’s product development
activities. Most recently, Dr. Reese was at the Swiss-based pharmaceutical company
Novartis as senior vice president and global head of research and development,
Consumer Health Care. Prior to joining Novartis in 1999, Dr. Reese held several senior
executive positions over 16 years at Glaxo Inc. and GlaxoWellcome, including vice
president of global OTC development and manufacturing with GlaxoWellcome, based in
the United States, and vice president of development planning and international OTC
strategies for Glaxo and GlaxoWellcome, in both the United States and the United
Kingdom. During his tenures with Glaxo and Novartis, Dr. Reese was responsible for
managing the switch from prescription to over-the-counter medications for Lamisil
topical, Voltaren oral, topical and patches and Nicotine gum, lozenge and patches in
Europe, Middle East Africa, and Japan, and for Beconase AQ, Zovirax and Zantac 75 in
Europe. Additionally, he managed the regulatory approval process for Augmentin,
Beconase AQ, Ventolin Rotocaps, and Ventolin Syrup in the United States. Dr. Reese
received his B.S., M.S., and Ph.D. degrees from the University of Tennessee at
Knoxville.
Gilda M. Thomas, Senior Vice President and General Counsel. Prior to joining the
company in 2007, Ms. Thomas was vice president, general counsel and company
secretary at EMD Pharmaceuticals, Inc., an affiliate of Merck KGaA, Darmstadt,
Germany where she was responsible for overseeing and directing all legal matters for a
fully-integrated start-up pharmaceutical company. She spent 14 years at Burroughs
Wellcome Co., which merged into Glaxo Welcome, Inc. At Glaxo Wellcome, Ms.
Thomas was associate general counsel responsible for the 13 member corporate section
of the legal department. Ms. Thomas received a juris doctor degree from Harvard Law
School, a masters’ degree from Simmons College, and a bachelor’s degree from
Wellesley College.
John E. Barnhardt, CPA, Vice President, Finance and Administration and Principal
Accounting Officer. Prior to joining Pozen in 1997, Mr. Barnhardt held finance and
accounting positions with publicly traded companies beginning in 1988. These positions
included chief financial officer of Medco Research, Inc., engaged in the research and
development of pharmaceutical products primarily for the diagnosis and treatment of
cardiovascular disease, and principal accounting officer of Microwave Laboratories, Inc.,
a defense contractor developing and manufacturing traveling wave tubes for electronic
countermeasure systems. Mr. Barnhardt received his bachelor's degree in Zoology from
North Carolina State University, and while employed at Ernst & Ernst (now Ernst &
Young LLP), became a certified public accountant.
23
Pozen, Inc.
May 31, 2007
Table 9: Quarterly and Annual Income Statements ($ in thousands)
Pozen, Inc (POZN-NASDAQ)
Quarterly and Annual Income Statement (2004 - 2010E)
$ in thousands, except per share data
FY end December 31
2008E
2009E
2010E
FY04
FY05
FY06
Q1A
Q2E
Q3E
Q4E
FY07E
FY08
FY08
FY08
Trexima Royalty
$0
$0
$0
$0
$0
$0
$2,609
$2,609
$21,954
$27,837
$107,235
PN400 Royalty
0
0
0
0
0
0
0
0
0
0
15000
23,088
28,647
13,517
7,656
7,500
26,500
6,500
48,156
40,000
40,000
40,000
$23,088
$28,647
$13,517
$7,656
$7,500
$26,500
$9,109
$50,765
$61,954
$67,837
$162,235
2006A
2007E
Revenues:
Licensing/Milestone revenue
Total Revenues
Operating Expenses
Cost of goods sold
0
0
0
0
0
0
0
0
0
0
0
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
R&D Expense
20,399
18,769
22,358
7,304
8,034
9,240
11,087
35,665
44,582
46,811
51,492
SG&A Expense
8,661
9,185
12,822
3,231
3,554
3,910
4,691
15,386
17,694
19,463
22,383
Total Operating Expenses
Sequential growth %
$29,060
$27,954
$35,181
$10,535
$11,589
$13,149
$15,779
$51,051
$62,276
$66,274
$73,875
EBITDA
($5,972)
$693
($21,664)
($2,879)
($4,089)
$13,351
($6,670)
($287)
($321)
$1,563
$88,360
Interest income (expense)
711
1,266
2,354
789
242
245
578
1,854
2,677
3,500
3,000
Other income (expense)
-
-
-
-
-
% of sales
Total Non Operating Income/(Expense)
PreTax Income/(Loss)
Income Tax
Tax rate
Net Income/(Loss)
-
711
1,266
2,354
789
242
245
578
1,854
2,677
3,500
3,000
($5,261)
$1,959
($19,310)
($2,090)
($3,847)
$13,596
($6,092)
$1,567
$2,356
$5,063
$91,360
-
$31,976
$0
$0
$0
0.0%
0.0%
0.0%
0.0%
-
0.0%
-
0.0%
-
0.0%
-
0.0%
-
0.0%
-
0.0%
35.0%
(5,261)
1,959
(19,310)
(2,090)
(3,847)
13,596
(6,092)
1,567
2,356
5,063
59,384
Earnings Per Share
($0.18)
$0.07
($0.66)
($0.07)
($0.13)
$0.45
($0.20)
$0.05
$0.08
$0.16
$1.86
Weighed Average Shares Outstanding (FD)
28,749
29,623
29,225
29,469
29,764
30,061
30,362
29,914
30,512
31,123
31,901
100%
Margin Analysis (% total revenue)
Gross Margin
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
R&D
88%
66%
165%
95%
107%
35%
122%
70%
72%
69%
32%
SG&A
38%
32%
95%
42%
47%
15%
52%
30%
29%
29%
14%
Operating Margin
-26%
2%
-160%
-38%
-55%
50%
-73%
-1%
-1%
2%
54%
Net Margin
-23%
7%
-143%
-27%
-51%
51%
-67%
3%
4%
7%
37%
Source: Company reports and Morgan Joseph & Co. Inc. estimates
Source: Company reports and Morgan Joseph & Co. Inc. estimates
24
Pozen, Inc.
May 31, 2007
Table 10: Annual Balance Sheet ($ in thousands)
Pozen, Inc (POZN-NASDAQ)
Annual Balance Sheet (2005 - 2010E)
Dollars in thousands
FY ends December 31
2005A
2006E
2007E
2008E
2009E
FY
FY
FY
FY
FY06
FY07
199,190
2010E
Assets
Cash and cash equivalents
27,468
26,297
51,072
77,033
110,201
Short-term investments
18,371
36,285
36,285
36,285
36,285
36,285
Total Cash and Investments
$45,839
$62,582
$87,357
$113,318
$146,486
$235,475
614
4,376
-
$46,453
$66,958
$87,357
$113,318
$146,486
$235,475
235
183
1,006
835
1,079
10,910
$46,688
$67,141
$88,363
$114,153
$147,565
$246,385
1,444
966
1,932
3,864
7,728
15,456
0
0
0
0
0
0
Other current liabilities
10,345
18,061
27,092
40,637
60,956
91,434
Total Current Liabilities
$11,789
$19,027
$29,024
$44,501
$68,684
$106,890
Other current assets
Total Current Assets
Net Property, Plant, & Equipment
Total Assets
-
-
-
Liabilities and Equity
Accounts payable
Current debt
LT debt
0
0
0
0
0
0
1,000
24,000
36,000
54,000
81,000
121,500
Total liabilities
$12,789
$43,027
$65,024
$98,501
$149,684
$228,390
Total Shareholders'(deficit) Equity
$33,899
$24,114
$23,340
$15,652
($2,119)
$17,995
Total Liabilities and Equity
$46,688
$67,141
$88,363
$114,153
$147,565
$246,385
Deferred revenue
Source: Company reports and Morgan Joseph & Co. Inc. estimates
Source: Company reports and Morgan Joseph & Co. Inc. estimates
25
Pozen, Inc.
May 31, 2007
Table 11: Annual Cash Flow ($ in thousands)
Pozen, Inc (POZN-NASDAQ)
Annual Cash Flow Statement (2005 - 2010E)
Dollars in thousands
FY ends December 31
2005A
Net loss
2006E
2007E
2008E
2009E
2010E
FY05
FY06
FY07E
FY08
FY08
FY08
59,384
$1,959
($19,310)
$1,567
$2,356
$5,063
Depreciation and amortization
153
96
150
150
150
150
Amortization of bond/defrd comp
389
4,428
4,500
500
500
500
Changes in WC
Net Cash From Operations
(Purchases) sales of property, plant, equipment
Purchase of investments
Sale of investments
Net Cash from Investing
(9,186)
27,838
18,605
23,000
27,500
29,000
($6,685)
$13,052
$24,822
$26,006
$33,213
$89,034
(42)
(45)
(45)
(45)
(45)
(45)
(47,008)
(54,138)
29,200
37,300
($17,850)
($16,883)
Preferred stock, net
-
-
-
-
($45)
($45)
($45)
($45)
-
-
-
-
-
-
Issue common stock, net
238
2,659
-
-
-
-
Issue debt, Net & other
-
0
-
-
-
Net Cash from Financing
238
$2,659
$0
$0
$0
$0
Increase (Decrease) in Cash
(24,297)
(1,172)
$24,777
$25,961
$33,168
$88,989
Cash at beginning of period
$51,764
$27,467
$26,295
$51,072
$77,033
$110,201
Cash at end of period
$27,467
$26,295
$51,072
$77,033
$110,201
$199,190
Source: Company reports and Morgan Joseph & Co. Inc. estimates
26
Pozen, Inc.
May 31, 2007
Required Disclosures
For important disclosures and price charts with our ratings and target price changes go to:
http://www.morganjoseph.com/research_equity_reports.php
Price Target: Our price target is $24.00.
Valuation: We are initiating coverage on Pozen with a Buy rating and a 12-month price target of $24.00. Our price target is
derived by applying a 22X multiple to our 2010 fully-taxed EPS estimate of $1.86 and discounting back at 30%. We believe that 2010
is an appropriate year upon which to base our valuation since it is the first year that we estimate both Trexima and PN400 will be on
the market. We believe that a 30% discount is warranted given that Trexima, as well as PN400, have yet to be approved. Upside could
come from better-than-expected sales of Trexima or from milestone payments from PN400 and PA325, both of which are not included
in our model.
Risks: Significant risk factors include:
ƒ
Regulatory risk for Trexima FDA approval. If Trexima receives anything but an outright FDA approval by the August
PDUFA date, shares of Pozen would likely see significant downside as the company is heavily dependent on Trexima for
future milestone/royalty payments to reach profitability.
ƒ
Trexima’s migraine market penetration risk. Physicians may not readily prescribe a combination product of two drugs
that would be available generically if the efficacy of the combination product is not shown to be superior to the two
individual components given separately. In addition, GSK may reduce the royalty payments to Pozen if generic competitors
attain a pre-determined share of the market.
ƒ
PN400 development and market risk. If the PN200 pilot study being used by Pozen and partner AstraZeneca to make a
go/no-go decision on the PN400 program is not successful, then development on the combination naproxen/ Nexium tablet
will likely stop. In addition, though data to-date suggest otherwise, the drug, nevertheless, may not provide a sufficient
benefit advantage over physicians’ preference to separately titrate and combine PPI and naproxen doses or to separately
prescribe generic combinations. We note that Pozen’s agreement with AstraZeneca provides for certain reductions to the
PN400 royalty rate based on loss of market share due to generic competition.
27
Pozen, Inc.
ƒ
May 31, 2007
Pozen’s product development is heavily reliant on partners. Pozen is dependent on its partnerships with GlaxoSmithKline
and AstraZeneca for the development of Trexima and PN400, respectively. There is a risk that these partners may terminate
their collaborative agreements with Pozen if their priorities shift, or if they determine that the agreements no longer provide
for favorable economics, or for no reason at all. Both GlaxoSmithKline and AstraZeneca have the right to terminate their
agreements if certain delays occur or if specified development and regulatory milestones are not met, or upon 90 days’ notice
for any reason.
I, Eugene Trogan, Ph.D., the author of this research report, certify that the views expressed in this report accurately reflect my
personal views about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to
the specific recommendations or views contained in this research report.
I, Andrew Peters, the author of this research report, certify that the views expressed in this report accurately reflect my personal views
about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specific
recommendations or views contained in this research report.
Research analyst compensation is dependent, in part, upon investment banking revenues received by Morgan Joseph & Co. Inc.
Morgan Joseph & Co. Inc. expects to receive or intends to seek compensation for investment banking services from the subject
company within the next three months.
Meaning of Ratings:
A) Buy means reasonable outperformance relative to the market over 12-18 months.
B) Hold means market-type risk adjusted performance; potential source of funds.
C) Sell means expected to underperform the market.
Of the securities currently subject to research coverage by Morgan Joseph & Co. Inc., the percentage rated as a “Buy” is 59%; the
percentage rated as a “Hold” is 38%; and the percentage rated as a “Sell” is 3%.
In the previous 12 months, Morgan Joseph & Co. Inc. has provided investment banking services to 32% of the companies we currently
rate as “Buy,” to 11% of the companies we currently rate as “Hold”; and to 0% of the companies we currently rate as “Sell.”
Other Disclosures
The information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to be
all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Morgan
Joseph & Co. Inc., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securities
mentioned herein, and, before or after your receipt of this report, may make or recommend purchases and/or sales for their own
accounts or for the accounts of other customers of the Firm from time to time in the open market or otherwise. Opinions expressed are
our present opinions only and are subject to change without notice. Morgan Joseph & Co. Inc. is under no obligation to provide
updates to the opinions or information provided herein. Additional information is available upon request.
===============================================================================================
© Copyright 2007 by Morgan Joseph & Co. Inc.
28
Pozen, Inc.
May 31, 2007
Equity Division
Research
David B. Kestenbaum
Howard S. Goldberg
Dean Haskell
Adam Steinberg, CFA
Jeffrey Blaeser
Patricia Oey
Eugene Trogan, Ph.D.
Managing Director
Director of Research
Senior Vice President
Assistant Director of Research
Managing Director
Senior Vice President
Senior Vice President
Vice President
Vice President
Vice President
Christopher Bamman
Julia Heckman
James Leahy
Andrew Peters
Richard S. Paget, CFA
212.218.3851
[email protected]
212.218.3894
[email protected]
212.218.3296
212.218.3856
212.218.3765
212.218.3739
212.218.3734
212.218.3839
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Research Associate
Research Associate
Research Associate
Research Associate
212.218.3989
212.218.3772
212.218.3784
212.218.3992
[email protected]
[email protected]
[email protected]
[email protected]
Managing Director
Director of Sales & Sales Trading
Managing Director
Director of Trading
Senior Vice President
Senior Vice President
Senior Vice President
Vice President
Vice President
212.218.3871
[email protected]
585.899.6021
[email protected]
212.218.3874
212.218.3872
617.217.2068
212.218.3874
212.218.3873
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Sales and Trading
Michael Weitzner
Matthew DiBiase
Tim Bonham
Ian Burgess
Frank Gauvain
John Lombardo
Andrew Monroy
Locations
New York
Pittsford
Nashville
600 Fifth Avenue, 19th Fl
New York, NY 10020
Tel. 212.218.3700
Fax. 212.218.3789
1173 Pittsford-Victor Road, Ste 120
Pittsford, NY 14534-3841
Tel. 877.237.6542
Fax. 585.899.6029
102 Woodmont Boulevard, Suite 405
Nashville, TN 37205
Tel. 615.238.2300
Fax.615.238.2301
29