Pozen: An Undervalued Investment and Catalyst Trade Opportunity

Pozen: An Undervalued Investment and Catalyst Trade Opportunity 
LOS ANGELES, CA -- (Marketwire) -- 02/11/13 --  Small cap biopharmas
that make for good long term investments are hard to find. Most small
cap biopharmas burn a ton of cash while developing treatments for a
variety of ailments and rare diseases.  
Today, we focus on Pozen (NASDAQ: POZN) which we feel may present a
good longer term speculative investment as well as a good trade with
near term catalysts. 
Pozen reminds us of another company we came across in 2011, Antares
Pharma Inc., which produced an 80% gain in 14 months. 
Antares is not a typical biotech that develops drugs to treat rare
diseases such as the ones mentioned above. Rather, the company aims
to take existing treatments and make them better via subcutaneous
self-injections. When we first covered Antares, the price was around
$2.20 a share. Within one year, the stock nearly tripled, hitting a
52 week high of $5.58, before settling back to the high $3 range,
where it trades today. 
Like Antares, Pozen takes existing drugs and seeks to make them safer
and better -- more tolerable. Today, we will look at the management,
pipeline, upcoming catalysts, partnership potential, and noteworthy
financial items for Pozen. 
One reason Pozen reminds us of Antares is because of the strong
management with impressive backgrounds. 
John R. Plachetka, Pharm.D., is President, Chief Executive Officer,
and Chairman of the Board of Directors of Pozen. Prior to founding
the company in 1996, Dr. Plachetka has held many high level positions
in the pharmaceutical industry. Most notably, he had a nine-year
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(R), Trandate(R), and a
thromboxane antagonist. 
Mr. Plachetka is the firm's biggest shareholder holding over two
million shares. He is also responsible for bringing Liz Cermak on as
the firm's Executive Vice President and Chief Commercial Officer. A
former Worldwide Vice President for Johnson & Johnson, Liz has served
in a variety of senior leadership roles across the pharmaceutical,
consumer products, and health management businesses. She has over 25 
years' experience in the healthcare industry. 
The CEO's heavy ownership stake is one of the reasons why we believe
the management team is extra focused with added incentives to perform
well for its investors. The scenario arguably communicates a direct
sense of personal accountability towards building shareholder value
for investors in the company. The more that CEO is able to create
shareholder value, the more he will ensure his own compensation and
The value of the management's approach has been proven with its
success in gaining FDA approval of two self-invented products. One of
these products is Treximet, developed with pharmaceutical giant
GlaxoSmithKline in June 2003 for the acute treatment of migraine
attacks in adults. 
In what appears to be a very smart move, Pozen sold most of the
future royalty and milestone payments covering Treximet sales in the
United States to a financial investor for $75 million in November,
2011. On the surface, this move did not appear to carry much weight,
but upon closer inspection we noticed that the company is
piggybacking the product by retaining exclusive U.S. rights to
develop and market a lower dose: sumatriptan and naproxen combination
(MT400). This is the same combination used in Treximet. By making the
move, the company raised tens of millions while keeping virtually the
same product in development. 
A pipeline chart later in this article shows the MT 400 drug in Phase
III development. As a result of the Treximet decision, one year later
the company remains shareholder friendly having achieved a hefty cash
position while avoiding dilution.  
As of the end of Q3, 2012, Pozen had approximately $92 million in
cash and short term investments. In contrast, the dilution to raise
cash was one annoyance we had with an otherwise capable management
team at Antares. While it may ultimately be the best course of action
for them moving forward, when they raised money last year, it left
many investors feeling like it was unnecessary at the time. 
Upcoming Catalyst: 
Pozen plans on filing an NDA in April for its first PA product
PA32540, which is a combination of 325 mg aspirin and 40 mg
time-released omeprazole, better known as Prilosec, originally
created by AstraZeneca. 
From the company's website, we read; 
"Pozen's active PA product portfolio is focused on designing
cost-effective, integrated aspirin therapies that enable the full
power of aspirin by reducing its potential gastrointestinal (GI)
damage. The PA product portfolio has the potential to benefit
millions of Americans who use daily aspirin to treat cardiovascular
disease, osteoarthritis, and other diseases." 
PA32540 is designed to be a GI-safer form of aspirin to be
administered orally once a day, at a cost of 1 dollar per day.
PA32540 prevents secondary cardiovascular disease in patients at risk
for aspirin-associated gastric ulcers. 
Last week, the company announced the combined results of two Phase
III studies of PA32540: 
"According to the studies, in the post-hoc analysis of subjects with
a history of transient ischemic attack (TIA) or stroke, long-term (6
months) treatment with PA32540, compared to EC-ASA (325 mg), was
associated with a significantly reduced rate of endoscopic
gastroduodenal ulcers (2.0% vs. 12.4% respectively; p=0.005), and
study discontinuation due to adverse pre-specified upper GI events
(0% vs. 8.0% respectively; p=0.006). The incidence of adjudicated
major adverse cardiac events was similar for PA32540 (2.9%) and
EC-ASA (325 mg) (4.4%)." 
Mark J. Alberts, MD, UT Southwestern Medical Center, Dallas, Texas
"Discontinuation of aspirin therapy is often due to the adverse GI
effects of aspirin. In these pivotal studies, PA32540 was associated
with a significantly lower rate of treatment discontinuation than
aspirin alone. Patient adherence to aspirin therapy saves lives, as
aspirin discontinuation increases the likelihood of potential adverse
cardiovascular and cerebrovascular events." 
In an article written by analyst Jason Napodano, he notes: 
"Amazon.com sells a 500 tablet bottle of 325 mg aspirin for $11.00,
or 2.2 cents per day. One can also buy 42 20 mg tablets of OTC
Prilosec (omeprazole) for $23.95, or around 57 cents per pill. To
re-create Pozen's PA-325/40, a patient would spend approximately
$1.16 per day (taking two Prilosec pills plus an aspirin)." 
The above clearly demonstrates why it would be beneficial to choose
Pozen's drug over taking aspirin and Prilosec separately -- it would
cost less at 1 dollar a day for a patient to buy PA32540 versus
buying both drugs separately for $1.16. Additionally, PA32540 is time
released and contains a dose specific solution in one pill where
patients need not to worry about mixing both medications to get the
desired result. 
Partnership Potential: 
The above referenced article goes on further to note that the PA
platform might be worth as much as $400M in sales per year globally,
with the company receiving at least a $30M upfront payment from any
potential partner. With an NDA filing expected in April the company's
desire to secure a partner before the filing, we would expect that
Pozen's stock price may see an increase in the short term. 
A partnership could spark the s
tock price, depending on the details
of the transaction. Generally, it shows that the development of a
drug will be expedited and the potential is going to be greater
because of more power and resources behind it. Last year, Sunesis
Pharmaceuticals gained 15% on a day when it announced a partnership
with Royalty Pharma. Royalty Pharma agreed to pay Sunesis $25 million
if the company is successful developing its lead product candidate
Vosaroxin, which is an anticancer quinolone derivative class of
compounds that have never used to attempt to treat cancer. In the
time since, Sunesis has seen a stock price increase of well over 100%
from $2.87 to $6.18. 
Pozen is already partnered with such pharma giants as
GlaxoSmithKline, Johnson & Johnson, and AstraZeneca. This tells us
Pozen's management has experience with gaining partnership deals with
large pharmas. 
The graphic at Pozen's website shows the rest of Pozen's marketed and
pipelined solutions. It is worth noting that the company has other
solutions that will also see NDA filings within the next year. 
Pozen was profitable for the first two quarters of 2012, before
showing a loss in the last two quarters of the same year. This was in
part due to less than expected sales from Vimovo, which is partnered
with AstraZeneca. AstraZenca may have priced Vimovo too high at $4 a
day, causing the drug to lose market acceptance. However as Jason
Napodano reported in his article, AstraZenca may become more
aggressive in its price point for the drug. Furthermore, AstraZeneca
has filed Vimovo in 80 countries, receiving approval in 60 countries,
and is currently launched in 40 countries. This leaves about 40
countries left for approval and roll out of the drug, which will
equate to more revenue for Pozen moving forward. 

Share Statistics                                   
Avg Vol (3 month):                       96,155    
Avg Vol (10 day):                        137,488   
Shares Outstanding:                      30.31M    
Float:                                   24.52M    
% Held by Insiders:                      11.15%    
% Held by Institutions:                  66.20%    
Shares Short (as of Jan 15, 2013):       1.70M     
Short Ratio (as of Jan 15, 2013):        17.80     
Short % of Float (as of Jan 15, 2013):   6.40%     
Shares Short (prior month)(3):           1.71M     

The stock price and volume have been increasing steadily over the last
two weeks or so. With nearly 6.4% of the float held short, Pozen
makes for a decent short squeeze candidate. Institutional ownership
is high, especially for a stock selling in the high $5 range like
With a market cap of $173.06M, we believe that Pozen is undervalued
by about $100M when considering the market opportunity for its PA
platform, 40 more countries to roll out Vimovo, and the likeliness of
a partnership for PA32540 which as already mentioned, should net at
least a $30M upfront payment. 
From the chart we can observe that the stock appears to be reversing
the extended down trend it has seen since May of last year. It
appears to me that catalyst traders and investors are accumulating
the stock. With the NDA filing for PA32540 expected in April, and the
likeliness of the company gaining a significant partnership with the
drug before then, a short term price appreciati
on to the $6.50 range
looks to be in short order. 
Disclosure: Author Scott Matusow is Long POZN.  
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