Pozen Files For Approval of Vimovo

Today Pozen (POZN - Analyst Report) announced the submission of the new drug application (NDA) to the U.S. FDA, seeking marketing approval for Vimovo (proposed trade name for PN-400) for the treatment of signs and symptoms of osteoarthritis, rheumatoid arthritis and ankylosing spondylitis in patients who are at risk for developing NSAID-associated ulcers.

Vimovo is a combination of 500mg enteric coated naproxen and 20mg immediate release esomeprazole. In early December 2008, Pozen released positive top-line data from its 400-301/-302 phase III program testing PN-400 (20mg esomeprazole / 500mg naproxen) vs. 500mg enteric coated naproxen alone. Results show that 400 patients total in both trials taking PN-400 experienced statistically significant fewer number of confirmed gastric ulcers by endoscopy compared to 400 subjects receiving enteric coated naproxen during the six-month period.

Pozen expects to receive a milestone payment of $10 million when the NDA is formally accepted for review by the FDA. We model this payment (in full) in the third quarter 2009. Assuming a standard review period, the FDA should be set to rule on Vimovo in April or May of 2010.

Given the enormous size of the osteoarthritis market (OA) – estimated at 20-30 million people in the U.S., as well as use in rheumatoid arthritis (RA) and other instances of pain such as ankylosing spondylitis - we see Vimovo as a potential $500 million product. Cox-II drugs such as Vioxx and Celebrex, designed to provide safer gastrointestinal profile, peaked sales at over $7 billion worldwide in 2004 before the Vioxx cardiovascular issues.

The Vimovo "safer naproxen" product looks to have efficacy on par with Vioxx and Celebrex, with low-risk GI damage thanks to the esomeprazole component, and a cardiovascular risk profile determined to be no greater than placebo (risk ratio = 0.97, 95%: 0.87-1.07, McGettigan et al., JAMA, September 12, 2006).

We remind investors that drugs such as Prilosec and Nexium are already approved for daily use with naproxen. Physicians that prescribed Celebrex and Vioxx often recommended patients also take esomeprazole as a safety precaution.

The combination into one pill will greatly improve patient compliance and ease of use. We believe there is significant unmet prescription need caused by the removal of the Cox-II drugs. We believe Vimovo represents a safer option for patients than Cox-II drugs or enteric-coated naproxen.

In fact, we would not be surprised to see AstraZeneca (AZN - Analyst Report) and Pozen develop a lower-dose version of PN seeking a potential move to over-the-counter (OTC) once the prescription candidate loses patent protection.

Our only concern is a potential direct competitor to Vimovo from Horizon Therapeutics. HZT-501 is an ibuprofen/famotidine (Advil/Pecid) product currently in phase III trials.

At today's price, Pozen is trading with a market value of only $235 million. The company has no debt and $52 million in cash. Pozen should burn very little cash in 2009. Management's guidance is that the company will exit 2009 with still $45 million on the books – and this assumes no deal for MT-400 Ex-U.S.

Therefore, the "technology" value of Pozen is only about $200 million. Treximet royalties are going to increase significantly in 2010 based on the ramp in sales and the bump-up in rate (from 5% to 18%). The NDA application on Vimovo looks strong.

We expect a similarly strong application in 2011 on PA. By 2013 Pozen should be posting revenues near $200 million, with high profitability. We see 2013 EPS at $2.40 per share. The 2013 P/E multiple is only 3.3x. At this level the stock can still double in value and still be considered "cheap".