Vimovo Approval Re-Validates Pozen’s Model

On April 30, 2010, Pozen (POZN) and its partner, AstraZeneca (AZN), announced that the U.S. Food and Drug Administration (FDA) has approved Vimovo (naproxen and esomeprazole magnesium) delayed-release tablets for the relief of signs and symptoms of osteoarthritis (OA), rheumatoid arthritis (RA) and ankylosing spondylitis (AS), and to decrease the risk of developing gastric ulcers in patients at risk of developing NSAID-associated gastric ulcers.

Based on FDA approval, Pozen has earned a $20 million milestone payment from AstraZeneca. We expect that this milestone will be recognized in full in the second quarter 2010. AstraZeneca should be in position to launch Vimovo early in the third quarter 2010. Pozen is entitled to a 10% royalty on net Vimovo sales.

AstraZeneca submitted a Marketing Authorization Application (MAA) to the European Medicines Association (EMEA) for Vimovo in October 2009. In total, AstraZeneca has filed applications in over 25 countries outside of the U.S. We expect the first responses to start coming back toward the end of the year. Pozen is entitled to a $25 million milestone payment from AstraZeneca for Vimovo’s first approval outside the U.S. To be conservative, we do not model recognition of this payment until early 2010.

A Potential Blockbuster Product

We see Vimovo as a $500+ million product in the U.S. alone. Cox-II drugs such as Vioxx and Celebrex, designed to provide safer gastrointestinal profile, peaked sales at over $7 billion worldwide in 2004 before Vioxx was pulled from the market for cardiovascular risk. According to management, approximately 50% of OA/RA patients are at risk for gastrointestinal (GI) damage.

In the U.S., some 37 million Americans suffer from OA or RA. Several large clinical studies have confirmed that 20-40% of those who take NSAIDs regularly have one or more ulcers in their stomach or intestines.

In the U.S., there are an estimated 16,500 deaths each year due to NSAID-induced GI complications (primarily from GI hemorrhage). Given the lack of treatment options and the withdrawal of Vioxx and Bextra, only about 25% of these patients are co-prescribed a gastro-protectant. 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 the safest cardiovascular risk profile for all NSAIDs.

We remind investors that drugs such as Prilosec and Nexium are already approved for daily use with naproxen. Nexium is a $5 billion product worldwide. We estimate approximately 10% of the Nexium sales are coming from patients co-prescribed the drug as a gastro-protectant. Even during the Cox-II market peak, physicians often recommended patients take a PPI such as esomeprazole as a safety precaution with Celebrex and Vioxx.

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.

A sizable number of patients are still taking enteric-coated naproxen. Over half of these patients are at high risk for gastric ulcers. 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 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 in 2023.

Still Bullish on Pozen

We continue to be very positive on the Pozen story. The royalty payments off Vimovo and Treximet should drive the company to cash flow positive operations in 2011. The Vimovo approval also validates the pathway for Pozen’s phase III PA-325/40 product, another potential $500+ million idea. Millions of people are taking daily aspirin for cardiovascular secondary prevention, the majority without a gastro-protectant.

PA offers significantly improved GI tolerability to enteric-coated aspirin, and the potential to increase the dose to therapeutic levels that can also treat pain and may reduce the risk of pre-cancerous colon adenomas. We see Pozen fairly-valued at $15 per share.
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