On Friday of last week, Pozen Inc.(POZN), received a CRL from the FDA, disallowing the New Drug Application (NDA) for its coordinated-delivery tablet combination of omeprazole (Prilosec) and aspirin. This combination can basically be purchased over the counter (OTC) by consumers, but Pozen's solution is more seamless, which does give it an advantage.
There are a few red flags here that concern me about this rejection that potential investors in the company should be made aware of.
For starters, some investors (as per yahoo finance Pozen stock board) were calling the company late Friday, during the afterhours market session, expressing concern as to why the company had not yet informed the market on the FDA decision for the combo drug. The FDA closes for business at 5 p.m. Eastern time, about an hour after the market closes. Upon my checking this out, I did in fact discover that the FDA was in fact, closed for business long before Pozen claimed it did not yet get the decision from the organization hours later.
All approvals are press released on the FDA Website before the close of each business day, while the FDA informs companies directly of a CRL, and does not press release those rejections.
However, the company was telling investors as late as 7:45 pm on Friday that it had not yet heard back from the FDA concerning the combo drug. This is concerning, because the company had to know its combo was already rejected, yet it basically decided to mislead investors telling them otherwise. For me, this brings the company's integrity into question. If it is willing to mislead investors on this issue, what else is it willing to mislead on? The company could have easily chosen to inform callers that "we have no comment, as we cannot comment on an ongoing FDA process." Instead, it choose to mislead investors.
What also bothers me is the press release, issued about 30 minutes after the after hour trading closed, which gave what amounted to an excuse, saying that it basically did not have the time to address FDA concerns about the manufacturing process which lead to the CRL.
However, the company certainly had time to file the NDA last year in March, which gave it ample time to make sure the manufacturing process was correct and up to FDA standards. Simply saying now that it had no time to address deficiencies that the FDA found equates to a flimsy excuse in my opinion. Good management would have made sure a non-biologic solution as basic as an aspirin/prilosec combo should be manufactured properly. It seems to me that management was more concerned in saving a buck, and trying to pass this buck to investors in hopes to get this through the FDA process, rather than to spend a bit extra in time and resources to ensure the manufacturing was up to par.
Part of investing successfully in small cap companies is to invest in management first and foremost. Pozen management now raises red flags to me that says, "stay away."
Additionally, Pozen will only receive a royalty for its PA platform from Sanofi (SNY).
According to the Pozen/Sanofi agreement, Pozen received an upfront payment of $15MM and will be eligible for pre-commercial milestone payments of up to $20MM and other future milestone payments and royalties on product sales.
So Pozen gets a royalty from Sanofi, but how much? Standard royalty rate here would be best case scenario of 10% according to the best of my research on this issue.
The best case analyst opinion here is peak sales of this product (if approved eventually) could be $400M. So let's figure average sales over 5 years of $250M. Pozen would then average at best, $25M a year in revenue. So to be fair, I will say $30 X5 years looking forward = $150M. Since Pozen has no proprietary drugs and no un-met need drugs, I can't see a market cap much higher than this for the long term.
As of this writing, Pozen's market cap is around $230M, and has mentioned, has no other drugs in its developmental pipeline, and it certainly has no un-met need drugs. My best estimation for Pozen at this time would equate to a market cap of $150 to $200M, without the added speculation of an un-met need drug. Pozen has no proprietary products, and are only royalty based.
- Conclusion
Simply stated, which questionable management tactics, a lack of proprietary pipeline and un-met need drugs, Pozen is not worth more than $5 a share. I used to be a bit more bullish on the company over a year ago when I wrote about it when it was around $5 a share, and predicted a partnership for its PA platform. Consider management's poor handling of this situation and my revaluation here, I'm not a buyer and will likely never be. When I do invest long term, I make my bet first on management. It seems to me in Pozen's case, management is not good. I would not trust them after what they were saying this past Friday to investors.
