To understand why Pozen (NASDAQ:POZN) sold future U.S. royalty rights for migraine drug Treximet, its lead revenue-generating product, it helps to understand what the company is doing with its drug pipeline right now.
Chapel Hill, North Carolina-based Pozen has been directing resources to its PA drug platform, chiefly drug candidate PA32540, which is in phase 3 clinical trials studying the compound as a way to deliver aspirin’s cardiovascular benefits in a form safer for the stomach. The company initially planned to commercialize PA32540 on its own, but shifted gears last month and said it was shopping for a partner. Just before Thanksgiving, Pozen disclosed in securities filings it had sold future royalty and milestone payments for Treximet, a drug commercialized with drug partner GlaxoSmithKline (NYSE:GSK), to Canadian pension fund CPPIB Credit Investments for $75 million
The short of it is that Pozen struck a deal for Treximet to secure cash for PA32540. That money strengthens Pozen’s negotiating position as it seeks a partner and does so without diluting Pozen’s shareholders, CEO John Platchetka said in a statement.
“With the completion of this transaction, we now expect to end 2011 with greater than $110 million, or approximately $3.67 per share, in cash, cash equivalents and short-term investments,” he said.
Through the third quarter, Pozen had just $34.7 million in cash and cash equivalents, plus $11.7 million in short-term investments. While Pozen said in its quarterly report that it had enough money to carry the company through 2012, its future cash position is reliant on revenue from Treximet as well as Vimovo, an osteoarthritis drug commercialized with AstraZeneca (NYSE:AZN). While Treximet sales have grown, Pozen has spoken openly about its disappointment over Vimovo sales thus far.
In its third-quarter financial report, Pozen noted that expenses might increase as it moves forward with its PA program. Those expenses could come from needing to conduct additional clinical trials, or from commercializing its PA drugs on its own. Even if Pozen finds a partner, the company said it may need to boost spending to sell and market the products. The quarterly report gave a clue that the company was considering a deal to raise money: “We consider our two royalty streams as cash assets that could be monetized to accelerate the expected cash flow,” the company wrote.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
It’s a good time for Pozen to strike a Treximet deal. In the third quarter, Pozen won a patent victory against generic drugs companies seeking to market their versions of the drug. Treximet patents were upheld through 2017, which also upholds the value of the drug’s royalty stream. Through the third quarter, Pozen reported $12.2 million in 2011 royalty revenue from Treximet. The deal gives CPPIB Credit Investments royalties on net sales of Treximet and any other products under the GSK partnership starting from Oct. 1, 2011.
Pozen’s deal with CPPIB does not sever all of its connections to the drug. Pozen retains rights to 20 percent of royalties from Treximet sales starting in the second quarter of 2018. The company also continues holds on additional Treximet rights. In March, Pozen licensed the compound that forms Treximet to Johnson & Johnson (NYSE:JNJ) subsidiary Cilag for development and commercialization in Latin America. While Pozen’s partnership with GSK gave the British pharma giant U.S. commercialization rights, Pozen retained rest-of-world commercialization rights. Those rights could lead to additional deals, if Pozen needs more cash.
