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Aralez Pharmaceuticals Inc.: Upcoming Catalysts Create Tremendous Upside

Summary

Aralez's drug Yosprala is highly likely to obtain FDA approval on or before its September 14, 2016 PDUFA date. Anticipated Q4 launch in USA with 110 sales reps.

Exceptional management team with a history of multiple successes creating substantial investor value.

Advantageous corporate and tax structure, strong balance sheet, and access to capital, provide a competitive advantage for its aggressive growth plan.

Aralez has all the ingredients to create tremendous upside.

ARLZ data by YCharts

Aralez Pharmaceuticals Inc. ("Aralez") (NASDAQ: ARLZ; TSX: ARZ) is a specialty pharmaceutical company focusing on acquiring, developing and commercializing products primarily in cardiovascular, pain and other specialty areas. Aralez's global headquarters are located in Mississauga, Ontario, Canada, its US headquarters located in Princeton, New Jersey, and its Irish headquarters located in Dublin, Ireland. Aralez was formed for the purpose of facilitating the business combination of POZEN Inc., a Delaware corporation ("Pozen"), and Tribute Pharmaceuticals Canada Inc. (OTCQX:TBUFF), a corporation incorporated under the laws of the Province of Ontario, Canada ("Tribute"). The business combination closed on February 5, 2016 and Aralez has been trading on NASDAQ ((NASDAQ:ARLZ)) and the Toronto Stock Exchange (symbol: ARZ) since about that date.

Full Disclosure: I was a director in Tribute Pharmaceuticals for approximately 10 years until February 5, 2016. I have no current relationship with Aralez except as a shareholder. Before writing this article I wrote Andrew Koven, President and Chief Business Officer of Aralez, asking whether Aralez had any objection to my writing this article on Seeking Alpha. Andrew responded that he had no objection to me writing this article provided I made the foregoing disclosure.

Summary (all currency references are in US dollars)

Shares outstanding: 64 million

Trading Symbols: NASDAQ: ARLZ and TSX: ARZ

Share price at close on August 16, 2016 (NASDAQ): US$5.12

Share price range: US$3.10 to $6.45 (from February 6, 2016 to August 16, 2016)

Market Cap: US$316 million

Cash position (at June 30, 2016): US$93 million

Unused line of credit: US$200 million

Debt (convertible debenture, 2.5% interest): US$75 million

Effective tax rate approximately: 17%

Upcoming Catalysts:

* FDA approval of Yosprala for the USA (September 14, 2016 PDUFA date). There is a very high likelihood of approval. The only outstanding issues with the manufacturing facilities appear to have been cleared. There are no reported '483 compliance findings with the new manufacturing facility. Aralez estimates that Yosprala's annual peak sales in the USA will be at least $200 million.

* Q4 2016 launch of Yosprala in the USA, pending FDA approval (including build out of US sales force from the current 25 handpicked cardiovascular experienced sales reps to 110 sales reps at the time of launch in Q4). Plans are to eventually build out the sales force to 300 sales reps in the USA over time.

* Filing in Q4 2016 for approval of Yosprala in the EU

* Filing in Q4 2016 for approval of Treximet/MT 400 in Canada

* Filing in H1 2017 for approval of Yosprala in Canada

* M&A and business development in 2016 and beyond

As a result of my prior involvement as a director in Tribute Pharmaceuticals and because Aralez represents my single largest share holding, I have spent a lot of time learning about Aralez. I have listened to CEO Adrian Adams' various corporate presentations both in person and on various webcasts, and have had opportunities to speak to Adrian Adams and Andrew Koven personally. I remain friends with a couple of the current board members, Rob Harris (former CEO of Tribute) and Marty Thrasher, with whom I was a co-director in Tribute Pharmaceuticals.

I have been thinking about writing about Aralez on SA for a number of weeks during which time the share price has increased by about 50%. In my view, at current share prices and risk-reward profiles, Aralez represents a compelling investment opportunity based upon:

* its very experienced and disciplined management team, with a track record of repeatedly creating enormous shareholder value;

* an experienced and professional board of directors;

* a supportive investment and shareholder following;

* a strong balance sheet and access to additional capital, when required;

* a diversified product mix generating estimated 2016 sales of approximately $50 million (without the expected Q4 Yosprala launch). The product mix includes approximately 20 products originally owned by Tribute promoted by a 27 person sales team in Canada; Tribute's drug Fibricor, which it acquired in May 2015 for the US only, and as of April, 2016 being promoted by Aralez's 25 person US salesforce resulting in an 88% increase in Fibricor sales within 90 days of the commencment of the promotion (by June 30th, 2016); and more than $20 million in royalty revenues from licensing out Vimovo to Horizon in the USA and by AstraZeneca (NYSE:AZN) outside of the USA;

* upcoming Q4 launch of Yosprala, subject to FDA approval (September 14, 2016 PDUFA date) as well as filing for Yosprala approval in the EU and Canada;

* filing for approval in Canada for Treximet by end of 2016 and subsequent commercial launch;

* the launch of Bleximet in Canada (which was approved by Health Canada a few months ago)

* an advantageous tax and corporate structure; and

* its aggressive plans for M&A and business development to acquire assets that are EBITA positive and immediately accretive.

Exceptional Management Team

Guggenheim Securities summed it up nicely in its February 9, 2016 initiating coverage report on Aralez describing Aralez's management team, "Aralez Has One of The Strongest Management Teams in Our Coverage Universe". Adrian Adams, CEO, has a history of creating enormous shareholder value. He has made a lot of money for a lot of people and investors, multiple times. That creates loyalty, trust and a following.

Adrian has put together a management team that he has worked with very successfully in the past. A brief bio of the key members of the team include:

Adrian Adam, CEO, joined Pozen (Aralez' predecessor) in June, 2015. Prior to that time, Adrian:

a. was the CEO and President of Auxilium Pharmaceuticals from December 2011 to January 2015 when it was acquired by Endo International for $2.6 billion;

b. for a short time prior to joining Auxilium, was Chairman and CEO of Neurolgix Inc.;

c. was President and CEO of Inspire Pharmaceuticals Inc. from 2010 to May 2011 when it was acquired by Merck for $430 million;

d. was President and CEO of Sepracor Inc. from December 2006 to February, 2010 when it was acquired by Dainippon Sumitomo Pharma for $2.6 billion; and

e. was COO, CEO and President of Kos Pharmaceuticals from 2002 until December, 2006 when it was acquired by Abbott for $3.7 billion.

Mr. Adams graduated from the Royal Institute of Chemistry at Salford University in the U.K.

Andrew I. Koven (President and Chief Business Officer) joined Pozen with Adrian Adams in June 2015, and has worked closely with Adrian Adams for a few decades. Prior to joining Adrian at Pozen, Andrew Koven served with Adrian as:

a. Chief Administrative Officer and General Counsel of Auxilium Pharmaceuticals (acquired by Endo International);

b. President and Chief Administrative Officer of Neurologix Inc. (for a short time);

c. Executive VP and Chief Administrative and Legal Officer of Inspire Pharmaceuticals (acquire by Merck);

d. Executive VP, General Counsel and Corporate Secretary of Sepracor Inc.; and

e. Executive VP, General Counsel and Corporate Secretary of Kos Pharmaceuticals Inc.

Prior to working directly with Adrian Adams, Mr. Koven was previously Associate General Counsel at Warner-Lambent, and before entering into the pharmaceutical world Mr. Koven was a corporate lawyer in New York.

Scott Charles (Chief Financial Officer) joined Pozen on July 27, 2015 (prior to Pozen becoming Aralez on February 6, 2016). Prior to joining Pozen, Mr. Charles as VP of Finance and Treasurer at Ikaria Inc. where he played a lead role in the spinoff of Ikaria's R&D operations and sale to a private equity firm for $1.6 billion and then to Mallinckrodt in April 2015 for $2.3 billion. Prior to that, he was VP of Finance and Treasure at Reliant Pharmaceuticals. Previously, he was a manager of Assurance and Business Advisory Services at Arthur Anderson, LLP. He has a B.Sc. in Business Administration from Bucknell University and is a C.P.A.

James Tursi, M.D. (Chief Medical Officer) joined Pozen on October 1, 2015. Prior to joining the company, he served as Chief Medical Officer of Innocoll AG where he was responsible for managing all clinical research and development, medical affairs and safety activities. Prior to joining Innocoll, Dr. Tursi served as Chief Medical Officer at Auxilium Pharmaceuticals Inc. from 2011 to 2015, where he previously held the position of Vice President of Clinical Research & Development from 2009 to 2011. He was responsible for oversight of clinical and nonclinical development programs, clinical operations, medical affairs and global safety activities. Dr. Tursi served as the clinical medical safety lead for all regulatory agency interactions with the FDA, Europe and Canada. Prior to Auxilium, he served as Director of Medical Affairs for GlaxoSmithKline Biologicals from 2006 to 2009 and directed all medical affairs responsibilities for cervical cancer vaccines in North America. Dr. Tursi entered the pharmaceutical industry in 2004 as a Medical Director for Procter and Gamble Pharmaceuticals until 2006. He worked on several products and therapeutic areas, which included female sexual dysfunction, overactive bladder, and osteoporosis. His responsibilities included clinical development and medical affairs. Dr. Tursi was a board certified OB/GYN and practiced medicine and surgery for over 10 years.

Dr. Tursi received his doctor of medicine degree from the Medical College of Pennsylvania and completed his residency training at the Johns Hopkins Hospital.

Eric L. Trachtenberg (General Counsel, Chief Compliance Officer & Corporate Secretary) joined Aralez Pharmaceuticals Inc. on February 5, 2016. Previously, Mr. Trachtenberg served as Deputy General Counsel of Pozen Inc., the company's predecessor, which he joined on June 22, 2015. Mr. Trachtenberg has extensive experience practicing law, including over ten years in the pharmaceutical industry. Mr. Trachtenberg most recently served as Deputy General Counsel at Auxilium Pharmaceuticals, Inc., from 2012 through its acquisition by Endo Pharmaceuticals in February 2015. Prior to Auxilium, he was Vice President, General Counsel and Corporate Secretary of Enobia Pharma, Inc. and managed all legal aspects of Enobia's sale to Alexion Pharmaceuticals. Prior to that, Mr. Trachtenberg served as Vice President and Associate General Counsel of Sepracor Inc. and remained in that position with Sunovion Pharmaceuticals Inc. following the acquisition of Sepracor by Dainippon Sumitomo Pharma. Mr. Trachtenberg also held a Senior Counsel position at Kos Pharmaceuticals, Inc. before its acquisition by Abbott.

Mark A. Glickman - Chief Commercial Officer served in this role with the company's predecessor, Pozen Inc., since June 22, 2015. Mr. Glickman has over 20 years of experience in pharmaceutical sales and operations, with expertise in a variety of fields including sales turnarounds, global product introductions and organizational expansions. Prior to joining the company, Mr. Glickman served as Executive Vice President of Sales and Marketing for Auxilium Pharmaceuticals. Prior to that, he served as Vice President in the medical device division at Otsuka America Pharmaceutical, Inc. At Otsuka, he helped to reinvigorate the company's sales and increase its business by 50% over two years, while also spearheading quality improvement initiatives and playing a critical role in new regulatory filings. Prior to Otsuka, Mr. Glickman served as Senior Vice President of Sales and Marketing at Oscient Pharmaceuticals Corp., during which time he completed a successful turnaround of the company's commercial strategy, driving a significant increase in sales. Before joining Oscient, Mr. Glickman served as Vice President of Sales at Bayer Healthcare's Diabetes Care Division. From 2001 to 2007 he played a major role in helping to build the commercial organization at Kos Pharmaceuticals and held various positions including Director of Marketing, Regional Sales Director and Vice President of Sales. Mr. Glickman started his pharmaceutical career at Bristol-Myers Squibb where he was responsible for the marketing of cardiovascular products, including the blockbuster Plavix.

Initial Financing on the February 6, 2016 Formation of Aralez (a combining of Canadian based Tribute Pharmaceuticals and US...


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