Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004.

OR

FOR THE TRANSITION PERIOD FROM              TO             .

Commission file number 000-31719

POZEN INC.

(Exact name of registrant as specified in its charter)

1414 Raleigh Rd, Suite 400, Chapel Hill, NC 27517

(Address of principal executive offices including zip code)

(919) 913-1030

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨.

The aggregate market value of the Common Stock held by non-affiliates computed by reference to the last reported sale price on June 30, 2004 was $168,498,595. As of March 2, 2005 there were outstanding 28,915,511 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the POZEN Inc. definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year are incorporated by reference into Part III of this Form 10-K and certain documents are incorporated by reference into Part IV.

Table of Contents

POZEN INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Table of Contents

Forward-Looking Information

This report includes “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions and are not historical facts and typically are identified by use of terms such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management’s current judgment and expectations, but our actual results, events and performance could differ materially from those in the forward-looking statements. The forward-looking statements are subject to a number of risks and uncertainties which are discussed below in the section entitled “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Our Results.” We do not intend to update any of these factors or to publicly announce the results of any revisions to these forward-looking statements, other than as is required under the federal securities laws.

PART I

Item 1. Business

Overview

We are a pharmaceutical company focused primarily on products for the treatment of migraine, acute and chronic pain and other pain-related indications. Our product development emphasis is on diseases with unmet medical needs where we can improve efficacy, safety and/or patient convenience. Since our inception, we have focused our efforts primarily on the development or regulatory approval of pharmaceutical products for the treatment of migraine. Our portfolio currently contains three product candidates in the migraine area, MT 400, MT 100 and MT 300. We are also exploring the development of product candidates in other acute and chronic pain and pain-related therapeutic areas. We have not obtained regulatory approval for any of our product candidates.

Under our MT 400 technology, which refers to our proprietary combinations of a triptan (5-HT1B/1D agonist) and a non-steroidal anti-inflammatory drug (“NSAID”), we seek to develop product candidates that provide acute migraine therapy by combining the activity of two drugs that act by different mechanisms to reduce the pain and associated symptoms of migraine. In June 2003, we signed an agreement with GlaxoSmithKline (“GSK”) for the development and commercialization of proprietary combinations of one or more of GSK’s triptans and a long-acting NSAID for the U.S. market. The combinations covered by the agreement are among the combinations of our MT 400 technology. Trexima ^TM is the proposed brand name for the combination of GSK’s sumatriptan and naproxen sodium in a single tablet being developed pursuant to our agreement with GSK. We commenced a Phase 3 clinical program for Trexima in the second half of 2004. We have completed the first of two planned Phase 3 pivotal trials, in which Trexima demonstrated superiority over the individual components measured by sustained pain-free response (p<.001) and, with the exception of the incidence of nausea-free at two hours, all other regulatory endpoints were met (p <.001). We expect to complete the second Phase 3 pivotal trial in the second quarter of 2005 and to submit the New Drug Application (“NDA”) for Trexima to the U.S. Food and Drug Administration (“FDA”) in the second half of 2005.

For MT 100 and MT 300, our current focus is primarily on the regulatory process. MT 100 is a combination of metoclopramide hydrochloride and naproxen sodium. MT 300 is a proprietary formulation of injectable dihydroergotamine mesylate (“DHE”) in a pre-filled syringe. In October 2003, we received a not-approvable letter from the FDA related to our NDA for MT 300, which was submitted in December 2002. We are continuing communications with the FDA to assess how best to move forward with MT 300. In May 2004, we received a not-approvable letter from the FDA with respect to our NDA for MT 100. We have continued communications with the FDA to seek to persuade the FDA that the NDA for MT 100 should be approved. We and the FDA have agreed to present MT 100 data to an advisory committee of the FDA for consideration, with particular emphasis on the potential risk of tardive dyskinesia. The FDA has advised us that the meeting with the advisory committee, which we previously reported had been tentatively scheduled for May 2005, has been postponed due to FDA scheduling conflicts. We do not know when the meeting will be rescheduled; however, we have been informed by the FDA that the rescheduled meeting date will be available, in advance, when published in the Federal Register. We are also seeking regulatory approval of MT 100 in the United Kingdom (“UK”).

We currently have two exploratory programs in pain-related therapeutic areas. In July 2003, we signed an exclusive option agreement with Nycomed Danmark ApS (“Nycomed”), under which we may acquire a license to certain rights related to lornoxicam, an NSAID. We have begun exploratory development work and clinical studies to investigate the development of novel product candidates containing lornoxicam, alone or in combination with other active ingredients, as potential treatments for pain or other indications. We have also begun exploratory formulation development and clinical studies for a combination of a proton pump inhibitor (“PPI”) and an NSAID in a single tablet intended to provide effective control of pain and inflammation with fewer gastrointestinal complications compared to an NSAID taken alone.

We do not currently have commercialization or manufacturing capabilities. We have entered into collaborations and currently plan to enter into additional collaborations with established pharmaceutical or pharmaceutical services companies to manufacture

1

Table of Contents

and commercialize our product candidates once approved. To date, we have entered into collaborations with GSK, Xcel Pharmaceuticals Inc. (“Xcel”) and Nycomed for the development and commercialization of our current migraine product candidates. In February 2005, Valeant Pharmaceuticals International (“Valeant”) reported that it had entered into a definitive agreement to acquire Xcel and on March 1, 2005 reported that the acquisition had been completed.

We have incurred losses attributable to common stockholders of $142.1 million since our inception and have not generated any revenue from product sales. As of December 31, 2004, our accumulated deficit was $114.5 million.

Our Business Strategy

Our goal is to become a leading pharmaceutical development company focused on developing drugs for the treatment of migraine, acute and chronic pain and other pain-related conditions. The principal elements of our business strategy are to:

Our Product Candidates and Exploratory Programs

Migraine Product Candidates

Migraine Market Overview

Migraine is characterized by recurring attacks of headache, often associated with visual, auditory or gastrointestinal disturbances. While the precise mechanism of migraine is unknown, researchers believe migraine attacks are caused by acute inflammation surrounding selected blood vessels in the head. The average migraine sufferer experiences the first attack during the early teen years, and the attacks generally continue throughout adulthood.

Not all migraine attacks are of the same severity. Consequently, various types of oral, intranasal and injectable therapies are used to treat different types of migraine attacks. Many patients use a personal, individually developed, step-care approach to treat their attacks. Attacks are often treated initially with simple over-the-counter analgesics, particularly if the patient is unable to determine if the attack is a migraine or some other type of headache. If over-the-counter remedies are unsuccessful, patients often turn to more potent prescription drugs, including narcotics, analgesic/narcotic drug combinations and triptans.

Triptans are the family of drugs most commonly prescribed for the treatment of migraine attacks. Triptans have demonstrated the ability to treat migraines by constricting blood vessels in the brain. Although triptans can be effective in treating migraine symptoms, they are often associated with significant side effects and other disadvantages that include:

2

Table of Contents

Despite these shortcomings, in 2004, according to IMS Health’s Retail and Provider Perspective, or IMS, total triptan sales in the U.S. were approximately $1.9 billion. Imitrex®, marketed by GSK, is the leading triptan product. There are currently three types of triptan formulations commercially available: oral, intranasal and injectable. According to IMS, U.S. sales for Imitrex of all three of these formulations totalled approximately $1.1 billion in 2004. An oral triptan is often the physician’s first choice as a prescription treatment for migraine pain. Intranasal triptans are often prescribed for patients requiring faster relief than oral drugs can provide or who cannot take oral medications. For the most severe attacks, patients sometimes use an injectable form of a triptan.

MT 400/Trexima

Our MT 400 technology involves the development of compounds to provide acute migraine therapy by combining the activity of two drugs that act by different mechanisms to reduce the pain and associated symptoms of migraine. MT 400 technology combines the pharmacologic activity of a triptan (5-HT_1B/1D agonist) with that of an NSAID. We believe that acute migraine can be treated more effectively with targeted and complementary therapies that achieve maximum therapeutic benefit.

In 2002, the FDA approved our request to submit an NDA for MT 400 as a Section 505(b)(2) application, under which the FDA allows a reduced development program. An application submitted under Section 505(b)(2) permits the FDA to rely, for approval of an NDA, on data not developed by the applicant, including the FDA’s previous findings of safety and effectiveness for approved drugs. We believe that the MT 400 NDA, for example, will require very little animal pharmacology and toxicology work and fewer Phase 1 and Phase 2 clinical trials than would be required if the application were not submitted under Section 505(b)(2). This reduced development plan permitted the earlier commencement of Phase 3 clinical trials, as discussed in more detail below. In the UK, the MHRA has agreed to accept a similar development program. The initiation date of the UK clinical program has not yet been determined.

In June 2003, we signed an agreement with GSK for the development and commercialization of proprietary combinations of one or more of GSK’s triptans (5-HT_1B/1D agonists) and a long-acting NSAID in the U.S. The combinations covered by our agreement with GSK are among the combinations of our MT 400 technology. Under our collaboration with GSK, we are developing a proprietary combination of GSK’s sumatriptan and naproxen sodium in a single tablet, under the proposed brand name Trexima.

Prior to our agreement with GSK, in 2001, we completed a 972-patient, Phase 2 double-blind, placebo-controlled, single-dose clinical trial in which our MT 400 drug candidate showed statistically significant superiority over placebo and each of its components on the identified primary outcome measure of sustained pain relief. In addition, MT 400 showed statistically significant superiority over placebo and its components, including an oral triptan, in the two-hour pain response and effectiveness over placebo at two hours in the relief of the associated symptoms of migraine. Adverse events occurred in 23% of patients who received the MT 400 treatment and in 24% of patients who received the triptan alone, and the types of events (which include the side effects and other disadvantages of triptans identified above under “Migraine Market Overview”) were similar for both types of treatments. Within the group receiving placebo, 15% reported adverse events. There were no serious adverse events reported in this trial. We believe that, in all likelihood, the adverse events that will occur from the use of MT 400, including Trexima, in the treatment of migraine will be similar to those reported with the use of the triptans alone. We filed an Investigational New Drug Application (“IND”), with the FDA for Trexima in December 2003.

In May 2004, we met with the FDA to discuss the Phase 3 clinical program for Trexima. At this meeting, the FDA agreed with our proposed Phase 3 development plan for Trexima. The design of the Phase 3 trials, including the endpoints required to evaluate Trexima, is to demonstrate superiority to placebo for relief of pain and the associated symptoms of migraine (nausea, photophobia and phonophobia) at two hours; we believe that this is the current FDA standard for establishing efficacy of migraine products. Additionally, the program is designed to demonstrate that each component makes a contribution to the efficacy of Trexima (the “combination rule” that FDA requires of all combination products). The efficacy endpoint is sustained pain free which is defined as moving from moderate or severe pain to no pain at two hours and remaining at no pain through twenty-four hours without the use of rescue medicine. We commenced the first Phase 3 clinical study (a long-term open label safety study) in May 2004. In the second half of 2004, we began two 1,400 patient Phase 3 pivotal trials, using a formulation of Trexima developed by GSK, designed to determine the effectiveness and safety of Trexima for the acute treatment of migraine as well as to satisfy the requirements of the FDA’s combination rule. In addition, in the second half of 2004, we initiated two additional Phase 1 studies requested by the FDA. GSK is also funding and currently conducting two Phase 3b/4 studies.

In February 2005, we completed the first of two Phase 3 pivotal trials, in which Trexima demonstrated superiority over the individual components measured by sustained pain-free response (p<.001) and, with the exception of the incidence of nausea-free at two hours, all other regulatory endpoints were met (p <.001). Trexima did reach statistical significance for the nausea endpoint compared to placebo after two hours and maintained superiority through twenty-four hours. All of the active treatments (Trexima, sumatriptan and naproxen) had a similar incidence of nausea at two hours compared to placebo. We expect to complete the second Phase 3 pivotal trial in the second quarter of 2005. Submission of the NDA to the FDA is planned for the second half of 2005.

We cannot reasonably estimate or know the amount or timing of the costs necessary to complete the development of Trexima or when, if and to what extent we will receive future cash inflows from Trexima. The additional costs that we may incur include expenses relating to clinical trials and other research and development activities and the cost and timing of activities necessary to obtain regulatory approvals.

3

Table of Contents

MT 100

MT 100 is intended to provide an alternative to oral triptans for the treatment of migraine pain and its associated symptoms with less risk of cardiovascular side effects compared to the triptans. Oral products are currently the most prevalent form of migraine therapy. We believe that MT 100, if approved, could offer migraine sufferers a better alternative to simple oral analgesics, such as aspirin and acetaminophen, in the treatment of migraine. In addition, because MT 100 will be a specific therapy for migraine, we believe that, if approved, MT 100 could replace the use of stronger analgesics, including prescription narcotic analgesics, in migraine therapy. According to IMS, existing oral migraine prescription products, including oral triptan products, accounted for approximately $1.7 billion in sales in the U.S. in 2004, of which the Imitrex oral dosage form accounted for approximately $850 million.

MT 100 is a proprietary formulation that combines metoclopramide hydrochloride, a commercially available agent that relieves nausea, enhances stomach emptying, and possesses some analgesic activity, and naproxen sodium, a commercially available anti-inflammatory and analgesic agent. MT 100 is designed to release metoclopramide hydrochloride initially, followed by naproxen sodium. The metoclopramide is intended to accelerate the absorption of naproxen and to reduce nausea, which can be associated with migraine; its analgesic activity supplements that provided by naproxen.

In order to obtain FDA approval for MT 100, we are required to demonstrate its efficacy and safety. To demonstrate the efficacy of a combination product candidate such as MT 100, which combines two previously approved component products, we must demonstrate in clinical trials that it is both superior to each of its individual components, and more effective in treating all symptoms of migraine when compared to a placebo. For MT 100, this means that we must show that statistically more patients have achieved sustained pain relief, defined as migraine pain relief at two hours that is maintained throughout the next 22 hours without the use of rescue medication, than patients treated with the component products. To demonstrate efficacy as a migraine product, MT 100 must demonstrate superiority to placebo for relief of nausea, photophobia and phonophobia. Generally, the FDA requires two successful clinical trials to demonstrate that the product candidate meets each of these standards for approval.

We have completed a total of two Phase 2 clinical trials, six Phase 3 clinical trials, and three marketing support Phase 3b studies, involving in total more than 8,000 treated patients, more than 3,850 of whom have received some form of MT 100. In addition to the required clinical trials, we also completed a six-month oral-dosing carcinogenicity study in p53 transgenic mice in 2002. We also completed a two-year rat carcinogenicity study in 2003. Adverse events from a long-term safety study included drowsiness, diarrhea, abdominal pain, dizziness infection and nervousness. Adverse events commonly observed in the Phase 3 trials have included drowsiness, diarrhea, dizziness and dyspepsia.

In July 2003, we submitted an NDA to the FDA for MT 100 for the acute treatment of migraine. The NDA was accepted for filing by the FDA in October 2003. In January 2004, we submitted the report of our two-year carcinogenicity study in rats that, as agreed with the FDA, completed our NDA submission. The data in the carcinogenicity study showed that there were no statistically significant differences in findings between the rats that received the maximally tolerated dose (“MTD”) of metoclopramide in combination with naproxen and the rats that received metoclopramide alone at its MTD.

In May 2004, we received a not-approvable letter from the FDA with respect to our NDA for MT 100. In its letter, the FDA noted that we had demonstrated unambiguously statistically significant superiority of MT 100 compared to an appropriate control on a valid measure of pain as well as on the three associated migraine symptoms of nausea, photophobia and phonophobia in one study. However, the FDA noted in the not-approvable letter that MT 100 did not clearly meet these criteria in a second study. The FDA also cited the apparent lack of superiority of MT 100 over naproxen for sustained pain relief, which was the primary endpoint for the two component studies that were designed to satisfy the FDA’s combination rule. We noted in our press release issued on June 1, 2004 that this issue appeared to arise primarily from an apparent difference in understanding between the FDA and us as to the appropriate statistical analysis of this endpoint. Additionally, the FDA letter mentioned that, based on animal studies, there may be a potential risk of carcinogenicity, presumably due to metoclopramide, one of the components of MT 100. The FDA letter also raised, for the first time, an approvability issue concerning the risk of tardive dyskinesia (“TD”) presented by the use of metoclopramide.

In July 2004, we received minutes from the FDA of a meeting between the FDA and us held on June 21, 2004. Among other things, these minutes stated the view of the FDA expressed in that meeting that, “[a]ssuming [POZEN] is able to meet the requirements of the combination rule and demonstrate efficacy we could describe the TD potential and carcinogenicity findings in labeling”. This statement in the FDA minutes is consistent with the views that we had held prior to our receipt of the not-approvable letter with respect to how the FDA would address safety issues.

Following the receipt of these minutes, we requested a Type A meeting with the FDA’s Division of Neuropharmacological Drug Products to present our position in response to the issues identified by the FDA. A Type A meeting is defined by the FDA as a meeting immediately necessary for an otherwise stalled drug development program to proceed. At the Type A meeting held in October 2004, the FDA stated that even if it eventually determined that MT 100 meets the efficacy requirements for a combination drug agent, MT 100 may not be approvable if the benefits of the drug do not, in the FDA’s opinion, outweigh the risks of MT 100, including the risk of tardive dyskinesia. As a result of these more recent discussions, the FDA and we have agreed to present the MT 100 data to an FDA advisory committee for consideration, with particular emphasis on the potential risk of tardive dyskinesia. The FDA has advised us that the meeting with the advisory committee, which we previously reported had been tentatively scheduled for May 2005, has been postponed due to FDA scheduling conflicts. We do not know when the meeting will be rescheduled; however, we have been informed by the FDA that the rescheduled meeting date will be available, in advance, when published in the Federal Register. The role of an FDA advisory committee is to provide independent expert advice and contribute to the quality of the regulatory decision-making process.

4

Table of Contents

The FDA is not bound by the advisory committee’s recommendations. We cannot predict the conclusions of the advisory committee or whether the FDA will follow any recommendations provided by the advisory committee. It is possible that the FDA may require that we conduct another clinical trial to provide additional evidence that MT 100 meets the requirements of the combination rule or the efficacy standards applicable to MT 100. The FDA may also require that we conduct studies or investigations to seek to evaluate any potential risk of tardive dyskinesia with use of MT 100. We cannot estimate the cost or duration of any such trials, studies or investigations or decide whether to conduct such studies or investigations until the results of the meeting with the FDA’s advisory committee are known and the design of any such study or studies has been determined with the FDA. Our Phase 3 clinical trials of MT 100 took between three months and eighteen months and involved a direct cost per patient of between $2,200 and $3,200. The duration and cost of any new trials, study or studies that we may conduct may be different from our prior clinical trials. No assurance can be given that our efforts to obtain FDA approval of MT 100 will be successful.

In October 2002, we submitted a Market Authorization Application (“MAA”) to the Medicines and Healthcare Products Regulatory Agency (“MHRA”) in the United Kingdom (“UK”) for MT 100 for the acute treatment of migraine. If marketing authorization for MT 100 is unconditionally approved in the UK, we plan to seek approval in selected European countries through the European Union Mutual Recognition Procedure. This procedure allows other European countries to grant national approvals based upon the review and endorsement of the MHRA in the UK.

In September 2003, we received a letter of comments relating to the MAA from an advisory group to the MHRA, the Committee on Safety of Medicines (the “MHRA Advisory Committee”). The most significant comment in the MHRA Advisory Committee’s letter of comments was that we provide additional information supporting the benefits of the combination of metoclopramide hydrochloride and naproxen sodium in MT 100.

In March 2004, we submitted our complete response to the concerns identified by the MHRA Advisory Committee and met with the MHRA Advisory Committee in January 2005 to answer questions concerning our response. Subsequent to the meeting we were notified in a letter that the MHRA Advisory Committee was prepared to advise the MHRA that a marketing authorization could be granted for MT 100 in the UK, provided we supply certain additional information and meet certain conditions, as outlined by the MHRA Advisory Committee. In February 2005 we provided information to the MHRA Advisory Committee which we believe addresses all the conditions set forth in the MHRA Advisory Committee’s letter. Although the MHRA is not bound by the MHRA Advisory Committee’s recommendations, we understand that it typically agrees with the MHRA Advisory Committee’s opinions.

We are not currently conducting any clinical trials for MT 100. However, we are continuing to incur pharmaceutical development costs for product stability testing and costs relating to our continuing efforts to seek approval of MT 100 from the FDA and from the MHRA, and may incur costs for the commercialization of this product if our applications are approved by the FDA and in the UK and other countries in the European Union. Additionally, under our agreement with Nycomed, if we withdraw a regulatory application from any of the countries identified in the agreement, we will be required to pay a withdrawal fee in amounts that range from $0.1 million to $0.4 million.

MT 300

The objective of our MT 300 (dihydroergotamine mesylate, or “DHE”) Injection (1 mg/0.5ml) development program is to provide a safe, effective and more convenient way to administer injectable DHE, a migraine treatment that has been marketed in the U.S. for over 50 years as a 1mg/ml ampoule. MT 300 is a proprietary formulation of injectable DHE in a pre-filled syringe that is intended to provide long-lasting pain relief for patients who require a convenient injectable therapy for severe migraine attacks. Currently, patients unable to take oral migraine medications due to severe nausea and/or vomiting may choose to use an injectable form of a triptan or another drug such as DHE. According to IMS, injectable migraine therapeutics represented approximately $212 million in 2004 U.S. sales.

We have performed placebo-controlled trials designed to demonstrate the efficacy and safety of MT 300 in the acute treatment of migraine. We have completed a Phase 2 clinical trial, two Phase 3 clinical trials, and a marketing support Phase 3b study, involving in total more than 1,614 treated patients, more than 648 of whom have received some form of MT 300. DHE is used often in migraine therapy. Its side effect profile, which includes mild nausea that sometimes requires use of an antiemetic, is well-known. Adverse events (excluding injection site reactions) reported in our Phase 3 trials included dizziness, drowsiness, diarrhea, nausea and vomiting.

In December 2002, we submitted an NDA for MT 300 to the FDA. The NDA was accepted for filing by the FDA in February 2003. In October 2003, we received a not-approvable letter from the FDA related to our MT 300 NDA based on the FDA’s conclusion that we had not submitted substantial evidence of effectiveness for MT 300 as an acute treatment for migraine. No clinical safety issues were identified in the letter, nor were any non-clinical issues cited as impacting the FDA’s decision to issue the not-approvable letter. The FDA noted that, although MT 300 provided a statistically significant improvement over placebo on the pre-defined endpoint of sustained pain relief at 24 hours post dose, as well as relief of pain at two hours post dose, MT 300 failed to achieve statistical significance versus placebo for the relief of all of the ancillary symptoms of migraine at two hours (nausea, photophobia and phonophobia). Further, the incidence of nausea, one of the associated symptoms of migraine, was statistically significantly higher following MT 300 treatment versus placebo at two hours.

5

Table of Contents

In March 2004, we submitted a response to the FDA’s not-approvable letter and were notified in April 2004 that the FDA considered our response incomplete because it did not include sufficient information responsive to a question regarding the testing procedures in the manufacturing process for MT 300. Subsequently, we submitted additional responses to the not-approvable letter and requested a Type A meeting with the FDA’s Division of Neuropharmacological Drug Products to present our position in response to the issues identified by FDA. The Type A meeting was held in December 2004 at which time the FDA requested additional information. After providing the required information, a subsequent teleconference was held with the FDA in January 2005 during which the FDA restated its concerns that approval of MT 300 was problematic due to the higher incidence of nausea at two hours following dosing in patients treated with MT 300 compared with placebo. Once we receive written communications from the FDA regarding these recent meetings, we will evaluate what future steps are available to us regarding MT 300.

We are not currently conducting any clinical trials for MT 300. However, we are continuing to incur pharmaceutical development costs for product stability testing and costs relating to our continuing efforts to seek approval of MT 300. Additionally, under our agreement with Xcel, if we withdraw the NDA for MT 300 for commercial or financial reasons, we will have to pay Xcel $1.0 million.

Our Exploratory Programs

Lornoxicam Program

In July 2003, we signed an exclusive option agreement with Nycomed, under which we may acquire a license to certain rights related to lornoxicam, an NSAID that is currently marketed outside the United States (including Europe and Japan).The exclusive option terminates in July 2005. We are exploring whether to develop novel product candidates containing lornoxicam, alone or in combination with other active ingredients, as potential treatments for pain or other indications.

In December 2003, we submitted an IND to the FDA for lornoxicam oral tablets and, in January 2004, received FDA approval to conduct the first human study with this formulation in the United States. This single-site trial evaluated the efficacy and safety of single doses of lornoxicam (at three different dose strengths), ibuprofen and placebo in 125 patients undergoing dental surgery for impacted third molars. The data from this study confirmed the acute safety profile for lornoxicam in these patients and provided preliminary evidence of efficacy in this pain model.

In September 2004, we met with the FDA to review the results of this study, to discuss information provided in the IND, and to discuss non-clinical issues and potential additional clinical studies. We committed to provide additional analyses and information requested by the FDA following that meeting which would permit conduct of additional clinical trials with lornoxicam in the United States. We will continue to discuss with the FDA the clinical and non-clinical study requirements anticipated for approval of lornoxicam product candidates. In the event that we elect to exercise our option to license lornoxicam, we will be required to pay Nycomed additional fees, including a $0.5 million license fee, regulatory approval milestones and royalties on sales of any products developed using the licensed rights.

We cannot reasonably estimate or know the amount or timing of the costs necessary to continue exploratory development and/or complete the development of any lornoxicam product candidates we may seek to develop or when, if and to what extent we will receive cash inflows from any lornoxicam products. The additional costs that may be incurred include expenses relating to clinical trials and other research and development activities and activities necessary to obtain regulatory approvals.

PN (PPI / NSAID) Program

We have initiated an exploratory development program that is intended to identify potential product candidates that combine a PPI with an NSAID in a single tablet intended to provide effective control of pain and inflammation with fewer gastrointestinal complications compared to an NSAID taken alone. We have designated these potential product candidates as our PN suite of potential products.

In late 2004, we requested a pre-IND meeting with the FDA to discuss two of our exploratory proprietary tablet formulations containing an NSAID and a PPI. Our studies in human volunteers have suggested that such fixed combinations could provide a degree of protection against the development of gastric and/or duodenal ulcers in patients who require the daily use of an NSAID drug for arthritis or other chronic inflammatory conditions. We met with the FDA in January 2005 and reached agreement on our proposal for studies to demonstrate efficacy of the PPI/NSAID combination. A confirmation of the safety requirements necessary to support the NDA, particularly in regard to the cardiovascular safety of the NSAID component, was tabled pending the outcome of an FDA advisory committee meeting in February 2005 addressing the potential cardiovascular risk of COX-2 selective NSAIDs and related drugs. Subsequent to the FDA’s announcement of responses to the advisory committee’s recent meeting we will seek confirmation of the safety requirements necessary to support the NDA.

A discussion of the costs and expenses associated with our research and development programs appears below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Expenses Related to our Product Candidates.”

6

Table of Contents

Collaborative Arrangements

We have entered into and plan to continue to enter into collaborations with established pharmaceutical or pharmaceutical services companies to commercialize and manufacture our product candidates. Our existing commercialization collaborations are described below.

GlaxoSmithKline

In June 2003, we signed an agreement with GSK for the development and commercialization of proprietary combinations of a triptan (5-HT_1B/1D agonist) and a long-acting NSAID. The combinations covered by the agreement are among the combinations of MT 400. Under the terms of the agreement, GSK has exclusive rights in the United States to commercialize all combinations which combine GSK’s triptans, including Imitrex^® (sumatriptan succinate) or Amerge^® (naratriptan hydrochloride), with a long-acting NSAID. We are responsible for development of the combination product, while GSK is to provide formulation development and manufacturing. Pursuant to the terms of the agreement, we received $25.0 million in initial payments from GSK following termination of the waiting period under the Hart-Scott-Rodino notification program and the issuance of a specified patent. In May 2004, we received a $15.0 million milestone payment as a result of our commencement of Phase 3 clinical trial activities. Additionally, GSK is obligated to make payments to us in an amount up to $40.0 million upon the achievement of specified development and regulatory milestones relating to an NDA and commercialization progress for the first product. In addition, GSK will pay us sales performance milestones of up to $80.0 million if certain sales thresholds are achieved. Up to an additional $10.0 million per product is payable upon achievement of milestones relating to other products. GSK will also pay us royalties on all sales of marketed products until at least the expiration of the last to expire issued applicable patent (August 14, 2017 based upon the scheduled expiration of currently issued patents). GSK may reduce, but not eliminate, the royalty payable to us if generic competitors attain a pre-determined share of the market for the product, or if GSK owes a royalty to one or more third parties for rights it licenses from such third parties to commercialize the product. The agreement terminates on the date of expiration of all royalty obligations unless earlier terminated by either party for a material breach or by GSK at any time upon ninety (90) days’ written notice to us for any reason or no reason. Among the contract breaches that would entitle POZEN to terminate the agreement is GSK’s determination not to further develop the combination product under certain circumstances. GSK has the right, but not the obligation, to bring, at its own expense, an action for infringement of certain patents by third parties. If GSK does not bring any such action within a certain time frame, we have the right, at our own expense, to bring the appropriate action. With regard to certain other patent infringements, we have the sole right to bring an action against the infringing third party. Each party generally has the duty to indemnify the other for damages arising from breaches of each party’s representations, warranties and obligations under the agreement, as well as for gross negligence or intentional misconduct. We also have a duty to indemnify GSK for damages arising from our development and manufacture of MT 400 prior to the effective date of the agreement, and each party must indemnify the other for damages arising from the development and manufacture of any combination product after the effective date.

Nycomed Danmark ApS

In June 2003, we signed a license agreement with Nycomed for the commercialization of MT 100 in four Nordic countries. Under the terms of the agreement, Nycomed will have exclusive rights in Denmark, Sweden, Norway and Finland to commercialize MT 100 upon its approval in these countries. Upon execution of the agreement, Nycomed paid us an upfront fee of $0.5 million. We are eligible to receive milestone payments in an aggregate amount of between $0.5 million and $1.0 million upon the occurrence and timing of certain regulatory approvals, including the approval of the MAA in the UK and in the other countries where Nycomed has exclusive rights. In addition, Nycomed is obligated to pay us a specified royalty on all sales of MT 100, based upon the higher of an agreed percentage of sales on a country-by-country basis, subject to reduction in the event of generic competition, or an agreed dollar amount per unit sold subject to reduction under certain conditions, until the latter of the expiration of the last to expire issued applicable patent in the particular country or 15 years from first commercial sale. The scheduled expiration date of the patent that is currently applicable in Sweden, Finland and Denmark is November 12, 2016. There is no applicable patent in Norway. The license agreement will expire on a country-by-country basis upon the later of (a) the date of expiration of all royalty obligations in a particular country, which is scheduled for November 12, 2016 in Sweden, Finland and Denmark, and (b) 15 years after the date of first commercial sale of MT 100 in such country under the agreement. Nycomed has the right to terminate the agreement if we default under the agreement or the MAA is not approved by a specified date or is withdrawn. Nycomed can terminate the applicability of the agreement to a particular country if we withdraw the required regulatory application in that country. If we withdraw a regulatory application in any of the countries identified in the agreement, we will be required to pay a withdrawal fee in amounts that ranges from $0.1 million to $0.4 million. Assuming the issues raised in the September 2003 MAA comment letter discussed above are satisfactorily resolved and we receive unconditional approval of the MAA from the MHRA, we intend to seek approval of MT 100 in Denmark, Sweden, Norway and Finland through the European Union Mutual Recognition Procedure.

Under the agreement, generally, each party must indemnify the other for damages arising from each party’s breach of its representations, warranties and obligations under the agreement. Additionally, Nycomed must indemnify us for any claim brought by a third party arising from Nycomed’s development, manufacture or sale of any products, and we must indemnify Nycomed for any claim brought by a third party arising from our development, transportation or manufacture of any products. Furthermore, both parties have a duty to maintain commercially reasonable insurance coverage commensurate with its obligations under the agreement.

7

Table of Contents

At the same time as we entered into the license agreement with Nycomed, we entered into a supply agreement with Nycomed under which Nycomed is obligated to purchase from us, and we are obligated to sell to Nycomed, the MT 100 that Nycomed sells in the countries specified in the agreement, and Nycomed is required to reimburse us for certain costs related to the manufacturing of MT 100. The agreement will expire upon an anniversary date of the first commercial sale of MT 100 following final approval by the FDA of the NDA for MT 100. Either party may terminate the agreement in the event of a material breach or default by the other party of the material terms and conditions of the agreement. Among the material breaches that would entitle Nycomed to terminate the agreement would be our failure to deliver products to Nycomed at a time when Nycomed has established an alternative source of the product.

Xcel Pharmaceuticals, Inc.

In September 2003, we signed an agreement with Xcel for the further development and commercialization of MT 300. Under the terms of the agreement, Xcel will have exclusive rights in the United States to commercialize MT 300 subject to certain minimum commercialization obligations. Pursuant to the terms of the agreement, Xcel paid us an upfront fee of $2.0 million. Under certain circumstances, if we withdraw the NDA for MT 300, we would be required to pay to Xcel a termination fee of $1.0 million. Potential milestone payments of up to $8.0 million will be due upon certain future regulatory approvals, including the FDA’s approvals relating to MT 300, and the achievement of a predetermined sales threshold on MT 300. Xcel is also obligated to pay us royalties on all combined sales of MT 300 and Xcel’s D.H.E. 45^® (dihydroergotamine mesylate) Injection, upon commercialization of MT 300, until at least the expiration of the last to expire issued applicable patent (2020, based upon the scheduled expiration of the last to expire currently issued applicable patent), subject to reduction in certain instances of generic competition, or in the event that Xcel pays royalties to one or more third parties to license rights from such third parties to commercialize MT 300. The agreement terminates on the date of expiration of all royalty obligations (2020, based upon the scheduled expiration of the last to expire currently issued applicable patent) unless earlier terminated by either party for a material breach or in the event that either party determines not to pursue approval of MT 300. Under certain circumstances, the agreement provides for the terminating party to facilitate the assumption of its responsibilities by the non-terminating party. Generally, each party must indemnify the other for damages arising from such party’s breach of its representations, warranties and obligations under the agreement, as well as for the gross negligence or willful misconduct by either party. Additionally, Xcel must indemnify us for damages arising from the development, manufacture or use of any product after the effective date of the agreement, while we must indemnify Xcel for any damages arising from such development, manufacture or use prior to the effective date. We must also indemnify Xcel for any use by us or any sub licensee of certain technology owned by Xcel. Based upon the delayed commercialization of MT 300 due to the not-approvable letter for MT 300 and our efforts to address with the FDA the issues raised in the that letter, we and Xcel have mutually agreed, in writing, to extend the time for certain activities under our agreement with Xcel that are dependent on the FDA’s actions with respect to MT 300. In February 2005, Valeant reported that it had entered into a definitive agreement to acquire Xcel and on March 1, 2005 reported that the acquisition had been completed.

Manufacturing

We currently have no manufacturing capability and we do not intend to establish internal manufacturing capabilities.

To date, we have entered into arrangements with third-party manufacturers for the supply of formulated and packaged MT 100, MT 300 and MT 400 clinical trial materials and clinical supply materials for our exploratory program clinical trials. We believe our current supplier agreements should be sufficient to complete both our ongoing and planned clinical trials. Pursuant to our development and commercialization agreement with GSK for MT 400, GSK will supply us with the required clinical trial materials to conduct our MT 400 clinical trials covered under the agreement. Use of third-party manufacturers enables us to focus on our clinical development activities, minimize fixed costs and capital expenditures and gain access to advanced manufacturing process capabilities and expertise. We also intend to enter into agreements with third-party manufacturers for the commercial scale manufacturing of our products.

In January 2001, we entered into a Commercial Supply Agreement with DSM Pharmaceuticals, Inc. (“DSM”, formerly Catalytica Pharmaceuticals, Inc.) under which DSM will supply us with all MT 100 for domestic and non-domestic commercial sale. We, or our commercial partners, are required to purchase all commercial supply of MT 100 from DSM for the initial term of the agreement (the first three years after FDA approval) and any extension thereof, unless DSM is unable to meet our, or our commercial partners’, requirements. We have the right to terminate the agreement under certain circumstances after the initial term.

In October 2001, we entered into a Commercial Supply Agreement with Lek Pharmaceuticals Inc. (“Lek”), a subsidiary of Novartis Pharma AG, under which Lek agreed to provide us with DHE, which we will formulate as MT 300. We agreed to purchase DHE exclusively from Lek, which exclusivity is dependent upon Lek’s ability to meet our supply requirements and certain other conditions. Lek will supply to us solely and exclusively, under certain circumstances. We will pay Lek, under certain circumstances, a fee in addition to the agreed supply price for DHE, based on a percentage of MT 300 sales revenue. The initial term of the agreement terminates on the fifteenth (15th) anniversary of the date of the first commercial sale of MT 300, but is automatically renewed on an annual basis thereafter unless canceled or terminated. Either party may cancel the agreement upon a material breach. We may terminate the agreement if we elect to stop development or commercialization of MT 300, or after a period of time specified in the agreement. In addition, Lek may terminate the agreement after a certain period of time, under agreed transition, supply and know-how transfer provisions, if Lek decides to permanently cease the manufacture of DHE.

8

Table of Contents

Competition

Competition for our migraine products that receive regulatory approval will come from several different sources. Because not all migraine attacks are of the same severity, a variety of oral, injectable and intranasal therapies are used to treat different types of migraine attacks. Attacks are often treated initially with simple over-the-counter analgesics, particularly if the patient is unable to determine if the attack is a migraine or some other type of headache. These analgesics include Excedrin Migraine®, which is approved for the pain associated with migraine. If over-the-counter remedies are unsuccessful, patients often turn to more potent prescription drugs, including triptans. According to IMS, in 2004, total triptan sales in the U.S. were approximately $1.9 billion. Imitrex, a triptan product marketed by GSK, had total U.S. sales of approximately $1.1 billion in 2004, according to IMS.

Narcotics such as codeine and drugs containing analgesic/narcotic combinations, along with other non-narcotic pain medications, are also used for the treatment of migraine. If approved, our migraine product candidates will most likely compete with one or more of these existing migraine therapeutics, as well as any therapies developed in the future. Based upon their current migraine portfolios, GSK, Merck & Co., MedPointe Pharmaceuticals, Johnson & Johnson, Pfizer, Inc. and Endo Pharmaceuticals will be our principal competitors if the Company’s migraine product candidates are approved.

The U.S. prescription market for NSAIDs was approximately $6.6 billion in 2004, of which 81% was accounted for by the COX-2 inhibitors, according to IMS. This market is undergoing significant change, due to the voluntary withdrawal of Vioxx by Merck & Co. in September 2004, and the convening of an FDA advisory committee meeting in February 2005 to review data on the COX-2 inhibitors and other NSAIDs. Uncertainty in this market is likely to continue until the FDA provides guidance after the advisory committee meeting.

The pharmaceutical and biopharmaceutical industries are intensely competitive and are characterized by rapid technological progress. Certain pharmaceutical and biopharmaceutical companies and academic and research organizations currently engage in, or have engaged in, efforts related to the discovery and development of new medicines for the treatment of migraine symptoms. Significant levels of research in chemistry and biotechnology occur in universities and other nonprofit research institutions. These entities have become increasingly active in seeking patent protection and licensing revenues for their research results. They also compete with us in recruiting skilled scientific talent.

Our ability to compete successfully will be based on our ability to create and maintain scientifically advanced technology, develop proprietary products, attract and retain scientific personnel, obtain patent or other protection for our products, obtain required regulatory approvals and manufacture and successfully market our products either alone or through outside parties. Some of our competitors have substantially greater financial, research and development, manufacturing, marketing and human resources and greater experience than we do in product discovery, development, clinical trial management, FDA regulatory review, manufacturing and marketing, which may enable them to compete more effectively than we can.

Patents and Proprietary Information

We have obtained and intend to actively seek to obtain, when appropriate, protection for our products and proprietary technology by means of U.S. and foreign patents, trademarks and contractual arrangements. In addition, we rely upon trade secrets and contractual agreements to protect certain of our proprietary technology and products.

We have six issued U.S. patents and five pending U.S. patent applications, and we presently have pending foreign patent applications or issued foreign patents, relating to MT 100, MT 300 and our MT 400 technology. We also have U.S. and foreign patent applications pending relating to novel product concepts. There can be no assurance that our patent applications will issue as patents or, with respect to our issued patents, that they will provide us with significant protection. The following provides a general description of our patent portfolio and is not intended to represent an assessment of claim limitations or claim scope.

MT 100

We have two issued U.S. patents, one with claims relating to dosage forms that can be used in administering metoclopramide and a long-acting NSAID to a patient with migraine headache and one with claims relating to various pharmaceutical compositions and treatment methods that can be used with migraine patients. Within these issued U.S. patents are also claims relating to a method of manufacturing a specific type of dosage form. We submitted one of our issued U.S. patents for reissue after determining that certain specified claims that are not central to our protection of MT 100 should not have been issued. A third party has filed a protest regarding the reissuance of that MT 100 patent. We do not know the weight the examiner will give to the protest. However, we believe the protest to be without merit. We have issued patents in Australia, Europe and Canada. We have one pending U.S. patent application with claims relating to various pharmaceutical compositions and treatment methods that can be used for migraine patients. In addition, there is an application relating to MT 100 that is pending in Japan. The expected expiration date of all the issued U.S. and foreign patents relating to MT 100 is November 10, 2016. Additional U.S. and foreign patents, if issued, are expected to expire in a similar timeframe.

MT 300

With respect to MT 300, we received U.S., European and Australian patents relating to a high potency formulation of DHE and formulations of DHE in a pre-filled syringe. We also have pending U.S., Canadian, Japanese and Australian patent applications

9

Table of Contents

with claims relating to high potency formulations and therapeutic packages, and we have patent applications pending in other major markets worldwide. The expected expiration date of all of the U.S. and foreign patents relating to MT 300 is March 15, 2020. Additional U.S. and foreign patents, if issued, would be expected to expire in a similar timeframe.

MT 400

We have three issued U.S. patents with claims relating to methods, compositions and therapeutic packages involving the use of certain NSAIDs and 5-HT receptor agonists in treating patients with migraine. Outside of the U.S., we have issued patents in Australia and Europe and patent applications relating to our MT 400 technology pending in Canada and Japan. The expected expiration date of the issued U.S. patents relating to MT 400 is August 14, 2017. Foreign patents, if issued, are expected to expire in a similar timeframe. We have also filed a U.S. patent application with claims directed to formulations of MT 400.

Exploratory Programs

We have filed U.S. and foreign patent applications with claims directed to novel compositions and formulations for the combination of PPIs and NSAIDs. Should any patents issue from these applications they would be expected to expire on May 31, 2022. We have filed provisional U.S. patent applications with claims directed to novel compositions and formulations for new product concepts which are currently in the exploratory stage. If we pursue these provisional applications into prosecution as regular patent applications, any patents which issue from these applications would be expected to expire between 2025 and 2026.

Government Regulation

The FDA and comparable regulatory agencies in foreign countries impose substantial requirements on the clinical development, manufacture and marketing of pharmaceutical product candidates. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record-keeping, approval and promotion of our product candidates. All of our product candidates will require regulatory approval before commercialization. In particular, therapeutic product candidates for human use are subject to rigorous preclinical and clinical testing and other requirements of the Federal Food, Drug, and Cosmetic Act (“FFDCA”), implemented by the FDA, as well as similar statutory and regulatory requirements of foreign countries. Obtaining these marketing approvals and subsequently complying with ongoing statutory and regulatory requirements is costly and time-consuming. Any failure by us or our collaborators, licensors or licensees to obtain, or any delay in obtaining, regulatory approvals or in complying with other requirements could adversely affect the commercialization of product candidates then being developed by us and our ability to receive product or royalty revenues.

The steps required before a new drug product candidate may be distributed commercially in the U.S. generally include:

Phase 1: The product is initially introduced into human subjects or patients and tested for safety, dose tolerance, absorption, metabolism, distribution and excretion;

Phase 2: The product candidate is studied in patients to identify possible adverse effects and safety risks, to determine dosage tolerance and the optimal dosage, and to collect some efficacy data;

Phase 3: The product candidate is studied in an expanded patient population at multiple clinical study sites, to confirm efficacy and safety at the optimized dose, by measuring primary and secondary endpoints established at the outset of the study;

This process can take a number of years and require substantial financial resources. The results of preclinical studies and initial clinical trials are not necessarily predictive of the results from large-scale clinical trials, and clinical trials may be subject to additional costs, delays or modifications due to a number of factors, including the difficulty in obtaining enough patients, clinical investigators, product candidate supply or financial support.

10

Table of Contents

Even after FDA approval has been obtained, further studies, including post-marketing studies, may be required. Results of post-marketing studies may limit or expand the further marketing of the products. If we propose any modifications to a product, including changes in indication, manufacturing process, manufacturing facility or labeling, a supplement to our NDA may be required to be submitted to the FDA.

The FDA may also require testing and surveillance programs to monitor the effect of approved product candidates that have been commercialized, and the agency has the power to prevent or limit further marketing of a product candidate based on the results of these post-marketing programs. Upon approval, a product candidate may be marketed only in those dosage forms and for those indications approved in the NDA.

The status of the NDAs we have submitted to the FDA for MT 100 and MT 300 is discussed above in “Migraine Product Candidates – MT 100” and “Migraine Product Candidates - MT 300.”

In addition to obtaining FDA approval for each indication to be treated with each product candidate, each domestic product candidate manufacturing establishment must register with the FDA, list its product with the FDA, comply with the applicable FDA current Good Manufacturing Practices, or cGMP, regulations, which include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation, and permit and pass manufacturing plant inspections by the FDA. Moreover, the submission of applications for approval may require additional time to complete manufacturing stability studies. Foreign establishments manufacturing product for distribution in the U.S. also must list their product candidates with the FDA and comply with cGMP regulations. They are also subject to periodic inspection by the FDA or by local authorities under agreement with the FDA.

Any product candidates manufactured or distributed by us pursuant to FDA approvals are subject to extensive continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the product candidate. In addition to continued compliance with standard regulatory requirements, the FDA may also require post-marketing testing and surveillance to monitor the safety and efficacy of the marketed product. Adverse experiences with the product candidate must be reported to the FDA. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product are discovered following approval.

The FFDCA also mandates that products be manufactured consistent with cGMP regulations. In complying with the cGMP regulations, manufacturers must continue to spend time, money and effort in production, record keeping, quality control, and auditing to ensure that the marketed product meets applicable specifications and other requirements. The FDA periodically inspects manufacturing facilities to ensure compliance with cGMP regulations. Failure to comply subjects the manufacturer to possible FDA action, such as warning letters, suspension of manufacturing, seizure of the product, voluntary recall of a product or injunctive action, as well as possible civil penalties. We currently rely on, and intend to continue to rely on, third parties to manufacture our compounds and product candidates. These third parties will be required to comply with cGMP regulations.

Products manufactured in the U.S. for distribution abroad will be subject to FDA regulations regarding export, as well as to the requirements of the country to which they are shipped. These latter requirements are likely to cover the conduct of clinical trials, the submission of marketing applications, and all aspects of manufacturing and marketing. Such requirements can vary significantly from country to country.

We and our contractors are also subject to various federal, state and local laws, rules, regulations and policies relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use of and disposal of hazardous or potentially hazardous substances used in connection with our research work. Although we believe that safety procedures employed for handling and disposing of such materials comply with current federal, state and local laws, rules, regulations and policies, the risk of accidental injury or contamination from these materials cannot be entirely eliminated.

Before a medicinal product can be supplied in the European Union (“EU”), it must first be granted a marketing authorization. There are two routes by which this may be achieved: the centralized procedure whereby an approval granted by the European Commission permits the supply of the product in question throughout the EU or the Mutual Recognition Procedure (“MRP”) where a marketing authorization granted by one national authority (the Reference Member State) is “recognized” by the authorities of the other member states (Concerned Member States) when conducting their reviews. This process leads to individual licenses in each member state for the supply of products in that country only. The centralized route is compulsory for biotechnology products and is optional for certain so-called ‘high technology’ products. All products which are not authorized by the centralized route must be authorized by the MRP unless the product is designed for use in a single country in which case a National Application can be made.

In the UK, the regulation of medicinal products is governed by the Medicines Act of 1968 and subsequent delegated legislation. Essentially all applications, which must include full details of the product and the research that has been carried out to establish its efficacy, safety and quality, must be presented for review by the competent authority, the MHRA.

The MHRA will assess the data presented to ensure that the product satisfies the appropriate requirements for efficacy, safety and quality. They may seek additional evaluation by an advisory committee, the Committee on Safety of Medicines (referred to in this 10-K as the “MHRA Advisory Committee”). The MHRA Advisory Committee may, if it wishes, advise the MHRA to refuse an application.

11

Table of Contents

MT 100 is a fixed combination medicinal product incorporating two previously approved active ingredients. Such products will only be considered acceptable by the MHRA if the proposed combination is based on valid therapeutic principles. The possibility of interactions between the substances will be assessed and it will be necessary to establish that either interactions do not occur, or if they do occur, they are clearly established and defined. Furthermore, special safety and efficacy requirements apply to fixed combination products in that the dosage of each active ingredient within the combination product must have a documented contribution within the combination and the combination should demonstrate a level of efficacy above that achieved by a single substance with an acceptable safety profile.

The status of the MAA we submitted for MT 100 is discussed above under “Migraine Product Candidates — MT 100.”

If the MHRA grants the authorization for the product to be marketed in the UK, further applications will typically be made to the competent authorities of other EU countries by way of the MRP. The competent authorities of the designated EU countries will be requested to recognize the authorization of the MHRA based upon an assessment report prepared by the MHRA. The process should take no longer than 90 days, but if one country makes an objection (which, under the legislation, can only be based on a possible risk to human health, but in practice has been used by some countries to cover issues beyond the scope of the legislation), we have the option to withdraw the application from that country or take the application to arbitration by the Committee for Propriety Medicinal Products (CPMP) of the EMEA. If a referral is made, the procedure is suspended and in the intervening time the only EU country in which the product can be marketed will be the UK, even if all other designated countries are ready to recognize the product. The opinion of the CPMP, whi