Zogenix (ZGNX)

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[url][/url][tag]http://seekingalpha.com/article/3007296-market-oversells-zogenix-after-company-exits-pain-business[/tag]



Market Oversells Zogenix After Company Exits Pain Business
Mar. 17, 2015 12:30 PM ET | 2 comments | About: Zogenix, Inc.
Summary

Shares tanked 27% after Q4 report and Zohydro sale/personnel transfer, to bring the market cap to below $200M.
However, after the transaction, Zogenix is now flush with >$100M cash and is stable til the end of 2016. And with Zogenix, another M&A is never out of the picture.
The remaining pipeline consist of two advanced-stage potential blockbusters, which are definitely worth more than the balance of the market cap.

Zogenix (NASDAQ:ZGNX) is a small specialty pharmaceutical company developing therapies that address central nervous system (NYSE:CNS) conditions. It has a market cap of $199.37 million and on March 10, reported financial results for the fourth quarter ended December 31, 2014. On the same day, Zogenix announced the sale of its Zohydro ER (extended-release hydrocodone) business, including the transfer of the Zogenix pain sales team, to Pernix Therapeutics (NASDAQ:PTX) for $100 million plus milestones up to $283.5 million. The transaction transformed Zogenix to a cash-laden company with a late-stage CNS pipeline. Zogenix can also decide to go shopping, like it did when it acquired Brabant Pharma in October to obtain their Brabafen (now ZX008).
Remaining lead candidates compare favorably to other big sellers.

ZX008 (low-dose fenfluramine) and Relday (once-monthly subcutaneous risperidone) are Phase 3-ready product candidates. Fenfluramine (Pondimin) was half of the notorious "fen-phen," a widely used off-label combination with phentermine for long-term management of obesity in the 1990s. Pondimin and the related drug Redux (dexfenfluramine) were both withdrawn from the market in 1997 after causing heart valve disease in an unacceptably high number of patients. Over 30% of patients developed valvulopathy on a daily Pondimin dose of at least 20 mg/day. Pondimin had been on the market for more than 20 years before the problem became widely known.

ZX008 has orphan drug designation in the U.S. and Europe for the treatment of Dravet syndrome. It is estimated that 1 in 20,000-40,000 children have this genetic disorder of the brain. The potential to reduce the frequency of serious seizures (childhood mortality >15%) and the accompanying complications (infections, developmental disability) may heavily outweigh the cardiac risks of fenfluramine use.

Small fenfluramine dosages in the range of 0.12-0.90 mg/kg/day were effective in children 1-16 years of age. Anecdotally, researches told of kids who developed the feared heart valve thickening, but whose parents refused to stop treatment. Seventy percent of the children remained seizure-free for more than a year. If even half of this efficacy is confirmed by the Phase 3, it would still be superior to any treatment regimen reported in literature. While it is premature to speculate on pricing, the orphan drug status suggests that ZX008 is a future blockbuster when compared to, say, products from BioMarin (NASDAQ:BMRN) that are netting $200-300 million annually from much rarer diseases. Zogenix's remaining personnel should easily be able to cover the few Dravet syndrome experts per territory.