Can Zogenix Rediscover Its' Form?

Zogenix Inc (NASDAQ:ZGNX) is a specialty pharmaceutical company focused on the development and commercialization of drugs for treatment of ailments related to central nervous system and related pain. The Company in the past has developed Sumatripan injection (a drug delivery system, DosePro), currently owned by Enzo International. It is currently drumming campaign for the commercialization of one of its latest approvals Zohydro ER, an oral formulation of hydrocodone bitartrate used for treatment of severe pain.

The company received FDA approval for Zohydro ER capsules for chronic pain in October last year, despite several critics questioning the decision. Nonetheless, the company has managed to pull through and looks set to reap from the product. Two abuse resistant capsule and tablet version of the same drug are in the pre-clinical stage and the company anticipates launching  next generation version of Zohydro ER over the next two years with filing (New Drug Application) NDA for the capsule slated for H1 2015 and for the tablet in 2016. Another drug for treatment of schizophrenia, Risperidone has commenced phase I trials.

In a recent development, Purdue Pharma, one of the key competitors of Zogenix applied for NDA status for its tablet version of hydrocodone tablet and US FDA has granted priority review status for the drug. This effectively means that Purdue’s tablet could have a 4-month headstart to Zohydro in hitting the market and if the tablet is successful, FDA might consider stopping other tablet forms of hydrocodone from commercialization. According to reports, Purdue Pharma’s recent move is seen as an attack on Zogenix. This could affect the revenue growth of Zogenix as Zohydro ER is seen as one of the revenue drivers for the company in the next two years.

Zogenix has been volatile and still is
The stock price has plunged by more than 25% since the announcement of this news and has also hit a 52-week low of $1.14.



Chart Created Using Quantshare

Zogenix has been very volatile over the last two quarters and this is well illustrated by the number of times the Fast Stochastic has crosses both the 80 point and 20 point levels. It has also crossed the slow stochastic on several occasions indicating the frequent change of investor sentiments and direction of the trend. This is the kind of volatility that, even backtesting strategies may prove futile.

Over the last few days, the stock price appeared to have taken an upward direction, but again as illustrated by the stochastic indicator, that rally seems to be ending.

So what are some of the reasons associated with Zogenix’s plunge?
In terms of financial performance, the Company has made net losses since its inception in 2006, but that is largely because it started booking revenues in 2010. The revenue declined 25% in full year 2013 to $33 million from $44.3 million reported in 2012, while the net loss widened to $80.8 million in 2013 from $47.3 million in 2012. In the Q1 2014 results, the revenue increased to $7.6 million from $6.9 million last year. The operating loss increased to $27 million from $15 million due to high sales & marketing expense. The net loss, however, decreased marginally to $20.9 million from $21 million in Q1 2013. The company has $81 million in cash, which can be used to sustain ongoing operations. The first quarter results hinted a slight decline in losses for the whole year 2014.

Maybe there is hope
Zogenix pharma had entered into an asset purchase agreement with Endo Ventures Bermuda for the sale of Sumavel Dosepro needle free delivery system for an initial cash payment of $85 million plus up to $20 million in milestone payments.  The deal closed on May 19, 2014. This will boost the company’s cash position, which can be used to further expedite the stage pipeline development. Also the sales of Zohydro ER in its current form is estimated to increase and Zogenix will have a realistic chance to lead the market until competitor products or tablet/ capsule versions of competitors like Purdue hit the market.

The total revenue increased sequentially from $7.6M reported in Q1, 2014 to $9.1M in Q2, and is expected to increase again year-over-year in Q3 from $7.17M to $8.12M, as the company continues to book sales of Zohydro ER. Though the stock price has been battered in recent times, there are enough positive factors to start another uptrend, as new products continue to hit the market.