January 3, 2013 | 6 comments | includes: ZGNX, ZLCS
By Matt Shilling :Disclosure: I am long ZLCS, ZGNX.
Clinical Trials and FDA Recommendations play vital roles in the life expectancy of drug companies. They also happen to be the two key variables I use when considering small-cap pharmaceutical stocks. That said I've chosen two companies which have reacted quite positively to news regarding recent clinical trials.
Zalicus (ZLCS): According to its website, "Zalicus is a biopharmaceutical company which engages in the discovery and development of drug candidates focusing on the treatment of pain and inflammation". Zalicus is primarily focused on the development of the following drugs in its pipeline: Synavive (a Phase IIb candidate being developed for the treatment of rheumatoid arthritis), Z-160 (a Phase I candidate being developed as an N-type calcium channel blocker) and Z-944 (a Phase I candidate focused on the treatment of various chronic pain conditions).
From a fundamental perspective, shares of ZLCS currently carry a market cap of $96.30 million, have traded down 37.50% since July 1, and are also trading at a 19.89% premium to their 50-DMA and at a 16.79% discount to their 200-DMA.
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ZLCS data by YCharts
On January 3rd it was announced that Zalicus had initiated the second of two Phase IIa clinical studies with Z160, a selective N-type calcium channel blocker designed to potentially treat chronic neuropathic pain. The second Phase IIa study with Z160 is currently enrolling subjects with Postherpetic Neuralgia (PHN), a chronic neuropathic pain state resulting from an outbreak of the herpes zoster virus, otherwise known as shingles.
According to Dr. Mark H.N. Corrigan, President and CEO of Zalicus, "Postherpetic Neuralgia is an important medical condition for evaluating the activity of Z160 for three important reasons. First, it is a well-recognized standard for establishing clinical proof of concept in neuropathic pain; second, with a prevalence of less than 200,000 patients in the U.S., it has the potential for orphan drug status and could be a feasible first indication to pursue from a commercial perspective; and third, significant unmet medical need exists for novel, targeted and more efficacious chronic neuropathic pain therapies with improved safety and tolerability profiles such as Z160".
Zogenix (ZGNX): According to its website, "Zogenix a pharmaceutical company, engaging in the development and commercialization of products for the treatment of central nervous system disorders and pain". Zogenix is primarily focused on the development of the following two drugs in its pipeline: Zohydro (a drug candidate recently completing Phase III trials and being developed for the treatment of moderate to severe chronic pain requiring around-the-clock opioid therapy), and Relday (a Phase I drug candidate that will serve as an injectable formulation of risperidone to treat the symptoms of schizophrenia and bipolar disorder in adults and teenagers 13 years of age and older).
Fundamentally speaking, shares of ZGNX currently carry a market cap of $146.97 million, have traded down 42.75% since July 1, and are also trading at a 24.48% discount to their 50-DMA and at a 37.23% discount to their 200-DMA.
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ZGNX data by YCharts
On January 3rd it was announced by Zogenix that its Relday treatment for schizophrenia had a good safety and PK (pharmacokinetic - what the body does to the drug) profile during the Phase I study. Since both profiles demonstrated positive reactions, the Phase 1 trials will now be extended for increased doses.
Roger L. Hawley, chief executive officer of Zogenix, said, "The positive results from the first Relday study provide proof-of-concept for a novel, long-acting, subcutaneous formulation of an established antipsychotic to provide psychiatrists and their patients with an improved treatment option. Because the PK profile, overall safety results and injection site reactions were all favorable, we can now begin discussions with potential partners for rest-of-world development and commercialization as we continue with the 100 mg single-dose study extension of Relday".
Final Analysis
Are there any negative catalysts potential investors should consider before establishing a position in either Zalicus or Zogenix?As is the case with any biotech company, potential investors need to keep in mind some of the negative catalysts that go hand-in-hand with both companies. On one hand, any negative indication by the FDA with regard to Zalicus's Z-160 or Zogenix's Relday could result in the sell-off of either stock. On the other hand, weaker than expected earnings at any point over the course of the next 12-18 months could also send shares of these companies down an unfavorable path.
For potential investors looking to establish a position in Zalicus or Zogenix, I'd take a closer look at each company and keep in mind the primary positive and negative catalysts moving forward. Given the fact that both companies are making considerable strides, I'd look to establish a small to medium position at current levels and add to that position once future developments are announced.
Source: seekingalpha.com
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