Zogenix FDA Approval, How This Small Cap is Trying to Cure a Rare Condition

Dravet syndrome is a rare disease that affects children one year old and older. Like epilepsy, children are affected by pronounced seizures, but unlike epilepsy, children don’t grow out of the symptoms, and can also suffer from developmental delays, and problems with movement and speech.

Here’s a video of how one family is impacted by Dravet syndrome.

Zogenix $ZGNX is a biotech that is looking to help patients with seizures caused by Dravet syndrome, and the company has FDA decision on approval of its drug Fintepla on March 25th, 2020.

History of the company

Zogenix is a small cap ($1.5 billion market cap at the time of writing) company headquartered in California that IPOed in 2010. Their lead drug Fintepla is a low-dose liquid formulation of fenfluramine, a stimulant with a long history. 

Fenfluramine was first discovered in the 1960’s and was one of the two drugs in the “fen-phen” scare of the 1990’s, the anti-obesity drug which was pulled from the market in 1997 after it was found to cause damage to patients’ heart-valves.

However, at low doses, Zogenix’s clinical trials have shown an impressive 64% reduction of seizures of patients with Dravet syndrome, with no notable safety issues.

Rocky stock history

Zogenix stock has been on a wild ride over the last two and a half years, consistently jumping around from $30-$60/share.

  1. Zogenix announces impressive Phase 3 results for Fintepla for Dravet syndrome. Stock rises 200%.
  2. Zogenix announces impressive Phase 3 results for for Fintepla for Dravet syndrome for second confirmatory trial, showing results were consistent with earlier results. Stock rises 30%
  3. The FDA issued a Refusal to File letter to Company for Fintepla for Dravet syndrome, based on missing application data. Stock falls 21%.
  4. The FDA reverses its earlier decision for the Refusal to File and allows company to file a New Drug Application (NDA) for Fintepla for Dravet syndrome. Stock rises 20%
  5. Zogenix announces Phase 3 results for Fintepla for a different disease, Lennox-Gastaut Syndrome. The results meet expectations but they show the drug is not as effective as a competitor’s drug. Stock falls 30%.

Competition

When Zogenix started its drug development, Dravet syndrome had no treatment for seizures, but in the last 2 years the field has become crowded. GW Pharma’s $GWPH drug, Epidiolex, the first medicine derived from a marijuana plant, and Biocodex’s (private company) drug Diacomit, an anticonvulsant, were both approved in 2018 for the treatment of seizures associated with Dravet syndrome.

Investors are comparing the efficacy between Zogenix’s drug and the competitors to determine who will win in this market, although it is also possible that doctors may prescribe multiple treatments.

For Dravet syndrome, Fintepla data seems to be better than Epidiolex, but results are more neck-and-neck vs Diacomit.

Valuation

Currently Zogenix is trading at about a $1.5 billion market cap ($32/share). Zogenix has no revenue, but historically, biotechs are valued at three times the peak annual sales of the company’s lead candidate. Investment bank analysts estimate a range from $800 million to $1.1 billion of peak sales for Fintepla, if it can get approved.

Will FDA Approval Happen?

Although Bio-Twitter’s opinion is split, it seems like there are more bulls than bears on the possibility of FDA approval.

Jacob Plieth, a journalist at biotech publication Vantage, is a bear on the FDA approval decision.

But there are many Zogenix bulls, including Managing Partner at research firm Edison, Maxim Jacobs

The bear case seems to rest on the gloomy history of fenfluramine’s safety, while the bulls are saying that the benefits outweigh the risks of a disease that already is incredibly harmful.

Recent Setbacks (LGS)

As noted above, the most recent stock decline happened on February 7th, 2020 after the company reported clinical results for another childhood-onset epilepsy condition known as Lennox-Gastaut syndrome. Lennox-Gastaut syndrome is even more rare than Dravet syndrome.

While Fintepla showed a 26% reduction in seizures of Lennox-Gastaut vs. placebo, this results were not as good as competitor drugs Epidiolex which showed a 44% reduction.

What Will Happen to the Stock?

Could Zogenix’s stock pop on FDA approval of Fintepla? Will GW Pharma’s stock fall? I leave that an an exercise to the reader.

TakeAway

  • Stock: Zogenix $ZGNX
  • FDA Approval Date: March 25, 2020
  • Catalyst Score: 4/5

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 24 hours. This article is for informational purposes only, and while the author makes every effort to present accurate and reliable information, Foreshadow, LLC does not guarantee the accuracy, completeness, efficiency, timeliness, or correct sequencing of such information.  Reliance on such information should only be undertaken after an independent review of its accuracy, completeness, efficiency, and timeliness. This article is not intended to serve as a recommendation to buy or sell any security. The author is not a registered investment advisor.

Author’s Update

After the publication of this article, Zogenix announced on February 27th that the FDA extended the review period and now expects the drug approval decision in another 3 months by June 25th, 2020. In response, the stock dropped 10% that day.
Zogenix Announces FDA Extension of Review Period for FINTEPLA® in Dravet Syndrome