#zogenix

On Friday Zogenix’s ($ZGNX) Chief Commercial Officer resigned from the company.  A move like this is never a good sign for a drug launch only about 5 months out of the gate.  I recently published an article on Seeking Alpha criticizing the launch here: http://bit.ly/1uY8hGw The article compared the launch to other pain killers, and showed that the curve was not inspiring.  Additionally, the cost structure of ZGNX made it clear things needed to change quickly if the company was going to stay solvent or at least avoid a major restructuring.

The removal of their CCO on Friday put the stock down another 6-8% after hours, but depending on where management goes I think this could finally be a buying opportunity.  My recommendation right now is to jettison Zohydro.

With the departure of the CCO, Zogenix has the chance to pivot and sell the asset in order to focus on Relday and the DosePro platform.  With a sale of Zohydro for a royalty or small upfront, they transform the cost structure of the company and add additional cash or future profit to the balance sheet.

Reasons to get out of Zohydro:

Expensive to launch and reps only have 1 drug in their bag

Undersized sales force relative to more established pain companies

“ANewPerspective” commented in reply to my claims of a “slow launch” on June 21st with this:

I agree with Aaron Mac! 590 reps launched Opana, and that was an era without as many generic options.  So why is Zohydro going to catch up with the Opana curve with upheaval at the top and <25% the # of people selling it?

DosePro and Delray aren’t pain products, what good is it to establish a small pain franchise only to bring forward a schizophrenia asset?

Competition is coming, from companies that own the pain market.  Purdue is a controversial company, but they know the pain space as well as anyone, and other big players aren’t far behind.  If they couldn’t get traction as the only game in town, it is unlikely to get easier.

  Zogenix with a 10-15% royalty on Zohydro would be an incredibly attractive asset.

Investors would get a company with 90-100 million of cash depending on Q2 burn and no debt.

Relday is a very interesting asset after Phase I PK profile confirmation. Risperidone works, the question is if a once monthly formulation is viable.

DosePro is a validated concept, the value of which can be seen in the ENDP deal.

If no one wants Zohydro for a small royalty, then what does that really say about its uniqueness and value?

The only caveat here is that they already have an Alkermes royalty so things might get messy/tough to partner again.

Conclusion:

My first reaction to the news on Friday was a feeling of validation to my criticism of the launch.  After reflecting on things over the weekend, it looks like this might be actually a gift to investors on Monday.  Provided management makes a pivot, Zogenix can: transform its cost structure, shore up its financial situation, and remove an unfair but very real firestorm of criticism on all fronts from the stock’s story.

If you haven’t heard about Zohydro yet, now is the time to listen. Zohydro was just approved by the FDA, regardless of a 11/2 vote. The reason Zogenix claims they plan on manufacturing this drug, is for the patients suffering from severe pain. Zohydro does not contain Acetaminophen, like most other pain medications, such as Vicodin. Zogenix claims that Zohyrdo would greatly benefit those patients that cannot consume Acetaminophen. 

Pressed by unexpected delays in a ruling from the FDA, San Diego-based Zogenix (NASDAQ:ZGNX) says it has laid off 55 employees—or 37 percent of its workforce—in an effort to conserve cash through the summer.

The pharmaceutical company, which specializes…