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Zalicus Inc (ZLCS) is a biopharmaceutical company that has reached agreements with important companies such as Novartis (NVS), Covidien (COV), Sanofi (SNY) and Amgen (AMGN) among others.

Zalicus and Novartis entered into a strategic alliance focused on the discovery of novel anti-cancer combinations with the cHTS™ technology. The collaboration explores combination effects in cell lines representing a broad spectrum of cancers to provide a robust and systematic understanding of combination therapy opportunities. Under the agreement, Zalicus received a $4 million upfront payment and funding for research support for two years. In addition, for each combination advanced to the market from the collaboration, Zalicus is eligible to receive up to $58 million in clinical, regulatory and commercial milestones. The alliance had an initial two-years term that may be extended by Novartis for three additional one-year periods and will be renewed into May 2013. Zalicus retains the right to conduct oncology research on its own behalf as well as partner with others in the field of oncology and will retain certain intellectual property rights which may arise from the collaboration research.

According to the company, on December 2009, Zalicus entered into a research collaboration agreement with Amgen, focused on identifying synergistic combinations for two oncology targets of interest to Amgen. Under the agreement, Zalicus received a $750,000 payment in January 2010 to fund the initial research plan, and Amgen also agreed to reimburse it for laboratory supplies consumed.

Sanofi is developing a proprietary co-formulation of Prednisporin and is seeking to develop Prednisporin to treat inflammatory ocular diseases such as allergic conjunctivitis. Zalicus received payments totaling $1.5MM for Prednisporin by Sanofi, and was eligible to receive up to $39MM in development and regulatory milestone payments. Zalicus was also qualified to receive royalties on net sales of Prednisporin by Sanofi. In its last financial report, Sanofi announced that it had made the decision to continue the development of FOV1101 (Prednisporin) under a sublicense agreement to be entered into with an outside party still to be identified.

The FDA approved the three existing doses of EXALGO (8, 12 and 16 mg) in March 2010. On 27 August 2012, Zalicus announced that the U.S. Food and Drug Administration has approved the supplemental new drug application filed by Mallinckrodt (subsidiary of Covidien) for the 32 mg dose strength of EXALGO (hydromorphone HCl) extended-release Tablets, for the management of moderate to severe pain in opioid-tolerant patients requiring continuous, around-the-clock opioid analgesia for an extended period of time. The rights to EXALGO were acquired by Mallinckrodt, the pharmaceuticals business of Covidien, in June 2009 for $15 million in upfront payments, additional development funding of up to $16 million and a $40 million FDA approval milestone payment. Zalicus receives tiered royalties on net sales of EXALGO by Mallinckrodt.

Z160 and Z944

This small company has two important candidates for treating neurophatic neuropathic and inflammatory pain: Z160 and Z944. Remember that Z160 and Z944 N type and T type calcium channel blockers have the possibility to create the first pain management drug that is orally administered without the abuse and addictive side effects that come with the use of opioids. Millions of people are affected by opioids and the addictive side effects they cause every year. Many patients have to deal with withdrawal, overdoses as well as the potential these drugs have when in the wrong hands outside a doctor's written consent.

cHTS™ technology

Just imagine for a moment that you could write the symptoms of a disease in a computer system to obtain a full treatment and the appropriate medication for this illness in a matter of seconds. Imagine also that this system had the key with combinations of molecules and components for many orphan treatments or very serious illnesses that lack of treatment. This system exists and has been patented by Zalicus. To realize the opportunity of combination therapy, Zalicus has created a fully integrated and highly automated system of customized hardware and software for combination high throughput screening (cHTS™) in phenotypic mammalian cell based assays. This technology platform, coupled with its vast library of molecules covering the most important targets in human disease, enables exhaustive combination screening.

On May 2009, Zalicus and Novartis entered into a strategic alliance focused on the discovery of novel anti-cancer combinations. Novartis demonstrated the importance of technology cHTS™ in the last meeting AARC. In its conference titled "The Cancer Biology Revolution: From Concept to Clinic", showed the participants of the conference, the importance of Zalicus in its future developments of anti-cancer compounds. Novartis and Zalicus have already issued a patent of a method for treating haematological cancers. This demonstrates the efficiency and importance of this technology to the pharmaceutical multinationals.

Financial

On November 8, 2012, Zalicus reported financial results for the third quarter ended on September 30, 2012. We saw that the income increased by 45.83 % to $3.5 million compared to $2.4 million of the same financial quarter in 2011. This increase in revenue from 2011 to 2012 was primarily due to increased Exalgo royalties from Covidien and increased collaborative revenue from Novartis. Zalicus recognized $1.4 million in royalty revenue from Covidien based on Exalgo sales for the quarter ended on September 30, 2012. This represents an 11% increase in revenue from Exalgo compared to the quarter ended on June 30, 2012. Furthermore, the collaboration with Novartis achieved revenues close to $2 million.

If you have read all my articles about Zalicus, you will have checked that the following table is extracted from one of them.

Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
Revenue Estimates $3MM $3.5MM $5MM $10MM (Exalgo 32mg royalties included) $12MM $14MM
Operating Expense Estimates (Synavive included) -$12.7MM -$13.2MM -$13MM -$13MM -$12.7 -$13.2MM
Discount Operating Expense of Synavive $3MM $3MM $3MM $3MM $3MM $3MM
Net Income Estimates -$6.7MM -$6.7MM. -$5MM 0 $3.7 $4.2MM

Cash estimates (Based in $50MM)

$43.3MM $36.6MM $31.6MM $31.6MM $32.3MM $36.5MM

Readers will be able to see that Zalicus improved my expectations of income.

September: Bears

But until this latest financial quarter report, the bears were winning the battle in Zalicus. Its shares were sunk on September 10, 2012. The company announced that it would discontinue the development of Synavive, the promising development to relief the pain of those suffering from Rheumatoid Arthritis "RA". Zalicus' shareholders were disappointed because the company did not explain the reason why it did not continue with this development. The bears took advantage of this circumstance to create fear among the long-term shareholders and remind them the need to trade above $1 per share so as to prevent a future reverse split.

November: Bulls

However, something changed last Friday. The shareholders were seeing an opportunity in Zalicus. If readers look at the company's files, they will see that a similar circumstance occurred in the year 2008.

On October, 2008, CombinatoRx (Now Zalicus) announced disappointing data from a mid-stage trial in Phase IIb of Synavive (dipyridamole) in knee osteoarthritis. The shares fell to a minimum of $0.42 from $3.07 per share in the same month. In the next chart we will see this reverse.


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As you can see from the chart, the shares recovered its original price in two months. They even marked a price of $3 per share during that time.

Fundamental analysis

This company is a biopharmaceutical company that discovers and develops drug candidates focusing on the treatment of pain and inflammation. Among its highlighted workers, we can find Dr. Snutch. This doctor is a Senior Scientific Advisor to Zalicus and the founder of Neuromed. He is also a professor in the Michael Smith Laboratories at the University of British Columbia. Dr. Snutch was the first scientist in the world to describe the molecular basis for clinically important calcium channels in the cardiovascular, endocrine and nervous systems. Furthermore, Dr. Snutch is the founder of developments such as Z160 or Z944. These developments are a clear threat for Lyrica, the medication star of Pfizer (PFE), that provides quarterly revenues above $1 billion approximately. In the following illustration we can see the ongoing developments and my assessment of the company.


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Risks

On October 22, 2012, Zalicus received a notification from the Nasdaq listing qualifications department in which it is granted a 180 day period to reach the minimum of $1.00 per share requirement before being delisted from Nasdaq. Zalicus' failure in previous studies is another significant risk we must take into account. But we have to think that one of the two Phase II studies of the Z160 will be carried out in only 6 weeks and the results could be completed during the first quarter of 2013. Currently, Zalicus is carrying out the studies that obtained after the merger with Neuromed. Therefore, we cannot compare the previous failed studies about Synavive (contributed by Combinatorx) with current studies about Z160 and Z944.

Conclusion

Studies in progress, strong cash position, oncologic development collaboration with Novartis (platform cHTS), and new opportunities related to obtaining partners as well as the Z-160 results that will come at the end of the year or first quarter of 2013, make me clearly recommend Zalicus.

Source: Zalicus: Bears And Bulls