Imagine what investors would give to be able to turn back time to November 2012 when Acadia Pharmaceuticals (NASDAQ:ACAD) was trading in penny-stock territory. The stock has since recovered to be one of the top biotech performers of the last year. Many biotech investors missed out and I'll explain why in a minute.
First let me delve into Acadia's history to see how it got there, then I will explain why Zalicus (ZLCS) could very well be the next ACAD.
Several years ago, clinical trials failed to show that Pimavanserin was statistically significant in a late-phase trial. The company attributed part of this failure to better-than-expected placebo results, which is entirely possible. There was one other factor at play, two different doses of the drug. In the first study, the company tested patients with both 10 mg and 40mg dose. The overall result was that Acadia failed to show a statistically significant result; however, the 40 mg dosing showed a clear benefit compared to placebo. The company realized that the product was less effective at a 10 mg dose, and then focused the entire trial around what worked, the 40 mg dose. A follow-up study showed a statistically significant improvement over placebo. Pimavanserin (ACAD's lead pipeline candidate) is a potential blockbuster with a large market for off-label usage (an approved drug can be prescribed for other conditions). Savvy investors understood this and quickly gobbled up shares. Those who bought even at $6 after doubling on positive study results have quadrupled their money in less than 10 months.
Looking back on ACAD's previous study and the results that transpired, I know many investors wish they had invested in the company but the negative perception surrounding the company after the first trial failure turned off many short-sighted investors.
Zalicus also has a checkered history with the failure of Synavive (results were positive just not as effective as existing rheumatoid arthritis treatments) that caused shares to plummet.
Zalicus is developing Z160 as a first in class, oral, state dependent, selective N-type calcium channel (Cav 2.2) blocker for the treatment of neuropathic and inflammatory pain. Investors are well aware of the 2006 partnership between Merck and Neuromed where Merck licensed the compound (originally named NMED-160) from Neuromed for $25 million upfront and potentially as much as $450 million in milestones and royalties on sales. Merck dissolved the partnership a year later after a phase 2 study showed bioavailability issues. Merck noted that no serious adverse events were seen even at the highest doses. Zalicus then spent the next 7 years correcting the bioavailability issues.
A phase 1 study released in March 2012 appears to indicate the bioavailability issues have been corrected and the drug has so far showed no significant adverse events. The only question mark that remains is efficacy.
The above diagram from phase 1 studies shows the new formulation as compared to N-MED160 compound.
Phase 1 trials results showed that the new formulation (Z-160) has a peak plasma concentration that is 8 times higher (maximum level of drug concentration in blood plasma after administration) and a 5 fold increase in bioavailability (defined as the fraction of administered drug that reaches systemic circulation). When a medication is administered intravenously, it's bioavailability is 100% but decreases when given orally due to incomplete absorption and first-pass metabolism. Pharmacodynamics is the study of what the drug does to the body while pharmacokinetics is the study of what the body does to the drug. Pharmacokinetics was the cause of the previous bioavailability issues.
click to enlarge)
The diagram above is from a spinal nerve ligation model (Chung) showing preclinical data suggestive of efficacy on par with ziconotide, gabapentin, and morphine. Note that this model is one of the most widely used neuropathic pain models in pre-clinical testing.
Zalicus in conducting a randomized, double-blind, placebo controlled clinical study in lumbosacral radiculopathy, evaluating Z160 compared to placebo in approximately 140 subjects. The primary efficacy endpoint for this study is the change in weekly pain scores on a numerical rating scale. Other endpoints include multiple other pain, functional and safety measures. LSR is a significant unmet medical need and attractive market opportunity.
On January 3, 2013, Zalicus initiated the second phase 2a study (Clinicaltrials.gov Identifier: NCT01757873) with Z160 in patients with post-herpetic neuralgia (PHN). Clinical trials in PHN are an industry-accepted standard condition for establishing clinical proof-of-concept in neuropathic pain. It is also a potential orphan indication because the prevalence is less than 200,000 patients in the U.S.
On Sep 9th 2013, Zalicus announced the initiation of a phase 1b single ascending dose clinical trial evaluating the pharmacokinetics and safety of Z944, a novel oral T-type calcium channel blocker with demonstrated preclinical potential for the treatment of acute and inflammatory pain in animal pain models. The phase 1 trial took place in the United Kingdom. In June 2012, management reported that the trial was a success and that a maximum tolerated dose (MTD) has been identified.
There are no approved T-Type calcium channel blockers on the market. Z944 represents a potentially new and revolutionary way to treat acute pain. T-type calcium channels have been implicated in the frequency and intensity of pain signals. During the first quarter 2012, Zalicus published preclinical data in the journal Science Translational Medicine, describing the activity of Z944 to potentially suppress seizures. This data reinforces the potential biologic activity of Z944. It is generally understood that conditions of neuronal hyper-excitability, such as epilepsy and pain, are mechanistically linked.
In February 2013, Zalicus announced it had been granted a patent by the U.S. Patent and Trademark office (USPTO) covering Z944. United States patent number 8,377,968 entitled "N-Piperidinyl Acetamide Derivatives as Calcium Channel Blockers" provides broad coverage for Z944 including compositions of matter and certain therapeutic methods of use through April 2029.
Zalicus remains significantly undervalued with shares trading at less than $1 (I don't expect that to remain much longer) with a looming catalyst for a drug that could potentially generate over $2 billion in sales. Company generated revenues of $3.9 million in the third quarter, which include collaborative payments and royalties on sales of Exalgo at partner Mallinckrodt. Not many biotechs trading under $3 generate any revenue. If Z160 is successful in clinical trials and matches gabapentin, or lyrica sales, it would easily justify a stock price over 20 times the current price. Analysts have estimated the market opportunity for Z160 to be anywhere from $500 million to $2.7 billion, comparable to peak sales for gabapentin. Z160 could see significant off label usage being that it is a non-opioid with a superior side effect profile. The FDA has made a significant effort to approve drugs with less abuse potential which favors non-opioids such as Z160.
Past failures may have turned off short-sighted investors but the fundamentals remain intact. They say what doesn't kill you makes you stronger and I believe that is true in the case of ACAD and Zalicus. I also believe management has learned from past mistakes and is less likely to repeat them. The big risk is that clinical trials are inherently risky and the majority will fail for many reasons. Investors risk losing majority of their investment if the trials happen to fail. Invest only what you can afford to lose.