Recently, Zalicus (ZLCS) shares touched a new high, but then began to rapidly decline going into early May- in anticipation of the first quarter report. The pre-market release of the quarterly report went down like swallowing an unchewed potato chip as longs like myself braced for the market's profit-taking plunge. I admit, this dip has tested my patience with Covidien (COV). For example, I am sick and tired of Covidien lumping Exalgo results in with Pennsaid. It is obvious that in Q1 2011, Pennsaid, not Exalgo, had miserable results. Exalgo, it appears, had stellar results, but it got lost in the rebate checks. But why isn't that story being told-- that Exalgo is doing so well, Covidien may have to upward-revise its sales expectations? That is, after all, what Covidien's CEO said.
For Zalicus, the angst appears to be centered on the return of Exalgo royalties ($350,000). After all, weeks earlier, Covidien's CEO spoke in glowing terms, but investors were told by Zalicus that Covidien had shaved that royalty check: "[sales] were impacted by multiple Covidien rebate programs associated with initial inventory shipments."
Unfortunately for Zalicus shareholders, neither Covidien nor Zalicus informed investors how much the rebate programs ate into profits. In my opinion, had Zalicus informed investors of that percentage, it may have changed the market perception and calmed fears. Thus, we are led to speculate. What was that discount? 5%? 25%? Because had we been told this key piece of information, it would have been easy to extrapolate Exalgo's sales progress. But instead, we're left to guess and that's something I'm not going to do. In my opinion, Covidien has done Zalicus a great disservice -- others may disagree, but I feel Zalicus got stung no thanks to Covidien.
Which brings us to today, Tuesday, 10th May, when CEO Mark H. N. Corrigan will make his public address available on the internet at the 10th Annual JMP Securities Research Conference. My question is, What will Corrigan say? Because in the grand scheme of things, Exalgo isn't the centerpiece of Zalicus' future, but its internal pipeline of Synavive and the Ion Channel programs is the true showpiece. A showpiece that is the reason why I am invested here.
On behalf of investors I hope he has a lot to say, so much so, he uses more time than he's allotted rather than finishing in rapid fire machine gun fashion. Corrigan needs to slow down. Tell the Zalicus story. Inflame passion. Speak with confidence and clarity. Defy the nay-sayers who have a short agenda.
First, why not commit to pre-releasing notification for the date of each quarter earnings report? As a small biotech, Zalicus needs to remove the surprise factor. The company recently sprang the earnings report in pre-market that a Yahoo poster claimed to have learned was going to happened the night before because he/she or a friend called the company. Granted, the Yahoo board must be taken for what it is, but should Corrigan commit to pre-releasing the earnings date, it would remove a lot of market activity that always leads to speculation and rumor.
Second, explain to investors how after 15 months as CEO you've made progress filling the cHTS/cuHTS revenue generating pipeline. In March, Corrigan's quip has suggested to many investors I correspond with that Zalicus has made progress in this area. Does that mean a new collaboration is on the horizon? Is it Amgen (AMGN) who has had a pilot program with the company? And what about the collaboration with Novartis (NVS)? Surely there is something Corrigan could share with investors to encourage shareholders regarding this key relationship.
Third, candidly explain with great transparency Zalicus' own frustration concerning the delay of Prednisporin. Some investors I've communicated with think Sanofi (SNY) is very close to being in breach of the contract which implied Sanofi had an obligation to move the product forward. Is that true or false? How can investors be best informed to understand the unique nature of this collaboration that started with Fovea Pharmaceuticals now owned by Sanofi? Could, for example, Dr. Corrigan state that he has spoken with a representative at Sanofi and is encouraged to report that, yes, they are actively at work on the development of Prednisporin. That small comment alone would go miles with the market and shareholders. All it takes is a phone call or an e-mail. Surely, he could try.
Fourth, excite investors by announcing the start date of Synavive's phase 2B clinical trial such as June ___ .
Fifth, go to great lengths to individually explain what "going forward" looks like for each ion channel program. For example, spend ample time explaining the reemergence of Z160 (NMED 160), Zalicus' N-type pain drug candidate that in earlier research made it to phase 2. Give shareholders a more in-depth look into why Z160 has Zalicus excited. For that matter, where is CSO Terry Snutch? Why can't Dr. Snutch offer a keynote explanation to shareholders? Likewise, there is a lot of energy around the Z944 and Z212 programs. This is one time Zalicus investors like myself are going to be looking for Dr. Corrigan to say something new, and not simply resort to, "We are making progress."
Given that Jason Napodano of Zacks upped his price target from $3 to $4 share, and JMP Securities and Wedbush are on record now for a $5 price target, I remain convinced that the recent decline in the share price is a market blip that will eventually be corrected to the delight of long shareholders. However, that said, Zalicus and its CEO must listen, read, and respond to the questions shareholders are asking. Longs like myself see tremendous upside, but there are also times when management must be encouraged to respond to shareholders' concerns, especially when the annual shareholders meeting will be convened later this month and there is a key item concerning executive compensation.
I conclude, given the current beating the share price is taking, that Zalicus is a very strong buy. But will Zalicus' CEO step up to the plate and prove why he is CEO? Will Mark H. N. Corrigan defy the market and explain in logical terms why Zalicus is worth much more than $2.24/share? After today, we will know.
Disclosure: I am long ZLCS at the time of writing.