Rebutting 'The Short Case for Zalicus'

A short hedge fund published an article today, The Short Case for Zalicus: Not Worth Its Market Cap.

I contend the article is fallacious. For example, the author:

  1. Completely ignored cHTS revenue sources, cash on hand, collaborations. For example the company reported: "As of March 31, 2011, we had cash, cash equivalents and short-term investments of approximately $52.8 million, which includes $1.9 million of restricted cash" (5/5/11 Quarterly report that can be found here). Furthermore the company raised an additional ~$20M via Wedbush the end of March/early April.
  2. Completely misrepresented Synavive. Zalicus is on record that reformulated Synavive has entered a Phase 2-B trial on promising data in rheumatoid and osteo-arthritis; the reformulated version mitigates headaches and throughout all clinical trials including a one-year extension provided an excellent safety profile. Here's the factual truth presented by Zacks analyst Jason Napodano.
  3. Completely contradicts Covidien's (COV) CEO, who has stated on conference calls that Exalgo's sales have not peaked, but have exceeded their expectations. Frankly, the author's assertion is incredulous given Exalgo is just concluding its first year of sales and is still ramping up, with a 32mg version on the horizon. Furthermore, the sales projections from Covidien have ranged from $200-300M/year.

It strikes me as odd that the author provided no sources, documentation, or references for his assertions.

Furthermore, four reputable firms have set targets: Zacks and Oppenheimer: $4/share. JMP and Wedbush: $5/share. In addition, Zalicus has a cancer collaboration with Novartis, and a drug in Phase 2-B completed development with Sanofi (NYSE:SNY).

I perceive a short squeeze may be in the offing.

Disclosure: I am long ZLCS.