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Smart Biotech Buy Before Earnings: Zogenix

For younger public companies which are relatively unknown to investors, public disclosure of full year financial results provide an opportunity for these companies to broadcast to the masses their growth stories and plans for the future. With the many eyeballs that watch for interesting annual reports to get investment ideas, some companies are able to really breakthrough with jaw-dropping headline growth numbers that draw in new and increased investments, resulting in massive share price appreciation.

A stock worth buying this week before earnings-- for this very reason-- is Zogenix (NASDAQ:ZGNX). As a young, growing biotech company with an FDA approved migraine treatment drug (Sumavel DosePro), an FDA approved drug delivery technology (DosePro), a Q2 2012 NDA candidate (Zohydro), and a growing pipeline (Relday) featured in my January article, the investment community will get their first peak at the company's first full year over year financial performance since going public in November 2010.

While its early success has attracted notable institutional ownership and extraordinary insider buying of its common shares, Zogenix's story is still undiscovered to many biotech investors. But, not for long.

On March 8th, the company will be presented with its highest profile opportunity to date, to attract the attention of investors when the company releases its 2011 full year financial results. The most noteworthy headline will be regarding the growth in sales of its first FDA approved migraine therapy drug, Sumavel DosePro. Based on the company's first nine months performance (2011) and early Q4 guidance, we will very likely see an incredible year over year rise of 85-90% in net product revenue.

Sumavel DosePro Sales Momentum

Sumavel DosePro was approved by the FDA in July 2009 and became commercially available just two years ago, in January 2010. With two full years of sales now in the books, investors will be able to see the increasing sales growth and year over year momentum of this first in class, needle-free, injection delivery of sumatriptan for acute treatment of migraine and cluster headaches.

In just two short years, sales of Sumavel DosePro have ramped very rapidly:

Sumavel DosePro Revenue (million)

Quarter

2010

2011

Q1

1.9

7.5

Q2

4.2

8.7

Q3

5.7

8.8

Q4

6.8

10.1*

FY

18.6

35.1*

*estimate

Estimates for Sumaval DosePro net product revenue reach nearly $100 million by 2013:

Sumavel DosePro Revenue Estimates

Year

$ (million)

Growth

2010

18.6

2011

35.1

89%

2012

57.9

65%

2013

90.9

57%

2014

131.8

45%

This growth to $100 million would only be scratching the surface of the $3.5 billion U.S. triptan market.

Reasons Why Sumavel DosePro Is Booming: Pain Relief Effectiveness & Delivery System

The primary reason that Zogenix's breakthrough migraine treatment drug is becoming a leading alternative to the current oral triptan drugs on the market and gaining increasing market share is that Sumavel DosePro relieves migraines faster than its competitors. Based on prescribing information [10K] for other triptans on the commercial market, Sumavel DosePro is concentrated in the bloodstream (Tmax) much quicker and pain relief is dramatically quicker than its competitors:

Drug

Tmax

Relief in 1 hr

Relief in 2 hr

Sumavel DosePro

12 mins

70%

81-82%

Imitrex

2-2.5 hrs

28-36%

50-62%

Treximet

1.0 hrs

28%

57-65%

Zomig

1.5 hrs

35-45%

59-67%

Maxalt

1.0-1.5 hrs

38-43%

60-77%

Amerge

2.0-3.0 hrs

19-21%

50-66%

Axert

1.0-3.0 hrs

32-36%

55-65%

Frova

2.0-4.0 hrs

12%

37-46%

Relpax

1.5 hrs

20-30%

47-77%

Not only does Sumavel DosePro provide quicker relief to migraine symptoms, it also provides an attractive treatment alternative to oral and needle-based injectable triptans because of its proprietary drug delivery technology, DosePro.

In many cases, a migraine sufferer has no choice but an injectable treatment because of the need for rapid relief, vomiting that accompanies migraine, and non-response to oral triptans. The problem with injectable sumatriptans was they were all needle-based, and many patients suffered from needle phobia and fear. There was also the risk of needle stick injury, inconvenience of needle disposal, and complication of the dosing procedure. Sumavel DosePro has solved this problem by providing the first and only quick-acting and easy to administer, needle-free, subcutaneous sumatriptan treatment option.

Huge Market Opportunity

According to Zogenix's last 10K filing, 30 million people in the U.S. suffer migraines and the U.S. triptan market annual sales in 2010 were over $3.5 billion. Zogenix says that "despite its speed of onset and completeness of pain relief advantages over oral and nasal triptans, needle-based sumatriptan injection has been limited to less than 10% of the U.S. triptan market on a dollar basis and less than 3% on a total dose basis," most notably because of the issues with needle-based delivery mentioned above.

These needle-based limitations have kept the prescriber base limited to 67,000 of the 350,000 prescribers of triptans in the United States. But with the introduction of the effective, needle-free injection technology that Sumavel DosePro provides, the growth of the injection market share of the $3.5 billion triptan market will only continue to increase as evidenced by Sumavel's growing sales numbers to date.

Since the January 2010 commercial launch, 12,725 physicians have written over 100,000 prescriptions for Sumavel DosePro.

Conclusion

While there are at least five additional, compelling reasons (Zohydro NDA, DosePro outlicensing, Relday IND, institutional ownership, recent insider buying) to invest in Zogenix at today's share price ($2.31), Sumavel DosePro's year over year sales offer the most dramatic evidence to date of this company's ability to effectively ramp a commercial drug in a very short amount of time. This will get noticed by investors come Thursday.

The recent low volume drop in the stock price to the 2.30 range (from $3.00) provides a compelling buying opportunity before ZGNX's financial results are announced after hours on Thursday, March 8. I believe this post earnings, new wave of buying interest could in short order easily take the stock up 25-30% from its current levels. But, this would only be the start of a rise back toward the 52-week high of $6.61.

Important to note is the 52-week high of $6.61 on March 10,2011, resulted from a 59%, five day gain in share price from the $4.16 price on the day that ZGNX released its annual results on March 3, 2011. This stock can jump very fast on good news because of its tiny float.

If history is a guide, when Zogenix reports this week-- with much greater results than March 2011 attracting even greater investor demand-- ZGNX will be well on its way back to that $6.61 high.

Source: Zogenix: Smart Biotech Buy Before Earnings