Tuesday Trade: Why Zalicus News Merits My Very Bullish Call

In pre-market hours on Tuesday, Zalicus (ZLCS) announced to its investors that Z944 had successfully completed the single escalation dose of Phase I studies and would continue into multiple dose Phase I studies to be completed before the end of the year. The news was well received and the stock price gapped up to $1.50/share from the $1.44/share close the day before. Following that, in early trading, the share price rose to $1.62 before the slow bleed started. By mid-afternoon, the share price was back at $1.50.

Then, around 2 p.m. ET, a sell-off was executed that closed the day's gap and a spurious chat room blog posted that "Jeremy Richards just tweeted he sold ZLCS." Is that the same Jeremy Richards who used to write articles on Seeking Alpha? Such craft if it is.

Nevertheless, by 3:15 p.m., the share price was already recovering to $1.40. Am I surprised? No, not at all. Why?

Zalicus has just announced what rarely happens. Its ion channel program is not a one-trick pony destined to ride on the solitary back of N-type channel Z160, but T-type channel Z944 has reached gallop stride. The reality is that once $3/share-plus Zalicus, with its ion channel program in preclinical trials, is now $1.??/share with Z160 going into Phase II studies and Z944 on the same path for Q1 2013.

Tuesday's bear raid was more than "sell on the news" -- it was a feeble attempt to shake shares out of weak hands as Zalicus is on its way to go over $2/share, and from there $3/share. Why?

Simple. Because Merck (NYSE:MRK) already offered Zalicus (in the past) up to $450 million for one ion channel drug. Zalicus, at this point, now has two. Even by low estimates, Zalicus is worth $500 million for its two ion channel drugs. With just over 100 million common shares in the market, this roughly explains how Dr. Duncan at JMP Securities has set a target of $5/share.

Just remember: Zalicus, despite this momentous achievement for its ion channel program, still has Exalgo with Covidien (COV), Prednisporin with Sanofi (NYSE:SNY), and Synavive. All three of these drugs will drive a premium price. Toss on top of that pile the oncology work with Novartis (NYSE:NVS), and you will see will today's orchestrated bear raid is a mere shadow of what is to come.

Like Jason Napodano at Zacks, I think Zalicus is worth every penny of $3/share and more likely $5/share set by Duncan at JMP Securities. Nevertheless, the day-to-day risk is apparent. Penny-flippers buy in, sell out, and, I suspect, are buying back in right now because they know Zalicus is going much higher.

Today's volatility only confirms my very bullish call.

Disclosure: I am long ZLCS.

Disclaimer: Investors buy and/or sell at their own risk. I declare that I may day trade any stock appearing in this article at any time. For me, "long" is until I sell. I do not "short" stocks.

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