Unfortunately, investor worries were realized this morning as Zalicus (ZLCS) announced that Synavive missed a key secondary endpoint. Former CEO Chris Gallen, who left his shares in Zalicus after departing from the firm, must wish he took the cash. I can only imagine how disappointed CEO Corrigan is. By agreeing to move Synavive forward, Dr. Corrigan put his successful clinical history on the line. This time his decision going back to 2010 was wrong. He should have decimated former CEO Borisy's entire internal pipeline and just have gone with the ion channel program.
The Phase IIb trial demonstrated that patients treated with Synavive achieved a statistically significant improvement in signs and symptoms of moderate to severe RA compared to placebo, as measured by Disease Activity Score (DAS28-CRP), after 12 weeks of treatment, which represents a -0.9 change from baseline for Synavive (approximately 17% improvement) compared to a -0.5 change from baseline for placebo (approximately 10% improvement), but missed the key secondary endpoint of demonstrating a meaningful clinical benefit, assessed by DAS28-CRP, compared to prednisolone 2.7mg, the active glucocorticoid component in Synavive.
I noticed that Synavive is already missing from Zalicus' pipeline as it joins the growing scrap heap of former CEO Borisy's combination drug candidates. Borisy's legacy is just about gone except for Prednisporin, which remains in limbo with Sanofi (SNY).
Ultimately, the uncertainty of Synavive convinced me to sell in advance of this news. Unfortunately, I am reading chat room comments that are attempting to reel in new investors. I would strongly warn against buying any Zalicus shares until the stock price has bottomed out after many weeks if not months.
The company has been rocked by this news. The clinical results were miserable and it calls into question the management's decision to even pursue rheumatoid arthritis. Synavive didn't even match up against 2.7 mg. prednisolone which was one of its component parts. That would mean there was little to no synergy and Zalicus has expended millions of dollars for naught after already diluting shareholders twice in 2012.
Thankfully, the 32 mg. version of Exalgo was recently approved, but that's not enough to keep Zalicus in cash. Cash? Yes, the cash Zalicus hoped Synavive's success might bring through a collaboration. Now that option is gone and by next year the firm should be dipping into its latest S-3 filing for $75M. That means more dilution and the stock will probably not hold above $1 under this adverse situation.
However, I remain bullish about the ion channel program and particularly Z160. It would be a devastating blow to shareholders if Z944 doesn't make it out of Phase I multiple dose studies, but Z160 is now the company's frontrunner. The problem is that from an investor's viewpoint, Z160 has only finished Phase I, so the drug candidate's development has about a year to go before Phase IIA data will be published. As a result, Synavive's failure has poked a big hole in the company's financial viability unless you embrace future dilution.
Finally, there has been talk that Zalicus would be bought out if Synavive failed and the stock price fell below $1. While that is always a possibility, it is just a rumor. What shareholders should hope for is Novartis (NVS) and/or Amgen (AMGN) to step forward and announce that their combination high through-put research [cHTS] at Zalicus has resulted in a new oncology combination drug. Likewise, if Sanofi announced it was enrolling Prednisporin in Phase III that would certainly help take away the pain of today's sting.
Unfortunately, until Zalicus can issue encouraging news, it may be a very long time before I would consider buying back into the stock. Someday the ion channel program may be worth a revisit, but not anytime soon. However, that said, in a way Synavive's failure may turn into a boom for investors who buy Zalicus for its ion channel program. No doubt that is on minds of many Zalicus shareholders. If Zalicus dips low enough, then I may pull the buy trigger but not until the dust settles after today's news.