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Yesterday, Zalicus (ZLCS) announced good news, in a Phase IIb trial, Zalicus' Synavive passed its primary endpoint, improving patients' rheumatoid arthritis symptoms compared with placebo but the company has decided to stop development of the drug.

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.

The company didn't release any information about whether Synavive beat the other active comparators, but it really doesn't matter. Even if the Food and Drug Administration (FDA) would approve Synavive with just placebo data, no doctor would prescribe it if it isn't any better than prednisolone, which is available as a generic. Shelving the drug is really Zalicus' best move for the future.

However, it can be positive news for Zalicus' finances and for the promising future of the development of two Phase IIa studies with Z160, a first-in-class, oral, state-dependent, selective N-type calcium channel blocker, for the treatment of chronic neuropathic pain.

In the following table we can see the quarterly cash cost of Synavive's studies.


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(SOURCE)

Synavive cost to the company an average of about $2.9MM quarterly or $12MM annually. In the second-quarter financial, Zalicus reported that it had a cash of $50MM approximately.

In the following table we can see what discounting the cost of Synavive's studies means for Zalicus.

Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
Revenue Estimates $3MM $3.5MM $5MM $10MM (Exalgo 32mg royalties included) $12MM $14MM
Operating Expense Estimates (Synavive included) -$12.7MM -$13.2MM -$13MM -$13MM -$12.7 -$13.2MM
Discount Operating Expense of Synavive $3MM $3MM $3MM $3MM $3MM $3MM
Net Income Estimates -$6.7MM -$6.7MM. -$5MM 0 $3.7 $4.2MM

Cash estimates (Based in $50MM)

$43.3MM $36.6MM $31.6MM $31.6MM $32.3MM $36.5MM

Zalicus may continue with the studies of Z160, Z944 and the ion channels with a strong cash position. Remember that Z160 and Z944 N type and T type calcium channel blockers have the possibility to create the first pain management drug that is orally administered without the abuse and addictive side effects that come with the use of opioids. Millions of people are effected by opioids and the addictive side effects they cause every year. Many patients have to deal with withdrawal, overdoses as well as the potential these drugs have when in the wrong hands outside a doctor's written consent.

At this point it is necessary to do a digression so as to understand the role Z160, formerly known as NMED160, played in Zalicus. Neuromed came to the agreement in 2006 to license this product to Merck (NYSE:MRK) for NMED160. This deal was originally valued at 475 million dollars plus ongoing worldwide royalties. NMED160 targeted N-type calcium channel blockers for chronic pain. It was later de-prioritized in Phase II trials because of bioavailability issues and was released from Merck. Neuromed and CombinatoRX (ZALICUS) merged in July of 2009. Z160 would be the first of its kind to be orally administered to block calcium pain receptors without an opioidal side effect. Very exciting advancements have been announced recently about Zalicus' new formulation of Z160 in its recent presentation.

The Zalicus Ion channel technology identifies state-dependent Ion channel modulators to achieve analgesic efficacy with superior selectivity and safety profiles, increased (high-frequency) neuronal activity in neuropathic pain drives channels into an inactivated channel state that can be selectively antagonized by their compounds designed to target the inactivated channel state will selectively modulate neurons undergoing high-frequency firing while sparing low-frequency firing neurons where channels may be predominantly in the closed state. The Zalicus Ion channel targets are well-validated in the treatment of pain. Zalicus has multiple Ion channel compounds undergoing preclinical efficacy evaluation.

This small pharmaceutical company has agreements with major companies in the sector, such as Covidien (NYSE:COV), Novartis (NYSE:NVS), Sanofi (NYSE:SNY), Hydra biosciences and the U.S. Army Medical Research Institute for Infectious Diseases.

Fundamentals Analysis

Zalicus Inc. discovers and develops treatments for pain and immuno-inflammatory diseases. An important component of the company's business strategy is collaboration. Zalicus forms collaborations with pharmaceutical and biotechnology companies, as well as U.S. government agencies, to support the development and marketing of select product candidates generated by their discovery technologies.

Pipeline Overview


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Short interest

(SOURCE)

Analyst Research

(SOURCE)

  • On 11 September 2012, Canaccord Genuity reiterates a 'Buy' on Zalicus with price target of $3.00.
  • Ritu Baral, analyst of Canaccord Genuity, said:

    Reiterate rating and price target despite Synavive Ph2b miss -- discontinuation shifts focus to pain programs that we think have significantly more promise.. After today's Synavive Ph2 miss and program halt...ZLCS will focus on Ph2 Z160, a novel, oral N-type Ca2+ channel blocker for neuropathic pain, and Ph1 pain drug Z944, a novel, oral T-type Ca2+ channel blocker.

  • On 11 September 2012, Rodman & Renshaw downgraded Zalicus from Market Outperform to Market Perform.

Financials

The company reported the second-quarter financial results on August 7 with the following highlights:

Revenue $2.83MM
Net Income ($10.32MM)
Cash $46MM

Risks

The company has enough cash so as not to have to make any kind of dilution of shares until 2014 although the highest risk for investors involves that in 30 days time, the company receives a notification from Nasdaq claiming to meet the requirement to maintain the close bid price of its common stock at $1.00 per share. In addition, the company will be granted with an 180-day grace period to regain compliance. Despite the fact that it seems a risk, I think the company will have no problems on meeting these requirements. We must not forget that the same situation occurred on May 2012, but it overcame the obstacles and started to increase its stock value at $1.00 per share a month later.

Conclusion

The current price of Zalicus is a real bargain considering all good news to come in future partners, collaborations and a possible potential buyout. I have increased my position in Zalicus taking advantage its low prices. So buy and put it somewhere safe.

Source: Zalicus Has Sufficient Funds Until 2014