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Zogenix (NASDAQ:ZGNX) is a San Diego-based pharmaceutical company that is focused on treating central nervous system disorders and pain. It already has one drug, Sumavel DosePro, approved by the FDA in July 2009, which generated revenue of over $30 million in 2011. So Zogenix is no stranger to the FDA.

Now for Its Bread and Butter

Zohydro ER™ (hydrocodone bitartrate extended-release capsules) is used for the treatment of patients with moderate to severe chronic pain who require around-the-clock opioid therapy. Chronic pain is ongoing or recurrent pain that adversely affects an individual's well being. An estimated 116 million people in the United States are burdened with chronic pain, at a national economic cost of $560 to $635 billion annually.

Zohydro ER is an oral, single-entity (without acetaminophen) novel, extended-release formulation of various strengths of hydrocodone, dosed every 12 hours for around-the-clock management of moderate-to-severe chronic pain. If approved, Zohydro ER could be the first hydrocodone product to offer the benefit of less frequent dosing and the ability to treat chronic pain patients without the risk of liver injury associated with the use of acetaminophen in high dosages or over long periods of time.

Currently, hydrocodone is only available in immediate-release combination products, most commonly with the analgesic acetaminophen, and requires dosing every four to six hours. There is an established need for a single-entity (non-acetaminophen) hydrocodone medicine to provide people suffering from moderate to severe chronic pain with an effective option to manage their pain without the significant risk of liver injury associated with the use of acetaminophen in high dosages or over long periods of time. Research has shown that approximately 30%-35% of hydrocodone combination products are taken on a chronic basis, for which there is ample evidence that this presents a health risk.

The NDA submission is based on data from over 1,100 patients with chronic pain participating in the pivotal Phase III efficacy study (Study 801), and an open-label Phase III safety study (Study 802) of Zohydro ER. Study 801 successfully met its primary efficacy endpoint, demonstrating that Zohydro ER resulted in significantly (p=0.008) improved chronic pain relief compared to placebo. The two key secondary endpoints in this study -- the proportion of patients with at least 30% improvement in pain intensity and the improvement of overall satisfaction of medication -- were also met. Additional study endpoints were supportive of the efficacy of Zohydro ER compared to a placebo.

Overall, the most commonly reported adverse events (≥ 2%) in the placebo-controlled pivotal Phase III efficacy Study 801 in opioid-experienced patients were consistent with those typically seen with chronic opioid therapy -- constipation, nausea, somnolence, fatigue, headache, dizziness, dry mouth, vomiting, and pruritus. Study 802, in which patients received Zohydro ER for up to 12 months, further investigated Zohydro ER's tolerability and safety profile and showed that the incidence of adverse events was consistent with that seen in the pivotal Phase III efficacy study.

Zohydro ER uses Alkermes Pharma Ireland's patented Spheroidal Oral Drug Absorption System (SODAS®) drug delivery technology, which serves to enhance the release profile of hydrocodone to provide extended-release pain relief relative to existing immediate-release combination products.

Potential

Assuming that Zohydro can gain 2% market share of the 128 million hydrocodone prescriptions per year, this translates into annual Zohydro revenue of $496 million, according to Zogenix's projections. Zogenix would enter the largest prescription drug category in the United States, hydrocodone pain products. Over 128 million prescriptions were filled in this drug category in 2010, representing a $7.5 billion market opportunity.

The company has projected higher numbers than my research above in its recent 10-K.

Conclusion

In my opinion, the chances of being of approved on its PDUFA of March 1, 2013, are 80%. Hydrocodone will be abused either way. Zohydro gives the benefit of giving a slow release dosed every 12 hours, compared to a acetaminophen/hydrocodone mixture dose every four to six hours, which is conducive to liver toxicity. Physicians will see the benefit of the less frequent, acetaminophen-free Zohydro and will prescribe accordingly.

Therefore, conservatively speaking, Zogenix currently has a market cap of $240 million with the share price at $2.40 and approximately 100 million O/S. $496 million in revenues would command a share price close to $5.00 per share. Zogenix is a very undervalued play right now due to the market not being aware of the potential of Zohydro, but not for long.

Source: A Look At Zogenix - Zohydro Drug Information And Analysis