Zalicus: Pain Free Investing

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In one of my favorite movie scenes of all time, before his fight with Rocky Balboa in Rocky III, a reporter asks Clubber Lang his prediction for the fight. Clubber stares straight into the camera and utters "Pain." I believe an investment in Zalicus ("ZLCS") can help investors steer clear of pain.

Unfortunately, pain is the reality for many Americans in their daily lives. Millions of Americans suffer from acute or chronic pain every year and the pain exacts a tremendous cost on the country. According to a recent Institute of Medicine Report: Relieving Pain in America: A Blueprint for Transforming Prevention, Care, Education, and Research, pain is a significant public health problem that costs society at least $560-$635 billion annually, an amount equal to about $2,000.00 for everyone living in the United States. The healthcare component of that total ranges from $261 to $300 billion annually.

Where do American's hurt the most? Good question. When asked about four common types of pain, respondents of a National Institute of Health Statistics survey indicated that lower back pain was the most common form of pain with 27% of respondents citing lower back pain is their source of pain. Similarly according to the same survey, back pain is the leading cause of disability in Americans under 45 years old and more than 26 million Americans between the ages of 20-64 experience frequent back pain. Obviously the current treatments for back pain are not getting the job done.

All of this leads me to Zalicus (ZLCS). Zalicus is a biopharmaceutical company that discovers and develops treatments for patients suffering from pain and immuno-inflammatory diseases. On September 4, 2012, Zalicus announced the initiation of the first of two Phase 2a studies with Z160, which is a first-in-class, oral, state-dependent, selective N-type calcium channel blocker, for the treatment of chronic neuropathic pain. The study is focused on lumbosacral radiculopathy, chronic neuropathic pain originating from the spine.

What does that mean? It means that Zalicus just launched a Phase 2a study of a first-in-class treatment for certain types of lower back pain. In its press release announcing the study, Zalicus estimates the prevalence of the market at 3%-5% of the global population, indicating that there are currently no drugs approved to treat lumbosacral radiculopathy. The market into which Z160 would launch is therefore enormous. While top line results for this study and a second upcoming study are not expected until late in second half of 2013, which I read conservatively as early 2014, the speculative success of Z160 alone makes Zalicus a worthwhile buy at its current price of $1.40 depending on your investing strategy.

What makes ZLCS an even better investment than many other biotech companies that are currently conducting studies of promising drug candidates is that Zalicus is not a one trick pony. Zalicus just announced FDA approval of a 32mg dose strength of Exalgo for the management of moderate to severe pain and Zalicus receives tiered royalties on net sales of Exalgo. Exalgo competes in the opioid pain market with heavyweights such as oxycontin, Embeda (Pfizer ("PFE")), Opana, (Endo Pharmaceuticals ("ENDP")), and Avinza (King Pharmaceuticals which is now part of Pfizer). The market is enormous with sales of $8.5 billion in 2010 and the newly approved 32mg dose should significantly increase Zalicus' revenues going forward as it was the median effective dose upon which patients were stabilized during the pivotal trial. The increase in revenue from Exalgo will help stave off or at least blunt future dilution as Zalicus funds its pipeline.

In addition, sometime this month Zalicus should announce top-line results from its Synergy Phase 2(b) clinical trial of Synavive in rheumatoid arthritis. Positive Synavive results should provide a short term boost to the share price.

I imagine these are the reasons that all analysts covering the company currently maintain buy ratings with a combined price target of $4. If the stock were to reach this consensus price target, an investment today would pocket investors almost 200% in profit.

There are many reasons to buy Zalicus now, but I am having trouble coming up with reasons to sell.

Disclosure: I am long ZLCS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.