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Why Zalicus Inc. Share Sank

|Includes: EPIRUS Biopharmaceuticals, Inc (EPRS)

What:Well it seems Zalicus (NASDAQ: ZLCS) has done it again, as it had reported on November 11 that it was discontinuing the drug candidate Z-160. Zalicus said that the trials had failed to meet both primary endpoints. With these phase 2 results the company will be discontinuing Z-160. Now Zalicus will focus all efforts on Z944 being developed for pain.

So What:Back on September 10, 2012 Zalicus had reported its top-line phase 2b results for Synavive. Synavive was being developed for patients for the treatment of rheumatoid arthritis. The company stated that Synavive met the first endpoint of achieving better results than its placebo counterpart, but the drug was not better than one of its components alone. With this failure, Zalicus' share price tumbled around 40% to close the day at $0.84 per share. The first endpoint that was met, showed an increased change of -0.9 from baseline or a 17% marked improvement. This compared with placebo only showing an increase of -0.5 from baseline or a 10% marked improvement. These baseline results were measured by a Disease Activity Score (DAS28-CRP) for 12 weeks of treatment. The failure of the trial lied in missing the key secondary endpoint of a clinical benefit. Synavive ended up being worse than its drug component of Prednisolone alone.

Zalicus had reported Top-Line results from its two phase 2 clinical studies for Z-160 in chronic pain indications. Z-160 is a novel N-type calcium channel blocker for Neuropathic pain. Zalicus stated that it would discontinue Z-160, because it had failed to meet the primary endpoints in both clinical trials. One phase 2 trial was for patients with lumbosacral radiculopothy (LSR), and the other phase 2 trial was for patients with post-herpetic neuralgia (PHN). The primary endpoints for the study were measured using a change in baseline of Pain Intensity-Numeric Rating Scale (PI-NRS). With this failure of not achieving the desired (PI-NRS) score, Zalicus is now pinning all of its hopes on Z944.

Now what:With Z944 being the last hope for the company, it is a long shot at best. It seems many investors aren't hung up on the fact that Z944 has that much of a chance, considering the company has already failed two other major trials. Z944 is a T-type Calcium channel modulator for the treatment of pain. The phase 1 study reported positive results for Z944 being substantially greater than its placebo counterpart. The only thing now would be to see if Z944 can get through a phase 2 study with a positive primary endpoint. Zalicus expects to begin a phase 2 study on Z944 sometime in 2014. The hope now is small, and investors now will have be butchered with a lot more dilution just to keep the company running.

As of September 30, 2013 Zalicus has cash of $20 million to fund the current clinical trials. The Zalicus CEO states that they will now have to slowly scale back away from the costs associated with running the Z-160 trials, but it will not happen immediately. Therefore the company will still burn more cash on the balance sheet in the mean time, and with an impending dilution at a much lower share price the company could be strapped for cash. For the Three months that ended September 30, 2013 revenue was $3.4 million, compared to $3.5 million revenue in the same period last year. Zalicus had obtained at least $14 million from royalty revenue for Exalgo since the product launch back in April 2010. For the quarter ending September 30, 2013 the company reported net loss of $10.5 million compared to losing $12.5 million the same period last year in 2012. The company had enacted a 1 for 6 reverse stock split back on October 3, 2013. We think that the reverse stock split should have been a big sign that the Z-160 trials were not running along smoothly.

Basically the company now has one last shot on Z944, and that shouldn't seem to be very comforting for a lot of long term investors. The risk of investing in Zalicus could mean another failure to come within the next few years. Also the wait will be long as the company won't start the phase 2 trial for Z944 until 2014. Once it begins results could come as early as 1 year from start date, or as late as 2 years from the start date. The lack of cash, and the problem of having to raise cash at such a low share price is another risk that investors shouldn't want to have to go through. We think that money is better spent on other opportunities in the biotech sector. We think that investors should cut their losses, and stay away from Zalicus. So far investors have been burned twice, and the guarantee for positive phase 2 results in Z944 is very slim.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.