Is Zogenix Stock Still a Buy After Soaring in November?

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What happened

According to data from S&P Global Market Intelligence, shares of the orphan-drug maker Zogenix (ZGNX) gained a stately 54.6% last month. The underlying catalyst behind the small-cap biotech's monstrous move northward last month appears to be the forthcoming late-stage readout for its experimental Dravet syndrome drug ZX008. That's a low-dose formulation of the former anti-obesity drug fenfluramine that was taken off the market in 1997 because of its association with serious cardiovascular events. 

So what

Dravet syndrome is a rare and potentially deadly form of pediatric epilepsy that currently lacks any form of FDA-approved pharmaceutical treatment. So, if approved, ZX008 would probably grab a premium pricing structure as a drug for an orphan indication, along with an extended period of exclusivity. 

Now what

Zogenix plans to unveil ZX008's late-stage results sometime in the second quarter of 2017. So with a fast-track designation from the FDA in hand, the company's lead clinical candidate could be on the market by early 2018.

The fly in the ointment, though, is this proposed time table puts it on track to go head to head with GW Pharmaceuticals' (GWPH) rival Dravet syndrome treatment known as Epidiolex. That's a cannabinoid-based therapy that posted stellar late-stage results for both Dravet syndrome, and another rare form of childhood epilepsy called Lennox-Gastaut syndrome, earlier this year.

The short story is that GW is aiming to have Epidiolex on the market by either late 2017 or early 2018 -- possibly setting up a showdown between GW and Zogenix. The latter, though, appears to be at a distinct disadvantage, given fenfluramine's known cardiac risks. Epidiolex, after all, sports a fairly clean safety profile.

All told, Zogenix's maturing clinical pipeline is certainly worth keeping an eye on. But its stock is arguably fairly valued at current levels based on the strong possibility that doctors may hesitate to prescribe any form of fenfluramine, especially to children.