Why Zogenix Inc. Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Zogenix (NASDAQ: ZGNX  ) , a biopharmaceutical company developing therapies to treat central nervous disorders and pain, vaulted higher by as much as 53% on today's announcement that the Food and Drug Administration had approved the drug Zohydro for the treatment of severe chronic pain management.

So what: The FDA said Zohydro ER has been cleared for use in patients who have chronic long-term pain management issues. The FDA's advisory panel actually voted 11-2 in December against recommending Zohydro ER for approval because of concerns about abuse of the medication. This is one of the somewhat rare instances in which the FDA didn't follow the advisory recommendation. Instead, Zogenix will be required to study the effects and potential of abuse for Zohydro ER in a post-approval setting.

Now what: Clearly, this is a gigantic win for Zogenix, which previously had only one FDA-approved product -- Sumavel DosePro for the treatment of migraines. Zogenix has been burning about $40 million-$50 million in cash annually for research and development and general administrative expenses, but Zohydro ER's approval could help cut that burn rate in half as early as next year. While I'm not willing to give Zogenix a clean bill of health just yet, because the launch of a drug is just as important these days as the approval itself, I would certainly say it's in far better shape today than it was last December.

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  • Report this Comment On October 27, 2013, at 10:23 AM, QuietObserver1 wrote:

    Thankfully, the FDA gets credit for making an intelligent ruling. Personally I believe the decision was based upon science and understanding of the hazards of acetaminophen and liver damage, vs the potential for abuse. Those that still bang the drum and believe pain control should be limited to only lower risk medications are idealists. Stronger medications for adequate pain control are needed. Why? Because pain, whether the experts agree or not, is subjective to the individual. Pain control should be the goal, not abuse control.

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