Call it the yin and yang of the biopharmaceutical industry. Good news for one company is nearly always bad news for another.
Zogenix (ZGNX) announced very good news last week. Its experimental drug ZX008 proved to be very effective at reducing seizures in a late-stage study of patients with a rare form of epilepsy known as Dravet syndrome. As a result, Zogenix stock skyrocketed -- more than doubling in one day.
However, Zogenix's good news was bad news for GW Pharmaceuticals (GWPH). Like Zogenix, GW Pharma also has a drug targeting Dravet syndrome. That drug, Epidiolex, is expected to be submitted for U.S. regulatory approval this month for the Dravet syndrome indication, as well as for another type of epilepsy, Lennox-Gastaut syndrome (LGS). While Zogenix stock went up, GW Pharma stock sank, reflecting investors' fears about competition for Epidiolex. But just how risky is GW Pharmaceuticals stock after Zogenix's big news?
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A natural tendency
What's the first thing many investors did when Zogenix announced its results? They compared them to the results for Epidiolex in treating Dravet syndrome. That's a natural tendency: Humans like to compare things. It's also problematic.
For example, Zogenix reported that patients taking a higher dose of ZX008 (0.8 mg/kg/day) achieved a 72.4% mean reduction in monthly convulsive seizure frequency, compared to 17.4% in placebo patients. In 2016, GW Pharma announced that patients taking Epidiolex achieved a median reduction in monthly seizures of 39%, compared to 13% for patients on placebo. ZX008 was better than Epidiolex, right? Not so fast.
The trials conducted by the two drugmakers involved different patients -- 119 patients for Zogenix and 120 for GW Pharma. There's no way to know for sure how ZX008 would have performed in GW Pharma's patient population or how Epidiolex would have performed in Zogenix's patient population.
Similarly, we can't conclude which drug is safer based on the clinical results. Zogenix reported that 95% of patients on the 0.8 mg/kg/day dose of ZX008 experienced adverse events, compared to 65% in the placebo group. GW Pharma said that 93% of patients taking Epidiolex experienced adverse events, versus 75% of patients on placebo. Again, though, because these were different patient populations, it would be incorrect to state that Epidiolex is a little safer than ZX008.
Just the facts
While comparing the two studies isn't a sound approach, there are some hard facts that we can evaluate. First, there now appear to be two experimental drugs with reasonable chances of winning FDA approval. That fact alone could hurt GW Pharmaceuticals. The company had hoped to be the sole player in the Dravet syndrome market, which currently has no FDA-approved treatment.
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Second, GW Pharma still has a head start. Assuming the company completes its planned FDA submission for Epidiolex this month, the drug could be approved in the first half of 2018 if the FDA grants priority review. While the drug will also need to be scheduled by the U.S. Drug Enforcement Agency (DEA), a commercial launch in the second half of next year is possible.
Zogenix, meanwhile, has another late-stage study of ZX008 to complete. Assuming the company announces positive results from that study by mid-2018, it could file for U.S. approval by late 2018 -- roughly one year after GW Pharma.
The third fact to consider is that GW Pharma is applying for approval for Epidiolex in treating both Dravet syndrome and LGS. ZX008 hasn't been evaluated at all for the LGS indication, although Zogenix has announced plans to initiate a study.
Risk assessment
Is the risk for GW Pharmaceuticals now escalated? Yes, but probably less than some fear.
There's no question that the prospect of another Dravet syndrome drug potentially following hot on the heels of Epidiolex isn't what GW Pharmaceuticals wanted. However, analysts weren't expecting Epidiolex to capture the majority of the market anyway. Cantor Fitzgerald's Elemer Piros, for example, a definite bull on GW Pharma, only modeled for Epidiolex winning roughly 33% of the market at peak.
Also, many epilepsy patients require multiple drugs to treat their disease. One of the worries about Epidiolex was its interactions with some commonly used anti-epilepsy drugs. (GW Pharmaceuticals, by the way, thinks those worries are overblown and that drug-drug interactions could work to its benefit.) It's quite possible that should both Epidiolex and ZX008 win approval, there could be significant overlap, with patients using both drugs.
The reality is that the opportunities for Epidiolex are somewhat lower if ZX008 emerges as a rival, but the decrease in GW Pharmaceuticals' market cap largely reflects this. Zogenix stock is on better ground than GW Pharma stock is right now. The best way for GW Pharma to make a rebound is to get a green light from the FDA. That possibility is still months away.
