What happened

Shares of Zogenix (ZGNX) fell more than 32% today after the company reported positive top-line results from an important phase 3 study evaluating Fintepla as a treatment for a rare childhood form of epilepsy called Lennox-Gastaut syndrome (LGS). While the drug candidate achieved a statistically significant reduction in the rate of seizures compared to the placebo -- which was the primary endpoint of the study -- investors weren't impressed by the magnitude of the difference. 

In the LGS study, the highest dose of Fintepla reduced the number of monthly seizures by 26.5% compared to baseline, while individuals taking the placebo achieved a reduction of only 7.8%. The difference of 18.7% was statistically significant. However, as highlighted by Endpoints News, the difference in reductions of monthly seizures between the highest dose of Fintepla and the placebo in an earlier study of Dravet syndrome was 70%. Dravet syndrome is another form of epilepsy. 

As of 10:52 a.m. EST, the pharma stock had settled to a 31.3% loss.

A woman checking her phone in surprise.

Image source: Getty Images.

So what

It's one thing for investors to hope that the magnitude of seizure reductions enabled by Fintepla would be equivalent from Dravet syndrome to LGS. It's another thing to realistically expect equivalency. 

Put another way, the results of the two trials don't make for an apples-to-apples comparison. The age of individuals enrolled in each study was different. And although both Dravet syndrome and LGS are characterized by seizures, they don't have the exact same pathology. In fact, the difference in monthly seizure rate reductions between the two studies provides a very helpful clue for researchers studying the nuance of each disease. That's how science works.

Of course, Wall Street works a bit differently. Analyst projections for the drug candidate's eventual market share potential, pricing potential, and peak sales potential in LGS were based in part on the expected reduction in monthly seizures. Considering the high bar set by Fintepla in Dravet syndrome, analysts were likely expecting better results in LGS than what were reported this week. A smaller-than-expected reduction in monthly seizures negatively impacts those financial models and reduces expectations for Fintepla.

Now what

Based on the top-line results, Fintepla has decent odds of earning marketing approval in LGS. The drug candidate met the primary endpoint of the phase 3 study and achieved statistically significant improvements on multiple secondary endpoints. Whether it earns approval and grabs sufficient market share will take years to know, but Wall Street isn't wasting time resetting expectations for the drug candidate and Zogenix. Investors should wait for a more complete picture of the results before getting too carried away.