Shares of Zogenix (NASDAQ:ZGNX) soared recently with the Food and Drug Administration's approval of hydrocodone painkiller Zohydro for severe, around-the-clock pain unrelieved by other agents. This approval paves the way for the first extended-release, hydrocodone-only analgesic available in the U.S. not combined with another painkiller like acetaminophen.

Zogenix is hardly alone in this arena. Generic hydrocodone/acetaminophen combinations produced by generic drug manufacturers including Endo Health Solutions (NASDAQ:ENDP) and Actavis (NYSE:AGN) have produced robust market numbers. More than 130 million U.S. prescriptions are written annually for hydrocodone combination products alone with the painkiller market projected to top $8.4 billion by 2017.

This vast market opportunity has continued to attract new players including Teva Pharmaceuticals (NYSE:TEVA), which has had long-standing plans to develop a similar extended-release hydrocodone painkiller.

In addition to a crowded market, Zohydro (and all other controlled substances) must deal with renewed efforts by regulators to clamp down on skyrocketing prescription drug abuse. Given the heavy competition and administrative landscape, investors should ask: Can Zohydro find its place in the clinical setting, and how will new controlled substance rules affect its prospects?

Mixed signals
Prescription drug abuse has been described as an "epidemic" in recent years; drug safety and drug abuse advocates have claimed that the prevalence and impact of prescription medication abuse has already surpassed that of illegal drugs. Federal and state regulators have scrambled to put in new monitoring programs and regulatory safeguards to slow a dangerous trend. That being said, Zohydro's approval has made recent actions over the last few weeks somewhat difficult to interpret.

First, the FDA approved Zohydro despite overwhelming opposition from its own advisory panel. In an 11-2 split, the panel voted against approval citing significant concerns for not only the worsening abuse trends overall but the specific risk of addiction and abuse posed by Zohydro.

The FDA later announced that it would formally recommend that the DEA reschedule hydrocodone combination products from Schedule III to Schedule II. This move has rattled many patients and practitioners alike and for good reason; unlike Schedule III, Schedule II prescriptions cannot be refilled, cannot be prescribed by telephone, require stringent monitoring, and must comply with special storage rules.

While this will almost certainly cause headaches for many pain patients, it may actually turn out to be a good thing for Zohydro. As a hydrocodone-only product, Zohydro is already a Schedule II drug; rescheduling of wildly popular hydrocodone combination products may give Zohydro an added chance to compete on more equal footing. Without this potential change to the regulatory scheme, the hassle alone may present Zohydro with an uphill with busy and skeptical physicians.

Dealing with the pain
Even if the FDA successfully lobbies the DEA in rescheduling hydrocodone combinations, the question remains as to whether Zohydro has a place in the standard of care for pain.

On the plus side, Zohydro's extended-release formulation can potentially decrease the number of times patients must dose in a day to control their pain. However, there may not be a tremendous demand for an unfamiliar, relatively expensive, and potentially abusable painkiller.

Theoretically, a long-acting opioid might provide more consistent pain control but clinical trials of Zohydro focused on its performance compared to placebo rather than any existing pain products. Zohydro will enter the market as a branded product among a sea of generic hydrocodone options without any proof of superior effectiveness. Additionally, branded products are historically much more expensive than their generic counterparts.

If convenient dosing and single-ingredient formulation are Zohydro's only selling points, it may be that it will only really find an audience with the small group of patients who are unable to tolerate the second ingredient found in combination products.

Zogenix is already working on making Zohydro less of a target for abuse by signing a deal with Altus Formulation. Altus is being brought on to help develop new formulations of Zohydro that are more difficult to abuse without sacrificing effectiveness. This would go a long way in relieving prescriber anxiety surrounding Zohydro's abuse potential and maybe give it a stronger chance in this competitive market.