Why Zogenix Inc. Shares Rocketed Higher

Zogenix's pain reliever Zohydro ER has more twists than an M. Night Shyamalan movie. Find out what has shareholders grinning ear-to-ear today.

Sean Williams
Sean Williams
Apr 16, 2014 at 1:41PM
Health Care

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 system disorders and pain, jumped as much as 15% after updating the status of its severe pain medication Zohydro ER in Massachusetts.

So what: As a quick refresher, in late March Massachusetts Gov. Deval Patrick announced that he was banning the use of Zohydro ER within the state because of the high potential risk for abuse of the therapy. Patrick noted that he wouldn't allow Zohydro ER to be sold until an abuse-resistant formulation became available.

Last night after the market closed, however, a Zogenix press release noted that the U.S. District Court in Massachusetts entered an order to prevent the implementation of the state's ban on Zohydro ER, effective April 22, 2014. In other words, the Court wanted to ensure that a precedent wasn't being set where states could pick and choose what drugs to allow and not allow. The court was simply reaffirming that this was the job of the Food and Drug Administration. 

Now what: I'm not really sure this severe pain opioid-based therapy could possibly get any more controversial. The FDA's panel voted overwhelmingly against recommending approval, the FDA granted it approval, the state of Massachusetts bans it, and its own District Court overturns that ban! This has more twists than an M. Night Shyamalan movie!

While it's great news for Zogenix and shareholders that Zohydro ER is cleared for sale in Massachusetts, it remains to be seen what sort of peak sales potential is possible for a therapy with so many usage concerns. For that reason, and the murky outlook as to when Zogenix will be profitable, I would suggest possibly adding this stock to your watchlist, but sticking to the sidelines.