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Why Shares in Zogenix Are Soaring Higher

By Todd Campbell - Jul 15, 2015 at 12:41PM

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Zogenix shares continue to rally on optimism surrounding its treatment for Dravet syndrome.

What: Following news that a phase 3 study of fenfluramine will kick-off later this year in Dravet syndrome patients, enthusiastic investors are sending shares in Zogenix (ZGNX) surging higher.

So what: After meeting with FDA regulators, Zogenix plans to file an IND for two phase 3 studies of low-dose fenfluramine, the former anti-obesity drug, to evaluate its ability to limit seizures in Dravet syndrome patients.

Zogenix plans to begin enrolling patients in these trials in the fourth quarter, and overall, the company plans to enroll 105 patients, up from prior expectations of between 40 and 60 patients.

The news removes some uncertainty tied to Zogenix's ability to reinvigorate the heavily-maligned fenfluramine, which alongside phentermine, was formerly sold as Fen-phen and was withdrawn from the market in 1997 due to heart risks.

Now what: Zogenix's future trials could build upon the success of an ongoing long-term study of fenfluramine in 12 Dravet syndrome patients, 10 of whom remained on fenfluramine treatment following the end of a prior study that wrapped up in 2012. Overall, 80% of these patients achieved a 75% or higher reduction in the number of seizures annually. Importantly, none of the patients discontinued treatment, and there have been no significant cardiac adverse events reported among these patients.

Whether or not that solid long-term data is confirmed by Zogenix's upcoming late stage trials remains to be seen. As many as 40% of drugs fail in phase 3 trials, so there's a lot that can still go wrong for this drug.

Granted, there's a significant need for new treatment options for Dravet syndrome patients, so it's worth keeping an eye on how this study progresses, but I'm unwilling to chase this stock higher for two reasons. Firstly, because Dravet syndrome is a rare disease with a small patient population, and secondly, because there are other ongoing late stage studies evaluating the chemical cannabinoid CBD in Dravet syndrome that could limit Zogenix's commercial opportunity.

Todd Campbell has no position in any stocks mentioned. Todd owns the equity research firm E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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