A new Celgene is shaping up?

You probably often hear the stories that some biotech stocks jump 50%+ in a day following some successful clinical trial results. But a 200% jump in a day is not something you often see in the stock market. It is very rare indeed! We just saw it last week. The company is Zogenix (ZGNX), a single drug clinical stage company focusing on CNS indications.  Zogenix shares skyrocketed after it reported success in a Phase III trial for Dravet syndrome for its drug ZX008. Dravet syndrome (DS) is a rare, catastrophic, lifelong form of epilepsy with high mortality up to 20% with no effective treatment till now. So ZX008 will be an orphan drug that will be competing with another successful to-be-approved drug by GW Pharma. So why its story has excited investors so much? Two reasons I think: for one the expectation for ZX008 was too low (more below) that its success in the Phase III trial got virtually everyone a big surprise. Relatedly, there was a huge amount money in shorting the stock prior to the study result that has caused a gigantic short squeeze. Even as I’m writing now, the short float rate is still has high as 15%. Now back to my topic, why do I think Zogenix may become another Celgene, one of the most successful biotech companies. To answer this question, we need to learn a bit about the medical history and how Celgene started to be so successful.

 

In short, Celgene basically started with a single failed drug and revived it to be a multibillion dollar drug. The drug is called Thalidomide which has a very dark and painful history due to its safety problems. The thalidomide disaster is one of the darkest episodes in pharmaceutical research history. The drug was marketed as a mild sleeping pill safe even for pregnant women. However, it caused thousands of babies worldwide to be born with malformed limbs. Naturally the drug was pulled out from the market for the indication. But amazingly scientists later learnt that thalidomide has an anti-angiogenesis effect and Celgene took the opportunity to develop it to become an extremely successful anti-cancer drug for multiple myeloma (MM). Since then Celgene has evolved to become the insurmountable biotech giant that continues to be the No 1  leader in the MM area. With this short history in mind, let’s see how similar ZX008 is to thalidomide.

 

The generic name of ZX008 is called Fenfluramine. You may not know what it is but you probably have heard an anti-obesity medication, Fen-phen, another drug with a very painful history in the drug development. For relatively mild indication for overweight, the drug was found to cause heart valve disease and pulmonary hypertension, including cardiac fibrosis and therefore was withdrawn globally in 1998. Obviously Zogenix is trying to following the footprints of Celgene and is exploring this drug in more severe indications as it has shown to be able to control seizure to some extent. Due to its notorious safety profile, apparently most people did not believe this drug prior to the results from the Phase III trial. Now it turns out that ZX008 with a low dose of fenfluramine appears to be effective in DS patients with a quite acceptable safety profile at least based on the trial data. No wonder all the sudden everyone was chasing the stock or covering their shorts, which shot it as high as 200% in one day. In the short term, definitely it is risky to chase it now but long term, I think Zogenix has the potential become another very successful biotech either stand-alone or being acquired. Of course it is way too early to be sure about its future as a successful clinical development does not always guarantee the success of the company commercially. The drug’s cardiotoxicity is still a big concern and will likely lead to some limitation in its immediate potential. Having said that, the company is very small in size as of now and any commercial success, even limited, from ZX008 will provide it with a strong foundation for further growth. Maybe someday, Zogenix will really become another Celgene!