ZLCS - Moving To Neutral on Zalicus

Zacks Small Cap Research

By Jason Napodano, CFA

On September 10, 2012, Zalicus, Inc. (ZLCS) announced top-line results from the phase 2b SYNERGY trial. SYNERGY (SYNavivE for Reducing signs and sYmptoms of rheumatoid arthritis trial) was a 12-week, 5-arm, double-blind, placebo-controlled study to evaluate the safety and efficacy of Synavive as a treatment for the signs and symptoms of rheumatoid arthritis (RA) in approximately 259 subjects with moderate to severe disease conducted at over 50 centers in the U.S., Europe, and Latin America (ClinicalTrials.gov identifier: NCT01369745). Enrollment in SYNERGY completed on April 30, 2012.

The primary endpoint was efficacy measured by the Disease Activity Score in 28 Joints (DAS28) at 12 weeks. DAS28 is a common, patient specific, outcome tool used in therapeutic trials to assess disease improvement or response. The trial was designed to show the efficacy of Synavive compared to its individual components (2.7 mg of prednisolone and 360mg of dipyramidamole) as well as how Synavive performs in comparison to 5 mg of prednisolone alone.

Results showed that patients on Synavive achieved a -0.9 change from baseline on the DAS28 endpoint for Synavive (approximately 17% improvement) compared to a -0.5 change from baseline for placebo (approximately 10% improvement). However, Synavive was not statistically superior to 2.7 mg or 5 mg prednisolone. As a result, management has discontinued development of Synavive. Zalicus will also halt the ongoing one-year extension study which was designed to investigate the long-term safety and durability of response for Synavive.

We believe discontinuing Synavive is the right thing to do, and applaud management for showing the discipline necessary to make the call. Zalicus spent $9.9 million on R&D in the second quarter 2012. Synavive accounted for $2.8 million of this figure. The company spent a total of $6.1 million on Synavive development during the first six months of 2012. In 2011, Zalicus spent $11.8 million on Synavive research and development. We expect a savings of around $3 million in the third and fourth quarter of 2012 now that Synavive has been discontinued. We are lowering our 2013 R&D expense by $5 million as well.

Moving To Neutral

We are disappointed in the failure of SYNERGY and the discontinuation of Synavive. We had previously believed the drug had $250 million potential as a treatment of moderate to severe RA in patients failing high doses of the glucocorticoid prednisolone due to poor tolerability and/or side effects. Our previous price target was $3.00 per share. We are moving our rating to ‘Neutral’ while we wait for additional data on the two phase 2a ion channel candidates, Z944 and Z160 (discussed below), and lowering our target to $1.50 per share.

A copy of our full report can be downloaded here >> ZLCS-9.11.2012/Napodano

We see significant value in these two ion channel candidates, each with novel mechanisms of action for the treatment of acute and chronic pain, respectively. We remind investors that Zalicus also received a royalty on sales of Exalgo at Covidien. Covidien recently received approval for a 32 mg dose of Exalgo, which we believe makes the product far more competitive in the crowded long-acting opioid space. Zalicus also has early-stage oncology and ion channel collaborations, and is eligible to receive both milestones and royalties on the advancement and commercialization of Prednisporin at Sanofi. We discuss these programs in detail in our full report linked above.

View Comments (0)