Zogenix (ZGNX) is one of the pharma's biggest losers today. The reason? The drug maker got nailed with a Refusal to File (RTF) letter from the FDA for the submission of for FINTEPLA in treating seizures associated with Dravet syndrome. The RTF cited two reasons for the issuance of letter: (1) certain non-clinical studies were not submitted to assess toxicity following the chronic administration of fenfluramine; and (2) the application contained an incorrect version of a clinical dataset that prevented the completion of the review process.
Why is this regulatory delay such a big deal? Investors believe that this lengthy delay could allow the drug's competitors across its various indications to catch up from a development standpoint. If so, these same investors think that FINTEPLA's commercial opportunity could be slashed.
So it's not surprising that Zogenix shares dropped by as much as 28% today following this self-inflicted wound.
Northland analyst Carl Byrnes is out discussing the two issues raised in the RTF letter:
- In prior verbal and written interactions with the FDA, the Co. was not directed to provide non-clinical toxicology, as the NDA for FINTEPLA® was being filed using the 505(b) (2) pathway that would allow inclusion of toxicology data from NDA of fenfluramine, i.e., Pondimin® filed in 1972. While we believe there is a high likelihood that the FDA will acquiesce, we are taking a conservative posture and assuming the Co. may have to conduct standard ICH 6-month and 9-month chronic toxicology studies that will take ~ 12-15 months for completion, potentially delaying US approval into 2021.
- This was simply an administrative error that we believe will be easily remedied. Importantly, this error does NOT affect the data disclosed publicly and as-reported in the NDA relating to FINTEPLA®'s safety and efficacy as demonstrated in the registration trials, i.e., Study 1503 and Study 1504, respectively.
Byrnes is confident that the cited issues are resolvable as he reiterates an Outperform rating on ZGNX stock, while cutting his 12-month price target to $60 (from $70). (To watch Byrnes' track record, click here)
JMP analyst Jason Butler sees near-term uncertainty following FINTEPLA RTF and he brackets the potential delay as ~6 months in the best case scenario or 12-18 months if the FDA requires new long-term toxicology studies.
Butler opined, "We implement a 12-month delay to our model assumptions for the FINTEPLA launch in the U.S., and make no changes to our projections for the EU launch and LGS. Acknowledging the likely weakness in the stock [...] we think this will prove to be a buying opportunity as the even the worst case delay is manageable and there is no risk to the drug’s outstanding clinical profile or the commercial opportunity."
Butler maintains an Outperform rating on ZGNX, while reducing the price target to $69 (from $79).
"Our $69 price target is derived through a risk-adjusted, NPV analysis of FINTEPLA in Dravet (~$38/share, prior ~$46/share) and Lennox-Gastaut syndromes (~$23/share, prior $25/share), and our projection for YE 2019 cash (~$8/share, unchanged)," Butler explained.
All in all, most analysts have not given up on Zogenix just yet, as TipRanks analytics showcase the stock as a Strong Buy. Out of 9 analysts polled in the last 3 months, eight are bullish on ZGNX stock, while 1 remains sidelined. With a potential upside of nearly 50%, the stock’s consensus target price stands at $59.33.
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