On Thursday morning, Zogenix, Inc (ZNGX) announced that the co-promotion of SUMAVEL DosePro (sumatriptan injection) with Mallinckrodt (MNK) will end on January 31, 2014. The stock is up 6% as a result. PropThink recommended that investors buy ZGNX shortly after the FDA approved the company’s hydrocodone product, Zohydro ER, and after a secondary offering in early November. ZGNX is up 50% from our buy, and we continue to believe that the stock is worth holding onto.
ZGNX saw some odd price action on Wednesday, climbing 16% on volume of almost 15 million shares. Much of that came from 5 and 2 million-share blocks that went off just before 11:00AM. The abnormal volume with no news suggests that someone know there was an event coming, although we certainly can’t substantiate this.
The termination of the co-promote comes five months early, originally scheduled to end on June 30, 2014. Zogenix said that the termination was timed to precede the expansion of the Zogenix sales force planned for February 2014.
SUMAVEL DosePro generated sales of $32.3M million in 3Q12-3Q13, including sales at Mallinckrodt. In our simple valuation, we originally suggested the product could do $40M on an annual basis – at a 3x revenue multiple, worth $120M. Interestingly, sales and prescriptions remained stable through 2013 despite Zogenix reducing its salesforce by nearly 50% while in cash-conservation mode ahead of the FDA’s decision on Zohydro. Zogenix now plans to expand its salesforce from 47 to 155 in February ahead of the March Zohydro launch. This same salesforce will be pushing SUMAVEL, thus it’s not unrealistic to believe it could be a $50-60M product with a more focused sales effort, valuing the migraine franchise, which includes Migranal, at upwards of $150M.
While we remain focused on Zohydro ER, the increasingly consolidated product franchise at ZGNX offers interesting upside. As we outlined previously, there’s reason to believe that ZGNX is a takeout target, and consolidating assets into a single bag (eliminating co-promotion) makes for easier justification. We certainly wouldn’t own ZGNX for the acquisition thesis alone, but you can read more about that facet of PropThink’s thesis here.
In connection with ZGNX, PropThink has taken a long position.
