Boston, MA 10/29/2013 (wallstreetpr) – Zogenix Inc. (NASDAQ:ZGNX) received an approval from FDA for one of its drug used in the treatment of chronic pain management. The markets reacted very positively to this news and the shares saw a rapid rise. Investors jumped in without understanding or even reading the fine print. The passions appeared to have cooled down yesterday and the stocks saw a decline of 4.93% to close at $2.89 per share.
Zogenix is engaged in developing drugs aimed at the treatment of central nervous system disorders and pain management. The company has received approval from FDA for commercializing one drug Sumavel DosePro. Another drug, Zohydro ER is undergoing clinical trials for chronic pain management. The advisory panel constituted by FDA had voted overwhelmingly not to grant approval in December, 2012. FDA went against the advisory panel’s recommendation and granted approval for the drug to be commercialized. The approval came as a life-saver for the company and the investors reacted by buying into the stock. The company has been spending almost $50 million annually on R&D expenses and administrative expenses. The company had only $16 million in cash reserves and about $69 million in debt; $33 million in short term and balance in long term.
The approval came with stringent strings attached. Zogenix was required to carry out post launch studies to determine risks associated with long term use, a major worry of the advisory panel (The advisory panel wanted to study the long term effects before granting approval.) Even the company expected to reach sales of only $150 million by year 5 of the launch. FDA has also classified the drug as Schedule II drugs. Drugs falling under this category need a fresh prescription after 90 days as chances of drug abuse are prevalent.
With or without the drug, the company is in dire straits. Investors were quick to realize this after the initial euphoria had worn off. They dumped the shares by 4.93% and the stock closed at $2.89 at the close of trading. After hours trading also saw the stock lose 2.42%.
