Zogenix Inc. Shares Crumbled in March -- Here's Why

What: Shares of Zogenix , a small-cap biopharmaceutical focused on developing therapies to treat central nervous system disorders, shed 18% of its value in March (per data from S&P Capital IQ)after the company in one day announcedfourth-quarter earnings results and the sale of its only marketed product.

So what:Zogenix delivered quarterly net product revenue of $5 million and total revenue of $14.9 million, up 50% year over year, according to earnings results announced on March 10. However, this increase resulted entirely from increased contract manufacturing revenue -- net product revenue actually fell 44% year over year. Overall, Zogenix lost an adjusted $0.13 per share, or $0.02 more per share than Wall Street had expected.

The bigger news was the announcement that it sold its oral hydrocodone pain management drug Zohydro ER to Pernix Therapeutics . Initially, Zogenix will receive $30 million in cash, $20 million in Pernix stock, and a $50 million short-term promissory note. Zogenix is entitled to an additional $12.5 million upon the approval of ZX007, an abuse-resistant formulation of Zohydro ER that is under development, and will get another $7.5 million upon aggregate net sales reaching $75 million in a calendar year. All told, Zogenix could receive up to $283.5 million in additional milestone payments.

Per the press release, the move is intended to allow Zogenix to focus on its remaining CNS pipeline candidates, ZX008 for Dravet syndrome and Relday for the maintenance treatment of schizophrenia. Removing Zohydro ER and the abuse-resistant formulation also results in a substantial reduction in expenses.

Source: Zogenix.

Now what:Investors are clearly not thrilled with the peanuts Zogenix got for Zohydro ER, but this move was necessary for the company to reduce its expenses, shore up its bank account to ensure it can complete its phase 3 studies for ZX008 and Relday, and rid itself of a drug that could struggle after privately held Purdue Pharma's abuse-resistant hydrocodone tablet Hysingla ER was approved last November. Even if Zogenix had kept Zohydro ER, I think it would have struggled to gain market share in a highly competitive therapeutic field.

The move now allows investors to turn their attention to Zogenix's upcoming phase 3 studies. My concerns moving forward include the low success rate of drugs designed to treat schizophrenia and what looks to be a growing number of competitors for Dravet syndrome. With Zogenix's cash concerns put to rest for some time, I believe the shares could have some buffer space, but it will need slam-dunk results from at least one of its two late-stage studies if its shares are to head higher from here.

The article Zogenix Inc. Shares Crumbled in March -- Here's Why originally appeared on Fool.com.

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