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Can Zogenix rival GW Pharma?

June 7, 2017

In the red-hot world of marijuana stocks, there can be no question that GW Pharmaceuticals(NASDAQ:GWPH) reigns supreme. While most other marijuana-related stocks trade for pennies in the wild west of OTC markets, GW Pharmaceuticals trades on the Nasdaq at a market cap of roughly $2.5 billion.

While some of this success could be attributed to investors’ wild fervor to own any marijuana-related stock, the majority of the run-up is based on the continued excitement surrounding GW’s two cannabinoid drugs, Sativex and Epidiolex. However, as success always breeds competition, another clinical stage biotech is hot on GW’s heels. Could small-cap biotech Zogenix (NASDAQ:ZGNX) be the biggest threat to GW?

GW Pharmaceuticals’ marijuana success

With the approval of Sativex, the world’s first plant-derived cannabinoid prescription drug, GW proved the viability of its cannabinoid-based platform. However, Sativex (a drug indicated for the treatment of multiple sclerosis spasticity) only brings in a pittance of revenue and is not the focus of the story here. Without a doubt, the spotlight investors are shining on GW points to the company’s drug candidate Epidiolex, which has much larger potential. Epidiolex (cannabidiol) is a plant-derived cannabinoid being studied as a treatment for childhood-onset epilepsy, Lennox-Gastaut syndrome (LGS), and Dravet syndrome — all of which are devastating forms of childhood or infant epilepsies.

According to GW Pharma, there are around 466,000 patients who suffer from childhood epilepsy in the U.S. alone. Meanwhile, Dravet syndrome and LGS are both “orphan” diseases, meaning they affect less than 200,000 patients worldwide.

In March of last year, GW reported positive phase 3 data from the first of two clinical studies for Epidiolex in Dravet syndrome. In this study, 120 patients were given either Epidiolex or placebo. The primary endpoint was the percentage change in the monthly frequency of seizures during a 14-week trial period. For the 61 patients taking Epidiolex, monthly seizures decreased by 39%, while those taking placebo only saw a monthly decrease of 12%. On this news, GW announced it expects to submit a new drug application to the FDA in the middle of this year.

Competition on the horizon

Zogenix is a small-cap biotech also working to develop potential treatment options for LGS and Dravet syndrome. Zogenix’s lead product, ZX008 is a low-dose form of a drug known as “fenfluramine.”

Fenfluramine has something of an interesting story. Originally developed as a treatment for adult obesity, fenfluramine was withdrawn from the market in 1997 when it was found that the drug was associated with an increased risk of heart valve defects and pulmonary hypertension. However, over the course of clinical testing, it was discovered that fenfluramine also had interesting anti-epileptic characteristics.

With this in mind, researchers in Belgium began to evaluate the effect of a lower-dose form of fenfluramine as treatment for patients with Dravet syndrome. In Zogenix’s most recent update regarding this long-term study, the research showed that of the 10 original patients in the study, 3 patients remained seizure-free for six years, while another four experienced seizure-free intervals lasting at least two years. In addition, no patient showed any meaningful signs of developing heart valve defects or pulmonary hypertension. While a patient pool size of 10 is by no means large enough for statistically significance, these results bode well for fenfluramine’s potential in treating both LGS and Dravet syndrome.

Back in January of 2016, Zogenix announced the initiation of a phase 3 study of ZX008 as treatment for Dravet syndrome. The company expects to report top-line data from this study in the third quarter of this year. In addition, the company also expects to begin a phase 3 trial for ZX008 in LGS in the second half of 2017.

The better pick today

While GW Pharma has undeniably a more developed candidate as compared to Zogenix (GW’s Epidiolex has already succeeded in a phase 3 trial), sometimes in investing it can be a more profitable idea to bet on the underdog. In this case, with a market cap of just over $300 million, Zogenix’s current valuation is 10 times lower than that of GW. While we won’t know definitively how ZX008 will do until the phase 3 readout, I find the academic research highly compelling. For my money, I’d pick Zogenix as the better buy today.

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