Zogenix Has $3.4B Opportunity With Pediatric Epilepsy Asset, BofA Says In Bullish Initiation

Zogenix, Inc. ZGNX's lead asset ZX008 presents a multibillion-dollar opportunity, according to Bank of America Merrill Lynch.

The Analyst

Analyst Tazeen Ahmad initiated coverage of Zogenix with a Buy rating and $63 price target, suggesting 29-percent upside.

The Thesis

BofA's worldwide, risk-adjusted peak sales estimate for Zogenix' lead asset ZX008 is $1.5 billion in 2029, comprising a $604 million opportunity in Dravet syndrome, $503-million in Lennox-Gastaut syndrome and $386 million in other pediatric epilepsy conditions, Ahmad said in a Friday note. (See the analyst's track record here.) 

An estimate not adjusted for risk gives a peak worldwide sales estimate of $3.4 billion across all indications, which Ahmad said is higher than the peak sales achieved by other anti-epileptic drugs and anticonvulsants. 

The candidate showed the best efficacy so far in the two Phase 3 studies for Dravet, with NDA and MAA filings expected by the end of 2018, the analyst said. ZX008 is in a Phase 3 trial for Lennox-Gastaut, with the readout expected in late 2019 or early 2020.

"With positive efficacy and safety, we believe ZX008 can penetrate the pediatric epilepsy market in DS, LGS and off-label use," Ahmad said. 

BofA anticipates a positive Phase 3 readout from the LGS study, a faster-than-expected ramp rate and lower-than-expected competition from other products such as GW Pharmaceuticals PLC- ADR GWPH's Epidiolex posing upside risk to its thesis.

Downside risks include a failure to reach commercialization for LGS, a lower-than-expected off-label offtake or any cardiovascular risk that triggers long-term safety concerns, Ahmad said. 

The Price Action

Zogenix shares have gained about 22 percent year-to-date.

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