5 Star Buy: Zalicus (ZLCS)

What Does This Company Do?

Zalicus discovers and develops treatments for pain and inflammatory diseases. Our pipeline includes Exalgo™ (hydromorphone HCl) extended-release tablets, for the management of moderate to severe pain in opioid tolerant patients requiring continuous, around-the-clock opioid analgesia for an extended period of time and Synavive™, in Phase 2 development for rheumatoid arthritis.


Zalicus unifies the strengths, assets and technologies of two companies, CombinatoRx and Neuromed, to discover and develop innovative therapeutics for patients in need. We believe that our novel product candidates, productive drug discovery platforms, drug development expertise, revenue-generating collaborations and financial resources provide a solid foundation for success.

Morningstar Analysis:

Sector: Healthcare

Industry: Biotechnology

Stock Type: Speculative Growth

Employees: 58

Fiscal Year Ends: December

Stock Style: Small Growth
Wall Street Journal Analysis: Buy

Review

In less than three months, Zalicus (ZLCS) has rolled out 3 new drug candidates. Analysts believe that it will go up to only $3. It went up to $2.99 yesterday. Others believe that it will go up to $7. The roll-out of these new drugs infers that it is a good time to buy Zalicus shares in addition to the fact that they have recently reported a 152% royalty increase for its newly marketed drug Exalgo licensed to Covidien (COV). According to a recent press release, Zalicus will be adding $20 million of common shares to its $46million cash reserves (as of 2010). The company has a credit line of $20 million. Dedicated to pain and immuno-inflammatory drug development, Zalicus' new drugs are identified as Z160, Z212, and Z944. In the world of pain research, Zalicus is arguably among the leaders in what is called ion channel research. In simple terms, Zalicus is seeking to develop oral medications that target pain signaling in the human body. If successful, Zalicus's "Z" drugs would compete in a 20-30 billion dollar market, and particularly, against lucrative opioid drugs that are known to have serious side effects, including addiction.

Word of caution - it is risky to invest in small biotech firms.

Here's some information on Zalicus' three products.

I. Z160

Z160 is identified by Zalicus CEO Mark H. N. Corrigan as a reformulated version of prior failed version NMED-160. Without getting lost in the science, NMED-160 reached phase II clinical studies which led to a highly publicized collaboration with Merck (MRK) in 2006 for approximately 475 million dollars (milestones inclusive). But NMED-160 hit a show-stopper in clinical development because its bioavailability (i.e. the percentage of how much of the drug gets into the body's circulation system) failed to achieve an acceptable target. As a result, in 2009, Merck cancelled its collaboration with then Neuromed Pharmaceuticals (today Zalicus Pharmaceuticals Canada, a subsidiary of Zalicus Inc. USA). However, according to the company's CEO, the bioavailability problem appears resolved, so Z160 is being targeted to start phase I clinical studies assuming it passes all toxicology studies.

II. Z212

Recently, Zalicus announced Z212, including the publication of scholarly research. The Z212 introduction came as a surprise because it is known as a sodium channel modulator while up until recently on the Zalicus website, it was thought that Zalicus was primarily focused on calcium channel modulators. The intrigue here is that Z212 is compared with an already marketed drug called gabapentin. In early preclinical research, the data that Z212 may have similar pain-reducing characteristics as gabapentin. Shareholders also learned from the report that Zalicus scientists have discovered a way to modify their drug compounds to avoid unacceptable cardiac side affects (hERG). Z212 data appears to avoid this challenge that has long plagued ion channel research.

III. Z944

This brings us to Z944, which is known as a calcium T-type ion channel modulator/blocker. According to Zalicus, Z944 should be the first drug candidate entering phase I clinical studies. The value to investors is that Z944 is representative of the company's advance in pain research. In fact, Zalicus claims to have at least 50 other drug candidates in the discovery - preclinical pipeline.

Conclusion

My target-price for Zalicus remains $5 tp $9 per share in 2011 given Prednisporin licensed to Sanofi-Aventis (SNY) begins moving into phase III and Exalgo royalties licensed to Covidien (COV) reporting exponential sales growth. I suggest to sell before 2012, if you're in it to gain fast cash.