|Reversal trend spotted in undervalued stock with upcoming catalyst|
|Thursday, 02 December 2010 19:48|
Here is an opportunity for readers to jump on a bottom priced NASDAQ stock with great upside, an upcoming trade catalyst and a bullish looking chart.
Zalicus Inc. (NASDAQ:ZLCS), formerly CombinatoRx, announced earlier this week that preclinical data on its discovery of novel A2A agonist oncology programs for the treatment of multiple myeloma and other B-cell malignancies will be highlighted at the 52nd Annual Meeting of the American Society of Hematology in Orlando, FL on December 4-7, 2010.
The announcement certainly caught our attention because pre-arranged, spotlight events like this one (scheduled to take place over the weekend on Sunday, December 5, 2010, 6:00-8:00 p.m. during poster session I: Myeloma – Pathophysiology and Preclinical Studies, excluding Therapy) always draw attention from traders and emphasize the importance of taking positions in a particular stock before it makes news. We've seen this on multiple occasions in recent weeks with some of the stocks we've featured.
That makes Zalicus a nice trade candidate, but several other factors make Zalicus a good investment candidate as well.
Certainly, one is not used to seeing a biotech company with 27 unique products in 22 indications priced at these levels. Much less one with partnerships and R&D agreements with entities that include Covidien, Sanofi Aventis, Amgen, Novartis, Clinical Data, Inc, the U.S. Army Medical Research Institute for Infectious Diseases and the National Institute of Allergy and Infectious Diseases among others.
Multiple analysts agree that the company is greatly undervalued given that it is already generating royalties from its FDA approved (March 2010) pain medication Exalgo, which it licensed in the U.S. to Covidien. In addition, the company has reported approximately $48 million in cash with little or no debt. Further analysis shows that the royalties from Exalgo alone are worth more than the entire current market value of Zalicus at $105 million.
Jason Napodano, the Managing Director & Sr. Biotechnology Analyst at Zacks thinks "Zalicus yields a total firm value of roughly $260 million, or $3 per share" when one adds up the existing cash on hand (totaling $48.6 million as of September 30, 2010) and the sum of various ZLCS' parts including: Royalties from Exalgo, the company's Synavive Development Plan as well as their Dual Discovery Platform + Collaborations.
The stock can still be had at a discount because it sold down after Q3 results, when it was revealed that revenues fell short due to lower than anticipated Exalgo revenues. The drug, which Covidien introduced as EXALGO (hydromorphone HCI) Extended-Release Tablets in April, is the only extended-release hydromorphone treatment available in the U.S. This proven therapy, combined with an innovative delivery system, provides opioid-tolerant patients suffering from moderate-to-severe chronic pain relief for 24 hours per dose.
Its precicely this type of focus on new classes of analgesics for the treatment of both acute and chronic pain that analysts feel will enable ZLCS to outperform the markets going forward.
"It is very exciting," explained Dr. Mark Corrigan, who has served as Zalicus' President and Chief Executive Officer since January 2010. "We have had, for the last 10 years, been working on neuronal calcium channel blockers. These are calcium channels that are on nerves that conduct pain signals, and it's a validated central nervous system target in that there is an existing medication called Prialt (ziconotide), which is only available for direct injection into the brain, that blocks these receptors. One can imagine that finding an oral pill that somebody could take, that could have the same effect, would be a tremendous advantage. In fact, our goal is to put a number of these calcium channel blockers that target pain receptors into man within the next few years. We are hopeful that we have a couple of molecules that we are bringing forward that we can begin testing next year in healthy volunteers. We think it is an exciting pain target; it doesn't carry the risk abuse and addiction that traditional opiate-based pain targets do."
Synavive, a Phase II product candidate for rheumatoid arthritis is set to begin a Phase IIb clinical trial next year and patients with rheumatoid arthritis could see a significant benefit from a lower dose of steroids that they generally have to take. Assuming positive trial results, that could become a huge value driver for the company. Company officials hope to move one or more of ZLCS' new ion channel product candidates into humans next year and such a development would represent a new generation of drugs for the treatment of pain. "I think that also would be a boon not only to patients, but to our existing investors," said Corrigan during a recent interview.
Writes Jeremy Richards, Manager/Director of Private Wealth Fund in a recent write-up for Seeking Alpha: "I believe investors buying the stock under $2 is an exceptional bargain. My 12-month price target for Zalicus is $4 a share based on royalties from Exalgo, the potential market opportunity for Synavive and Prednisporin, early-stage development and collaborative programs." Richards and others believe Zalicus may be approached for a buy-out in the near future.
Keep in mind also that the company has licensed Prednisporin (FOV1101)- a topical ocular drug candidate- to Fovea, a subsidiary of Sanofi Aventis who in-turn has developed a co-formulation of Prednisporin and is seeking to develop Prednisporin to treat inflammatory ocular diseases, such as allergic conjunctivitis.A milestone payment for $500,000 was announced in June and further development and regulatory based milestone payments of up to approximately $40.0 million as well as royalty payments of up to 12% of net sales are in play.
The company has approximately 89 million shares outstanding of which 32% is held by institutions with only 2% of their float attracting shorts as of 11/15. Shares have seen a 52 week high of $2.02 and a very recent 52 week low of $0.76.
A look at the most recent chart shows the formation of a Bullish Engulfing candle- a leading indicator that provides an alert to the bulls that the newly formed upward trend should continue and that there is an immediate reversal to the short term weakness recently seen in the stock. The chart's EMA analysis and recent MACD both show very bullish behavior in the short term. We also see a rising RSI (relative strength index) with some resistance at $1.25 that could easily become a new support level if traders manage to push past it during Friday's session. All in all, the chart is setting up very nicely for a modest upward break-out here.
Pipeline Overview: http://alturl.com/4w7e5
Recent analyst review: http://alturl.com/2keko
Can Zalicus Bounce Back?: http://alturl.com/ha3ko
Zalicus: Ridiculously Cheap : http://alturl.com/wu98g
Disclosure: Long ZLCS