ZOSANO PHARMA CORP ZSAN
February 05, 2017 - 6:58pm EST by
angus309
2017 2018
Price: 1.09 EPS 0 0
Shares Out. (in M): 17 P/E 0 0
Market Cap (in $M): 18 P/FCF 0 0
Net Debt (in $M): 14 EBIT 0 0
TEV ($): 9 TEV/EBIT 0 0

Sign up for free guest access to view investment idea with a 45 days delay.

 

Description

Zosano is an interesting speculation, with some characteristics that provide a sliver of safety (defined here as you won't loose all of your capital if things do not work), and if things work out, offers as upside many multiples of the current price. Due to the low share price this is suitable for PA's and small funds...ZSAN trades approximately $300k per day. 

ZSAN rhymes slightly with a name I submitted last year, VSAR. Versartis stock has done well since then, and for anyone interested, it still looks like a buy, as one of their potential competitors, OPKO is out as a competitor in human growth hormone treatments. Like VSAR, ZSAN has a Phase III asset. ZSAN also has two other commercial candidates in trials, which is also positive. FWIW, here is why I felt "better" last year about VSAR compared to ZSAN today : ZSAN is a $1 stock (enough said), it does carry some debt, and best I can tell, it does not carry the imprimatur of recognizable life science investors which VSAR has with Baker Brothers, although large holder Amzak Capital Management appears to have some heathcare investments. Lastly, I'm not thrilled by the bankers who brought them public back in 2015; Ladenburg and Roth.

Here is something else that is really interesting, or scary. ZSAN's Phase III asset, ZP-Triptan, should have trial results by the end of March. A note of clarification here : ZSAN is running one eight week Phase III, so the FDA is requiring the company to also run a longer safety trial. If the March readout is positive, the safety trial will run later in '17, with data from that next year (Q1 or Q2 '18), and an NDA to follow (Q2 or Q3 '18). 

With ZP-Triptan, ZSAN is developing a transdermal patch the size of a quarter for migraine sufferers. With a patch, the drug enters the bloodstream much more quickly, which enables a much quicker action (migraine relief in under 30 minutes), as well as faster peak absorption compared to oral drug dosages. ZSAN is using a generic form of the migraine drug Zomig in their patch. We know that Zomig works, now remains to be seen how the delivery mechanism plays out in the trial. 

The migraine market is as you can imagine, enormous. There are approx. 30mm patients in the U.S. alone who suffer from migraines every year. If approved, and in a worst case scenario, assuming that the only people would choose a patch are those who can't swallow pills, this would still represent an addressable market of nearly 1.5mm people. However, I think this worst case scenario is highly unlikely. Due to a condition known as gastric stasis, which is common in migraine sufferers, oral solutions to migraines are often vastly delayed to reaching an effective end point.

On the patent front, ZSAN has technology platform protection until 2027.

Also, $1 stock concerns, and not so thrilling underwriters aside, I find it fascinating, and applicable to my reference above to a sliver of a margin of safety, that this $9mm EV company also has two other Phase II completed candidates : one for hypoglycemia and one for osteoporosis.

Here is how I see this playing out : If trial results are positive, and we will know soon, the stock is going to move up, meaningfully I would proffer. ZSAN is going to need to in fairly short order find a pharma partner, or sell more stock, as the cost to get them to NDA is estimated to be from $25-$30mm.

If the results are inadequate, I suppose you are looking at a stock price of .25 or so...Who knows? Even assuming ZP-Triptan has no value, they have as mentioned two Phase II completed assets which I would assume would hold some value either inside our outside of ZSAN. In this event, I think you will have a low priced stock that trades less volume, leaving you somewhat stuck until some type of positive event occurs.

In the opening of the pitch, I mentioned that this is a name for your PA or small funds due to $ volumes. Even if this traded multiples of the $ volume it does, I would still keep it small. I would (and have) sized this in the category of tiny, even given the interesting outcomes in a situation which I think has 10x plus upside vs say 75% downsize. 

 

Risks : Unfavorable Phase III results in Q1. 

 

 
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

March 2017, Phase III results.

    show   sort by    
      Back to top