Zosano Pharma Corporation ZSAN

ZSAN SUMMARY OF POTENTIAL TIMELINE & CLINICAL RESULTS

[Humanist]

Zosano: From Phase 3 To Approval Of A Best-In-Class Migraine Treatment
https://seekingalpha.com/article/4265747-zosano-phase-3-approval-best-class-migraine-treatment
May 22, 2019 9:40 AM ET
Summary
FDA approval of ZSAN's best-in-class migraine treatment is largely de-risked due to superb P3 results. Side effects were mostly mild and transient or related to the already approved zolmitriptan.

Several near-term key catalysts include a marketing deal or acquisition and an NDA filing which is expected towards the end of 2019.
Zosano's CEO recently bought a large block of stock in the open market.

Two new analysts have initiated coverage of ZSAN with very bullish price targets (the average price target is $13 vs. the current stock price of $3.01).

The very rapid transcutaneous delivery of a standard oral therapy (zolmitriptan) is proven and opens up this technology to a wide range of drug substances where either oral delivery is inadequate or very rapid delivery and avoidance of first-pass metabolism of drug substance in the liver is a priority.

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Migraine is Debilitating
Migraine is a nasty disease that affects about 15% of people worldwide. It is the leading cause of disability; a chronic, debilitating condition with recurrent episodic attacks. The most common and effective treatment for migraine is triptans, and the best and most common form of triptans is zolmitriptan (studyshowed it to be more effective than sumatriptan).
Zosano (ZSAN) has a Best-in-Class Solution
Zosano's technology allows for a fast, clean, effective delivery of zolmitriptan through a patch that contains drug-coated microneedles that penetrate through the very top layer of the epidermis where zolmitriptan is dissolved and enters the bloodstream via capillaries. This delivery mechanism has been shown to be faster and more convenient than other methods:

Intracutaneous administration of a therapeutically effective amount of zolmitriptan that produces a therapeutic concentration of zolmitriptan in the bloodstream that is faster than therapeutically effective doses administered orally, intranasally, sublingually, or iontophoretically"(source).

In a Key Opinion Leaders meeting at the end of last year, KOLs confirmed that Zosano's QTRYPTA is much needed as more and more chronic sufferers are seeking a feasible treatment, and it provides a preferred alternative to current therapies for a variety of reasons including:

• Tablets take a long time to activate and don't meet the urgent treatment need after a migraine attack
• Nausea and vomiting are among common symptoms of migraine, and taking a tablet isn't compatible with such gastrointestinal issues
• Inhaling/nasal-spray is unpleasant due to bitter taste
• Injecting is very unpleasant for most people

Market Opportunity
Analysts are projecting net annual sales of Qtrypta to be in the $500M range (the current market cap of ZSAN is in the $50 million range). In their latest quarterly call, Zosano indicated:

We see an overall market potential greater than $400M in annual sales.
Zosano is not just a migraine company. Their Adhesive Dermally Applied Microarray (ADAM) technology can be used to deliver a wide array of drugs. For example, Zosano is going after the $6B anti-emetic market in an ongoing study of a 5HT3 antagonist using ADAM. Zosano will potentially address the large molecule, vaccine, biosimilar markets.
Cantor Fitzgerald is very bullish on ADAM platform and projects that Zosano could:
Generate billions of dollars in sales each year in nausea, chemotherapy and pregnancy markets, among others.
It cites several factors including Zosano's plans to initiate trials in nausea using 5HT3 antagonists and how several current 5HT3 antagonists are delivered by IV, and therefore, a huge advantage for Zosano's mode of administration; opportunity to treat acute and intermittent symptoms of psychiatric & neurological disorders; large molecules: nucleic acid-based drugs, peptides, monoclonal antibodies, vaccines; and potentially broader therapeutic areas.
Investment Opportunity
ZSAN's chance of getting Qtrypta approved is largely de-risked because:

• Qtrypta P3 results were outstanding and showed robust and rapid relief of migraine pain, an effect that was consistent throughout the chronic treatment period and long-term dosing reaffirmed well-tolerated safety profile
• Zolmitriptan is an already approved drug

As illustrated above, the market opportunity is, therefore, huge for a company that has a market cap of around $50M.
Next year, ZSAN's expected launch of Qtrypta should be further enabled by the marketing partner that they are currently in the hunt for. The ability of Qtrypta to penetrate the market by differentiating Qtrypta from other medicines and approaches was strengthened by positive data in difficult-to-treat migraine subtypes.
New Analyst Coverage, Price Targets, 2019 Milestones
Two new analysts have initiated coverage of the stock recently, namely, Dr. Charles Duncan of Cantor Fitzgerald who initiated coverage on 22 April with a price target of $12, and Mr. Anthony Vendetti of Maxim Group who initiated coverage on 17 April 2019 with a price target of $8. Mr. Bert Hazlett of BTIG has been covering the company for some time and has a $19 price target.
Analysts have assigned a somewhat conservative average price target of $13 which represents a market cap of around $200M (quadruple current market cap). The valuation gap is bound to fill in the months ahead as Zosano hits a number of milestones this year:

• Sign a marketing partnership
• Hold pre-NDA meetings with FDA
• File NDA
• Initiate P2 cluster headache study
• Complete P1 with 5HT-3 anti-emetic

Partnership or Buyout?
Zosano has stated it has been in talks with a number of marketing partners. CEO John Walker, a veteran deal-maker characterized it as:
Ongoing discussions with potential partners for the marketing and commercialization of Qtrypta... We have held discussions with a number of companies that have a presence in either the migraine market or, more broadly, in the CNS therapeutic area... A partnership arrangement that would ensure that the appropriate amount of time and energy would be devoted to the launch and long term success of Qtrypta. (source)
Given the extremely low market cap, it is conceivable that a larger healthcare company would outright acquire Zosano, instead of entering into a partnership. When asked about the potential value of such a deal and whether the company would be open to being bought, CEO John Walker stated yes, if the price is right. What is the right price? $10? His response was that he believes he could do much better for shareholders than $10/share.

Teva's Shot at Migraine & Cluster Headache
In January 2014, Teva Industries (TEVA) acquired NuPathe for $144M for its migraine patch Zecuity which used low voltage controlled by a pre-programmed microchip to deliver a single dose of sumatriptan through the skin within 30 minutes. In 2016, Teva pulled the product on reports of burning, scarring; a $144M write-off. The valuation of NuPathe gives me an idea that if Zosano would be acquired, expecting at least triple of today's market cap is very realistic.
In 2018, Teva received FDA approval for an injectable migraine drug, Ajovy. Recently, Teva announced it would halt the P3 program of Ajovy for treating cluster headaches after the company found the treatment was unlikely to meet the main goal of a late-stage trial.
Zosano is initiating a P2 study in cluster headache this year. CEO John Walker notes:
This devastating disease is one that has not had a new drug approved for treatment in the last 20 years and is of significant importance in the headache community...
I think it's speed of absorption. It's a pretty simple story that, the drug gets in really fast. If you look at our pharmacokinetics paper, that's our belief that this is much faster than any of the nasal sprays, at least that have been tested so far. So we're pretty optimistic about our chances with -- in cluster that's going to be an exciting program I think...
The injectable sumatriptan was really the last drug approved for cluster, that's one of the reasons why we believe that we will be effective based on how we feel that our previous studies and migraine have compared relatively speaking to injectable sumatriptan.
Timing of Approval/Launch, Finances, Risks
As with any pre-approval biotech, ZSAN is not a current earnings play. It's an IP & future earnings play. It's exciting that approval is not far away. As stated in the recent quarterly call, the company expects FDA approval to be granted in 2020.

Since zolmitriptan has already been approved by the FDA and Zosano's version provides rapid delivery and improved efficacy without additional risks, it makes sense that management says the current program is de-risked. I view this approval case as one of the least risky of any drug approval I've ever followed.

It's conceivable that with a strong partner at hand, Qtrypta could be launched in 2020. Ongoing partnership talks for a quality marketing partner de-risks any concerns that they will not be able to hit the ground running once approval is granted, and thus mitigates a typical launch risk.
Zosano has laid out the groundwork nicely for commercialization. This includes construction of capital equipment that will be used for commercial-scale production of Qtrypta. And very importantly, it recently appointed Anne Fields as Senior Director of Marketing. Ms. Fields is an industry veteran who's been responsible for several very successful launches and has strong ties within the migraine space.

These are some of the reasons I really do not see significant company-specific downside risks (vs. macro risks). As stated above, it appears that the road to a speedy approval and launch is relatively short and paved. This is every pre-approval biotech's dream. What about the finances? Zosano recently raised $18.4M on top of its cash balance of $11M as of March 31, 2019. 2019Q1's operating expenses were $9.5M. There was an increase of $0.8M in R&D expenses over the same quarter last year due to scale up and transfer of technology to the contract manufacturers, offset by lower clinical trial costs. G&A expenses were $2.9M compared with $2.3M million in 2018. The increase was due to outside professional fees and higher stock compensation expense.
Management has clearly stated it is in talks with potential partners and is not rushing into a decision because it wants to get the best deal that ensured lucrative future royalties. Many small biotechs give into small future earnings in exchange for large up-front sums. I believe due to its extremely strong IP position and chances of approval, it will be able to ink a strong partnership. Management has indicated it has enough cash to get the company to that point which should be sometime between now and early Q4 (since management has stated the partner will ideally be engaged in the preparation and submission of the NDA). Therefore, I don't expect to see another capital raise this year. Of course, the risk is always there that partnership talks take longer than expected. I am personally not bothered by dilution per-se when it is used for growing the business. Dilution becomes a problem when it's used to pay off debt. Luckily, ZSAN is not in that position.
Key Insider Trade
CEO John Walker recently purchased 100,000 shares of ZSAN in the open market for $3.5/share. This is a very bullish move. It's not often that pre-approval biotech insiders make such a bullish move by purchasing in the open market since they usually get a lot of options. John has put his own money on the line, which gives me additional confidence in the stock.

Disclosure: I am/we are long ZSAN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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