Why Zogenix Inc. Stock Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Zogenix , a small-cap pharmaceutical company focused on developing therapies to treat chronic pain and central nervous system disorders, tumbled as much as 12% this morning after rival Purdue Pharma's abuse-resistant hydrocodone tablet was granted priority review by the Food and Drug Administration.

So what?: Under the terms of a priority review, Purdue Pharma will have its hydrocodone chronic pain tablet reviewed over a six-month period instead of the standard 10 month new drug application review process. As noted by Zogenix just last week, it's in the process of developing new formulations of its abuse-resistant hydrocodone pain medication Zohydro ER. Zogenix anticipates filing an application for approval for the capsule version in October, but doesn't anticipate filing an NDA for its abuse-resistant tablet until 2016.

Now what?: The biggest ongoing concern for Zogenix investors is whether or not Zohydro ER will continue to sell in its current form. Efficacy certainly isn't the issue with Zogenix's severe pain medication. Instead, the FDA has noted that there's the possibility Zohydro ER could be pulled from market if a competing severe pain medication that was considerably more abuse-resistant made it to market. In other words, if Purdue's tablet is approved (and its approval potential just received a four-month boost), then Zohydro ER's days could be numbered, at least until its newly reformulated capsule hits pharmacy shelves. Still, even if Zogenix also gets a priority review for its new formulation, Purdue is likely looking at a three month head start which could go a long way to building rapport with physicians. It's possible that Zogenix's chance at turning the corner to profitability by fiscal 2015 may have just flown the coup!

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The article Why Zogenix Inc. Stock Tumbled originally appeared on Fool.com.

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