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ZGNX had a lot of ups and downs in 2019 but was able to tie up the loose ends and rebound nicely.
They had a strong run in Q4 after bringing in an asset that could add depth to the pipeline, even though the market didn’t see the deal as favorable.
GWPH was first to market to treat seizures in LGS and Dravet but ZGNX isn’t far behind and has a drug that looks very promising.
We see ZGNX lead asset ZX008 as being slightly de-risked from Dravet and prior LGS data but with certain risk from its first robust trial in LGS reading out this quarter.
$ZGNX has had a bumpy prior year consisting of a regulatory hiccup, a risk that investors may not correctly weight for companies this size/stage, a company acquisition, and finally closing out the year with the resolution of the regulatory issue. The regulatory hiccup was the FDA sending a Refusal to File Letter in response to ZGNX NDA submission for Fintepla (ZX008) in Dravet Syndrome in early Q2 ‘19. Later that quarter ZGNX noted the FDA agreed to allow the NDA resubmission. In early Q3 ZGNX acquired private Modis Therapeutics for an upfront sum of $250M in cash and stock, and certain milestone payments. Modis’ lead asset was MTI1621 treating Thymidine Kinase 2 deficiency (TK2d), which ZGNX may be able to leverage in their overall strategy of treating rare diseases. However the market didn’t react kindly to the deal and saw shares slide around 20%. To close out the year ZGNX announced the FDA acceptance of it’s NDA for Fintepla (ZX008) on Nov 25th, 2019.
One Year Chart:
The company currently has two clinical assets: Fintepla (ZX008) and the recently acquired MT1621. The first quarter of 2020 has two major catalysts for Fintepla (ZX008) as seen in the pipeline below: The PDUFA date of 3/25/20 for Fintepla (ZX008) in Dravet Syndrome, and topline data expected from a phase 3 trial for Fintepla (ZX008) in Lennox-Gastaut Syndrome (LGS) by the end of the quarter. In this article we will direct our attention to the LGS readout.
Closer Look At Trial Design:
If we take a closer look at the upcoming readout for LGS we see a few differences in trial design between the phase 2 and phase 3 trials as outlined below in the trial comparison chart. First, the phase 2 trial was a small, investigator-sponsored single site trial with only 13 patients, compared to the much larger, multi-site phase 3 trial. Second, the phase 2 trials primary endpoint was ‘number of responders at each study visit, defined as >= 50% convulsive seizure reduction from baseline’, while the primary endpoint for the upcoming phase 3 is ‘change from baseline in frequency of seizures that result in drops in subjects receiving ZX008 compared to placebo’. An initial look at endpoints raises the question, what is the difference between convulsive seizures and drop seizures? Convulsive seizures are called tonic-clonic seizures and are defined by the Epilepsy Foundation as when “a person loses consciousness, muscles stiffen, and jerking movements are seen” and last 1 to 3 minutes. On the other hand drop seizures are called atonic seizures which are defined by the Epilepsy Foundation as when “part or all of the body may become limp. The eyelids may droop, the head may nod or drop forward, and the person may drop things” and typically last less than 15 seconds. The inclusion eligibility criteria for the phase 3 trial includes “Clinical diagnosis of Lennox-Gastaut syndrome, where seizures that result in drops are not completely controlled by current antiepileptic treatments.” Although it is not perfectly clear, we understand that “drops” in the inclusion criteria correspond to the more detailed definition provided by the Epilepsy Foundation. Later in the article in the competition section we touch on the possible reasons for this endpoint, and a possible clarification. The bottom line is that although there is some additional risk in the trial readout because of the small investigator-sponsored phase 2 trial and the difference in specific readouts, from prior Dravet data and the prior LGS data, outlined below, there appears to be a fairly-high likelihood of success in the LGS trial.
Phase 2 and Phase 3 Trials:
Of the 13 patients enrolled in the phase 2 study outlined above, 10 completed the 20 week core study, 1 discontinued for lack of efficacy and decreased alertness, 1 for decreased alertness, and 1 for sleep problems. At the end of the core study, the median seizure frequency reduction for the intent‐to‐treat study population (13) was 53%. Of those who completed the core study (10) the median reduction in CS frequency was 60%. It’s undeniable there is a clear efficacy signal here, with ZX008 providing a meaningful reduction in CS frequency. It’s also interesting to note that dose titration stopped in phase 2 once patients achieved a greater than or equal to 50% reduction in CS frequency, which could leave room to question if greater efficacy could have been seen. See the chart below for the final dose at the last visit of extension study for each patient.
Phase 2 Efficacy:
Change in CS Frequency and Dose
Safety for the core study and extended study were noted as comparable with no SAE’s being observed. Of the 6 total discontinuations, 3 patients discontinued due to AE’s during the core study, 1 after the core study, and 2 during the extension study. The most common adverse event experienced was decreased appetite which was experienced by 4 patients, which is consistent with prior Dravet data and ZX008’s prior history as a low-dose version of a component of a weight loss drug. ZX008 seemed generally well tolerated, especially given the severe nature of the CS’s experienced by LGS patients. Although no SAE’s were observed, a total of 6 dropouts is concerning, especially when thinking about the commercial use as an ongoing treatment. We ponder the possibilities of an add-on to increase appetite, possibly utilizing CBD? Let us know your thoughts on this.
Safety From Core and Extension:
The clear competitor in this space and for ZGNX overall seems to be GWPH who has an approved CBD drug Epidiolex indicated to treat LGS and Dravet. We have data for Epidiolex treating LGS in two trials: Study 1 and Study 2. Both trials had inclusion criteria requiring patients suffer a minimum of 8 drop seizures over a 4-week baseline period. From the Epidiolex label, “The primary efficacy measure in both studies was the percent change from baseline in the frequency (per 28 days) of drop seizures (atonic, tonic, or tonic-clonic seizures) over the 14-week treatment period”. This shines some light as to why ZGNX is using drop seizures as the primary endpoint in this upcoming phase 3 readout, which may have been an FDA requirement. GWPH does note that a drop seizure can be atonic, tonic, or tonic-clonic seizures, which may lead us to assume the same for ZGNX upcoming readout. As far as efficacy for Epidiolex, the median percentage change in drop seizure frequency for Study 1 and Study 2 was -44% and -42% respectively, as shown in the table below, which if we look back earlier was -53% for ZX008 but this was in CS not just drop seizures, of course with all the cautions of cross-trial comparisons.
Epidiolex LGS Data
ZGNX has a clear strategy of targeting rare diseases, which are characterized by a relatively small patient population, defined as affecting fewer than 200,000 people. ZX008 however does have Orphan Drug Designation from the FDA for Dravet and LGS giving it some benefits including exclusivity and pricing incentives. The recent company slide deck notes 60,000 - 100,000 people are living with LGS in the US and Europe combined. According to the LGS Foundation, approximately 48,000 children and adults are living with LGS in the US. With the Orphan Drug Designation we can expect price tags of around $50K - $100k/yr which could put revenue in the US at around $600M assuming the ability to capture 25% of the market at $50K/yr treatment costs. If we look at revenue for GWPH’s Epidiolex, which is only approved for LGS and Dravet, we can see steady growth quarter over quarter, with Q4 19 sales being just north of $100M. This ramp in revenue shows promise for both indications and the market overall. An interesting topic is whether patients or guardians will have any ethical considerations in choosing Epidiolex, a CBD product, or Fintepla (ZX008) for treatment. Another interesting possibility is an investigator-led study treating patients with both drugs. Either way I think it is clear there is an underserved market here and it would be excellent for these patients to have at least 2 treatment options, one of which being ZGNX’s Fintepla (ZX008)
Epidiolex Quarterly Sales Revenue
ZX008 seems to be a very good drug and has clear possibilities within the epileptic space. The data from Dravet and the prior LGS trial, somewhat de-risk ZX008 in this space. LGS is a large market and this upcoming phase 3 readout does have inherent risk that all clinical stage trials possess, as well as risks brought on by smid cap companies and management. We are bullish on ZGNX because of ZX008, although we recognize there is potential risk in this upcoming readout and the stock has run up pretty far in the past months. Thus, our current position size reflects this. If you have any comments, feedback, or useful information please leave it below.