Why Zogenix (ZGNX) Is Up Today

NEW YORK (TheStreet) -- Zogenix  (ZGNX) is rebounding today on the news that FDA Commissioner Margaret Hamburg has defended its hydrocodone drug Zohydro Thursday before Senate's Health, Education, Labor and Pensions Committee.

"We recognize that this is a powerful drug, but we also believe that if appropriately used, it serves an important and unique niche with respect to pain medication and it meets the standards for safety and efficacy," said Hamburg.

Zogenix Shares dropped 23% Wednesday after rival Purdue Pharmacy announced the completion of testing on its abuse-resistant hydrocodone drug. Speculation swirled that the FDA might even pull Zohydro from the market in favor of the Purdue alternative.

According to today's testimony however, the FDA believes that the painkiller can servepatients due to the lack of the liver harming ingredient acetaminophen that exists in most hydrocodone pain killers.

TheStreet Ratings team rates ZOGENIX INC as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:

"We rate ZOGENIX INC (ZGNX) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, generally high debt management risk and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry. The net income has significantly decreased by 5439.0% when compared to the same quarter one year ago, falling from -$0.64 million to -$35.62 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, ZOGENIX INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for ZOGENIX INC is currently lower than what is desirable, coming in at 25.03%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -358.99% is significantly below that of the industry average.
  • Currently the debt-to-equity ratio of 1.56 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Even though the debt-to-equity ratio is weak, ZGNX's quick ratio is somewhat strong at 1.34, demonstrating the ability to handle short-term liquidity needs.
  • ZOGENIX INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ZOGENIX INC reported poor results of -$0.72 versus -$0.64 in the prior year. This year, the market expects an improvement in earnings (-$0.58 versus -$0.72).

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