Zogenix Inc. (NASDAQ: ZGNX) has been a controversial small cap drug stock, with its abuse-deterrent Zohydro being at front and center. Now that the company has submitted its supplemental new drug application (sNDA) with the U.S. Food and Drug Administration, we have seen some analyst commentary that is worth noting.

Oppenheimer’s Akiva Felt and Angad Verma have issued their report. The official rating remains as Outperform, but what stands out here is that the $2.50 price target implies that Zogenix can more than double from the $1.15 closing price that the team used. This Oppenheimer report was in the brokerage firm’s Oct. 2 morning research package, but the closing price and date of the report would indicate that it was a late report on October 1.

Another issue is that Oppenheimer’s target appears to be the lowest remaining price target of all analysts on the street covering this stock.

Note that the Oppenheimer call is not exactly full of new information. What the call does is affirm that some positive views remain on the heels of the new filing, and it comes at a time when this stock is literally a few cents above a 52-week low.

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The Oppenheimer report discussed the sNDA filing for a modified formulation of Zohydro, which was designed to have abuse deterrent properties. The team said:

We anticipate a review time of up to four months, suggesting potential approval during 1Q15. We do not expect the potentially revised drug label to include explicit abuse deterrent language. However, management does expect the formulation to be on par with other ADT opioid products with similar labeling (i.e., Opana). We note that development of another tamper-resistant formulation of Zohydro based on Altus technology remains on track. Importantly, we continue to expect Zogenix shares to be driven by prescription trends.

What is important to understand in the report is that the Oppenheimer team does not view this new development as a game changer for the stock. Still, the team remains encouraged by this development as it could represent a potential turning point for the company’s lingering regulatory uncertainties.

Oppenheimer’s investment thesis and price target calculation were noted:

Our Outperform rating on Zogenix reflects our view that the shares are attractive at current levels from a risk/reward standpoint, following FDA approval of Zohydro to treat chronic pain. Zohydro is the first single-agent hydrocodone opioid (vs. existing acetaminophen/hydrocodone combination drugs) to be approved, and we believe the drug will be used by physicians as a replacement option for current combination drugs as well as other single-agent ER/LA opioids (extended-release/long-acting) in patients who require chronic pain therapy.

Our $2.50 price target is based on an NPV analysis for Zohydro sales through 2025, discounted at 10.5% with no terminal value. We currently estimate peak Zohydro sales of $169M in 2023, which reflects a 3.5% market share of the chronic opioid therapy market. We see upside potential to our peak sales estimate from stronger than anticipated adoption of Zohydro as well as a longer franchise runway from tamper-resistant formulations currently under development (patents extending up to 2030).

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Zogenix shares were trading up one cent at $1.18 in Thursdays early afternoon trading. The stock’s 52-week range is $1.14 to $5.19. The highest price target of the five analysts covering it in the Thomson Reuters universe is $3.50, and the consensus price target is $3.10. With a $165 million market cap, this one might be overlooked by most investors — for that matter, it is so small that most investors should be very cautious and consider this a full risk-on stock with a future that is far from certain.

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