Ladenburg Thalmann Downgrades Zosano Pharma To Neutral On Financing Overhang, Market Uncertainty

Ladenburg Thalmann downgraded Zosano Pharma Corp ZSAN to Neutral from Buy as it prefers to remain on the sideline until the company improves its financial position and there is clarity of market opportunity for migraine treatment ZP-Triptan (now called M207).

Zosano ended second quarter with $22.9 million in cash and $15.4 million in total debt, implying current cash above $6 million. Though the current cash could allow Zosano to run through 2016, the brokerage said the company will need to raise significantly more cash for operations in 2017.

However, the company may not able to raise further funds until data from the ongoing ZP-Triptan pivotal study, which is expected in the first quarter. As such, this creates a significant financing overhang with regard to the continuing operation of the company beyond 2016.

Meanwhile, the Zosano remains on track to report data for ZP-Triptan pivotal trial for acute migraine in the first quarter. However, the Ladenburg noted that the injectable market for acute migraine, which has sales of about $200 million in 2015, is becoming more crowded, as Teva Pharmaceutical Industries Ltd (ADR) TEVA recently launched the AB rated VIBEX Sumatriptan auto-injection pen.

"We view ZP-Triptan has less differentiation from VIBEX Sumatriptan pen, as it is also easy to use and carry with insignificant needle pain. Teva is also a strong player in the migraine market," analyst Matthew Kaplan wrote in a note.

"Altogether, we view the market opportunity for ZP-Triptan becomes less clear, unless ZP-Triptan could show significant differentiation in the pivotal study and/or has a strong marketing partner," Kaplan continued.

Shares of Zosano closed Wednesday's regular trading at $1.37.