Why Zogenix flew higher before leveling off this week

What happened

Zogenix (NASDAQ: ZGNX) stock is making the rounds of its life this week – possibly for the last time in its history. The biotech announced on Wednesday that it agreed to be acquired by a pharmaceutical company based in Belgium UCB (OTC: UCBJF). The deal is valued at $1.9 billion when factoring in a possible contingency payment.

The company’s stock price quickly shot up, but essentially remained at the improved level. Analysts following the stock were quick to adjust their recommendations based on the proposed takeover.

So what

That $1.9 billion rises to $26 per share, with that potential emergency payout worth an additional $2. The latter is dependent on approval of Zogenix’s Fintepla epilepsy treatment for Lennox-Gastaut syndrome (a rare form of the condition) in all 27 countries of the European Union.

Image source: Getty Images.

Zogenix shares soared more than $10 to $26 after the deal was announced. They have been trading around this level ever since; it appears to be the stock cap, assuming the deal closes.

Broadly speaking, analysts believe this will be the case. The roughly 66% premium to the previous day’s closing price that the base level of $26 per share represents “seems fair,” Guggenheim analyst Yatin Suneja wrote in a new research note. Therefore, he lowered his recommendation to neutral from the previous buy. He is optimistic about this contingent payment, however, as his new price target is $28 per share (formerly $35).

Several other tipsters have made similar moves. These included William Blair’s Tim Lugo and JMP Securities’ Jason Butler, both of whom also reduced their recommendations from buy equivalents to neutral.

Now what

For now, Zogenix’s time as a standalone biotech is probably nearly over. Unfortunately, so is its growth value potential. Assuming there are no sweeping changes to the deal (or its cancellation), investors could earn a few pennies here and there based on slight swings in the stock price. However, the potential gain seems limited at best and therefore probably not worth it.

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Eric Volkman has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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