Why Zogenix Flew Higher Before Leveling Off This Week

What happened

Zogenix (NASDAQ:ZGNX) stock is having the ride of its life this week -- perhaps for the last time in its history. The biotech announced Wednesday it agreed to be acquired by Belgium-based pharmaceutical company UCB (OTC:UCBJF). The deal is valued at up to $1.9 billion when factoring in a potential contingency payment.

The company's share price quickly rocketed higher, but it's basically stayed at the enhanced level. Analysts tracking the stock were quick to adjust their recommendations based on the proposed buyout.

So what

That $1.9 billion shakes out to $26 per share, with that potential contingency payment worth an additional $2. The latter is dependent on whether Zogenix's Fintepla epilepsy treatment is approved for Lennox-Gastaut syndrome (a rare form of the affliction) in the 27-country European Union.

Image source: Getty Images.

Zogenix shares zoomed more than $10 higher to $26 after the deal was made public. They have traded at around this level since; it seems to be the ceiling for the stock, assuming the deal goes through.

Generally speaking, analysts believe it will. The roughly 66% premium to the previous day's closing price that base $26 per-share level represents "seems fair," wrote Guggenheim analyst Yatin Suneja in a fresh research note. Consequently, he downgraded his recommendation to neutral from the previous buy. He's bullish on that contingency payment, though, as his new price target is $28 per share (formerly $35).

Several other prognosticators made similar moves. Among these were William Blair's Tim Lugo and Jason Butler of JMP Securities, both of whom also downshifted their recommendations from the equivalents of buy to neutral.

Now what

For now, Zogenix's time as a stand-alone biotech is likely almost over. As is, unfortunately, its potential as a growth stock. Assuming no radical changes in the deal (or its cancellation), investors might make a few cents here and there based on slight wobbles in the stock price. The potential gain seems limited at best, however, therefore likely not worth the effort.

10 stocks we like better than Zogenix
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Zogenix wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of January 10, 2022

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