Why Zogenix, Inc. Shares Were Throttled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of small-cap biopharmaceutical company Zogenix tumbled as much as 10% during Monday's trading session before settling down 8.4% following the company's appointment of a new CEO.

So what: According to the press release, Zogenix's board of directors has appointed Stephen Farr, the company's President, to serve as its new CEO, and to replace the outgoing CEO Roger Hawley, effective immediately. Hawley will aid Farr's transition and is expected to retain his seat on Zogenix's board of directors, but will also be pursuing other investment opportunities in the life sciences arena.

Source: Zogenix.

The announcement comes just three days after Zogenix announced the closing of the sale of its Zohydro ER business to Pernix Therapeuticsfor $80 million in cash, 1.68 million Pernix shares, and regulatory and sales milestones that could eventually be worth as much as $283.5 million. The move was made to reduce Zogenix's operating expenses and give the company adequate capital to fund its Relday and ZX008 clinical programs.

Now what: What we're seeing here probably has less to do with the CEO appointment -- albeit shareholders dislike change and are often concerned that a new CEO might not stick to a previous CEO's strategy -- and more to do with shareholder disapproval of the sale of Zohydro ER. When Zogenix initially announced the deal Zogenix shares were creamed, so the closing of the sale likely is conjuring up bad memories for investors.

Even though Zogenix was able to generate cash through the sale that should buy it some time to complete its ongoing clinical studies, it didn't get very much for Zohydro ER considering how much money and time went into its development. I'm of the belief that I'd rather wait on the sidelines to see what happens with Zogenix's remaining pipeline in phase 3 trials rather than speculate on a predominantly clinical-stage company burning through its cash on hand.

The article Why Zogenix, Inc. Shares Were Throttled originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.