Zosano Pharma Corp (NASDAQ:ZSAN) gained more than 40% on its market capitalization during Monday’s US session, and is a further 9% up ahead of the market open on Tuesday. The run comes on the back of some just-released data related to the company’s lead development asset, and has drawn considerable speculative attention towards Zosano; a company that, before this news hit press, was very much below the radar in the biotechnology space. Even with the current gains in place, the company is only valued at around $27 million, making it a microcap entry for anyone looking to pick up a position. The question is, of course, is such a position valid from a long-term reward perspective?

Let’s take a look.

The data relates to a drug called M207, and it is currently under investigation for the treatment of migraines. Migraines, as most reading will know, are a moderate to severe form of headache that – aside from pain – generally induce other symptoms including sensitivity to light, sound or smell as well as nausea and vomiting. The exact cause of migraines remains unknown, despite a large amount of research already having been done in the space. With that said, most believe it is due to blood vessels in the brain dilating (which is the opposite of a standard headache, in which blood vessels constrict).

Anyway, one of the standard of care treatments in the space right now is a drug called Zolmitriptan, which works by selectively agonizing two serotonin receptors – 1B and 1D. To create M207, Zosano has taken Zolmitriptan and converted the standard administration method (oral, tablet) into a microneedle patch. The theory is that by administering via this method, the active compound can reach the bloodstream quicker and – in turn – treat migraine attacks sooner after they materialize than current standard of care allows. It is this theroy that the recent data relates to, and which has underpinned the gains seen so far this week.

The data derived from a phase 3 study investigating the drug against two primary endpoints – pain freedom and most bothersome symptom freedom at 2 hours. Three doses were studied, and in the highest dose, the drug achieved statistical significance over placebo against both primary endpoints, with 41.5% of active patients pain free post administration versus just 14.3% of control patients, and the most bothersome symptoms numbers coming in at 68.3% and 42.9% respectively for each arm. The drug also hit on a number of secondary endpoints, including pain freedom at a range of time frames between 45 minutes and 48 hours.

Bottom line, the drug seems to work, and work well.

Tolerability was never going to be too much of an issue, since this is an already approved compound, but as a kicker to the efficacy data, the drug produced a sound and relatively clean safety profile, with no serious adverse events reported in either the control or the placebo arms.

What’s the potential market for this drug?

The migraine space is one that we have covered on a number of occasions in the past here at Market Exclusive, but for newer readers, suffice to say it is a blockbuster market with very few effective treatments available right now. There are a number of novel treatments currently under development, with some big names pushing them towards commercialization – companies like Amgen, Inc. (NASDAQ:AMGN), Eli Lilly and Co (NYSE:LLY) and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) all have promising candidates in the space, most of which Zosano is going to have to compete with if/when its M207 asset gets to market. With that said, analysts expect the migraine market to grow at a compound annual growth rate of more than 4% between 2016 and 2020, and grow to between $3.7 billion and $5.5 billion in annual revenues. In other words, there is plenty to go at, and for a drug that offers a marked improvement over standard of care, Zosano has a good chance of snapping up a portion of this large market relatively quickly.

So what is next?

This study was designed as both a dose ranging trial and a registration trial, so once all the data is collected, we should see the company put forward an NDA to the FDA. That is the next major catalyst. Once the agency accepts this NDA for review, we will get a PDUFA that will give us a timeframe to keep an eye on as far as a green light for commercialization is concerned.