What happened

(NASDAQ: ZGNX)closed Monday about 8.5% lower, a decline precipitated by the biotech’s announcement that it plans to acquire privately held Modis Therapeutics for $250 million. ” data-reactid=”12″ type=”text”>Shares ofZogenix(NASDAQ: ZGNX)closed Monday about 8.5% lower, a decline precipitated by the biotech’s announcement that it plans to acquire privately held Modis Therapeutics for $250 million. 

So what

Investing in biotech stocks, especially clinical-stage biotechs, is fraught with risk for a number of reasons. Zogenix’s drop on Monday highlights the downsides of such companies making moves that their shareholders don’t like. The sentiment on Wall Street appears skeptical when it comes to the decision to buy Modis, which has only one pipeline candidate — MT1621, a drug that targets treatment of  thymidine kinase 2 deficiency (TK2d), a rare genetic disease. ” data-reactid=”14″ type=”text”>Investing in biotech stocks, especially clinical-stage biotechs, is fraught with risk for a number of reasons. Zogenix’s drop on Monday highlights the downsides of such companies making moves that their shareholders don’t like. The sentiment on Wall Street appears skeptical when it comes to the decision to buy Modis, which has only one pipeline candidate — MT1621, a drug that targets treatment of  thymidine kinase 2 deficiency (TK2d), a rare genetic disease. 

Businessman drawing big fish about to eat little fish

Image source: Getty Images.

phase 2 clinical studyevaluating MT1621 in treating TK2d; patients who took the drug achieved statistically significant improvement in survival probability and functional abilities. “Based on the compelling clinical data generated to date, we believe that MT1621 has the potential to significantly alter the course of the disease and improve outcomes in patients with TK2d,” Zogenix CEO Stephen Farr said.” data-reactid=”27″ type=”text”>Modis recently completed aphase 2 clinical studyevaluating MT1621 in treating TK2d; patients who took the drug achieved statistically significant improvement in survival probability and functional abilities. “Based on the compelling clinical data generated to date, we believe that MT1621 has the potential to significantly alter the course of the disease and improve outcomes in patients with TK2d,” Zogenix CEO Stephen Farr said.

Given that Modis comes with a promising drug for a disease that has no approved therapies so far, why aren’t investors happy about the acquisition? Probably because Zogenix isn’t in the best financial position to be making deals. The company continues to lose money. It doesn’t have an approved product on the market yet. And at the end of June, Zogenix’s cash position stood at $463 million. 

Buying Modis means that Zogenix will have significantly less cash on hand. Investors likely worry that the company could have to raise more capital by issuing new

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