Zymeworks is undervalued, Paradigm Capital says

Vancouver-based biopharm company Zymeworks Inc. (Zymeworks Stock Quote, Chart, News: TSX:ZYME, NYSE:ZYME) is poised to be this decade’s next-generation drug development engine, says analyst Rahul Sarugaser of Paradigm Capital, who in a research note on Friday reiterated his “Buy” rating and $17.00 target price (all figures in US dollars unless noted).

Zymeworks is currently engaged in a Phase 1 clinical trial for its lead product candidate, ZW25, a next-generation antibody targeting gastric, ovarian and breast cancer tumours, which so far has yielded strong results, says Sarugaser.

“Interim data showed cancer-killing and safety results positive enough to warrant expansion of the trial to additional Canadian and U.S. sites, accelerating the trial,” says the analyst, who said that ZYME’s Q4/17 financial results arrived in line with expectations.

“Revenue increased to $50.1M, primarily due to the $50M upfront payment from Johnson & Johnson, bringing cash to $87.8M. R&D costs at $12.9M were slightly higher than expected, which can be attributed to advancing ZW25 through clinical trials,” says the analyst.

“ZYME’s suite of complementary therapeutic technology platforms and its fully integrated drug development engine are fuelling the development of a highly-differentiated product pipeline that is establishing ZYME as the industry standard for drug targeting technology,” he says.

Sarugaser estimates ZYME’s FY18 revenue, EBITDA and EPS at $9.6 million, negative $51.2 million and negative $2.39, respectively. The analyst’s sum-of-the-parts valuation incorporates current proprietary clinical programs for ZW25 and ZW49, future proprietary clinical programs and current and future pharma partnerships.

The $17.00 target price represents a 45 per cent potential return on investment at the time of publication.