Zymeworks has a 64 per cent upside, Paradigm Capital says

With a lead drug candidate in a Phase 1 clinical trial and a newly expanded partnership with Japanese pharma company Daiichi Sankyo, Zymeworks (Zymeworks Stock Quote, Chart, News: TSX, NYSE:ZYME) deserves a big target price raise, says analyst Rahul Sarugaser from Paradigm Capital, who on Thursday reiterated his “Buy” rating with a new target of $27.00. (All figures in US dollars unless otherwise noted.)

Earlier this week, clinical-stage biopharm company Zymeworks announced a new licensing agreement with Daiichi Sankyo, Japan’s second-largest drug company, which builds upon their 2016 cross-licensing collaboration. The deal involves Zymeworks granting two additional licenses for drugs Azymetric and EFECT to Daiichi Sankyo, in exchange for: (1) an upfront technology access fee of $18 million; (2) potential further payments of up to $455.7 million; and (3) up to double-digit tiered royalties on global product sales.

“Expanding our relationship with a leading global pharmaceutical partner like Daiichi Sankyo is extremely satisfying as it underscores the power, versatility, and attractiveness of our technology platforms,” said Ali Tehrani, Ph.D., President and CEO of Zymeworks, in a press release. “Having already used our platforms to discover one bispecific antibody, Daiichi Sankyo now has increased access to our technology to create additional therapeutic candidates. We are pleased to be working with a healthcare pioneer with a proven track record of over 100 years of innovation leading to major breakthroughs in patient care.”

Sarugaser says that the deal looks good on ZYME. “This transaction represents the fifth of six major Pharma partners that have opted to expand their partnerships with ZYME. At $9M per license, the deal also represents a new high-water mark for non-dilutive technology access fees for the Azymetric platform,” says the analyst in a client update.

Zyme has also announced its selection to present at the American Society of Clinical Oncology in Chicago on June 1 on their next-generation antibody, ZW25. Sarugaser says that’s a sign that ZW25 has demonstrated positive efficacy and therefore, he now considers it a Phase 2 asset, with greater probability of reaching the marketplace.

“We calculate the value of ZYME by a sum-of-the-parts analysis, incorporating: 1) current proprietary clinical programs, ZW25 and ZW49; 2) future proprietary clinical programs; and 3) current and future Pharma partnerships,” he says.

The analyst’s $27.00 target price represents a projected return of 64 per cent.