Zymeworks has an upside of 82 per cent, Paradigm Capital says

Paradigm Capital analyst Rahul Sarugaser says he’s spotted a consistent lag in the market’s appreciation of material developments concerning clinical-stage biopharmaceutical company Zymeworks (Zymeworks Stock Quote, Chart NYSE:ZYME), one which makes for a great buying opportunity. In an update to clients on Tuesday, the analyst has maintained his “Buy” recommendation and $30.00 target for ZYME.

Vancouver-based Zymeworks on April 15 announced it had initiated its global multi-centre Phase II clinical trial evaluating its antibody ZW25 in combination with standard of care chemotherapy for the first-line treatment of HER2-positive metastatic gastric, gastroesophageal junction, and esophageal adenocarcinomas. The two-part open-label study will attempt to confirm the safety, tolerability, and anti-tumor activity of ZW25 in combination with global standard of care regimens for gastroesophageal adenocarcinoma, including platinum and fluoropyrimidine-based regimens.

Sarugaser calls the announcement an important event for ZYME, one which should have seen the stock get an immediate material boost.

“For example, comparable companies developing similar drugs (e.g. PBYI, TSRO, XNCR, MGNX, etc.) have seen their stock prices soar between anywhere 15 per cent and 40 per cent on announcement of advancing one of their drugs into Phase II,” says Sarugaser.

“In contrast, we saw only a tepid reaction in ZYME’s stock. On April 15, it rose only 0.8 per cent, followed by 5 per cent the following day (April 16), remaining moderately flat the following two days (April 17-18), and it wasn’t until yesterday (April 22) that we saw another 5 per cent jump in ZYME’s stock,” he says.

The analyst notes a similar delay which occurred in November 2018 on the news of Zymeworks’ deal with Beigene. He surmises that there is thus a “clear pattern” in which the market seems to take up to two weeks to price in materially accretive news concerning ZYME and therefore that close watchers of the stock could capture more than 20 per cent in upside on future material news.

“With ZYME’s deep pipeline of bispecific partnerships and assets, we see ZYME as an excellent investment opportunity for both catalyst driven investors, as well as those looking for medium- to long-term returns,” says Sarugaser.

The analyst thinks ZYME will generate fiscal 2019 revenue and EBITDA of $102.0 million and negative $23.0 million, respectively. His (US) $30.00 target price represents a projected 12-month return of 81.7 per cent at the time of publication.