Zymeworks gets huge price target hike at Paradigm Capital

In a research update to clients today, the analyst maintained his “Buy” rating on the stock but raised his target price from (US) $30.00 to $51.00, implying a return of 14 per cent at the time of publication.

The analyst says he sees near-term catalysts for the company.

“We see opportunities for near-term gains in ZYME’s value through strategic and clinical updates on ZW49 at the upcoming J.P. Morgan Conference and ASCO, as well as possible clinical updates of ZW25 in breast cancer and gastroesophageal adenocarcinoma,” he said.

McAuley says he sees three “fundamental value drivers” for the stock.

First, he notes the company’s rapidly advancing proprietary clinical programs, including its lead asset, ZW25, which he points out has undergone a multi-stage Phase 1 trial.

Second, he says there is unmet need across multiple Cancer types, noting that toxic chemotherapy remains the only treatment for thousands of patients a year. Precision therapies such as those that could be offered by ZYME, he said, offer higher efficacy and fewer side effects.

Lastly, the analyst points out that ZYME has non-dilutive funding thanks to partnerships with several major pharmaceutical companies, including Merck, Eli Lilly, Celgene, GSK, Daiichi-Sankyo and J&J. So far, he notes, these $186-million from these arrangements and has the potential to earn up to $7.9-billion.

“To date, ZYME has announced three Phase 2 trials for its lead asset, ZW25, indicating that it intends to seek approval for treatment of three types of cancer (BC, GEA and BTC),” McAuley added. “These three programs are included in our valuation. Other programs for ZW25 and the ZW49 programs will be accounted for once the company declares intent to enter Phase 2. ZYME is seeking FDA approval of ZW25 as a pre-surgery therapy for BC, as the first line of treatment for GEA, and as the second line of treatment for BTC. Our valuation considers eligible patients in each application and a presumed treatment length of three months for pre-surgery application in BC, and one year for GEA and BTC (Figure 4). Pricing of ZW25 is matched to that of the existing HER2 targeting antibody (i.e., Roche’s Herceptin). All three ZW25 programs are modeled assuming commercial launch in 2024 (Figure 11). The NPVs for the three ZW25 programs are discounted at 10%, with an assumed market penetration rate of 10% per year, up to 60% in BC and GEA, and 80% in BTC given the lack of competitors. Alongside the value of its ZW25 programs, our valuation considers its cash, and a fraction of its expected milestone payments by considering the value of 10% of these payments being received in 10 years, discounted at 10%. Therefore, we calculate the value of ZYME by sum-of-the-parts analysis (Figure 4), incorporating the value from its cash position, its partnerships and the risk-adjusted net present values of ZW25 across three cancer types:

1. As neoadjuvant (pre-surgery) therapy for breast cancer (BC).
2. As first-line therapy for gastroesophageal adenocarcinoma (GEA).
3. As second-line therapy for biliary tract cancer (BTC).”

McAuley explained the reasoning behind his new target price.

“We calculate the value of ZYME by carrying out a risk-adjusted sum-of-the-parts analysis of its current ZW25 programs that have Phase 2 trials announced and/or initiated. There is also significant upside given ZW49, and additional partnership payments, that we do not include in our model given their unpredictable timing. Using this approach, we derive 12-month target of $51.03 (rounded to $51.00),” the analyst concluded.