Zymeworks ticks all the boxes for a biopharma investment, Paradigm says

Zymeworks (Zymeworks Stock Quote, Chart, News NYSE:ZYME) has what investors should be looking for in a biopharmaceutical company, according to Paradigm Capital analyst Corey Hammill, namely, a strong balance sheet and a healthy-looking pipeline.

The analyst reviewed Zymeworks latest quarterly results in an update to clients on Tuesday and reiterated his “Buy” rating and 12-month target of $51.00 per share.

Vancouver-based Zymeworks is a clinical-stage company developing antibody-based therapies for cancer treatment. Its lead asset is ZW25, which targets the HER2 protein and has shown promising results in its Phase 1 study, according to Hammill, and is now in Phase 2 trials for several cancers. ZYME also has ZW49 which is currently undergoing Phase 1 safety and efficacy studies.

Zymeworks reported its fourth quarter and 2019 year end results on Monday, showing revenue and EBITDA for the Q4 of $1.9 million and negative $44.0 million, respectively, and revenue and EBITDA for the year of $29.5 million and negative $96.1 million, respectively.

In the press release, CEO and president Ali Tehrani said clinical progress over the second half of 2019 as well as a recent financing round have set up Zymeworks for a strong 2020.

“We plan to initiate registration-enabling studies for ZW25 in both biliary tract and gastric cancer, as well as explore additional indications, with a vision toward establishing ZW25 as the new foundational HER2 therapy. We also remain confident in the potential of ZW49 to be transformative in refractory and low HER2-expressing cancers and expect to begin expansion cohorts later this year,” said Tehrani.

The 2019 full-year results were lower than Hammill had expected, with the $29.5 million in revenue comparing to Hammill’s $27.7 million estimate and 2018’s $53.0 million, while operating expenses for 2019 of $180.8 million were also more than Hammill’s $111.0 million estimate and 2018’s $69.1 million.

The analyst chalked up the reduced revenue to the timing of milestone payments and the higher operating expenses to increased clinical trial and research costs and fair market revaluation of historical equity
awards owing to the use of both Canadian and American dollars.

For the year ahead, Hammill sees ZYME generating nil in terms of fiscal 2020 revenue and an EBITDA loss of $178.9 million, and for 2021 he is calling for nil in revenue and an EBITDA loss of $226.4 million.

“ZYME is well capitalized, has unique intellectual property, and is executing on a strategy to generate revenue through multiple strategic collaborations while conducting clinical trials on its own internal assets. We see opportunities for near-term gains in the company’s value through the release of additional ZW49 Phase 1 data and interim data from their ZW25 Phase 2 gastroesophageal adenocarcinoma (GEA) trial in 2020,” said Hammill.

“ZYME is focused on a long-term strategy combining speed to market, displacing HER2+ standard of care and indication expansion for ZW25 and ZW49. With the recent boost to its balance sheet, the company can support its clinical development plan and create value across both ZW25 and ZW49,” he wrote.

At press time Hammill’s $51.00 target represented a projected return including dividend of 23 per cent.