Zymeworks is a buy, Paradigm Capital says

With cash on hand to fund the business through 2022, Zymeworks (Zymeworks Stock Quote, Chart, News NYSE:ZYME) has a pandemic-proof balance sheet, says Paradigm Capital analyst Corey Hammill, who reviewed Zymeworks’ latest quarter in an update to clients on Friday.

Vancouver-based Zymeworks is a clinical-stage biopharmaceutical company developing multifunctional biotherapeutics for cancer treatment. Along with a deep preclinical pipeline in oncology, the company’s lead candidate is ZW25, an antibody currently in Phase 2 trials, while ZW49 is in Phase 1 clinical development.

Zymeworks reported its first quarter 2020 results on Thursday, posting revenue for the period ended March 31, 2020, of $8.3 million compared to $11.9 million a year earlier. The topline included recognition of a $5.0-million development milestone, $2.2 million in drug supply revenue and $1.1 million in research support and other payments from ZYME’s partners.

Management delivered an update on the company’s operations vis a vis the COVID-19 crisis, saying the company has transitioned to a remote working arrangement for its employees, while clinical trials are continuing, even as the pace of patient recruitment is expected to slow due to the diversion of healthcare resources during the pandemic.

In other news, Zymeworks completed an upsized financing round for US$320.8 million during the Q1 and ended the quarter with $562.7 million in cash resources.

“With a strong balance sheet and runway into 2022, substantial drug supply, and clinical trials in diverse sites around the globe, Zymeworks is well-prepared to continue moving forward through these challenging times. We look forward to providing a corporate update midyear to share our progress,” said Ali Tehrani, President and CEO, in a press release.

Zymeworks’ top and bottom numbers for the Q1 beat Hammill’s estimates, with the $8.3 million in revenue coming out ahead of Hammill’s $5.0-million estimate (consensus was $9.5 million) and the EBITDA loss of $36.8 million being better than the analyst’s loss of $39.8 million (consensus was negative $55.3 million).

In his update, Hammill wrote, “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.”

“ZYME continues to focus 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,” Hammill wrote.

As Hammill relayed, Zymeworks reported earlier in the quarter that with respect to dosing for ZQ49, there have been no dose-limiting toxicities and that the company would announce once it has reached the maximum tolerated dose.

Looking ahead, Hammill has rejigged his forecasts and is now calling for fiscal 2020 revenue of $8.3 million (up from $0.0 million) and an EBITDA loss of $166.0 million (up from $178.9 million).

With the update, Hammill has reiterated his “Buy” rating and $51.00 price target, which at press time represented a projected return of 33 per cent.