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Zymeworks keeps “buy” rating at Paradigm Capital following Q3 results

Zymeworks

Zymeworks The company incurred higher R&D costs over its latest quarter but cancer biopharm company Zymeworks (Zymeworks Stock Quote, Chart, News NYSE:ZYME) is still well funded for its clinical trials, says Paradigm Capital analyst Corey Hammill, who reviewed ZYME’s latest quarterly results in an update to clients on Wednesday. Hammill kept both his “Buy” rating and $51.00 target price, saying the company is making progress with its assets.

Vancouver-based Zymeworks is a clinical-stage company developing novel antibody-based therapies to treat multiple forms of cancer, with lead asset zanidatamab (ZW25), a HER2-targeting bi-specific antibody currently in a Phase 2 trial for several cancers, and second candidate, ZW49, an antibody-drug conjugate currently in Phase 1 safety and efficacy studies.

The company released its third quarter 2020 financials on Tuesday, featuring revenue of $2.6 million compared to $7.9 million a year earlier and R&D expenses for the month of $53.5 million compared to $29.3 million a year ago. General and administrative expenses were $22.8 million versus $12.2 million for the same period in 2019, with the lift attributed to an $8.1-million increase in non-cash stock-based compensation and higher headcount and insurance expenses. ZYME ended the quarter with $471.9 million in cash and short-term investments with an additional $25.9 million in long-term investments.

Over the quarter, Zymeworks expanded its ZW25 trial to Europe and the Asia-Pacific region, with the company aiming for an accelerated approval and a filing of a Biologics License Application (BLA) as early as 2022. On ZW49, the company said it continues to be evaluated across multiple dosing regimens in its Phase 1 trial.

“Zanidatamab’s clinical development continued to expand this quarter, having opened new sites across the globe for the pivotal trial in HER2-amplified biliary tract cancers toward our first potential BLA submission,” said Ali Tehrani, Ph.D., Zymeworks’ President and CEO, in a press release. “We are well-resourced to achieve this milestone for zanidatamab, along with advancing the development of ZW49 into expansion cohorts and beyond.”

On the Q3 numbers, Hammill said the $2.6-million topline was better than his $0.0 million estimate (consensus was $10.8 million) but that the money came from R&D collaborations involving undisclosed upfront payments with Merck. Those payments are chunky and irregular, however, and thus not accounted for in his estimates unless announced by the company, Hammill said.

On EBITDA, the loss of $53.1 million compared to Hammill’s estimated loss of $51.1 million and the consensus loss of $40.9 million.

“Expenses were higher than both our expectations and consensus owing to increased R&D and trial-related manufacturing costs from the recently launched registrational trial in biliary tract cancer; however, the company continues to have a strong balance sheet to support its clinical development through 2022 and possibly beyond,” Hammill wrote.

On the business end, Hammill noted that Zymeworks now has agreements for up to 47 drug programs across nine top-tier pharmaceutical companies with total outstanding milestone payments of $8.6 billion. In early July, Merck expanded its agreement with ZYME to include the Azymetric and AFECT platforms for up to three new antibodies for human therapies with a total of $891 million in potential development and milestone payments.

“ZYME is well capitalized, has unique intellectual property and is executing on a strategy to generate revenue through multiple licensing agreements while conducting clinical trials and growing value on internal drug candidates,” Hammill said.

Hammill has adjusted his yearly estimates and is now calling for 2020 revenue of $23.3 million (previously $20.6 million) and EBITD of negative $174.6 million (previously negative $170.9 million) and for 2021 revenue and EBITDA of $0.0 million and negative $248.0 million, respectively.

At press time, the analyst’s $51.00 target represented a projected one-year return of 27 per cent. Year-to-date, Zymeworks’ share price is currently down 12 per cent.

On Zymeworks’ new research and license agreement with Merck, the collaboration gives Merck the worldwide, royalty-bearing license to research, develop and commercialize up to three new multispecific antibodies toward Merck’s therapeutic targets using Zymework’s Azymetric and EFECT platforms. For that, ZYME will receive an undisclosed upfront payment along with up to $411 million in option exercise fees and payments and up to $480 million in commercial milestone payments and tiered royalties if and when each of the three programs yield an approved product.

“It is an exciting time for the field of bispecific and multispecific therapeutics with candidates like ZW25 demonstrating great promise in clinical trials,” said Tehrani in a press release on July 8, 2020. “We are very proud that oncology leaders like Merck recognize the value of our therapeutic platforms and continue to return for expanded access to our technology. We look forward to continuing our relationship with Merck as they advance additional multispecific candidates towards the clinic.”

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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