Zymeworks gets bullish new target at Paradigm

New data are showing continued efficacy for Zymeworks’ (Zymeworks Stock Quote, Chart, News, Analysts, Financials NYSE:ZYME) cancer-treating lead asset, and that bodes well for the company, according to Paradigm Capital analyst Corey Hammill, who in a Thursday report kept his “Buy” rating while increasing his target from $51.00 to $60.50.

Vancouver-based Zymeworks is a clinical stage biopharmaceutical company developing novel antibody-based therapies to treat multiple forms of cancer. Its lead assset is zanidatamab, currently being evaluated in Phase 2 trials for several cancers, while second candidate ZW49, an antibody-drug conjugate, is in Phase 1 safety and efficacy studies across a number of HER2-expressing cancers.

Zymeworks reported on January 15 new zanidatamab data at the American Society of linical Oncology Gastrointestinal Cancers Symposium and then hosted a webinar on January 27 to give a first clinical snapshot on ZW49’s Phase 1 trial.

On zanidatamab, Zymeworks has built a database with 20 evaluable patients with biliary tract cancers (BTC) treated with zanidatamab, finding 40 per cent experienced reductions in tumour size and 25 experienced no changes in tumour size, for an overall response rate (ORR) of 40 per cent and a disease control rate (DCR) of 65 per cent. In gastroesophageal adenocarcinoma, treatment with zanidatamab resulted in an ORR of 33 per cent and a DCR of 61 per cent. Zymeworks said adding chemo deepened the response, with an ORR of 54 per cent and a DCR of 79 per cent.

For ZW49, Zymeworks said the drug had anti-tumour activity even at the lowest doses tested and that the safety profile to date remained strong.

“Data presented at the ASCO GI continue to demonstrate the potential of zanidatamab in advanced HER2-expressing cancers with high unmet need,” said Diana Hausman, M.D., Chief Medical Officer at Zymeworks, in a press release. “The response rates and median duration of response in refractory BTC and GEA compare favourably to current standard of care and emerging treatments.

“The BTC data were the basis of the recent Breakthrough Therapy designation granted by the FDA, a key step in helping zanidatamab become the first potential HER2-targeted therapy approved in this indication. Furthermore, the activity in GEA supports our goal of establishing zanidatamab as the foundational HER2-targeted therapy for GEA and other HER2-positive cancers, not only in later stage disease, but also in earlier lines of treatment,” Hausman said.

On ZYME’s progress, Hammill said the company is not only well-capitalized but has unique intellectual property and “is executing on a strategy to generate revenue through multiple licensing agreements while conducting clinical trials and growing value of internal drug candidates.”

Hammill said the increase in his target price comes from his sum-of-the-parts valuation on zanidatamab, licensing revenue and cash — $47.41 per share for zanidatamab, $4.83 per share for licensing revenue and $8.22 per share for cash. The uptick in his target relates to his including of colorectal and metastatic breast cancer as target indications for zanidatamab along with his rolling of his discount period forward to 2021. At press time, Hammill’s $60.50 target represented a projected one-year return of 37 per cent.

At this point, Hammill continues to omit ZW49 from his valuation but the analyst sees opportunities in the next 12 months for this to change as the company releases additional data and go-forward plans for ZW49.

“There continue to be significant upside opportunities to this valuation,” Hammill wrote.

“We continue to exclude ZW49 and will include until we gain a better sense on the efficacy, safety and target indications. Positive results from the ongoing zanidatamab Phase 2 trials could provide de-risking events to increase our success probability rates, as well as better define the pricing and patient populations. Also, management indicated that it plans to announce a new discovery platform and therapeutic candidate in 2020 beyond the current zanidatamab and ZW49 pipeline, which could present further opportunities,” Hammill said.

Hammill noted ZYME has six Phase 2 studies investigating zanidatamab alone or in combination with chemo and other targeted therapies across BTC, GEA, breast cancer and endometrial cancer. Zymeworks’ current second-line BTC study is a registrational trial with the marketing application planned for 2022, and the company is expecting to launch two new trials in 2021, one in first-line BTC and another in first-line GEA, along with two new Phase 2 trials in breast cancer and one in colorectal cancer.

Hammill has adjusted his forecast and now thinks Zymeworks will generate 2020 revenue of $33.3 million (previously $23.3 million) and EBITDA of negative $164.6 million (previously negative $174.6 million) and 2021 revenue of $0.0 million and 2021 EBITDA of negative $248.0 million.

Zymeworks’ share price has travelled a long way in the last few years, climbing from sub-$10.00 territory at the start of 2018 to $45.65 by the start of 2020. ZYME finished 2020 at even and so far in 2021 the stock is down seven per cent.