Zymeworks has an 86 per cent upside, says Paradigm Capital

Paradigm Capital analyst Scott McAuley still has time for Zymeworks (Zymeworks Stock Quote, Chart, News, Analysts, Financials NYSE:ZYME), reiterating the firm’s “Buy” rating and 12-month target price of $60.50/share (all prices in US dollars) for a potential return of 86 per cent in his latest update to clients on Thursday.

Vancouver-based Zymeworks is a clinical stage biopharmaceutical company developing novel antibody-based therapies to treat multiple forms of cancer. Its lead asset is zanidatamab (ZW25), 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 protein expressing cancers.

McAuley’s latest analysis comes after Zymeworks reported its second quarter financial results on August 4, with the analyst maintaining a positive view of the company.

“ZYME’s Q2/21 financials were in line with our expectations,” McAuley said. “The company continues to have a strong balance sheet with $359.8 million in cash and short-term investments to support the ongoing trials. We expect a very busy fall and winter with several zanidatamab clinical data releases beginning in mid-September and clarity on go-forward ZW25 dosing by the end of the year.”

With significant portions of the company’s revenues coming from milestone payments from its license partners and not forecast by Paradigm Capital, Zymeworks reported $1.8 million in revenues compared to McAuley’s estimate of $0.0 million. EBITDA losses came in a bit lower than expected, registering a $53.7 million loss compared to McAuley’s original projection of a $54.2 million loss.

Zymeworks reported $359.8 million in cash as of the end of the second quarter, which McAuley believes should be enough to give the company a runway into the second half of 2022, perhaps beyond depending on milestone payments coming in.

In his quarterly comments, Zymeworks President and CEO Ali Tehrani said the company should receive some important data readouts over the second half of the year regarding zanidatamab.

“The first data presentation will be at the European Society for Medical Oncology (ESMO) meeting in September and highlights results from our Phase 2 clinical trial evaluating zanidatamab plus chemotherapy in first-line gastric cancer, a setting where the current standard of care is Herceptin plus chemotherapy,” Tehrani said in an August 4 press release.

“These results will be integral to our goal of establishing zanidatamab as the new foundational HER2-targeted therapy and bring us one step closer to realizing our mission of enabling patients to return home to their loved ones, disease free,” he wrote.

The ESMO Congress meeting on September 16 will provide the first opportunity to directly compare the company’s ZD25 offering against Herceptin plus chemo, which is the current GEA standard of care. Other datasets we could see by year-end or early 2022 include Phase 2 data of zanidatamab plus chemo and tislelizumab in firstline GEA, along with additional Phase 1 data of zanidatamab plus chemo in third-line breast cancer, and Phase 2 data of zanidatamab plus chemo in first-line breast cancer.

Zymeworks is also expanding its ongoing Phase 2 trials of zanidatamab and chemotherapy as a potential treatment for biliary tract cancer and colorectal cancer, while the company has also dosed a patient with zanidatamab and tucatinib with chemotherapy in a Phase 1 cohort for advanced breast cancer patients.

With the most recent results report, McAuley has slightly altered his financial projections for Zymeworks, shifting his projected revenue to $2.4 million for 2021 from his original estimate of $600,000. EBITDA loss now projects to come in at $231.7 million in 2021, with an EPS loss of $5.06/share. Looking ahead to 2022, McAuley projects an EBITDA loss of $254.5 million with an EPS loss of $5.72/share, though milestone payments from Zymeworks’ partners could provide significant revenues for the company.

With trials on its products continuing, Zymeworks is projected to continue making significant investments in research and development, says McAuley, who has made projections of $203.3 million in R&D for 2021, $210.5 million in 2022, and $220.7 million in 2023.

Zymeworks’ share price has increased by $2.98/share last week but the stock is still down $13.67/share (a 27.92 per cent loss) for the year to date.

However, in spite of the losses, McAuley believes Zymeworks is still on the right track.

“While the stock remains off its January high, we expect new zanidatamab data beginning in September to bring additional focus to the name,” McAuley said. “We will provide more details in terms of expectations around this data and the potential impact on the company in early September. We maintain our Buy recommendation and $60.50 target, which is based on a sum-of-the-parts valuation, including zanidatamab, licensing agreement revenue and cash.”

Last week, Zymeworks announced its milestone payment from Janssen Biotech in connection with its licensing agreement as Janssen dosed the first patient with an antibody developed using Zymeworks’ Azymetric and EFECT therapeutic platforms.

“This represents our fourth pharmaceutical collaboration with programs reaching clinical development,” said Tehrani in a press release. “We look to continue to demonstrate the value and strength of our platform technologies, which are an important part of our business model, complementing the value derived from our two lead clinical assets and preclinical pipeline.”