Catalysts coming up for Zymeworks, 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 in an update to clients on September 13.

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) is 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.

McAuley’s latest analysis comes after Zymeworks released an abstract and then presented an updated and expanded dataset for the new Phase 2 data of zanidatamab plus chemo in first-line gastroesophageal adenocarcinoma (GEA) during the European Society for Medical Oncology (ESMO) Congress. McAuley notes the Phase 2 data improves on the company’s Phase 1 dataset.

“These are the first results of zanidatamab in first-line patients that have not been treated with prior HER2-targeting treatments, providing the best comparison to date against the current standard of care of Herceptin (trastuzumab) plus chemo,” McAuley noted.

As of March 18, the confirmed overall response rate (cORR) was 68 per cent based on 22 patients and the disease control rate (DCR) was 91 per cent. For the 15 patients with confirmed responses, the duration of response (DoR) ranged from 1.4 to 15.4 months, with ten responses ongoing, while McAuley also noted that adverse effects were in line with other therapies.

The company’s aim is for zanidatamab to replace Herceptin (trastuzumab) as the primary treatment for HER2-positive cancers, which can include breast, bladder, pancreatic, ovarian, and stomach cancers.

Initially approved for use by the U.S. Food and Drug Administration in 1998 to treat HER2 positive metastatic breast cancer with further uses in HER2 positive cancers in the stomach or gastroesophageal junction, Herceptin has since grown to develop a market of $4 billion in 2020. 

However, McAuley believes the new data presented by Zymeworks at ESMO could prove zanidatamab plus chemo to be a superior treatment to Herceptin to plus chemotherapy, with Herceptin’s gastric cancer registrational Phase 3 study demonstrating 47 per cent cORR, 79 per cent DCR and 6.9 months DoR in tandem with chemotherapy.

“Our long-standing vision for zanidatamab has been for it to become a best-in-class HER2‑targeted therapeutic that could address the needs of a broad spectrum of patients with HER2‑expressing cancers,” said Ali Tehrani, Ph.D., Zymeworks’ President and CEO in the company’s September 16 press release. “Over the years, we have shared data that have showcased the promising anti-tumor activity and safety profile of zanidatamab; that said, the data shared today stand out as they represent the first clinical validation of zanidatamab in a front-line setting. As we embark on our second pivotal trial and prepare for commercialization, these data represent a landmark moment for zanidatamab and for Zymeworks.”

McAuley’s financial projections for the company remain unchanged, setting his revenue estimate for 2021 at $2.4 million, a significant drop from the reported 2020 figure of $39 million, with 2022 revenue projected to be zero compared to consensus projections of $14.9 million and $39.3 million for 2021 and 2022, respectively. (All prices in US dollars.)

Meanwhile, as noted in his previous analysis, McAuley projects the company to continue investing in research and development, listing adjusted EBITDA at losses of $231.7 million for 2021 and $254.5 million for 2022, compared to the consensus loss projections of $241.5 million and $259.6 million for 2021 and 2022, respectively.

McAuley’s EPS projections also remain unchanged, projecting losses of $5.06/share for 2021 and $5.72/share in 2022 compared to consensus loss projections of $4.80/share and $4.79/share for 2021 and 2022, respectively.

After the ESMO event, McAuley expects further from the company regarding its zanidatamab trials, with Phase 2 results of its Zanidatamab plus tislelizumab plus chemo trials in first-line GEA potentially coming at AACRNCI-EORTC in October or ASMO Asia in November, Phase 1 results of its Zanidatamab plus chemo trial in 3+ line breast cancer patients potentially coming at the San Antonio Breast Cancer Symposium in December, and Phase 2 results of its Zanidatamab plus chemo trial in first-line breast cancer patients expected no later than the  American Association for Cancer Research event in April 2022.

With more data and a Phase 3 trial going head-to-head with the Herceptin treatment on the horizon in the near future, McAuley remains optimistic in his outlook on the company.

“We are expecting more data from ZYME over the next four to six months than we have seen in the past 18 months, which provides opportunities to drive more interest in the name,” he said.

Overall, Zymeworks’ stock price has dropped 27.2 per cent for the year to date, reaching a high point of $56.81/share on January 8. At the time of publication, McAuley’s $60.50 target represented a projected one-year return of 87 per cent