Debra Borchardt
Zynerba Pharmaceuticals Inc. (ZYNE) was initiated with a Buy rating and a $25.50 price target from analyst Michael Higgins at Ladenburg Thalman. Zynerba is a clinical-stage pharmaceutical company that focuses on using synthetic cannabinoid products in a transdermal delivery method. It has two main products ZYN002 and ZYN001, which are being tested for use in treating Fragile X syndrome, developmental and epileptic encephalopathies (DEE), adult epilepsy and Tourette’s syndrome.
The stock tumbled last year when its initial drug tests came back with less than overwhelming results. The stock slid from approximately $19 in July to roughly $6 in August. Higgins wrote, “We believe ZYN002’s failure in adult refractory epilepsy, despite an improvement trend, was due to the inclusion of patients with less frequent seizures in STAR 1 and high response
variability.” Higgins went on to add, ” Therefore, we believe that Zynerba’s plans for a longer, larger trial emphasizing severe patients should demonstrate ZYN002’s efficacy in adult focal epilepsy. ZYN002 will also soon be evaluated in pediatric refractory epilepsies, including Dravet and Lennox-Gastaut (LGS) syndromes. Given the clinical success in these indications of another CBD-based therapy, Epidiolex, we expect ZYN002 to have similar efficacy.”
Zynerba vs. GW Pharmaceuticals
The analyst also thinks that Zynerba hasn’t been given credit for its potential for off-label uses. He suggested that GW Pharmaceuticals (GWPH) drugs of a similar nature will generate revenue from off-label uses and expects Zynerba will experience this same sort of revenue. Higgins also thinks that Zynerba has an advantage over GW Pharmaceuticals’ Epidiolex drug.
Higgins wrote, “Epidiolex causes adverse events (AEs) in 80%-90% of patients, up to 30% of which are severe. In contrast, ZYN002-treated patients in FXS, adult epilepsy, and the now discontinued osteoarthritis pain programs have only 30%-50% AE rates, 0%-1% of which are severe and no gastrointestinal (GI) AEs.” The analyst believes that Epidiolex’s problems stem from using a sesame oil-based formulation, whereas Zynerba’s synthetic formula causes fewer problems and is more profitable for the company.
Outlook
The analyst wrote that the company’s ZYN002 has demonstrated efficacy and safety in Phase 2 in FXS children and is on track to start a pivotal Phase 2/3 in the second half of 2018 which should lead to revenues in 2020. Higgins thinks this drug could take market share from Epidiolex. With regards to ZYN001, Phase 1 data is expected in 1H’18 that will determine the ideal formulation and patch wear time for future studies. “Following Phase 1, Zynerba is planning a Phase 2 in Tourette syndrome for 2H’18, with other rare neuropsychiatric indications potentially to follow,” he wrote.
The analyst thinks that Zynerba could charge $25,000 a year for its drugs and could reach full profitability from the clinical outcomes. He also thinks Zynerba will benefit more from the adult adoption of the drugs rather than children. He wrote, “We believe the Street is underpricing ZYN002 at roughly half of our ~$25K estimate.”
Risks
As with any stock, there are always risks. The analyst noted that Zynerba is still incurring losses and has no revenue and will need additional capital to fund its operations. The company also has no sales and marketing staff, so when the time comes to put its drugs on the market, should that happen, it will need to ramp up and hire a sales team. Plus, the drugs will need to be accepted by insurance companies for reimbursement.
Of course, cannabis is still a schedule 1 controlled substance and that could affect Zynerba since there is some cannabis in their drugs. Zynerba also relies on third parties to conduct the studies so there is some risk that these companies don’t perform their duties well.
