On Thursday, Leerink Partners expressed a positive outlook on shares of Zymeworks Inc . (NASDAQ:ZYME), raising its stock rating from Market Perform to Outperform and significantly increasing the price target to $25 from the previous $10.
The upgrade comes as Zymeworks advances its wholly owned pipeline into the clinical stage and in anticipation of the upcoming PDUFA date on November 29 for zanidatimab, an outlicensed product.
The firm recognized the strategic move by Zymeworks in 2022 to outlicense zanidatimab to JAZZ, which provided essential non-dilutive capital. This financial maneuver allowed Zymeworks to address its cash runway concerns from early 2022 and reinvest in its pipeline development.
Despite the initial tempering of the investment thesis due to the drugs being in preclinical stages or facing clinical challenges, the stock has remained range-bound for approximately two years while the company worked on its pipeline through a robust 5 by 5 program.
Leerink highlighted the company's recent progress, noting that two programs, ZW171 and ZW191, have entered the clinic, and there are plans for Investigational New Drug (IND) applications for two additional antibody-drug conjugates (ADCs), ZW220 and ZW251, in the first and second half of 2025, respectively.
Zymeworks' approach to ADC development is underscored by the principle that with only about 1% of an ADC reaching the tumor tissue, the drugs need to be optimized for the remaining 99% that circulates in healthy tissue.
The company's ADCs employ proprietary moderate potency topoisomerase I inhibitor payloads and low stability linkers, aiming for a more tolerable safety profile and an enhanced therapeutic window.
The firm's updated valuation model incorporates risk-adjusted value for ZW171 and ZW191, projecting worldwide peak revenues exceeding $4 billion. This projection has contributed an additional $15 to Leerink's price target for Zymeworks.
The current modest market capitalization of Zymeworks at $1.08 billion, including $375 million in cash, suggests to Leerink that the emerging pipeline is undervalued, leading to the optimistic reassessment of the company's stock potential.
In other recent news, Zymeworks Inc. reported a net loss of $99.2 million in Q3 2024, a slight improvement from the previous year's loss. The company has made significant strides in its clinical programs, including the advancement of bispecific T cell engagers and antibody-drug conjugates (ADCs). Zymeworks has also announced plans to file IND applications for two promising ADCs, ZW220 and ZW251, in 2025.
Furthermore, Zymeworks has completed a $30 million stock repurchase program and reported substantial cash reserves, ensuring operations into the second half of 2027. Despite a decrease in total revenue for the nine months ending September 30, 2024, the company remains optimistic about the progress and upcoming milestones.
Zymeworks is also open to future business development opportunities, including collaborations and licensing deals. The company is preparing for an R&D Day in December to share updates on their portfolio.
InvestingPro Insights
Zymeworks Inc. (NASDAQ:ZYME) has been experiencing significant momentum in the market, aligning with Leerink Partners' optimistic outlook. InvestingPro data reveals that ZYME has seen a remarkable 111.8% price total return over the past year, with a strong 58.8% return in the last three months alone. This upward trajectory is further emphasized by the stock trading near its 52-week high, with the current price at 99.87% of that peak.
Two key InvestingPro Tips support the positive sentiment around ZYME. Firstly, the company holds more cash than debt on its balance sheet, which is crucial for biotechnology firms investing heavily in research and development. Secondly, liquid assets exceed short-term obligations, indicating a solid financial position to fund its pipeline development, including the advancement of ZW171 and ZW191 into clinical stages.
It's worth noting that while ZYME shows strong market performance, it is not currently profitable, with a negative gross profit margin of -100.42% in the last twelve months as of Q3 2024. This aligns with the typical profile of biotech companies in the development stage, where significant investments are made before revenue generation.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for ZYME, providing a deeper understanding of the company's financial health and market position.
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