Raymond James says Zymeworks is the ‘Mother of all biotechnology’ plays in Canada
Investing in biotechnology stocks can be notoriously risky, but an analyst at Raymond James has identified one Canadian firm with enough irons in the fire to warrant attention from investors.
In an extensive recent research note, analyst David Novak initiated coverage on Vancouver-based Zymeworks Inc., dubbing it “the mother of all biotechnology” plays in Canada among early-stage companies.
Novak said Zymework’s pipeline of drugs in discovery or development and its advance lab technology are what differentiate it from the competition. He has set a one-year target price of US$18 per share.
Founded in 2003, Zymeworks raised US$58.5 million in its April 2017 IPO at US$13 per share. But shares have since dipped as low as US$6.25 in New York, before rebounding to around US$11.90, where it currently trades. It is also listed in Toronto.
Zymeworks’ main product, ZW25, is being tested in phase 1 clinical trials for the treatment of breast cancer. By binding and removing proteins called human epidermal growth factor receptor 2 (HER2), preclinical trails have shown anti-tumour activity.
Raymond James said in time, ZW25 could have the potential to compete with Herceptin and Perjeta, two HER2 therapies that last year brought in US$7.2 billion and US$2.3 billion, respectively.
Its second leading product, ZW49 is still in the preclinical phase but has also shown potential for treatment of tumours related to HER2 proteins.
Raymond James calculated that ZW25 contributed US$8.45 per share to its target price. ZW49, meanwhile, contributed US$1.17.
Other significant factors in the company’s valuation include its partnerships with six other pharmaceutical companies including Celgene and Johnson & Johnson Innovations. Raymond James said these partnerships have the potential to provide a staggering US$5.5 billion in non-dilutive, milestone payments for Zymeworks over time, and that it expects new licensing deals to be made in the near future.
In recent years, the utilization of anti-body based therapeutics has dominated modern medicine. According to Raymond James, in 2016 six of the top 10 innovative drugs worldwide were antibody related molecules.
“In our view, antibody-based therapeutics will continue to dominate modern medicine, with bispecific antibody development holding significant promise,” the report said.
Before advancements in biotherapeutics, small molecule therapy was the prominent method in modern medicine. Novak said using antibiotics to treat diseases is the most natural method of treatment. Some small molecule therapies could come with toxic effects for certain patients. He compared it to using treatment at the genetic level as opposed to other cancer treatments such as chemotherapy.
According to Raymond James, more than 75 antibody-based molecules have been approved into the pharmaceutical market since 1986.