Zynerba Pharmaceuticals: An Updated Investment Thesis

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About: Zynerba Pharmaceuticals, Inc. (ZYNE)
by: Busted IPO Forum
Summary

After tripling earlier in the year, few stocks have been as volatile in recent weeks than cannabinoid therapeutic concern Zynerba Pharmaceuticals.

The company's primary drug candidate is targeting Fragile X Syndrome and other indications.

We revisit this developmental concern in detail in the paragraphs below.

If two men on the same job agree all the time, then one is useless. If they disagree all the time, both are useless.” ― Darryl F. Zanuck

Few stocks have been as volatile recently as Zynerba Pharmaceuticals (ZYNE). The shares seem to move five percent or more almost on a daily basis in recent weeks. Despite the recent roller coaster in this equity, shareholders have been treated to some nice gains overall in 2019. Today, we revisit this developmental concern and update our investment thesis.

Company Overview:

Zynerba Pharmaceuticals IPO’d in 2015 and is a Devon, Pennsylvania-based clinical-stage specialty pharmaceutical company. The company is focused on developing a transdermally-delivered cannabinoid therapeutic for patients affected by rare and near-rare neuropsychiatric conditions. The company’s pipeline centers around Zygel, the first and only pharmaceutically-produced CBD formulated permeation-enhanced gel for transdermal delivery through the skin and into the circulatory system.

Zygel is currently in development for fragile X syndrome, developmental and epileptic encephalopathies, autism spectrum disorder in pediatric patients, 22q deletion syndrome, adult refractory focal epilepsy, and other neuropsychiatric conditions. Zynerba Pharmaceuticals has a market capitalization of roughly $230 million and trades in the secondary market around $11.00 a share.

Pipeline:

Source: Company Presentation

Zygel:

As mentioned above, Zygel is the first and only pharmaceutically-produced CBD formulated permeation-enhanced gel for transdermal delivery through the skin and into the circulatory system. The drug is currently in development for fragile X syndrome, developmental and epileptic encephalopathies, autism spectrum disorder in pediatric patients, 22q deletion syndrome, adult refractory focal epilepsy, and other neuropsychiatric conditions.

Zygel is designed to overcome the limitations of currently available treatments. These limitations include oral administration, topical administration, CBD degradation to THC in the stomach, and botanically derived cannabinoids. Oral administration can lead to limitations in safety and efficacy, and topical doses of CBD require huge doses to reach therapeutic blood levels, or may not even cross into the bloodstream. However, Zygel therapeutics are applied locally and absorbed through the skin directly into the systemic circulation, resulting in a lower incidence of gastrointestinal side effects, avoidance of first-pass liver metabolism and increased bioavailability.

Furthermore, Zygel is formulated with permeation enhancers, which improves the ability of CBD to cross through the skin and into the bloodstream. CBD degradation into THC in the stomach can lead to negative psychoactive effects, but Zygel avoids the gastrointestinal tract. Also, Zygel is pharmaceutically manufactured in a cGMP facility, which allows them to avoid the tremendous challenges that come with a drug manufacturer growing cannabis.

Source: Company Presentation

Fragile X Syndrome:

Enrolment continues to move forward in the CONNECT-FX trial. The CONNECT-FX trial is a pivotal, multi-national, randomized, double blind, placebo-controlled trial evaluating the efficacy and safety of Zygel in 3 through 17-year-old patients with FXS. The primary endpoint is the change from baseline to the end of the treatment period in the Aberrant Behavior Checklist-Community FXS Specific Social Avoidance subscale. Currently, there’s no therapeutic option approved for the treatment of behavioral symptoms associated with FXS. Top line data from the trial is expected to be released in the back half of the year. Also, back in February, the company announced that the USPTO has issued a new patent covering the use of cannabinol transdermal gel to treat fragile X syndrome. The company received a Fast Track designation for this indication in May from the FDA.

Source: Company Presentation

Developmental and Epileptic Encephalopathies:

Enrollment is complete for the company’s Phase 2 BELIVE 1 trial, and top line results are expected in Q3 of 2019.

Two New Neuropsychiatric indications:

The company expanded their pipeline to two new indications, autism spectrum disorder and 22q11.2 deletion syndrome. Zynerba recently initiated a Phase 2 trial called BRIGHT. The trial is designed to test the safety, tolerability and efficacy of Zygel for the treatment of child and adolescent patients with ASD. Results are expected to be released in the first half of 2020. As far as 22q, the company expects to initiate an open label Phase 2 trial of Zygel in 22q in Q2 of 2019. Top line data should be available in the first half of 2020.

Source: Company Presentation

Analyst Commentary And Balance Sheet:

As of December 31st, 2018, the company had cash and cash equivalents of $68.3 million. The company is burning approximately $9 million of cash a quarter for R&D and operational expenses. Leadership has stated that their current financial runway extends into 2021, “management believes that the cash and cash equivalent position is sufficient to fund operations and capital requirements beyond the expected NDA submission and potential approval in FXS and into the first quarter of 2021.

Zynerba has seen a big uptick in positive analyst coverage of late. On April 30th, Roth Capital initiated the name with a new Buy with a $36 price target. On May 30th, Ladenburg reissued its Buy rating and $26 price target. The next day H.C. Wainwright maintained its Buy rating and $23 price while Cantor Fitzgerald reiterated its Overweight rating and lifted its price target ten bucks a share to $22.

Verdict:

After underperforming substantially in 2018, ZYNE has come back in a big way so far in 2019. The stock has tripled in price since the start of the year and had the 'Big Mo' through early May. The stock has seen some profit taking of late and has been extremely volatile over the past month.

With upcoming potential catalysts and increasingly positive analyst commentary, the overall rally in 2019 could easily continue especially if market sentiment improves in coming months.

I find it a challenge to cooperate in a society where it's considered moral to critique a résumé yet immoral to critique morality.” ― Criss Jami

Bret Jensen is the Founder of and authors articles for The Biotech Forum, The Busted IPO Forum, and The Insiders Forum.

Disclosure: I am/we are long ZYNE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.