Zynerba's Recent Results Revitalize The Bull Case, But Risks Remain

The Street reacted to Zynerba Pharmaceuticals Inc (NASDAQ: ZYNE)’s positive Fragile X trial results with marked ambivalence.

Investors propelled the stock 76 percent higher even as biotech and behavioral experts published critical reviews. Two analysts assigned Hold ratings, but Piper Jaffray, alone, echoed the market's’ optimism.

“Without overinterpreting the results from this modest open-label program, we believe they establish an activity signal and tolerability profile that merits further placebo-controlled study,” analyst Charles Duncan said in a Thursday note. “Should similar efficacy be established in a Phase II/III program planned to begin around mid-2018, we would view this as clinically valuable to Fragile X patients and caregivers, and potentially supportive of approval.” 

Piper Jaffray upgraded Zynerba to Overweight with a $16 price target.

Reason For Hope

The analysts were particularly heartened by tolerability, as only 30 percent of the small, 20-patient population reported adverse effects.

Overall, the results restored Piper Jaffray’s faith in Zynerba’s technology and management. The orphan pediatric indication was seen to be a viable path to market and a positive catalyst for the firm.

“A little (good) data can go a long way at a less-than-$150 million market cap [company], and with this data plus cash to 1H19, we see a feasible clinical strategy emerging for ZYN002 in Fragile X,” Duncan said. (See Duncan's track record here.) 

An Execution Timeline

Zynerba is expected to meet with the FDA in the first half of 2018 and launch a global, placebo-controlled study in the second half.

“We were a bit surprised by the fairly long timeline here, but believe it is driven by FDA availability into YE17 and see a timeline beat (e.g. 1H18 versus 2H18 start) as possible upside,” Duncan said. 

The analyst sees Fragile X-related ZYN002 sales beginning in 2021, with peak sales reaching 30 percent of patients at $30,000 annually. These conservative figures could be compounded by enduring opportunity in the treatment’s epilepsy indication.

At the time of publication, the stock was trading around $8.40.

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