Zynerba Pharmaceuticals, Inc.

ZYNE Details

ZYNE’s Top-Line Findings from CONNECT-FX Trial of Zygel: Zynerba Pharmaceuticals, Inc. (NASDAQ: ZYNE) is a clinical-stage specialty pharmaceutical company focused on the development of transdermal cannabinoid therapies used for rare and near-rare neuropsychiatric disorders.  Recently, the company stated the data from the 14-week CONNECT-FX study, assessing its pipeline candidate, Zygel, which failed to attain numerical importance in primary as well as secondary endpoints. The study revealed that candidates treated with Zygel did not attain numerical significance progress in the Social Avoidance subscale of the Aberrant Behavior Checklist – Community FXS (ABC-CFXS), versus placebo. Nevertheless, the company stated that a pre-scheduled ad hoc survey indicated that patients cured with Zygel achieved statistical importance in the main endpoint of improvement after being treated for 12 weeks.

1QFY20 Operational Highlights: ZYNE announced its quarterly results for the period ended 31 March 2020, wherein the company reported a net loss from operations amounting to $12.3 million, as compared to the net loss of $9.1 million in Q1FY19. Diluted net loss per share for the quarter stood at $0.53. Net loss for the quarter included $1.7 million in foreign currency losses. Research and development expenses stood at $6.9 million, slightly up from $6.3 million in the previous corresponding quarter. General and administrative expenses stood at $3.9 million as compared to $3.2 million in 1QFY19.  The company reported $60.6 million in cash and cash equivalents as on 31 March 2020. Notably, the company does not generate any revenue as it has no marketed products and collaborations.

1QFY20 Income Statement Highlights (Source: Company Reports)

Key Risks: On the flip side, the company has been carrying the burden of operational inefficiency for the past numerous quarters. Increasing R&D and SG&A expenses is likely to reduce operating margins.

Also, the company is exposed to risks relating to foreign operations that are required to be addressed from time to time. The company also faces stiff competition from peers which adds to the woes.

What to Expect:  The company took necessary steps to ensure the safety and well-being of patients and caregivers, curtail the risk of supply disruption, and achieve its growth strategies. The company expects to provide a clinical path forward from the phase II study evaluating Zygel in DEE patients, indication in the third quarter. The company also revealed encouraging top-line data in May 2020, from the phase 2 study assessing Zygel in ASD patients and further plans to meet with the FDA to review the findings and clinical path forward in ASD indication in the 2HFY20. Further, the company also stated that phase 2 open label trial of Zygel in 22q is ongoing and data is expected in the 4QFY20.

Stock Recommendation: The stock of ZYNE closed at $3.56 with a market capitalization of ~$88.8 million. The stock is trading at the lower band of its 52-week trading range of $2.55 to $14.28. The stock of the company went down 29.69% in the last one month. As per the Management, the current cash and cash equivalents are enough to fund operations and capital obligations through the second half of FY21. On the valuation front, the stock is trading at a P/BV multiple of 1.2x as compared to the industry median (Biotechnology & Medical Research) of 3.4x on TTM (Trailing Twelve Months) basis. Considering the aforesaid facts, we give a “Speculative Buy” on the stock at the closing price of $3.56, up 4.4% as on 15 July 2020.

ZYNE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Chiasma, Inc. 

CHMA Details 

CHMA Prices Public Offering of Common Stock: Chiasma, Inc. (NASDAQ: CHMA) is a biopharmaceutical company, which uses its Transient Permeability Enhancer (TPE®) technology to develop oral peptides and other molecules and use in place of painful and burdensome injections. On July 1, 2020, the company stated the pricing of its earlier announced underwritten public offering of 12,500,000 shares, to certain investors in lieu thereof, pre-funded warrants to buy maximum 5,000,000 shares at an exercise price of $0.0001 per share. Also, the underwriters have been granted a 30-day option to purchase up to an additional 2,625,000 million common shares. Jefferies, Piper Sandler & Co., and Cantor acted as joint book-running managers for the public offering. The company expects to receive gross proceeds of $70 million from the offering.

CHMA Gets Nod From FDA: On June 26, 2020, the company stated that it has received approval from U.S. FDA for MYCAPSSA®(octreotide) capsules in the long-term treatment for acromegaly patients who have reacted to and endured treatment with octreotide. MYCAPSSA is the first and only oral somatostatin analog (SSA) authorized by the FDA, which uses Chiasma’s TPE® technology. The company predicts ~8,000 patients are being injected by SSAs in the U.S.

1QFY20 Key Financial Highlights: CHMA announced its quarterly results for the period ended 31 March 2020, wherein the company reported a net loss from operations amounting to $15.4 million, as compared to the net loss of $8.75 million in Q1FY19. Diluted net loss per share for the quarter stood at $0.36. Research and development expenses stood at $8.1 million, up from $6.5 million in the previous corresponding quarter. The increase in R&D was primarily due to expenditure related to the production of octreotide capsules, expenses linked with CHMA’s state registry, along with higher regulatory expenses. General and administrative expenses stood at $7.6 million as compared to $2.5 million in 1QFY19.  The company reported $79.3 million in cash and cash equivalents as on 31 March 2020.

1QFY20 Income Statement Highlights (Source: Company Reports)

Key Risks: Higher R&D and SG&A expenses related to the manufacturing of octreotide capsules, scientific literature publications and increased regulatory expenses are likely to hurt margins, going forward. The company is also exposed to certain other risks such as, foreign currency fluctuation risks, stringent Government regulatory burden and stiff competition from peers. 

Future Expectations: The company remains on track to implement its mission to build and commercialize complementary alternatives to injectable treatments. Further, the company stands to benefit from organizational readiness to execute a successful launch with MYCAPSSA in the 4QFY20. Moreover, the company expects to utilize the net proceed from the public offering for developing the ongoing commercialization of MYCAPSSA® in the US. It also intends to use the procced for the activities related to authorization application of MYCAPSSA to the European Medicines Agency.

Valuation Methodology: Price to Sales Multiple Based Market Multiple Valuation (Illustrative)

P/S Based Market Multiple Valuation Approach (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters

Stock Recommendation: The stock of CHMA closed at $4.115 with a market capitalization of ~$173.9 million. The stock is trading at the lower band of its 52-week trading range of $2.88 to $9.25. The stock of the company went down 32.03% in the last one month. Debt to equity of the company stood at 0.00x in Mar’20, as compared to the industry median of 0.41x. We have valued the stock using Price/Sales based market multiple valuation method and arrived at a target price of low double-digit upside (in percentage terms). Considering the aforesaid facts, we give a “Speculative Buy” on the stock at the closing price of $4.115, down 1.08% as on 15 July 2020.

CHMA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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