ZYNERBA PHARMACEUTICALS INC ZYNE
March 29, 2019 - 9:27am EST by
pat110
2019 2020
Price: 5.49 EPS -2.05 -1.64
Shares Out. (in M): 21 P/E 0 0
Market Cap (in $M): 116 P/FCF 0 0
Net Debt (in $M): -70 EBIT -35 -30
TEV ($): 45 TEV/EBIT 0 0

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Description

Zynerba Pharmaceuticals is advancing a CBD gel compound (Zygel) for the treatment of Fragile X.  Zynerba received orphan drug status for Zygel in 2016.  The stock price, which has been as high at $65, is now $5.75.  Contributing to the stock price decline was the failure of its trial for its epilepsy drug in 2017.  Zynerba in effect ceded the epilepsy market to GW Pharmaceuticals after its CBD candidate, Epidiolex, gained approval in June 2018. 

Despite the defeat, the approval of GW’s Epidiolex has now created a clear pathway for CBD based drugs that can demonstrate clinical efficacy in important diseases with limited or unmet treatment needs.  In September of 2018, the U.S. Drug Enforcement Agency (DEA) issued guidelines stating that CBD drugs with THC content below .1% are now considered schedule 5 drugs, as long as they are FDA approved.   Until then, all cannabis based drugs were Schedule 1 drugs, which are reserved for drugs with a high potential for abuse and no medical value. 

There are no approved drugs to treat Fragile X syndrome.  There are about 71,000 people in the U.S. with the genetic condition.  Fragile X is a rare genetic developmental disability and is the leading known cause of both inherited intellectual disability and autism spectrum disorder.  Symptoms are linked to deficiencies in the endocannabiniod (EC) system.  Symptoms include core cognitive, social, and behavior problems. 

Many parents of children with Fragile X have been using CBD products, obtained at medical dispensaries, as treatments.  The antidotal results include fewer uncontrolled outbreaks, less withdrawal and calmer behavior.  Zygel can deliver a controlled prescription alternative and has the advantage of its transdermal delivery and is a synthetic CBD formulation as a permeation-enhanced gel.  This has an advantage in efficacy as it allows for by-passing the GI tract and ability of stomach acids to degrade CBD into trace levels of THC.  This leads to more efficient uptake and reduces GI side effects (and negative psychoactive effects). 

 

Zynerba presented new data from its Phase II open label study demonstrating that treatment with Zygel improved core emotional and behavioral symptoms of Fragile X  with statistical significance versus baseline across multiple measures of efficacy at month three, and that these improvements were sustained through 12 months of treatment. For example, significant improvements vs. baseline in social avoidance as measured by the ABC-CFXS were demonstrated at three months (58% improvement; p=0.0040) and 12 months (77% improvement; p=0.0013) of treatment with Zygel. In the Initial Phase II trial which included 20 patients, month 3 and month 12 data shows significant improvement in the following:

 

 

                                                                           Percent Improvement

Behavioral Symptoms                     3 Months                                           12 Months

Social Avoidance                             57.9%                                                 77.2%

Irritability                                           51.1%                                                 59.2%

Socially Unresponsive                    65.7%                                                 72.2%

Hyperactivity                                    36.7%                                                 40.4%   

Stereotypy                                        60.8%                                                 64.9%

Inappropriate Speech                     56.5%                                                 56.5%

 

Trial results safety profile showed the drug as being well tolerated, consistent with previously reported data. 

Zynerba recently was awarded a patent titled “Treatment of Fragile X Syndrome with Cannabidiol” which includes claims directed to methods of treating Fragile X Syndrome by administering a therapeutically effective amount of synthetic or purified CBD. This new patent expires in 2038 and is part of an expanding intellectual property portfolio covering Zygel.

The company is now conducting an expanded pivotal Trial (CONNECT-FX) a randomized, double blind, placebo-controlled trial with 204 patients to be conducted at 20 locations in New Zeeland, Australia and the U.S.  The primary endpoint is the change from baseline to the end of the treatment period in the Aberrant Behavior Checklist-Community FXS Specific (ABC-CFXS) Social Avoidance subscale.  Secondary endpoints include Irritability and Socially Unresponsive subscales.  Top line results of the trial are expected in 2nd half of 2019 (between August and November), which will be meaningful event for the stock.   If results are positive, the company is expected to meet with the FDA to determine the acceptability of the data as a basis for a NDA filing and evaluate opportunities for FDA fast track, breakthrough status, and/or priority review. 

In the CONNECT FX trial, weight-based dosing is being used in the active arm (patients under 35kg receive 250mg daily and those above receive 500 mg daily).   A greater than 20% difference between the active arm and placebo in Social Avoidance subscale is likely needed to move forward.  In the Phase 2 trial, a 55% improvement was observed and management has brought that down to expectations of 40% improvement in this study as compared to an expected 20% improvement in placebo.

Zynerba also has a pipeline of other CBD candidates but the write up focuses on Fragile X because it is the most advanced and a near term catalyst with the release of top line data from the expanded study later this year.   

The other indications include:

Developmental and Epileptic Encephalopathies (DEE) – Phase II top line data expected 3rd qtr of 2019

Autism Spectrum Disorder in pediatric patients – Initiate Phase II open label study – March 2019

22q Deletion Syndrome - Initiate Phase II open label study – 1st half 2019

 

Valuation

Zynerba has $193 million in paid in capital and no debt.  The current market cap is $120 million with $70 million of that in cash.  The company raised $32 million in July 2018 in a secondary stock offering at $8.00 per share and $18 million in early 2019 thru an ATM.  Zynerba has stated that the current cash gives them a runway beyond the planned NDA submission and potential approval in Fragile X in the first quarter of 2021. 

Zynerba expects pricing for Zygel to be in the range of $25,000 per patient, per year, given its orphan drug status.  A ramp to a peak of 20% of the U.S. patient population for Fragile X results in potential annual sales of $440 million.  This would result in a stock price several multiples higher

The pattern with many -- washed out venture type drug companies -- is that they get a value boost from the “buzz” shortly before the release of new study results.  This might allow for selling some before the actual results are published and lower one’s cost basis before top line data is released.  Another way to look at it is buying the stock is like an option, with a range of outcomes of say 5X to 10X up and 60% down (the down being in the near term if top line results are poor). If I am right on the upside/downside, it’s a cheap option.   

 

Management

The CEO of the company is Armando Anido who has served as our Chairman and Chief Executive Officer since 2014. Mr. Anido has more than 30 years of experience in the biopharmaceutical industry, particularly in leading CNS transdermal patch and gel products through the entire product life cycle. Most recently, he was the CEO of NuPathe, which was acquired by Teva Pharmaceuticals in 2014. At NuPathe, he led the company through FDA approval of its lead product, Zecuity®, the first transdermal patch for migraine, to pre-launch before successfully selling the company to Teva.  He also served as President and CEO of Auxilium Pharmaceuticals (AUXL), where under his leadership, sales grew from $42 million in 2005 to more than $260 million in 2011 and market capitalization increased from $200 million to more than $900 million. Auxilium was sold to TEVA for $2.6 billion in 2014.  Anido has filled Zynerba's executive team primarily with others from NuPathe and Auxilium.

I hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Top line data for Zygel in Aug/Nov 2019. 

 

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    Description

    Zynerba Pharmaceuticals is advancing a CBD gel compound (Zygel) for the treatment of Fragile X.  Zynerba received orphan drug status for Zygel in 2016.  The stock price, which has been as high at $65, is now $5.75.  Contributing to the stock price decline was the failure of its trial for its epilepsy drug in 2017.  Zynerba in effect ceded the epilepsy market to GW Pharmaceuticals after its CBD candidate, Epidiolex, gained approval in June 2018. 

    Despite the defeat, the approval of GW’s Epidiolex has now created a clear pathway for CBD based drugs that can demonstrate clinical efficacy in important diseases with limited or unmet treatment needs.  In September of 2018, the U.S. Drug Enforcement Agency (DEA) issued guidelines stating that CBD drugs with THC content below .1% are now considered schedule 5 drugs, as long as they are FDA approved.   Until then, all cannabis based drugs were Schedule 1 drugs, which are reserved for drugs with a high potential for abuse and no medical value. 

    There are no approved drugs to treat Fragile X syndrome.  There are about 71,000 people in the U.S. with the genetic condition.  Fragile X is a rare genetic developmental disability and is the leading known cause of both inherited intellectual disability and autism spectrum disorder.  Symptoms are linked to deficiencies in the endocannabiniod (EC) system.  Symptoms include core cognitive, social, and behavior problems. 

    Many parents of children with Fragile X have been using CBD products, obtained at medical dispensaries, as treatments.  The antidotal results include fewer uncontrolled outbreaks, less withdrawal and calmer behavior.  Zygel can deliver a controlled prescription alternative and has the advantage of its transdermal delivery and is a synthetic CBD formulation as a permeation-enhanced gel.  This has an advantage in efficacy as it allows for by-passing the GI tract and ability of stomach acids to degrade CBD into trace levels of THC.  This leads to more efficient uptake and reduces GI side effects (and negative psychoactive effects). 

     

    Zynerba presented new data from its Phase II open label study demonstrating that treatment with Zygel improved core emotional and behavioral symptoms of Fragile X  with statistical significance versus baseline across multiple measures of efficacy at month three, and that these improvements were sustained through 12 months of treatment. For example, significant improvements vs. baseline in social avoidance as measured by the ABC-CFXS were demonstrated at three months (58% improvement; p=0.0040) and 12 months (77% improvement; p=0.0013) of treatment with Zygel. In the Initial Phase II trial which included 20 patients, month 3 and month 12 data shows significant improvement in the following:

     

     

                                                                               Percent Improvement

    Behavioral Symptoms                     3 Months                                           12 Months

    Social Avoidance                             57.9%                                                 77.2%

    Irritability                                           51.1%                                                 59.2%

    Socially Unresponsive                    65.7%                                                 72.2%

    Hyperactivity                                    36.7%                                                 40.4%   

    Stereotypy                                        60.8%                                                 64.9%

    Inappropriate Speech                     56.5%                                                 56.5%

     

    Trial results safety profile showed the drug as being well tolerated, consistent with previously reported data. 

    Zynerba recently was awarded a patent titled “Treatment of Fragile X Syndrome with Cannabidiol” which includes claims directed to methods of treating Fragile X Syndrome by administering a therapeutically effective amount of synthetic or purified CBD. This new patent expires in 2038 and is part of an expanding intellectual property portfolio covering Zygel.

    The company is now conducting an expanded pivotal Trial (CONNECT-FX) a randomized, double blind, placebo-controlled trial with 204 patients to be conducted at 20 locations in New Zeeland, Australia and the U.S.  The primary endpoint is the change from baseline to the end of the treatment period in the Aberrant Behavior Checklist-Community FXS Specific (ABC-CFXS) Social Avoidance subscale.  Secondary endpoints include Irritability and Socially Unresponsive subscales.  Top line results of the trial are expected in 2nd half of 2019 (between August and November), which will be meaningful event for the stock.   If results are positive, the company is expected to meet with the FDA to determine the acceptability of the data as a basis for a NDA filing and evaluate opportunities for FDA fast track, breakthrough status, and/or priority review. 

    In the CONNECT FX trial, weight-based dosing is being used in the active arm (patients under 35kg receive 250mg daily and those above receive 500 mg daily).   A greater than 20% difference between the active arm and placebo in Social Avoidance subscale is likely needed to move forward.  In the Phase 2 trial, a 55% improvement was observed and management has brought that down to expectations of 40% improvement in this study as compared to an expected 20% improvement in placebo.

    Zynerba also has a pipeline of other CBD candidates but the write up focuses on Fragile X because it is the most advanced and a near term catalyst with the release of top line data from the expanded study later this year.   

    The other indications include:

    Developmental and Epileptic Encephalopathies (DEE) – Phase II top line data expected 3rd qtr of 2019

    Autism Spectrum Disorder in pediatric patients – Initiate Phase II open label study – March 2019

    22q Deletion Syndrome - Initiate Phase II open label study – 1st half 2019

     

    Valuation

    Zynerba has $193 million in paid in capital and no debt.  The current market cap is $120 million with $70 million of that in cash.  The company raised $32 million in July 2018 in a secondary stock offering at $8.00 per share and $18 million in early 2019 thru an ATM.  Zynerba has stated that the current cash gives them a runway beyond the planned NDA submission and potential approval in Fragile X in the first quarter of 2021. 

    Zynerba expects pricing for Zygel to be in the range of $25,000 per patient, per year, given its orphan drug status.  A ramp to a peak of 20% of the U.S. patient population for Fragile X results in potential annual sales of $440 million.  This would result in a stock price several multiples higher

    The pattern with many -- washed out venture type drug companies -- is that they get a value boost from the “buzz” shortly before the release of new study results.  This might allow for selling some before the actual results are published and lower one’s cost basis before top line data is released.  Another way to look at it is buying the stock is like an option, with a range of outcomes of say 5X to 10X up and 60% down (the down being in the near term if top line results are poor). If I am right on the upside/downside, it’s a cheap option.   

     

    Management

    The CEO of the company is Armando Anido who has served as our Chairman and Chief Executive Officer since 2014. Mr. Anido has more than 30 years of experience in the biopharmaceutical industry, particularly in leading CNS transdermal patch and gel products through the entire product life cycle. Most recently, he was the CEO of NuPathe, which was acquired by Teva Pharmaceuticals in 2014. At NuPathe, he led the company through FDA approval of its lead product, Zecuity®, the first transdermal patch for migraine, to pre-launch before successfully selling the company to Teva.  He also served as President and CEO of Auxilium Pharmaceuticals (AUXL), where under his leadership, sales grew from $42 million in 2005 to more than $260 million in 2011 and market capitalization increased from $200 million to more than $900 million. Auxilium was sold to TEVA for $2.6 billion in 2014.  Anido has filled Zynerba's executive team primarily with others from NuPathe and Auxilium.

    I hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Top line data for Zygel in Aug/Nov 2019. 

     

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