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There have been a number of questions raised about Zynerba Pharmaceuticals’ upcoming inital public offering (IPO) to which I would like to address. Tomorrow, ZYNE will commence trading on the NASDAQ exchange and they will issue 3,000,000 shares which will be priced tonight.
Zynerba is looking to raise $36.3 million at a projected valuation between $130 and $150 million. I expect the company to surpass its projections due to the high demand for biotech cannabis companies that trade on a regulated exchange. Zynerba is also focused on a few multi-billion dollar market opportunities which should help fuel demand.
Combine a hot biotech IPO market with a NASDAQ traded cannabis stock and a multi-billion dollar opportunity and you have a recipe for success. But the real question is, for how long will shares of ZYNE stay hot and when is it time to sell? Lets discuss some of ZYNE’s pros and cons.
Do the risks outweigh the rewards?
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Management Team: Zynerba is led by a management team with a proven track record of success in gels and patches. ZYNE’s leading product will be pursued via a CBD gel. The management team also has years of experience and a proven track record with central nervous system research, regulations and commercialization. Each member of the management team has worked with several well-recognized companies.
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Developing Treatments with Massive Potential: Zynerba plans to study ZYN001 and ZYN002 in areas that have huge Total Addressable Markets (TAM). This means that any success during Phase 1 clinical trials will be a major catalyst for shares. The areas that ZYN001 and ZYN002 treat are:
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Refractory epilepsy ($1.7 billion market)
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Fragile X syndrome (71,000 people suffer from it and there is no FDA approved treatment)
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Osteoarthritis ($670 million)
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Fibromyalgia ($1.8 billion market)
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Peripheral neuropathic pain. ($4.0 billion market)
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Trials Require Significant Funding: Zynerba is focused on areas that typically require large clinical trials that are frequently delayed and over budget.
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Transdermal Delivery Increases Risk: Zynerba is trying to deliver therapies from a transdermal standpoint. This makes its success even more unlikely
Upcoming Testing
Zynerba plans to conduct Phase 1 and possibly Phase 2 clinical trials for ZYN002 in Australia (this is subject to applicable regulatory approval). ZYNE does not plan to file an Investigational New Drug Application (IND) with the FDA prior to the commencement of clinical trials. The company will have to file an IND with the FDA and receive approval from the DEA prior to commencement of clinical trials in the United States.
ZYNE plans to conduct Phase 1 clinical trials for ZYN001 in the United States and submit New Drug Applications (NDAs) for ZYN002 and ZYN001 to the FDA upon completion of all requisite clinical trials. Expected timelines for trials are as follows:
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ZYN0022H15: Initiate Phase 1 2H16: Initiate Phase 2a
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ZYN001Mid-2016: Initiate Phase 1 1H17: Initiate Phase 2a
Intellectual Property (IP) information
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ZYN002 patent portfolio currently consists of two issued patents in the United States, five issued patents in France, Germany, Ireland, Switzerland and the United Kingdom and two pending applications in Canada and Japan. The issued patents will expire between 2026 and 2030, and any patents that are issued from currently pending applications will expire in 2030.
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ZYN001 patent portfolio currently consists of two issued patents in the United States, one issued patent in Japan, one allowed patent in Europe and patent applications pending in the United States, Europe, Canada and Japan. The issued patents will expire between 2028 and 2031, and any patents that are issued from currently pending applications will expire in 2028.
Financial Highlights
Zynerba’s net losses for the years ended 2013 and 2014 and for the three months that ended March 31, 2015 were approximately $636,790, $5.7 million and $1.5 million, respectively. As of March 31, 2015, the company had an accumulated deficit of $11.5 million.
Substantially all of ZYNE’s losses have resulted from expenses incurred in connection with research and development programs and from general and administrative costs associated with operations.
Investment Thesis
ZYNE operates in a capital intensive industry where success is validated through FDA approvals. Biotech stocks trade on approvals, not earnings. Although the drug development complex is a risky business with big risk comes big reward.
ZYNE plans to initiate Phase 1 clinical trials on ZYN002 in the second half of 2015. This means that the company will not report results until mid-2016 (barring no setbacks or delays…which is unlikely). For this reason, we view ZYNE as a short term investment opportunity.
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