After publishing a report on Aurora Cannabis Inc (NYSE: ACB) late last week, I received several emails asking me to look into various cannabis-related stocks. One of the names that came up the most was Zynerba Pharmaceuticals (NASDAQ: ZYNE).
After digging in over the weekend, I’ve come to the conclusion that ZYNE is yet another stock in the cannabis space that has the potential to make millionaires. Operating on the medical side of cannabis, the company is using a cannaibs derivative to provide solutions for pressing challenges in the pediatric care space.
With multiple ongoing clinical trials, there are several catalysts ahead for the company. This, combined with an ongoing pivotal trial and promising data from their own clinical trials, as well as medical experts around the world, suggesting the potential medical power of CBD suggests that ZYNE stock could fly. Let’s dig in:
What Is Zynerba Pharmaceuticals
Zynerba is a clinical-stage biotechnology company. The company is focused on developing next-generation, transdermally-delivered (delivered through topical gels rubbed on skin) cannabinoid therapeutics.
ZYNE is particularly targeting rare diseases, most of which affect pediatric patients. This is a strong move. After all, 95% of rare diseases have no FDA-approved treatment options. Moreover, 1-in-10 Americans, and their families are affected by rare conditions.
To add further value, these treatments are strong candidates for Orphan Drug Designation. This opens the door to a shorter period from concept to market, stronger IP protection, and more assistance from the FDA through the development process.
All in all, the company’s core focus on solving challenges in rare disease indications through the use of pharmaceutically-derived CBD medications gives it an opportunity to tap into various untapped markets, providing a compelling opportunity for growth ahead.
The ZYNE Pipeline
As mentioned above, The ZYNE pipeline is focused on transdermally-delivered CBD, and it’s an impressive one. Here’s a look at what the company has going on:
ZYN002: The Company’s Flagship Candidate
The company’s flagship candiate, ZYN002 is currently in pivotal Phase 3 clinical studies as a potential option for Fragile X Syndrome. The company is also in various stages of studies of the treatment among several other rare indications.
ZYN002 In FXS
Fragile X Syndrome is a genetic condition that is generally seen in the pediatric population. The genetic condition is known to cause intillectual disabilities, behavioral and learning challenges and is the most common known single gene cause of autism spectrum disorder.
Moreover, there are currently no approved treatments for behavioral symptoms associated with FXS. ZYNE aims to change this with the CONNECT-FX clinical trial providing the path to potential regulatory approval. The trial includes 204 patients ages 17 and under at approximately 20 clinical sites across the United States, Australia and New Zealand that have been diagnosed with FXS.
The most recent data readout for ZYN002 in the FXS indication came on December 12, when the company announced 12 month treatment data. In a press release, the company said that data suggest sustained emotional and behavioral responses after 12 months of treatment.
The company is also in the midst of the open-label extension Phase 2 clinical trial of the treatment as an option for FXS. The most recent data from this trial came on July 12, 2018, showing significant improvement in behavioral symptoms after 38 weeks of treatment with ZYN002.
ZYN002 In Developmental And Epeleptic Encphalopathies (DEE)
ZYNE is also in the midst of Phase 2 clinical studies of ZYN002 as a potential option for the treatment of DEE. DEEs are a group of rare and ultra-rare epilepsy syndromes that manifest with seizures, behavoiral disturbances, or EGG abnrmalities.
Another ailment that attacks a pediatric population, the condition tends to be a progressive one. Moreover, DEEs are known to be highly resistant to treatmet.
The Phase 2 data readout is expected to take place in the third quarter, creating a catalyst to watch for ahead. Moreover, previous data in this indication have been positive.
ZYN002 In Autism Spectrum Disorder (ASD)
ZYNE also is in the second phase of clinical development for ZYN002 as a potential option for ASD. On December 17, 2018, the company announced the new development program. In the announcement, the company said that it is expecting to initiate Phase 2 clinical studies in this indication in the first half of 2019. Yet another catalyst to lok forward to!
ZYN002 In Deletion Syndrome
Along with the announcement of the Autism indication in December of last year, ZYNE also announced that it will be launching a clinical development program in the Deletion Syndrome indication. This is yet another clinical study that is expected to begin in the first half of 2019.
ZYN002 In Adult Refractory Focal Epilepsy
Finally, Zynerba Pharmaceuticals is in the midst of Phase 2 development of ZYN002 as a potential option for the treatment of Adult Refractory Focal Epilepsy. The most recent data readout in this indication came in mid-December of 2017. The data showed that patients using ZYN002 for a period of 9 months realized a 65% median reduction in seizures.
CBD Is Getting Mainstream Exposure And ZYNE Holds The Patents
Zynerba Pharmaceuticals is in a very unique position to capitalize on a growing trend in CBD, especially in the epilepsy-related indications. It all started when Dr. Sanjay Gupta ran a special on CNN called Weed back in 2013.
In the documentary, Dr. Gupta traveled the world in search of the truth about cannabis. Eventually, he found Charlotte. A young girl suffering from Dravet syndrome, Charlotte experienced hundreds of seizures per month.
Unfortunately, Charlotte’s parents exhausted all options, but the Dravet syndrome proved to be resistant. That’s when they went on the search for a cannabis derived treatment. After trying CBD oil, Charlotte’s seizures reduced dramatically. Her cognitive function improved. She started to act like a happy young girl.
Since the documentary aired, there has been increasing support for the use of cannabis in various indications, but epilepsy seems to lead the charge. Leading to incredible investor interest and a race to use CBD to assist children with rare epileptic conditions around the world.
ZYNE is in a unique position to take advantage of this. That’s because the company holds the patents here. With a strong IP portfolio surrounding ZYN002, the company has built moat that Warren Buffet commonly refers to around topical CBD treatments for epilepsy and ther neurological ailments.
The Market Potential Is Staggering
Digging into the market sizes for the indications that ZYNE is targeting with ZYN002 produces some staggering figures. In fact, the anti-epileptic drug market is expected to grow to be worth more than $9 billion annually by 2022. In the United States alone, autism treatments generate nearly $2 billion in annual revenue! Not to mention, the FXS market is a large and growing one.
The truth of the matter is that with a market cap of under $200 million, an entrance into any of these markets could propel the stock on a dramatic run for the top!
Multiple Coming Catalysts
It’s also worth mentioning that there are several catalysts ahead. In the year 2019, there are two big data readouts, multiple trial initiations, and interim readouts that we can expect to see.
In the world of clinical-stage biotechnology, it’s these types of announcements that move the needle in the values of stocks! With so many catalysts ahead, it’s hard to ignore the potential of ZYNE.
A Takeover Target In The Making
While the work and the potential value behind ZYN002 are compelling in and of themselves, the true value of the company may be in it’s potential as a takeover target in an acquisitin-hungre emerging market. Large cannabis companies, particularly in Canada are going on a buying spree.
Recently, the discussion has been around an entrance in the United States CBD market and global positioning as regulations surrounding hemp and cannabis change. However, most of the media has discussed the recreational side of the coin.
With billions of dollars on hand at Canopy Growth Corporation (NYSE: CGC) and Cronos Group (NASDAQ: CRON) and a $750 million shelf recently announced by Aurora Cannabis, these companies are ready to acquire others to expand their footprints. That’s not speculation either, they have all recently announced plans to expand through acquisitions.
While the mainstream continues to focus on the recreational benefits of cannabis and CBD, the truth of the matter is that all of these companies started in the medical cannabis space. It wouldn’t be out of line to say that they may want to acquire cannabis biotech copanies as an entrance into the US market. At the current valuation, ZYNE is a perfect candidate.
Moreover, the company may also receive interest from traditional biotechnology companies. After all, there’s tremendous value in the treatment of rare diseases, the same diseases that the company targets. With a late stage candidate and a potential coming entrance in various rare disease markets, I could see large biotechnology companies wanting to get their hands on the ZYNE asset book.
Risks To Consider
Any time you make an investment, it’s important to consider the risks. In terms of ZYNE, the most pressing risks are as follows in my opinion:
Clinical Failure – As a clinical-stage biotechnology company, ZYNE is highly dependent on its success in clinical trials. A failure in any of the trials ongoing or soon-to-be initiated could become a painful reality for investors.
Funding – As a clinical-stage biotech company, Zynerba Pharmaceuticals doesn’t have any approved treatment on the market. Therefore it is not generating revenue from sales of its products. As a result, the company is heavily dependent on support from the investing community. Should this support come to a halt, the stock could tumble. Nonetheless, the company hasn’t had any problems in this area as of yet, and with high investor interest in cannabis, CBD and biotech, I don’t see problems arising any time soon.
The bottom line here is simple. If you’re not already paying attention to ZYNE, now is the time to start. The company has a compelling late-stage asset with ZYN002 and patent protection that will allow it to corner the niche if trials continue to go well.
Moreover, with increasing interest in the acquisition-hungry, emerging cannabis and CBD market, the potential for a takeover may be higher than the average investor thinks. Combining this with the potential for the company to be a takeover target by traditional biotech giants suggests that a high-value acquisition is a real possibility here.
All in all, ZYNE is in a unique position to take the lead in multiple markets. This , combined with a high potential for a takeover, and increasing investor interest in the space suggests that this stock could fly!