Zentalis Pharmaceuticals (ZNTL +2.50%) closed at $52.22 on Friday, 26.4% higher than it did on Thursday. That's nothing new for this fast-climbing clinical-stage biopharmaceutical company that specializes in small molecule cancer drugs. If you had invested $5,000 in the company's IPO in April, when it was selling at $18 a share, you would have $14,505 today.
There's clearly a lot of hype regarding Zentalis, which was founded in 2014 and has its headquarters in New York City with a science center in San Diego.
Image source: Getty Images.
In some ways, it's already playing like a big boy. Zentalis is partnering with Pfizer (PFE +0.58%) and Merck (MRK +2.10%) in one drug trial. On Thursday, it agreed to a deal with Tavros Therapeutics, Inc., a Durham, N.C., biotech company, to help expand Zentalis's oncology pipeline. On May 20, the company announced it had set up a $20 million Series A financing of Shanghai, China biopharmaceutical company Zentera Therapeutics. Zentalis will be the majority shareholder in Zentera and the financing will be used to develop and commercialize, in China, three cancer therapies discovered by Zentalis.
"As the second-largest pharmaceutical market in the world, establishing a joint venture in China is the first step toward advancing our product candidates on a global scale," Anthony Sun, Zentalis's CEO, said.
A company racing up the ramp
In four years, Zentalis has had four early stage oncology drugs in early trials.
ZN-c5, a selective estrogen receptor degrader, is being tested against breast cancer in two separate trials. The first phase 1 trial is to evaluate biomarkers for ZN-c5 in subjects with breast cancer. The second study is a phase 1/2 study testing ZN-c5, as a monotherapy, and in conjunction with Pfizer's Ibrance (palbociclib), for its effectiveness in fighting breast cancer.
WEE1, a type of protein, is seen in high levels in various cancers, particularly breast cancers, leukemia, melanoma, and adult and pediatric brain tumors. ZN-c3, a WEE1 inhibitor, is in the midst of a phase 1/2 study on its use against solid tumors, both as the sole drug and with others, including Pfizer's Talzenna (talazoparib) and Merck's Keytruda (pembrolizumab).
Zentalis is also in a phase 1/2 study regarding ZN-e4's use against advanced non-small cell lung cancer and just got approval on ZN-d5's Initial New Drug Application (NDA) to study its use as a monotherapy in patients with AML or B-cell lymphomas.
Zetalis's IPO was a risk that paid off
At the time Zentalis was considering its IPO, the COVID-19 pandemic hit and stay-at-home orders voided any traditional methods of IPO promotion. Instead, the company did a four-day virtual road show.
"We decided to bite the bullet. It was actually a very, very difficult decision. The Dow was falling 10% per day back then, and the VIX (the Chicago Board Options Exchange volatility index) was greater than 55 when we launched the roadshow," Sun told BioWorld.
Sun, a former venture capitalist, spent four days making video calls to investors from his house, and the IPO raised $190 million and left Zentalis with a market value of $800 million.
It's a big risk-reward factor
It's important to note that none of these trials are scheduled to be completed until 2022, so the company will have to wait on profits for a while, and funding will be important.
On March 31, the company reported it had $63.7 million in cash plus the $172.4 million it raised through the IPO -- enough money, the company estimates, to get the company into 2022.
The company isn't making any revenue yet and had $16.2 million in expenses last quarter.
The biggest thing with clinical-stage pharmaceuticals is that they have a huge risk-reward ratio: Lots of risk, with a huge potential for growth.
To answer the question in this story's headline, it certainly isn't too late to buy into Zentalis profitably. However, we're still a year away from finding out if any of the company's drugs get FDA approval.
There are two ways to look at this as an investor. The company is clearly riding momentum, so it may be a good stock to buy then sell, if you feel you've made enough profits. The second way, though riskier, is to buy and hold. If the company can get approval for a profitable drug, the upside will be huge. In the meantime, it appears to be well-financed to ride it out until 2022.