Fear of missing out (FOMO) is a common yet toxic emotion when it comes to investing. It’s completely relatable to want to hop on a stock that’s skyrocketing, even if wise buyers know that they risk a sharp correction if they purchase at the top. Thankfully, few people fear avoiding a massive loss, but they still might hesitate to buy the dip if they suspect that a company’s future is anything but bright.
In this vein, the antibody developer Zymeworks (ZYME) might seem like a questionable purchase. Over the last two years, the stock has careened wildly with every report of progress or failure in its clinical trials, and its late-stage pipeline is starting to look a bit sparse. Should investors take the plunge and bank on its upcoming clinical trial results to drive the stock back upward once again, or is it stuck in a tailspin?
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Why some investors might think they missed the boat
In my view, hesitation about the stock can be traced back to earlier this year. A clinical update from one of the company’s phase 1 oncology projects, ZW49, underwhelmed investors and led to a sharp selloff in late January. The stock has yet to recover, and it may take quite some time to do so, if it ever does. For investors that consider suffering a major setback in an early-stage trial to be the end-all and be-all of biotech stocks (which is quite an unreasonable stance to take), the issues with ZW49 are a major buzz kill.
However, I’m of the opinion that it isn’t too late to buy Zymeworks stock. The company still has the majority of its growth potential in the future -- assuming that it can get its headliner therapy projects off the ground.
Bispecific antibody therapeutics and antibody-drug conjugates are the bread-and-butter of Zymeworks’ pipeline. In English, that means the company is developing anti-cancer drugs that have more than one target on the same cell, allowing them to be safer and more effective than those with only one, at least in theory. Its lead program, Zanidatamab, is currently in phase 3 testing for biliary tract cancer. Beyond that, earlier-stage trials are ongoing to explore its efficacy in breast cancer and other solid tumors. The biologic could also be used in ovarian and salivary gland cancers, not to mention several others.
Skeptical investors might posit that the value of the company’s pipeline projects are already included in its stock price, meaning that there’s no benefit to purchasing it at this point in the game. This argument doesn’t fully appreciate Zymeworks’ better-than-average ability to forge new revenue-bearing collaborations with larger competitors or start new projects with their help, however.
Buying now is ill-advised
Despite its recent setback with ZW49, Zymeworks is still strongly positioned to grow. In the first half of this year, it will initiate several new programs examining Zanidatamab for breast cancer as a monotherapy or combination therapy, and it might announce others. It’ll also report phase 2 data from existing projects. Each of these events will likely catalyze movement in the stock.
From now until its pipeline projects come to fruition, its partnerships will support the company lavishly. Its development collaborations are a who’s who of big pharma power players, including the likes of Merck, Johnson & Johnson, Eli Lilly, and GlaxoSmithKline to name a few. These partnerships are worth more than just prestige: management calculates that meeting the development milestones of its existing arrangements would deliver as much as $8.6 billion in revenue. That sum would be spread over at least a few years, but it’s more than enough to keep its research and development (R&D) budget of $168.5 million in 2020 fully funded.
The right time may be approaching
But, as useful as these collaborations have been in advancing the company’s capabilities and supporting its operations with revenue, it’s important to remember that they might not be enough to set shareholders up for success in the long-term. Milestone payments and royalties are to be expected of an early-stage biotech, but it’s improbable for a maturing company to flourish without products of its own.
Finishing the commercialization of a wholly-internally developed project like Zanidatamab will prove that Zymeworks is a credible drugmaker that doesn’t need to rely on larger partners to survive. If everything goes as planned, it could commercialize Zanidatamab in late 2022. Until then, there’s plenty of time to find a buying opportunity.
