Ziihera Launch And ZW251 IND Submission Will Broaden Treatment Options

Key Takeaways

• Strategic focus on advanced programs and cost management aims to enhance resource efficiency and net margins through promising returns.
  
• Expansion into autoimmune and inflammatory diseases enables market diversification and long-term earnings stability, leveraging existing technologies.
  
• Increased net loss and reduced cash reserves highlight financial strain, while operational challenges and strategic missteps could threaten future revenue and margin stability.

Catalysts

A clinical-stage biopharmaceutical company, discovers, develops, and commercializes biotherapeutics for the treatment of cancer.

• The approval and launch of Ziihera in partnership with Jazz Pharmaceuticals, along with future potential regulatory milestone payments, are expected to drive revenue growth through royalties and commercial milestone payments based on annual sales in key therapeutic areas.
  
• The acceleration of the leadership program ZW251 toward an IND submission and Phase I clinical trials positions Zymeworks for rapid revenue generation and strategic partnerships, given the unmet medical need in hepatocellular carcinoma.
  
• The strategic prioritization of advanced programs with the highest near-term impact while managing operational expenses ensures efficient use of resources, potentially improving net margins by focusing on programs with the most promising returns.
  
• Expanding focus on autoimmune and inflammatory diseases with nomination of ZW1528 leverages existing technologies, allowing Zymeworks to tap into new markets and diversify revenue streams, potentially improving long-term earnings stability.
  
• Strong existing partnerships with pharmaceutical companies like GSK and BeiGene highlight ongoing revenue potential from research milestones, development support, and drug supply agreements, contributing to steady revenue and reduced operational risk through diversified income sources.

Zymeworks Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zymeworks's revenue will grow by 16.9% annually over the next 3 years.
• Analysts are not forecasting that Zymeworks will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Zymeworks's profit margin will increase from -160.8% to the average CA Biotechs industry of 17.3% in 3 years.
• If Zymeworks's profit margin were to converge on the industry average, you could expect earnings to reach $21.1 million (and earnings per share of $0.32) by about April 2028, up from $-122.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 80.5x on those 2028 earnings, up from -6.4x today. This future PE is greater than the current PE for the CA Biotechs industry at 20.2x.
• Analysts expect the number of shares outstanding to decline by 1.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Zymeworks Future Earnings Per Share Growth

Risks

• The company's net loss increased to $122.7 million in 2024 due to a $17.3 million noncash impairment charge and an increase in income tax expense, which could impact earnings and net margins.
  
• Operating expenses remained high at $213.4 million despite a slight decrease in research and development and general and administrative expenses, which could further strain net margins.
  
• Cash reserves decreased from $456.3 million in 2023 to $324.2 million in 2024, raising concerns about the financial runway and potential need for additional financing, impacting future earnings and cash flow stability.
  
• Potential delays or lower-than-expected sales of Ziihera, due to competition or regulatory challenges, could negatively affect projected revenue and royalties.
  
• Discontinued development programs, such as for zanidatamab, zovodotin, could indicate strategic missteps or resource allocation challenges, impacting future revenue and return on R&D investments.

Valuation

• The analysts have a consensus price target of $21.35 for Zymeworks based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $12.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $121.8 million, earnings will come to $21.1 million, and it would be trading on a PE ratio of 80.5x, assuming you use a discount rate of 6.4%.
• Given the current share price of $11.25, the analyst price target of $21.35 is 47.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.