Zymeworks Inc. stock slumped Thursday after the company moved to shore up its balance sheet with a highly dilutive stock offering, one of a string of early moves by new CEO Kenneth Galbraith to steady the challenged antibody developer.
The Vancouver company said late Wednesday it was raising US$100-million in a stock offering on the New York Stock Exchange led by investment banks Jefferies, Evercore ISI, Stifel and Wells Fargo Securities, and also underwritten by Raymond James.
The funding comes at an inopportune time for the company, which was once Canada’s most highly valued biotechnology companies, with a market cap exceeding US$2-billion in 2020. Zymeworks stock had slid 80 per cent since the start of 2021, partly because of a couple of setbacks pertaining to its two lead drug candidates, and exacerbated by a general downdraft in valuations of biotech stocks that has worsened amid recent fears of an imminent set of interest rate hikes. (The Nasdaq Biotechnology Index is down more than 15 per cent so far this year.)
Zymeworks stock closed at US$9.32 Wednesday on the NYSE, the first time it had ended trading below US$10 in nearly four years, and well below its April, 2017, initial public offering price of US$13.
The stock fell further Thursday, after the company priced the new offering late Wednesday at US$8 a share, 14 per cent below its closing price earlier in the day. The company is selling a combination of stock and warrants that amount to 12.5 million shares. That represents a dilution of more than 27 per cent of Zymeworks’ share count as of Sept. 30, when it stood at 46.55 million shares.
Zymeworks stock closed at US$8.30 on Thursday, down nearly 11 per cent in heavy trading.
But the company faces big cash needs. Revenue in the nine months ended Sept 30 was just US$6.8-million, typical for an early-stage drug developer that relies on milestone payments from partners as it moves through the lengthy and costly research and development process. Meanwhile, it used US$141.9-million in cash to fund operating activities over the same period. The company had US$250-million in cash, cash equivalents and short-term investments at the end of 2021, down from US$426.3-million a year earlier.
Zymeworks said in its prospectus it intends to use net proceeds from the new offering to focus on advancing its two lead drugs in development, cancer- and tumour-fighting antibody treatments zanidatamab and ZW49, as well as to advance other preclinical programs and for general corporate purposes.
Mr. Galbraith replaced founder Ali Tehrani as chief executive officer this month and immediately launched a turnaround plan that included cutting 25 per cent of its 450-person work force, halving the 20-person leadership team and shifting its development strategy with an eye toward cutting costs.
The company said it would look to reduce or defer spending, monetize assets and products, and secure new financing – which it has now done. It is also looking to streamline its research and development strategy to focus on its two lead drugs and partner with outside companies to develop several other drugs that are earlier in the development process and haven’t yet been brought to clinical trials.
It reaffirmed its focus on zanidatamab and ZW49 after the publication last year of strong efficacy results from a rival to zanidatamab by AstraZeneca PLC and Daiichi Sankyo Co. Ltd. Zymeworks also published weak trial results last year for ZW49. Both weighed on the company’s stock.
Raymond James analyst David Novak also said in a recent research note there are concerns about a delayed clinical update on ZW49, which the company has promised would come this year.
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