Zymeworks Inc. stock hit a three-year-low Thursday after the Vancouver antibody developer announced a 25-per-cent job cut, halved its leadership team and shifted its development strategy with an eye toward cutting costs.
The moves, announced late Wednesday, were made two weeks after Zymeworks said industry veteran Kenneth Galbraith would replace founder and chief executive officer Ali Tehrani after a rough patch for the company and sector in general. The Nasdaq Biotechnology Index is down 19 per cent over the past year, partly as biotech stocks fell from early pandemic-fuelled hype for drug stocks, and more recently as the spectre of rising interest rates weighed on speculative sectors.
But Zymeworks, once Canada’s most valuable biotech company, has fared comparatively worse. Its stock closed Thursday at US$11.55 on the New York Stock Exchange, down 14 per cent, and has shed nearly four-fifths of its value in the past year.
Two factors have weighed on the stock, Bloom Burton analyst David Martin said in an interview: weak trial results last year for one of its two lead cancer and tumour-fighting antibody treatments, ZW49, and publication of strong efficacy results from a rival to its other one, zanidatamab, from AstraZeneca PLC and Daiichi Sankyo Co. Raymond James analyst David Novak also said in a research note there are concerns about a delayed clinical update on ZW49, which the company has promised would come later this year.
Mr. Galbraith, a onetime Zymeworks board member, made quick work after starting Jan. 15. The company is cutting 10 members, or 50 per cent, of the senior management team, including its chief people, commercial and scientific officers. Mr. Galbraith said in a release the one-quarter cut to Zymeworks’ 450-person ranks would result in “a smaller, more focused work force [which] is essential for us to improve our operating performance and accomplish our key priorities in a more cost-efficient manner.”
Zymeworks said it’s looking to improve its financial position by reducing or deferring spending, monetizing assets and products, securing additional financing and streamlining its research and development strategy. It will also look to partner with outside companies to develop several drugs early in the development process that it hasn’t yet brought into clinical trials, rather than doing so on its own.
“We believe that prudent measures to grow our business in a well-managed and orderly fashion are aligned” with patients, employees and shareholders, chief operating officer Neil Klompas said in the release. The company had US$250-million in cash, equivalents and short-term investments on Dec. 31, and reports fourth-quarter earnings on Feb. 24.
Meanwhile, the company reiterated it is still focused on shepherding zanidatamab and ZW49 through human trials and to commercialization. Analysts have attributed most of the company’s value to the future potential of those treatments, though Raymond James analyst David Novak in a note Thursday slashed his stock price forecast to US$50 from US$74, mostly from writing down ZW49′s valuation in his model to zero from US$18.17 a share. (Mr. Martin assigns no value to ZW49 in his estimate.)
Still, Mr. Novak wrote, “We continue to believe [Zymeworks] shares are significantly undervalued on the potential of zanidatamab alone.”
Mr. Martin said the moves would enable the company to focus on its most advanced assets and would “adjust the risk-reward profile of the company. Antibodies are high-value drugs. But the rubber has to hit the road and it didn’t in 2021. That’s not to say it won’t in the future.”
Mr. Tehrani set out two decades ago to use computer modelling to help drug developers identify promising therapies faster and cheaper than conventional methods. The Iranian-born PhD graduate in microbiology from the University of British Columbia raised tens of millions of dollars from angels and venture capitalists, then signed deals with nine pharmaceutical companies including Eli Lilly, Merck, and Johnson & Johnson to help them identify drug candidates in areas such as oncology, dermatology and infectious diseases.
They paid Zymeworks US$200-million up front and the deals could be worth billions more if the drugs pass a series of development milestones and make it to market. Six drugs to date have entered into clinical development, though those partnerships only account for a fraction of the company’s valuation according to analysts, with the rest riding on its own treatments.
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Sean Silcoff