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Cash-Rich Zynerba's Synthetic Cannabinoid Product Line Ready to Rumble

Source: The Life Sciences Report (4/5/17)

Zynerba Pharmaceuticals specializes in developing and commercializing synthetic cannabinoid therapeutics formulated for transdermal delivery. The Devon, Pennsylvania-based company's Q4/16 financial results disclose a substantial cash kitty of ~$78M available to fund its pipeline of medical marijuana products, ZYN001 and ZYN002.

The pace of investment is heating up for the emerging bull market in cannabinoid products. Zynerba Pharmaceuticals Inc.'s (ZYNE:NASDAQ) share price has doubled from a year ago. The company raised ~$54 million in January, debt-free, a sign of confidence in its potential. Top flight medical industry analysts are targeting Zynerba stock to double again in the wake of the company's successful year.

Zynerba's transdermal drugs are cannabinoid therapeutics for treating refractory epilepsy, Fragile X syndrome (FXS), osteoarthritis (OA), fibromyalgia and peripheral neuropathic pain—all diseases that have no known cures.

Armando Anido, chairman and CEO of Zynerba Pharmaceuticals, told investors at the end of March, "We are moving into 2017 with great momentum, expecting a transformational year with several key milestones in the coming months. This includes top-line results from the three ZYN002 clinical trials and the commencement of our clinical program for ZYN001, our patent-protected pro-drug of THC."

Zynerba's double drug future is bright, says ROTH Capital Partners' Michael Higgins, who explains the difference between the two products. "ZYN001 is a pro-drug of delta-9-tetrahydrocannabinol (THC) that enables transdermal delivery through a patch. In preclinical animal studies, ZYN001 demonstrated effective skin permeation with sustained delivery and rapid conversion of ZYN001 to THC. And ZYN002 is a synthetic cannabidiol (CBD) formulated as a permeation-enhanced gel for transdermal delivery. In preclinical animal studies, ZYN002's permeation enhancer increased delivery of CBD through the layers of the skin and into the circulatory system," ROTH analyzes.

ZYNOO1's prodrug THC patch is on track for a Phase 1 clinical trial in late Q2, with Phase 2 in fibromyalgia and neuropathic pain slated to start by year-end. ZYN002 is proceeding as planned through a series of Phase 2 clinical trials targeting specific applications. Top-line data from the Fragile X trial with ZYN002 are slightly delayed due to the complexity of dealing with children and their families. Those results should be available in the third quarter.

Corey Davis of H.C. Wainwright & Co. is enthusiastic about Zynerba Pharmaceuticals' near-term prospects. After talking with company executives, Davis reported, "Zynerba specified that both its Phase 2 studies with ZYN002 (CBD in a gel formulation), STAR 1 (epilepsy) and STOP (osteoarthritis pain), will read out in July or August, with epilepsy coming first. Our positive thesis continues to hinge on ZYN002, which we think has a high chance of working for several reasons: 1) "medical marijuana" clearly has utility in a number of different settings and regulators would prefer to have the active compound isolated, regulated, and delivered in a consistent manner, with formal clinical trials as proof of its therapeutic activity; 2) GW Pharma has already shown proof that CBD (cannabidiol) works in two different subsets of epilepsy; 3) Zynerba has proven its gel formulation penetrates the skin and enters the blood in a consistent manner with low side effects; 4) the pK profile of ZYN002 matches closely that of GW's Epidiolex. There is not yet any human data in osteoarthritis pain, so that study is inherently riskier, but we take the very fast enrollment of 320 patients (in Australia) as a good sign that patients and physicians are having a positive experience (albeit blinded)."

At PiperJaffray, Charles C. Duncan projects that Zynerba's store of cash can amply fund its pipeline progress well into H1/19. Duncan notes, "Importantly, this runway should include the first clinical efficacy data from lead candidate ZYN002 in three indications and potential progress on an initial Phase III program. We see efficacy from ZYN002 in the lead indication of adult epilepsy as most important for addressing the investor questions on the company's pipeline potential for moving through pivotal studies. Clinically meaningful results from STAR 1 would support: bioavailability and optimized dosing of ZYN002; trial design/conduct acumen; further validation of the target in seizure control; and advancement to Phase III. Therefore we recommend ZYNE shares in front of STAR 1, followed by STOP 1 and FABC, results during 3Q17."

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Additional disclosures about the sources cited in this article

Disclosures from ROTH Capital Partners, Zynerba Pharmaceuticals Inc., March 28, 2017
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Within the last twelve months, ROTH has received compensation for investment banking services from Zynerba Pharmaceuticals, Inc.

ROTH makes a market in shares of Zynerba Pharmaceuticals, Inc. and as such, buys and sells from customers on a principal basis.

Within the last twelve months, ROTH has managed or co-managed a public offering for Zynerba Pharmaceuticals, Inc.

ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.

Disclosures from H.C. Wainwright & Co., Zynerba Pharmaceuticals Inc., March 28, 2017
Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of its affiliates or subsidiaries within the past 12 months.

I, Corey Davis, Ph.D. , certify that 1) all of the views expressed in this report accurately reflect my personal views about any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor any members of my household is an officer, director or advisory board member of these companies.

None of the research analysts or the research analyst’s household has a financial interest in the securities of (including, without limitation, any option, right, warrant, future, long or short position).

As of February 28, 2017 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Zynerba Pharmaceuticals, Inc.

Neither the research analyst nor the Firm has any material conflict of interest in of which the research analyst knows or has reason to know at the time of publication of this research report.

The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services.

The Firm or its affiliates did not receive compensation from Zynerba Pharmaceuticals, Inc. for investment banking services within twelve months before, but will seek compensation from the companies mentioned in this report for investment banking services within three months following publication of the research report.

The Firm does not make a market in Zynerba Pharmaceuticals, Inc. as of the date of this research report.

Piper Jaffray, Zynerba Pharmaceuticals Inc., March 27, 2017

Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions. This report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst certification at the following site: http://www.piperjaffray.com/researchdisclosures.

Analyst Certification — Charles C. Duncan, PhD, Sr. Research Analyst
The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.

Piper Jaffray research analysts receive compensation that is based, in part, on overall firm revenues, which include investment banking revenues.

Piper Jaffray was making a market in the securities of Zynerba Pharmaceuticals, Inc. at the time this research report was published. Piper Jaffray will buy and sell Zynerba Pharmaceuticals, Inc. securities on a principal basis.

Piper Jaffray expects to receive or intends to seek compensation for investment banking services from Zynerba Pharmaceuticals, Inc. in the next 3 months.

Piper Jaffray has received compensation for investment banking services from or has had a client relationship with Zynerba Pharmaceuticals, Inc. within the past 12 months.

Within the past 12 months Piper Jaffray was a managing underwriter of a public offering of, or dealer manager of a tender offer for, the securities of Zynerba Pharmaceuticals, Inc. or the securities of an affiliate.

Within the past 3 years Piper Jaffray participated in a public offering of, or acted as a dealer manager for, Zynerba Pharmaceuticals, Inc. securities.

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