The cannabis sector has seen tremendous amounts of excitement over the past few years. We have seen companies explode into billion-dollar valuations based on massive expansion plans, insane growth projections and sometimes hype that has no rhyme or reason behind it other that FOMO (The Fear of Missing Out). So many of these companies rise in value so dramatically that even after a pullback, the stock is so overvalued that investors get lured into what could be called a “value trap”.
We are going to look at a very interesting company called Zynerba Pharma (ZYNE). Since the beginning of 2019, this cannabis-based drug maker has had a tremendous run from under $3 to $16 recently. The stock has pulled back somewhat during the recent volatility in the markets but is showing strength once again and now is the time to take another look at this company. We want to examine their business and what’s driving investors to pile into this stock. We also want to determine if this company can sustain its momentum or are we going to see a much deeper pullback or potential trend reversal.
It’s All About Zygel
Zynerba Pharma is a biotechnology company in the cannabis sector that is focused on cutting-edge transdermal cannabinoid therapeutics to improve the lives of patients influenced by neuropsychiatric conditions. The company’s lead candidate is Zygel, which is the sole pharmaceutically-created CBD, a non-euphoric cannabinoid. Zygel is defined as a patent-ensured penetration upgraded gel for transdermal conveyance through the skin and into the circulatory framework. Zygel is being produced for patients experiencing FXS, ASD in pediatric patients, 22q, and a heterogeneous gathering of uncommon and ultra-uncommon epilepsies known as formative and epileptic encephalopathies (DEE). All four of the conditions that Zygel is targeting have already advanced to Phase 2 or above.
Let’s take a look and see what’s going to push the stock higher so it can sustain its momentum, or what could potentially bring the company down.
I will be watching the company closely as it is currently enrolling patients into its phase 3 clinical trial in FCX, and results are expected in the second half of 2019. I expect success with this clinical trial for a few reasons. Zygel demonstrated great improvements compared to the control across the board in a range of FCX symptoms. Eminently, there was a 54.9% decrease (p=0.0005) in social shirking, which is the essential endpoint for the continuous Phase 2/3 preliminary trial.
Furthermore, the company is expected to release open-label Phase 2 data in rare developmental and epileptic encephalopathies (DEE) in 3Q19. Positive results should reinforce the run-up in the stock and could provide an additional boost to all-time highs.
We will also be keeping our eyes on statements regarding CBD. The FDA is going to be establishing new regulations regarding the manufacturing and sale of CBD’s which could boost Zynerba creating a bigger barrier of entry for the competition in the future.
The biotechnology sector like the cannabis sector has been extremely volatile over the years due to the massive potential upon creation of a new drug or idea that could revolutionize a certain niche in the market, but it also carries tons of risk. ZYNE stock had already tripled in the past few months so investors expectations are high when it comes to success of their trials.
Personally, I think the company could be headed much higher. I can see the stock retesting 2017 highs if all goes well and set a price target of $23. There are a lot of things I like about Zynerba when it comes what they are trying to accomplish, which is why I think that this stock should be put on the top of your watchlist if you are looking for a company that could be a huge winner in the CBD market.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
Disclosure: No position.