Zymeworks moves to repeat the Ziihera trick

Though the honeymoon period resulting from Ziihera’s clinical win in HER2-positive stomach cancer might not last long the drug’s originator, Zymeworks, is keen to make hay wile the sun shines. On Tuesday the group moved to put to use licensee windfalls that have become more likely after Ziihera’s success in the Herizon-GEA-01 trial.

The most intriguing aspect of this plan is that it will see Zymeworks join Royalty Pharma and Xoma as a player in the royalty-acquisition business, seeking to buy in future cash streams that will be invested in share buybacks. This won’t become Zymeworks’ sole aim, but the company admits that in-house R&D will continue on a more selective basis.

It seems that the blueprint for this is Ziihera, a biparatopic anti-HER2 ADC that Zymeworks deprioritised and licensed to Jazz and BeOne. This has already given Zymeworks $481m in up-front and milestone payments while taking Ziihera’s R&D costs off its books; after the gastric cancer success Zymeworks is now in line for up to an additional $440m on regulatory approvals.

New assets?

Of course, investors buying into the new strategy will have to have faith in the company’s ability to identify new assets to buy in whose royalty streams would be likely and capable of generating similar returns. This task appears now to be in the hands of Scott Platshon, newly appointed as acting chief investment officer.

The group also reminded investors of another of its existing assets that could generate future windfalls. Johnson & Johnson’s anti-KLK2 T-cell engager pasritamig, which recently moved from phase 1 straight into phase 3, is the result of a 2017 research collaboration with Zymeworks, and could give the latter up to $434m in milestones.

On an analyst call Zymeworks said it wasn’t becoming solely a royalty aggregator, but rather would accumulate a royalty portfolio as part of a biotech business model that still carried out innovative R&D.

This will include Zymeworks continuing with the more typical biotech concept of licensing out in-house projects, among which the group has singled out the anti-folate receptor α ADC ZW191 as being ripe for partnering. Thus Zymeworks hopes to become far less dependent on high-risk, cost-intensive, late-stage development, its chief executive, Kenneth Galbraith, told investors.

Buybacks next

With this shift seeing Zymeworks move increasingly towards revenue generation a key question is how its investors stand to benefit from such cash inflows. The group points out that it has already used Ziihera windfalls to buy back $60m of its own shares, and announced plans to buy another $125m.

Share buybacks tend to be used by profitable, mature companies to bolster valuations, and for a relatively small, loss-making biotech to embark on one is extremely unusual.

Even if Ziihera sales don’t amount to much – its biggest threat is probably Daiichi Sankyo/AstraZeneca’s Enhertu – this doesn’t alter the fact that approvals will send growing amounts of cash towards Zymeworks, and in addition to share buybacks this will go towards internal R&D and the acquisition of new royalty streams.