Going public on the NYSE in 2017, Zealand Pharma (ZEAL) has been a powerhouse stock especially over the past year increasing steadily from $14 up to its current $36.50. I believe the stock has not lost its steam and is set to exceed $50 within 9 months if it maintains its momentum.
Somehow, Zealand has remained under the radar of many investors despite the incredible growth over the past year. This pharma company with a $1.29 billion market cap only trades a daily average of 11,000 shares.
Steadily rising stock price combined with incredibly low volume is a great recipe for a large breakout. Positive news has caused massive spikes in value for the company as buyers come in fast in the past, and I see this trend continuing. 2020 has several large catalysts on the horizon which will bring the stock price towards $50 as the trend upwards continues.
The company had revenues of $4.4 million with operating expenses of $62.9 million leaving the company with a cash position of $225 million at the end of Q3 2019. Q1 and Q2 of 2019 saw net expenditures for operations at $41.5 million combined, representing a dramatic increase in Q3 operating costs.
The very minor revenues are not guided as they are result of licensing agreements with Alexion as well as royalties from Sanofi and do not make a significant impact on the bottom line. The company projects that expenditure will remain roughly around $60 million per quarter moving forward stemming from heavy research and development expenses as well as admin expenses.
Due to the current cash position and increased expenses seen recently, the company will likely be strapped for working capital by year end 2020. This will result in a public offering of new shares to bring in working capital to cover R&D expenses.
While typically we would see heavy backlash from an offering, looking at the price action the stock has risen following a capital raise/offering. April 1st 2019 the Company announced a $200 million offering as well as on September 5 2019 the company issued 3.957 million shares as a placement to raise $83.94 million. Both times, the company saw a rise in share price as seen below. Will the next substantial raise be any different? I think not for this powerhouse.
Zealand has 10 solid drug candidates in their pipeline that are targeting six indications with an additional three indications undisclosed at this time.
(Source: Zealand Website)
The Company’s main focus is gastrointestinal and metabolic diseases where they believe their peptide-based products can meet market demand. Peptides are an underutilized market that offer great patient benefits such as easy dosing with small volume subcutaneous dosing, reduced dosing frequency and highly specific to reduce side effects.
Most indications are still in preclinical and Phase I/II, however they do have 3 late stage indications that are showing great promise. Below are two that I will highlight and focus on as I believe they are the big drivers currently.
Short bowel syndrome is a debilitating disease that affects roughly 40,000 individuals in the US and Europe according to market research. Leaving patients with gastrointestinal tract average length that is a mere 25% of the average persons, this leaves people with life-long dependency and at risk to life-threatening infections.
Zealand is developing a GLP-2 Analog (Glucagon Like Peptide) that was effective and well tolerated in Phase II clinical studies. With an effective half-life of approximately 50 hours, the company is targeting a once-weekly dosing system utilizing an autoinjector. 18 patients were selected for randomized treatment with glepaglutide and 16 completed the trial. Treatment with glepaglutide was associated with increase in TE (transient elastography) and ICG-elimination (indocyanine green).
In the 10 mg dose group, glepaglutide increased sCD163 (soluble CD163) by 0.44 mg/mL (P = 0.0498), and alkaline phosphatase (ALP) decreased in the 1 mg dose group by 33 U/L (P = 0.032). CAP (controlled attenuation parameter), sMR (soluble mannose receptor), LBP (lipopolysaccharide binding protein), liver transaminases, and INR (international normalized ratio) were not affected.
Zealand found that glepaglutide shows signs of improvement in hepatic excretory function, but at the same time activate resident liver macrophages and increase liver stiffness. The excretory and the stiffness findings may to some extent relate to increased splanchnic blood flow which would not influence the marker of macrophage activation. How glepaglutide effected the liver status calls for further research in future studies and draws slight concern.
The results also suggest that glepaglutide may play a role in the restoration of the disturbed homeostatic feedback in the gut-liver axis and thereby SBS associated liver damage. Glepaglutide may have therapeutic potential in the treatment of IFALD for which no currently approved medical treatment options exists.
The Phase II study found that short-term treatment with glepaglutide induced increases in TE, ICG elimination, sCD163 as well as a reduction in plasma ALP, and total bilirubin. CAP and gut integrity as assessed by LBP were not measurably affected. Although there was no significant difference between the 1 mg and 10 mg dose groups regarding any of the above mentioned assessments, changes were primarily seen in the 10 mg dose group.
Essentially, the results met several endpoints for:
- Increase in intestinal fluid and energy absorption
- Significant reduction in fecal wet weight output
- Increase in urine production
- Increase in body weight
Zealand has enrolled its first patients in the Phase III extension study of glepaglutide for the treatment of SBS that will evaluate the long-term safety of treatment. The FDA has granted orphan drug designation to glepaglutide and the study will enroll more than 120 patients across the US, Canada and Europe. The company is projecting results from the Phase III study in 2021.
The potential of this indication will allow Zealand to tap into a massive market that is more than $1.5 billion. The company is targeting USA, EU and Japan as the main markets for activity which are projected to grow at a CAGR of 27% through 2027 and reach an approximate $4.7 billion market size. With various treatments for SBS out there that dont quite hit the mark, Zealand is looking to capitalize on this opportunity.
Hypoglycemia is a constant fear for diabetes patients on insulin therapies, with more than 6 million people in the US utilizing insulin. Approximately 40% of patients who have Type 1 diabetes experience severe hypoglycemia every year which results in roughly 300,000 hospitalizations annually.
Combating this, Zealand is developing the HypoPal Rescue Pen, a ready-to-use rescue treatment for severe hypoglycemia. Severe hypoglycemia is an acute, life-threatening condition resulting from a critical drop in blood glucose levels associated primarily with insulin therapy.
Phase III trial demonstrates that a single dose of dasiglucagon rapidly increases blood glucose levels in patients with type 1 diabetes following insulin-induced hypoglycemia. The trial compares the glycemic response observed after administration of dasiglucagon with that of placebo and with reference to the current market competitor, Novo Noridsk’s (NVO) GlucaGen, in powder form for reconstitution prior to injection.
The study achieved the primary endpoint as well as all key secondary endpoints which is an impressive feat. The primary endpoint was time to plasma glucose recovery (increase in plasma glucose of ≥20 mg/dL) from baseline without administration of rescue intravenous glucose. 168 subjects were included in the trial. 82 in the dasiglucagon arm, 43 in the placebo arm, and 43 in the GlucaGen arm.
The primary result demonstrates that the median time to blood glucose recovery was:
- Dasiglucagon – 10 minutes
- Placebo – median: 40 minutes
- GlucaGen – 12 minutes
Clearly, Dasiglucagon was a winner with a greater median time to recovery that was 17% faster than GlucaGen.
(Source: Zealand Deck)
Additionally, 99% of subjects were recovered from the insulin-induced hypoglycemia within 15 min following dosing with dasiglucagon, versus 2% with placebo and 95% with GlucaGen. While not seeming too significant, it shows a more reliable recovery. Overall, no safety concerns were raised for dasiglucagon within the trial. Nausea and vomiting were reported with similar numbers for dasiglucagon and GlucaGen® (nausea: 55% and 53%, vomiting: 23% and 19%, respectively).
The submission of the New Drug Application (NDA) with the U.S. FDA is on track for early 2020. When looking at expenses, the bump of $20 million the past quarter can be related to the buildup of U.S. commercial operations which has been accelerated in the last quarter with recruitment for key leadership positions ongoing. Seeing substantial movement in price on the stock from positive announcement (over 6% that morning) approval from the NDA would send this stock to new highs.
Zealand is also on a partnering spree, having acquired Encycle therapeutics and teamed up with Alexion and Beta Bionics, the company is spreading itself out into amazing groups.
With Alexion, Zealand has provided their partner with exclusive worldwide licenses for a preclinical target that allows for the option of up to three additional targets that are projected to start clinical development this year. Additionally, this will provide very key financial terms to Zealand upon certain milestones.
- $40 million in upfront cash and equity investments
- $115 million in potential development and regulatory milestones
- $495 million in potential commercial milestones
- Up to low double digit royalties on net sales
- Additional 3 targets provide $15 million upfront for each target with development/regulatory milestones, commercial milestones and royalties
Partnering with Boehrigner Ingelheim, can provide a combined $712.8 million with low double digit royalties on global sales for GLP-1/glucagon dual analog and amylin analog drug candidates.
Summary and Thoughts
The company is also in a good cash position but does project increase in operating expenses as it prepares for commercialization. There will likely be a raise in the second half of 2020 as it prepares to go to market and continue operations with the rest of its pipeline. The company does plan on utilizing partnerships with licensing agreements to offset some incurred expenses.
The market sizes are also a concern. The SBS and insulin markets are fairly well sized, but they do have a fair amount of competition. Zealand does offer greater results, but not a significant difference in my opinion. Comparing Dasiglucagon recover of 10 minutes with the GlucaGen recovery of 12 minutes, you must consider how physicians will alter prescriptions. Is that 2 minutes a significant amount that would cause the desire to change? If you are a patient suffering from hypoglycemia I would say absolutely. 2 minutes in that situation can feel like a lifetime.
The share price has been on a great run the past year, more than doubling with little sign of reversing. Positive news such as the NDA filing and updates to clinical trials or word from the FDA will bring volume to the stock and likely drive the price high. Large fluctuations in the share price are all off of low volume and positive news and new data could drive this stock up 10% or more.
I am bullish on the stock and would not change my stance unless the FDA denied approval. The management team is expanding and with the outlook of positive data flow in 2020 we should see a continuation of growth to a PT of $50. We may see an additional 100% growth in this next year like 2019 saw, but I am going to be optimistic but conservative with 30%.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ZEAL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.