Due to Covid-19, the United States economy and the stock market has been dramatically impacted. Amazingly, among all of this despair, the Initial Public Offering or IPO market is up 18% on the year, compared to the S&P 500, which is down 3% on the year. Within the IPO market, Biotech companies, such as Zentalis Pharmaceuticals, have flourished due to improved investor sentiment. Zentalis Pharmaceuticals or ($ZNTL) opened at a price of $25 on April 3rd, 2020. After nearly two months, Zentalis Pharmaceuticals rose to a high of $59.32 and currently sits within the $40-$50 range. This price movement represents a 70% increase in less than a quarter of trading on the NASDAQ.
By John Coughlin, Biotech Analyst
What is Zentalis Pharmaceuticals?
Zentalis Pharmaceuticals specializes in cancer treatment, and more specifically, “Developing small molecule therapies.” Within their “about us” section on their website, Zentalis Pharmaceuticals states, “We are dedicated to the discovery and development of small molecule therapeutics targeting fundamental biological pathways of cancer.”
Along with their dedication to discovery, the company has an impressive track record, which consists of accelerated pipelines fueled by their investors’ cash. According to Zentalis Pharmaceuticals, the company has “cleared three INDs and submitted a fourth to the FDA in five years” due to their “capital efficient” pipelines. To accompany their efficient pipelines, Zentalis Pharmaceuticals is well equipped with an “experienced team,” “composed of industry leaders with proven track records in the discovery, clinical development, and commercialization of innovative cancer therapies.”
Zentalis Pharmaceuticals Lead Candidate
Looking to add to their resume of INDs, Zentalis Pharmaceuticals has, for the past year, been advancing in their studies of their new treatment, ZN-c5. As stated by the company, ZN-c5 is a “treatment of ER+/HER2- advanced or metastatic breast cancer.” The treatment is currently in a Phase 1/2 study, with an intent to be a monotherapy or alone treatment, and also combined with Ibrance®, marketed by Pfizer. This collaboration with Pfizer shows the progress of ZN-c5 and Zentalis Pharmaceuticals’ credibility by working with a Biotech leader.
Along with their advancing studies in ZN-c5, the company recently raised $85 Million to “Accelerate Internally-Developed Clinical-Stage Oncology Pipeline.” This newly raised cash shows great investor sentiment towards this treatment and further accelerates the approval process.
If ZN-c5 can be approved and further used widely for metastatic breast cancer, the treatment could become one of the top streams of revenue for the company. This approval could further legitimize the company and increase investor confidence regarding the company’s pipelines.
Financials
Since Zentalis Pharmaceuticals is a recent IPO, the company has only published one quarterly report from Q1 of 2020. In their Q1 earnings report, Zentalis Pharmaceuticals reported a net loss of $16 million, compared to a loss of $8.7 million in the previous quarter. Other than the company’s net loss, other financials such as assets and liabilities have remained stable.
Although Zentalis Pharmaceuticals is operating at a loss, it is in the early stages of becoming a profitable company through their new treatments. Most of the company’s expenses are found in “Research and Development,” which produced an operating expense of $13 million, compared to $7 million in the previous quarter. Although these expenses may be growing, they also show the growing progress and cash input into their studies, such as ZN-c5.
Stock Performance
Zentalis Pharmaceuticals, under the ticker symbol ($ZNTL), opened to the stock market on April 3rd, 2020. Over the course of two months, Zentalis Pharmaceuticals nearly doubled in stock price. Currently, the stock sits at $44 and is considerably off its all-time high of $59.32.
It does not take a genius to recognize the considerable price movement of Zentalis Pharmaceuticals. With no significant news or revenue increase within the company, the stock rose over 100%. At its current price, the stock is overbought and subsequently dropped 25% in just seven trading days. If ($ZNTL) continues to fall further, a key area of support is found in the high $30s.
With a volatile stock like ($ZNTL), value investors may need to look elsewhere. Although, for investors who are familiar with speculation, Zentalis Pharmaceuticals could represent a buy, with its promising pipelines. The best place to enter a position within ($ZNTL) would be in a consolidation phase, with low volume, since the stock has “cooled off.” IPO stocks can be risky, but if one manages their risk and plans for the future, significant gains can be realized, with Zentalis Pharmaceuticals being no exception.
Future Outlook
A good analogy for Zentalis Pharmaceuticals is like a seed equipped with sunlight, water for nourishment, and a promising environment. Instead of the plant necessities, Zentalis is equipped with good investor sentiment, growing cash, and a speculative, yet promising business.
According to Businesswire, since its inception in 2014, Zentalis Pharmaceuticals “has raised a total of $147 million in gross proceeds from private financings.” Within just six years, the company has raised more money than most Biotech companies do in decades. With Zentalis Pharmaceuticals showing promising results for the future, their investors, such as Matrix Capital, Viking Global Investors, Redmile Group, Farallon Capital, and others, will likely continue to provide cash as the company grows.
Currently, Zentalis Pharmaceuticals has four active pipelines, which could show promising results. Their potential treatments cover a broad range of cancers, which target lung cancer and solid tumors, and are both in Phases 1/2. With their newly raised cash, the company can expand its studies and accelerate its four pipelines, all of which can be promising revenue makers.
Closing and Rating
When an investor buys Zentalis Pharmaceuticals, they are buying into what the company has today and what the company may hold tomorrow. The IPO market, paired with the cancer treatment field, can result in a highly speculative company. Zentalis Pharmaceuticals is no exception to this idea but presents many factors, such as future cash flow, that new start-up companies do not have.
Investors, especially highly speculative ones, should take the effort to invest in Zentalis Pharmaceuticals but at a fair price for the future. With all of this information being said, ($ZNTL) is a strong buy, especially at lower prices.
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I actually like the C-Suite team on this one. Just old enough to have ample corporate and scientific experience, young enough to hunker down and grow this thing for decades. Also, frankly, I like that they have deep Wall Street experience and connections. As we see from Moderna, creating innovation is one thing, capturing press and market cap is quite another.