Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE) had a tough start to the week this week when the company announced data from a phase 2 study of its lead development asset. The drug failed against its primary endpoint and Zynerba’s market capitalization collapsed to the tune of more than 60% on the news. Subsequent to the collapse, and primarily during the session on Wednesday, shareholders have recovered a degree of the lost valuation, with the company trading up from $6.20 a share at the Wednesday open to highs in and around $8.50 a share and a daily close at $7.60.
There is still a long way to go before the gap closes, however, and this distance is the subject of debate in the markets right now – can Zynerba recover or is this downside move a longer-term revaluation for the company and its prospects?
We are leaning towards the former right now and here is why.
For those that missed the data, the company is developing a drug called ZYN002, which is a cannabidiol (CBD) gel designed for topical administration. The indication against which the company was testing the drug in the study that just read out was epilepsy in adults with focal seizures. It is a rough condition and one that is considered a large unmet need in the US market right now.
If Zynerba could get its CBD gel to market as an approved therapy in this space, there would be considerable revenues on offer the company. Early data suggested that the drug could be safe and effective and this led to markets trading up on Zynerba heading into the epilepsy release.
As it turned out, the drug doesn’t seem to work, but only in the sense that it doesn’t bring about a statistically significant reduction in the seizures that characterize this condition across the patient population, when compared to placebo. Patients who took the drug did report fewer seizures than those who didn’t (active versus placebo) across to dosing levels, but the difference wasn’t deemed statistically significant and – therefore – the trial endpoint was missed. Further adding to the disappointment, the higher dose patients reported a lower reduction in seizures than did the lower dose patients. In biotechnology, and especially with a drug like this, you want to see a dose-dependent correlation in clinical benefit. The fact that we didn’t see that here further reinforces the suggestion that the difference between the active and placebo seizure rate was not brought about by the drug.
So things look pretty bad and that’s why markets are selling off from his company right now. However, we did get a key bit of information that markets seem to be ignoring. Specifically, the bioavailability of the drug was strong. To put this another way, patients who took the active ingredient showed levels (and importantly, dose-dependent levels) of CBD in the bloodstream. This means that the failure in epilepsy isn’t rooted in a problem with administration or composition, just that it doesn’t seem to work in this indication.
There are two other target indications, both of which are set to report data this year, that have also demonstrated pretty impressive early-stage data. These are fragile X syndrome and osteoarthritis. Just because CBD at the doses presented in the epilepsy trial doesn’t reduce seizures in epilepsy patients far from implies that it won’t bring about a clinical benefit in patients with fragile X or osteoarthritis. To qualify that statement a little, it is perhaps reasonable to suggest that there might be some correlation between the fragile X data and the adult arthritis data, but osteoarthritis and epilepsy are completely different conditions. we have seen many cases where one drug works in one condition and not another, so to value the osteoarthritis trial on the outcome of the epilepsy trial is misinformed.
Of course, there is no guarantee that the osteoarthritis data will come out as positive, and therein lies the risk. That risk, however, is reduced somewhat when measured against the reward on offer based on the recent epilepsy-driven decline.
Data is set to hit press during the coming months.
We will be updating our subscribers as soon as we know more. For the latest updates on ZYNE, sign up below!
Image courtesy of Kyle Butler via Flickr
Disclosure: We have no position in ZYNE and have not been compensated for this article.