Zynerba’s Drawing In Value Players Or Having A Dead Cat Bounce

Cannabis biotech company Zynerba Pharmaceutical (ZYNE) suffered a failed drug trial and saw its shares get pummeled by roughly 60%. The stock crashed from $15 down to a sobering $6 and change. Then value players, who liked that price, jumped right back in and the stock recovered by 20% and now trades at $7 and change.

The optimists believe or at least hope the company will deliver good results with its next drug study for osteoarthritis, which is expected this month. The naysayers say don’t count on it and the optimists think there may be a trade here. If the results are good, then the stock will pop and if they are bad, then there will probably be another huge selloff. Another bad result and shareholders will give up and move on to another name.

It all started when the company reported on Monday that its ZYN002 CBD-based epilepsy drug was safe, but did not reduce seizures enough to be statistically significant. Armando Anido, chairman and chief executive officer of Zynerba, said:

“We are very disappointed that the STAR 1 trial did not meet its primary endpoint in this patient population. We are continuing to evaluate this study and the ongoing STAR 2 open label study to determine next steps with ZYN002 in adult epilepsy patients with focal seizures.”

Patients on the low dose saw their seizures drop by 18%, while those on the higher dosage experienced a 14% drop in seizures. The placebo patients saw an 8% reduction in seizures.  This wasn’t a big enough difference from the placebo and so the study was basically a failure.

Beyond the osteoarthritis test, Zynerba is also running a study for children with Fragile X syndrome, which shares some relationship with autism. The results of the study in children with Fragile X syndrome is expected in September.

The expectations for Zynerba were pretty high and mostly based on positive results of studies on CBD drugs for epilepsy from rival GW Pharmaceuticals (GWPH). GW Pharmaceuticals reported third quarter earnings on Monday and the market didn’t respond positively. That stock fell 4% to approximately $110 because the drug maker pushed back its filing date for its drug Epidiolex. GW had been telling investors that it planned to file the new drug application in mid-2017, but during the earnings announcement said the date would now be in October. The stock is still up 20% for the past year, but its meteoric rise has been muted. Investors will have to be patient and wait for GW’s payoff.

Science isn’t always pretty and tied up with a neat bow. Some investors forget that this is what these trials are meant to be. They are meant to test a drug and see if it works. Sometimes, it doesn’t.

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