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Zynerba Pharmaceuticals: Buy This Marijuana Stock Ahead Of Upcoming Phase 1 Results


It's not the best of times in biotech, but companies with solid science and results are still being rewarded.

GW Pharmaceuticals has sparked interest in biotechs with marijuana based treatments.

Zynerba has multiple upcoming catalysts that should result in increased interest by Wall Street.

Prior third party results in CBD based treatments indicate a better than average chance of future success.

ZYNE: A Buy Ahead of Upcoming Phase 1 Data

It's definitely not the best of times to be in biotech if you're judging by the recent performance of the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB). Ever since the index rallied to an all-time high in 2015, it's been nowhere but down, recently bouncing around in a range between 240 and 280.

Personally, I think investors are best served by looking forward. It doesn't matter what previous highs were that the market used to credit companies for their pipelines, whereas now, they sell for pennies on the dollar. Simply stated, we need to sift through the wreckage for the companies with solid science, real prospects, and near-term catalysts that won't necessitate us sitting on positions for years on end waiting for our day in the sun.

One bright spot in the biotech space has been with marijuana stocks, thanks to GW Pharmaceuticals' (NASDAQ:GWPH) positive Phase 3 results in Lennox-Gastaut syndrome and another Phase 3 success in Dravet syndrome. Epidiolex (cannabidioil) reduced seizures with high statistical significance and resulted in the stock rebounding to a $2.12 billion valuation.

While other stocks in the sector are interesting, from Cara Therapeutics (NASDAQ:CARA) (141 million market cap) to Insys Therapeutics (NASDAQ:INSY) (1.08 billion market cap), I believe under the radar Zynerba Pharmaceuticals (NASDAQ:ZYNE) offers an ideal mix of solid science, targeting multiple indications, and near-term catalysts that could reward investors for establishing a position in the near term.

While it would be apples and oranges to compare Zynerba, only in Phase 1 studies to approval ready GW Pharmaceuticals, I still believe the large valuation gap between them could narrow after Zynerba experiences key data readouts in the coming year. A more realistic number might be GW Pharmaceuticals valued at 4-8x more than Zynerba, versus more than 30x right now - the discount still being warranted due to the former being relatively de-risked by positive Phase 3 results and the latter being still relatively early stage although addressing large target markets.

A Closer Look at Zynerba

Zynerba is now trading at $7.50 and a 69 million market cap, much lower than its $14 IPO price.

With 9.2 million shares outstanding and a small float, it seems to have found a bottom in the $6.50 area. 30% of its shares are held by institutional holders, including the three largest holders: Perceptive Advisors (849,350 shares), RA Capital (507,191 shares), and Cormorant Advisors (475,305 shares). Interestingly enough, Perceptive has added significantly to their position.

For those of you who haven't heard of this under the radar fund with around a billion AUM, it's known for 30% average annual returns since 1999 and run by Joseph Edelman, who keeps a large portion of his net worth in the...