Zynerba Pharmaceuticals (NASDAQ: ZYNE)

08/08/2016 Focused Stock Trader



This past spring FST brought your attention to a beaten down stock in the specialty pharmaceutical sector, Zynerba Pharmaceuticals, Inc. (ZYNE). The issue, which had soared north of $40 per share early in its publically traded life, had briefly plummeted all the way below the $5 mark before bargain hunters gradually began to take notice. At the time of that first report, ZYNE shares were trading at $6.00-then ripped north of $20 in a momentum-fueled run, before profit takers eventually knocked it all the way back to where it started.

If your memory needs refreshing, Zynerba, founded in 2007, is developing and commercializing proprietary synthetic cannabinoid therapeutics formulated for transdermal delivery. Its products candidates include ZYN002 and ZYN001-synthetic transdermal cannabinoid therapeutics for indications, including refractory epilepsy, Fragile X syndrome, osteoarthritis, fibromyalgia, and peripheral neuropathic pain. The company has secured patents related to ZYN002 and ZYN001, with two issued patents in the United States, five issued patents in France, Germany, Ireland, Switzerland and the United Kingdom and two pending patent applications in Canada and Japan. The issued patents will expire between 2026 and 2029, and any patents that issue from currently pending patent applications will expire in 2030.

In August, 2015, ZYNE shares came to market at an IPO offering price of $14, amid a fair amount of fanfare, in the wake of the growing trend among U.S. voters and lawmakers to usher in laws allowing the use of medical marijuana by adults, as well as legalization in Colorado, Oregon and other jurisdictions. As we mentioned back in March, the appeal was obvious: an increasing number of studies, as well as countless anecdotal stories, documented the many beneficial effects of CBDs-one of the active ingredients in pot- for helping a wide variety of conditions.

On the back of positive market sentiment related to the growing movement across the U.S. in favor of legalizing cannabis for both medical and recreational use, ZYNE shares caught fire. It helped that the issue has a tiny float of 3 million shares. By the time buyers had finished having their way with the issue, it had soared to $43 per share, fueled in part by the issue's mini-float of 3 million shares. After the momentum had run its course and market conditions eroded, however, ZYNE tumbled almost tenfold, and took several weeks consolidating near its 52-week bottom.

In February, around the same time ZYNE shares were trading near those lows, the U.S. Food and Drug Association granted orphan-drug designation to ZYN002 cannabidiol (CBD) gel, for the treatment of Fragile X syndrome. Fragile X syndrome is a genetic condition that causes intellectual disability, anxiety disorders, behavioral and learning challenges and various physical characteristics. Soon after that announcement we first brought readers' attention to the issue, and quickly ZYNE shares once again caught fire, piercing the $20 level before once again pulling back to under $7.

With continued progress with its lead drug candidate, and a recent announcement of a presentation at a major investment conference, ZYNE has once again attracted significant buying interest. Within the past week this low-float issue has quickly surged from $7 through the $10 level, trading at $10.50 on increasing volume in its most recent dealings. Helping matters is continued strength in the issue's "sister stock," GW Pharmaceuticals (GWPH), a British concern that is already banking big sales on its cannabis derived lead drug.

While there's no question that the old adage that past trading history in the stock market is no guarantee of a repeat performance, traders are once again circling their wagons around this compelling low-float issue. That, combined with the stock's past performance, low float, and recent bullish company news, make this a possibly potent issue to trade in the upcoming days. Just keep in mind that the mini-float makes it a riskier play than most!