Innovation knows no borders allowing adventurous biotech investors the opportunity to find hidden gems located outside the major research and development hubs in the U.S., Europe, and Japan. One doesn't even need to look too far.

Here we preview three such companies hailing from Canada, specifically the greater Vancouver area, which boast promising drugs in their pipelines and just raised additional financing from savvy insitutional investors eager to get ahead of the curve. These emerging biotechs may be the ticket for risk-tolerant investors to boost their portfolios. 

Hologram of globe and medical images in front of two doctors.

Image source: Getty Images.

1. Zymeworks

Biotech investors are taking note of Vancouver-based Zymeworks (NYSE:ZYME). In the last year, the stock steadily tripled from $15 to its current price of $46. Last week, the company announced it successfully raised $320.8 million, primarily from institutional investors.

Zymeworks engineers antibodies, a component of the immune system, to selectively recognize distinct targets on cancer cells. Each molecule can identify two separate targets leading to their name bispecific antibodies. Zymeworks did not stop there. In some cases, the company attaches highly potent cancer-killing drugs to the bispecific molecule using it as a targeting system. This is called an antibody drug conjugate and potentially increases the ability to kill cancer cells.

One of many companies battling breast cancer, Zymeworks initially began development against a set of aggressive cancers that contain the human epidermal growth factor receptor 2 (HER2) gene. The HER2 gene helps regulate cell division, growth, and repairs. Aberrant amounts of the gene can lead to excessive growth of cancer cells. Beyond breast cancer, HER2 overexpression or amplification is found in certain cancers of the stomach, pancreas, and salivary gland, to name a few.

Lead compound ZW25 targets two unique variants of HER2, and has entered a slate of human clinical trials. The antibody drug conjugate version called ZW49 is in early stage clinical trial testing.

A review of Zymeworks' pipeline shows a long list of drug candidates being developed in collaboration with other companies. These include pharma stalwarts Eli Lilly, Merck, Bristol-Myers Squibb, Johnson & Johnson, and emerging China-based pharma BeiGene.

2. Xenon Pharmaceuticals

Targeting neurological disorders, Xenon Pharmaceuticals (NASDAQ:XENE) recently raised an additional $60 million in financing to advance its pipeline. This comes on the heels of receiving $50 million from a new partnership. This capital infusion should provide enough resources to advance its four clinical stage drug candidates forward.

Xenon plans to advance XEN496 into a pivotal phase 3 clinical trial for a rare and severe form of childhood epilepsy. Towards the end of 2020, the company expects results from a phase 2b trial with XEN1101 as a treatment for adults with focal epilepsy. In this disease, recurring seizures emerge from a specific part of the brain.

Like Zymeworks, Xenon boasts prominent strategic partners. Genentech, part of the Roche Group, forged a collaboration to pursue a novel approach to treating pain. Following an initial discovery collaboration, Merck acquired the rights to a compound as a treatment for cardiovascular disease. In September, Xenon entered a partnership with biotech Flexion Therapeutics to develop an extended-release thermosensitive hydrogel version of Xenon's XEN402 for post-operative pain.

Last December, Neurocrine Biosciences entered into a partnership to develop novel epilepsy treatments. The pact grants rights to Xenon's clinical-stage epilepsy drug XEN901 and a multi-year collaboration to discover new drug candidates. Neurocrine paid $50 million consisting of $30 million in cash and a $20 million equity investment. Xenon could potentially earn development, regulatory, and commercial milestones totaling approximately $1.7 billion for XEN901 and other collaboration programs.

3. Aurinia Pharmaceuticals

Last December was a whirlwind for Aurinia Pharmaceuticals (NASDAQ:AUPH). First, the company announced positive results from a phase 3 clinical trial of its drug voclosporin in lupus nephritis, a dangerous kidney disease caused by the body's immune system attacking healthy tissues. The company plans to file for approval with the U.S. Food and Drug Administration sometime in the first half of 2020. Aurinia plans a commercial launch of the product, assuming approval, in the first half of 2021.

Investors excited by the trial results drove up the stock price from the $5 range to the high teens. When the stock was in the $18 range, management at Aurinia opportunistically raised $191.7 million at $15 per share. With more money in the bank, investors clamored for the stock pushing the shares to $21, a four-fold gain from where the stock traded prior to the clinical trial results.

Beyond lupus nephritis, Aurinia has commenced clinical testing of voclosporin in dry eye syndrome and focal segmental glomerulosclerosis (FSGS). Chronic in nature, the hallmarks of dry eye syndrome are irritation and inflammation. FSGS, a rare disease that attacks the kidneys' filtering system and can be potentially life-threatening, has no FDA-approved treatments.

Why now?

Zymeworks feels like Seattle Genetics in its earlier days. Leveraging expertise in a core technology, it produced a broad array of wholly owned and partnered drugs. Investors should watch for clinical results from ZW25 and ZW49. With a $2 billion valuation, a big pharma or biotech could swoop in to pick up this promising biotech.

Xenon, the smallest of the three companies by market capitalization, really needs the top-line results with XEN1101 in epilepsy to be positive. The trial results are expected in the second half of the year. While investing in R&D stage biotech is risky, Xenon needs to deliver more data to provide investors more comfort.

As a single-product company, Aurinia appears to be a likely acquisition target in the rare disease space. Voclosporin faces competition from GlaxoSmithKline, but, perhaps, a company like Pfizer, which has its own program in FSGS, could be a suitor.