Zentalis Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. Clinical-stage oncology drug developer; unaudited quarter ended March 31, 2021. The company had no approved products and generated no revenue. Its lead candidates, ZN-c5 and ZN-c3, and candidates ZN-d5 and ZN-e4 were in clinical trials.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $38.4 million | $13.3 million |
| General and administrative expense | $12.0 million | $3.1 million |
| Total operating expenses | $50.3 million | $16.4 million |
| Net loss | $50.4 million | $16.2 million |
| Net loss attributable to Zentalis | $49.9 million | $16.1 million |
| Net loss per share/unit | $(1.24) per common share | $(2.88) per Class A common unit |
| Net cash used in operating activities | $37.5 million | $16.9 million |
Loss per share/unit comparisons are affected by the 2020 corporate conversion and IPO; the periods used different security structures and share counts. Gross margin is not applicable because there were no product sales.
At March 31, 2021, cash and cash equivalents were $29.0 million and available-for-sale marketable securities were $269.4 million, totaling $298.4 million; restricted cash was an additional $3.3 million. Total assets were $328.4 million, current liabilities $32.8 million, and stockholders’ equity $268.4 million. The company reported no indebtedness. Accumulated deficit was $250.7 million.
Cash, cash equivalents and restricted cash decreased by $24.0 million during the quarter. Investing activities provided $13.5 million, mainly from net maturities of marketable securities; there were no financing cash flows. Share-based compensation was $9.7 million, including $6.6 million in G&A and $3.1 million in R&D.
Material changes versus the prior period
Operating expenses rose $33.9 million year over year, and net loss increased $34.2 million. R&D expense grew $25.1 million as clinical programs advanced and the company incurred higher study, manufacturing, preclinical and laboratory costs. G&A grew $8.8 million, largely reflecting increased employee-related costs and non-cash share-based compensation. Operating cash use more than doubled from the prior-year quarter.
Outlook, commentary and risks
- Management expected existing cash, cash equivalents and marketable securities to fund operating expenses and capital expenditure requirements into 2023, while cautioning that estimates rely on assumptions and available funds would not cover all development through completion. The company expects significant future losses and will need additional capital.
- In May 2021, the company entered into an at-the-market sales agreement allowing up to $200 million of common stock sales; none had been issued under it as of the filing.
- Management reported initial ZN-c3 monotherapy Phase 1 data after quarter-end: 55 patients were evaluated for safety; reported treatment-related events were generally Grade 1 or 2. As of a March 1 data cutoff, three patients had confirmed partial responses and two uterine serous carcinoma patients had unconfirmed responses. These early results are preliminary and may change with further review.
- Management identified 300 mg once daily as the recommended Phase 2 monotherapy dose for ZN-c3 and planned further trials. It also planned to report interim ZN-c5 data in the first half of 2021, initiate additional ZN-c3 trials, and submit an IND for a fifth candidate in 2021.
- COVID-19 had caused trial-site, enrollment, supply-chain and laboratory disruptions; management expected ongoing effects on development timelines, costs and financial condition. Other material risks include clinical and regulatory uncertainty, reliance on third-party manufacturers and CROs, competition, intellectual-property exposure, and the need for additional financing.
- Two real-estate leases with aggregate minimum payments of approximately $105.9 million were signed but had not commenced; they were expected to begin in Q4 2021 with 10- and 11-year terms. Separately, a lease termination effective December 31, 2021 incurred a $0.2 million fee after quarter-end.
- The company disclosed no current legal proceedings. Disclosure controls and procedures were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Review the underlying ZN-c3 and ZN-c5 trial disclosures, including patient numbers, follow-up, safety findings, response confirmation and whether preliminary results are sustained.
- Assess the assumptions behind the stated cash runway, the pace of cash burn, and the effect of planned trials and the substantial future lease commitments.
- Monitor whether the $200 million ATM is used and the resulting potential share dilution; verify any financing needs beyond the stated runway.
- Track clinical and regulatory milestones, trial enrollment and COVID-19-related delays, alongside the company’s dependence on third-party manufacturing and CROs.
- Review collaboration and license economics, including potential milestones, royalties and sublicensing payments, as well as the terms and progress of regional partnerships.