Zymeworks Inc. 10-Q Summary
Business context and reporting period
Zymeworks is a clinical-stage biopharmaceutical company developing multifunctional biotherapeutics, primarily for oncology. Its lead candidate is zanidatamab, a HER2-targeting bispecific antibody partnered with Jazz and BeiGene. The company is also developing zanidatamab zovodotin and preclinical candidates including ZW191, ZW171, ZW220 and ZW251.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2023. The company has no approved products and has not generated product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Collaboration revenue | $16.5 million | $2.6 million | $59.1 million | $10.0 million |
| Research and development expense | $32.8 million | $37.1 million | $118.1 million | $155.6 million |
| General and administrative expense | $17.0 million | $15.9 million | $55.6 million | $43.2 million |
| Loss from operations | $(33.2) million | $(50.4) million | $(114.6) million | $(188.9) million |
| Net loss | $(28.7) million | $(47.8) million | $(104.2) million | $(185.1) million |
| Net loss per share | $(0.41) | $(0.72) | $(1.53) | $(2.86) |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(132.3) million | $(183.3) million |
Q3 operating margin was approximately negative 201%, and net margin was approximately negative 174%. For the nine-month period, operating margin was approximately negative 194% and net margin approximately negative 176%; these ratios are influenced by collaboration revenue rather than product sales.
- Cash and cash equivalents were $94.3 million at September 30, 2023, compared with $400.9 million at December 31, 2022.
- Short- and long-term investments totaled $296.7 million, producing total cash, cash equivalents and marketable securities of approximately $390.2 million.
- Accounts receivable were $67.3 million, with 96% attributable to Jazz.
- Operating cash use declined year over year because responsibility and costs for portions of the zanidatamab program transferred to Jazz, although receivables increased working-capital cash use.
- Investing cash outflow was $205.9 million, primarily reflecting net purchases of marketable securities.
- Financing cash inflow was $31.2 million, including $26.2 million of net ATM proceeds, $4.2 million from option exercises and $0.8 million from the employee stock purchase plan.
- The filing reports no material funded debt. Lease liabilities totaled $26.4 million, including $26.2 million of operating lease liabilities.
- Accumulated deficit was $663.0 million at September 30, 2023.
Material changes versus the prior comparable period
- Revenue increased 535% in Q3 and 491% for the nine-month period, primarily because of Jazz development-support and drug-supply revenue. Nine-month revenue included $76.4 million from Jazz, offset by a $20.1 million contractual credit.
- Research and development expense decreased 12% in Q3 and 24% for the nine-month period, primarily because the zanidatamab program was transferred to Jazz. The reduction was partly offset by increased preclinical spending and higher zanidatamab zovodotin costs.
- General and administrative expense increased 7% in Q3 and 29% year to date, driven by professional services, facilities depreciation and technology spending.
- Interest income increased materially to $5.0 million in Q3 and $14.7 million for the nine-month period because of higher investment balances and interest rates.
- On June 16, 2023, the company sold 3.35 million shares through its ATM program at $8.12 per share, generating $26.2 million of net proceeds.
- Jazz acquired the zanidatamab development subsidiary and assumed responsibility for specified program costs and activities in May 2023. Future development-support revenue and related company expenses are expected to decrease significantly.
- BeiGene terminated its collaboration for zanidatamab zovodotin effective September 18, 2023. The company retained the separate zanidatamab collaboration, but reduced BeiGene royalty rates by 0.5 percentage points until a low-double-digit-million-dollar cumulative reduction cap is reached.
Guidance, outlook, commentary and risks
Management provided no formal revenue, earnings or expense guidance. Based on its current operating plan, management expects cash, cash equivalents, short-term investments and certain anticipated collaboration milestones to fund operations and capital expenditures for at least the next 12 months from the filing date. This expectation depends partly on uncertain milestone payments and the company states that substantial additional funding will be required for its longer-term plans.
- The company expects to continue incurring losses as it advances clinical and preclinical programs.
- Zanidatamab zovodotin is being advanced at a recommended dose of 2.5 mg/kg every three weeks, with a planned Phase 2 study in combination with a PD-1 inhibitor for HER2-overexpressing non-small cell lung cancer.
- Management expects IND or foreign-equivalent submissions for ZW191 and ZW171 in 2024, ZW220 in the first half of 2025 and ZW251 in the second half of 2025.
- After quarter-end, LEO Pharma elected to terminate its research and license agreement effective January 25, 2024, citing closure of its bispecific antibody program. LEO must reimburse certain non-cancellable research costs and assign specified intellectual property to Zymeworks; no development or commercial milestones or royalties had been received.
- On October 19, 2023, the company issued approximately 2.08 million common shares upon cashless exercise of all remaining pre-funded warrants.
- Key risks include clinical and regulatory failure, adverse safety findings, dependence on Jazz and other partners, loss of future milestone or royalty opportunities, third-party manufacturing and clinical-trial execution, intellectual-property challenges, cybersecurity, additional financing and potential shareholder dilution.
- The filing states that disclosure controls were effective as of September 30, 2023 and that no material changes in internal control over financial reporting occurred during the quarter.
Important facts investors should verify
- Whether Jazz’s zanidatamab development program achieves anticipated regulatory milestones and whether the transfer reduces future collaboration revenue as expected.
- The timing, probability and amount of future milestone payments from Jazz, BeiGene and other partners; none should be treated as guaranteed.
- The impact of BeiGene’s zanidatamab zovodotin termination and the reduced royalty economics for zanidatamab.
- The company’s cash burn and runway after excluding marketable-security purchases and considering receivable collections from Jazz.
- Clinical safety, efficacy and enrollment results for zanidatamab zovodotin and the company’s planned preclinical-to-clinical programs.
- Potential dilution from future equity financings, stock options, restricted stock units and exchangeable shares.
- LEO’s termination and any resulting reimbursement, intellectual-property transfer or development implications.