Zymeworks Inc. 2022 Q3 Form 10-Q Summary
Business Context and Reporting Period
Zymeworks is a clinical-stage biopharmaceutical company developing multifunctional biotherapeutics, primarily for oncology. Its lead programs are zanidatamab, a HER2-targeted bispecific antibody, and zanidatamab zovodotin, a HER2-targeted antibody-drug conjugate. The company has no approved products and has not generated product-sales revenue.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2022. The company completed its redomiciliation from British Columbia to Delaware on October 13, 2022, after the reporting period.
Key Financial Metrics
| Metric | Three months ended September 30, 2022 | Three months ended September 30, 2021 | Nine months ended September 30, 2022 | Nine months ended September 30, 2021 |
|---|---|---|---|---|
| Collaboration revenue | $2.6 million | $4.4 million | $10.0 million | $6.8 million |
| Research and development expense | $37.1 million | $49.9 million | $155.6 million | $144.9 million |
| General and administrative expense | $15.9 million | $15.5 million | $43.2 million | $36.7 million |
| Loss from operations | $(50.4) million | $(61.0) million | $(188.9) million | $(174.8) million |
| Net loss | $(47.8) million | $(60.6) million | $(185.1) million | $(172.7) million |
| Basic loss per share | $(0.72) | $(1.17) | $(2.86) | $(3.35) |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(183.3) million | $(141.9) million |
Third-quarter revenue declined 41% year over year because the prior-year period included a $4.0 million Janssen milestone. Nine-month revenue increased 47%, primarily due to a $5.0 million Atreca research license fee recognized in 2022 and higher research-support payments.
Gross margin is not meaningful because the company is pre-commercial and reports collaboration revenue rather than product sales. The company remained substantially loss-making, with an accumulated deficit of $868.2 million at September 30, 2022.
At September 30, 2022, cash and cash equivalents were $96.1 million, short-term investments were $70.2 million, and long-term investments were $0.9 million. Total cash resources were approximately $166.2 million, compared with $252.6 million at December 31, 2021. The company reported no material conventional debt; liabilities included $30.1 million of lease liabilities, $32.9 million of deferred revenue, and $1.2 million of contingent consideration.
Material Changes Versus the Prior Comparable Period
- Third-quarter R&D expense decreased $12.8 million, or 26%, primarily due to restructuring-related headcount reductions, lower zanidatamab manufacturing and clinical expenses, and lower preclinical licensing costs.
- Nine-month R&D expense increased $10.7 million, or 7%, driven mainly by zanidatamab manufacturing, process-performance qualification, and clinical-trial costs. Zanidatamab third-party program costs increased to $90.5 million from $55.5 million.
- Nine-month operating cash burn increased to $183.3 million from $141.9 million, reflecting higher zanidatamab development and manufacturing costs, professional fees, severance, and other restructuring expenses.
- G&A expense increased 18% for the first nine months, partly because of restructuring costs, higher professional fees, depreciation, and the absence of a prior-year sales-tax refund.
- The January 2022 public offering generated $107.5 million of net proceeds and increased outstanding common shares to 61.7 million at September 30, 2022, from 46.6 million at December 31, 2021.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- Management expected operating expenses to decline during the remainder of 2022 as clinical, manufacturing, and technical expenses decreased and the restructuring took effect. The company did not provide specific revenue, earnings, or expense guidance.
- The restructuring reduced headcount by approximately 25% versus December 31, 2021. Nine-month restructuring costs included $5.2 million of severance, $3.8 million of other charges, and a $10.4 million non-cash reversal of previously recognized stock-based compensation. Management did not expect material additional restructuring costs.
- Management stated that existing cash, short-term investments, and certain anticipated collaboration payments were expected to fund planned operations for at least the next 12 months. This assessment depends partly on uncertain milestone and collaboration receipts, and management also stated that substantial additional funding will be required for longer-term operations.
- HERIZON-BTC-01 enrollment was completed in April 2022. Top-line data were expected before year-end 2022, with comprehensive data anticipated in the first half of 2023. The company also expected additional zanidatamab and zanidatamab zovodotin data.
- Preliminary Phase 1 data for zanidatamab zovodotin showed a 31% confirmed objective response rate and 72% disease control rate in a specified HER2-positive subgroup at a particular dose; the trial remained ongoing and these results were not definitive.
- On October 18, 2022, after quarter-end, the company entered into a Jazz collaboration for zanidatamab. Potential consideration included a $50 million upfront payment subject to HSR clearance, a further $325 million payment contingent on Jazz continuing after receipt of HERIZON-BTC-01 data, up to $525 million of regulatory milestones, up to $862.5 million of commercial milestones, and tiered royalties of 10% to 20%. These amounts were not recognized in the September 30, 2022 financial statements and remain subject to significant conditions.
- Key risks include clinical-trial failure or delay, regulatory rejection, manufacturing and third-party dependence, intellectual-property challenges, continuing losses and cash burn, the need for additional financing and potential dilution, reliance on strategic partners, and uncertainty regarding COVID-19 and global economic conditions.
- The company reported no material legal proceedings and stated that its disclosure controls and procedures were effective as of September 30, 2022.
Most Important Facts for Investors to Verify
- Whether HERIZON-BTC-01 data support regulatory submission and whether Jazz satisfies the conditions for the $325 million payment.
- Whether HSR clearance was obtained and the timing and receipt of the $50 million Jazz upfront payment.
- The company’s post-quarter-end cash balance, operating cash burn, and actual cash runway after incorporating Jazz-related receipts, if any.
- Whether zanidatamab and zanidatamab zovodotin clinical results remain consistent as datasets mature and undergo verification.
- The extent of future equity issuance, including the October 2022 at-the-market facility, pre-funded warrant exercises, options, and exchangeable shares.
- Progress toward regulatory filings, including the planned zanidatamab development path and anticipated 2024 IND filings for ZW191 and ZW171.