Zymeworks Inc. — Q1 2023 Form 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. Other programs include zanidatamab zovodotin, an HER2-targeting antibody-drug conjugate, and preclinical candidates ZW191 and ZW171.
This report covers the three months ended March 31, 2023, and was filed May 8, 2023. The company has no products approved for commercial sale and has not generated product-sales revenue.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Collaboration revenue | $35.6 million | $1.9 million | +$33.7 million |
| Research and development expense | $45.9 million | $62.5 million | -$16.6 million |
| General and administrative expense | $16.9 million | $12.1 million | +$4.8 million |
| Loss from operations | $27.3 million | $72.7 million | Improved by $45.4 million |
| Net loss | $24.4 million | $72.6 million | Improved by $48.3 million |
| Basic loss per share | $0.36 | $1.18 | Improved |
| Net cash used in operating activities | $83.2 million | $55.4 million | Use increased by $27.8 million |
Revenue consisted primarily of $30.9 million in Jazz development-support payments, $3.5 million in Jazz drug-supply revenue, and $1.2 million of research support and other payments from other partners. The company remains dependent on collaboration, milestone, research-support, and reimbursement payments rather than product sales.
At March 31, 2023, cash and cash equivalents were $181.6 million, short-term investments were $159.2 million, and long-term investments were $72.5 million, for total cash, cash equivalents, and investments of approximately $412.4 million. Total assets were $600.7 million, total liabilities were $127.2 million, and stockholders’ equity was $473.5 million. The filing does not report traditional funded debt; lease liabilities totaled $27.4 million.
Cash decreased by $219.3 million during the quarter, primarily because of $83.2 million used in operations and $137.8 million of net purchases of investments. Financing activities provided $1.7 million, mainly from stock-option exercises and the employee stock purchase plan. Management stated that existing cash, cash equivalents, short-term investments, and certain anticipated collaboration milestones are expected to fund operations and capital requirements for at least the next twelve months, although the company expects to require substantial additional funding over the longer term.
Material changes versus the prior comparable period
- Collaboration revenue increased sharply because of Jazz development-support and drug-supply payments. Management expects these payments, and related zanidatamab revenue, to decrease significantly after the planned transfer of certain program responsibilities to Jazz.
- Research and development expense declined 27%, primarily because of lower zanidatamab manufacturing and CRO costs, lower headcount and lower severance costs. Preclinical and other research-program spending increased.
- General and administrative expense increased 40%, largely because Q1 2022 included significant stock-based compensation recoveries and Q1 2023 included higher professional and consulting fees.
- Operating cash use increased because of higher collaboration receivables and lower accounts payable and accrued liabilities, partly offset by reduced operating expenses.
- Cash and cash equivalents fell from $400.9 million at December 31, 2022 to $181.6 million at March 31, 2023, while the company increased its investment holdings.
- Common shares outstanding increased to 64.1 million at March 31, 2023 from 63.1 million at December 31, 2022, primarily through option exercises, employee purchases, and exchanges of exchangeable shares.
Guidance, outlook, commentary, risks, and unusual items
In April 2023, Zymeworks entered into a Transfer Agreement under which Jazz is expected to acquire the zanidatamab-focused subsidiary, certain related assets and contracts, and engage associated employees. The closing and amended Jazz collaboration arrangements were expected in May 2023. Financial terms are expected to remain substantially unchanged, but Jazz will directly bear certain future program costs. Zymeworks expects its zanidatamab-related research and development expenses and related reimbursement revenue to decrease significantly after closing; certain costs will not be recovered, and final cost allocations were expected by mid-2023.
Management intends to continue zanidatamab zovodotin development at a recommended Phase 2 dose of 2.5 mg/kg every three weeks, present additional data before year-end 2023, and begin enrollment in multiple Phase 2 studies. The company expects to submit IND or foreign-equivalent applications for ZW191 and ZW171 in 2024. It stated that registration-enabling studies for zanidatamab zovodotin could begin before the end of 2025, potentially with a future collaboration partner.
The company reported encouraging, but not definitive, zanidatamab clinical data in first-line HER2-positive gastroesophageal adenocarcinoma, including an 18-month overall survival rate of 84% among 42 evaluable patients, a confirmed objective response rate of 79% among 38 response-evaluable patients, and median progression-free survival of 12.5 months. These data remain subject to ongoing clinical development and regulatory review.
- Zymeworks has incurred significant cumulative losses, with an accumulated deficit of $583.1 million at March 31, 2023, and expects continued losses.
- Future funding depends partly on uncertain clinical and regulatory milestones from partners. Additional equity, debt, licensing, or collaboration financing may be required and could dilute shareholders or require relinquishing rights.
- Clinical, regulatory, manufacturing, enrollment, safety, intellectual-property, reimbursement, cybersecurity, foreign-exchange, and third-party service-provider risks could delay development or prevent approval and commercialization.
- Jazz represented approximately 90% of accounts receivable at March 31, 2023, creating significant customer and partnership concentration.
- Potential future Kairos-related milestone payments total up to C$8.5 million, plus royalties or revenue-sharing obligations. The related contingent consideration liability was $1.7 million at March 31, 2023.
- The Daiichi Sankyo collaboration and cross-license agreement was terminated in February 2023, but a separate 2018 license agreement remains in effect. The termination had no financial impact in Q1 2023.
- No material legal proceedings were reported. Management concluded that disclosure controls and procedures were effective as of March 31, 2023.
Most important facts for investors to verify
- Whether the May 2023 Jazz transfer and amended collaboration agreement closed as expected, and the final allocation of program costs and reimbursements.
- The timing and probability of anticipated Jazz, BeiGene, and other collaboration milestones, which are not assured.
- The company’s quarterly operating cash burn and whether the stated cash runway remains valid after the transfer of zanidatamab responsibilities.
- Clinical-trial enrollment, safety, efficacy, regulatory interactions, and the status of zanidatamab and zanidatamab zovodotin development plans.
- The extent of future dilution from outstanding options, pre-funded warrants, restricted stock units, exchangeable shares, and potential capital raises.
- Changes in collaboration revenue and research and development spending after Jazz assumes additional program responsibilities.
- Potential obligations related to contingent milestones, leases, royalties, indemnification, and other collaboration commitments.