Zentalis Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. Clinical-stage oncology company; quarter and six months ended June 30, 2021. Its candidates were not approved for sale, and it reported no product revenue. Financial statements are unaudited.
Financial performance and liquidity
- Revenue: None in Q2 or the first six months of 2021, or in the comparable 2020 periods.
- Q2 results: R&D expense was $44.8 million versus $17.5 million; G&A was $10.4 million versus $9.9 million. Net loss was $55.1 million versus $27.3 million; net loss attributable to Zentalis was $54.6 million versus $26.9 million. Basic and diluted loss per share was $1.34 versus $0.78.
- First-half results: R&D expense was $83.2 million versus $30.7 million; G&A was $22.3 million versus $13.1 million. Net loss was $105.5 million versus $43.5 million; net loss attributable to Zentalis was $104.5 million versus $43.0 million. Loss per share was $2.58 versus $2.53.
- Cash flow: Operating cash use was $83.6 million in the first half, compared with $38.9 million a year earlier. Investing activities provided $80.1 million, mainly reflecting maturities of marketable securities; financing used $0.3 million. Cash, cash equivalents and restricted cash decreased $3.8 million.
- Liquidity and debt: Cash, cash equivalents and marketable securities totaled $250.9 million at June 30. The company reported no indebtedness. Management said the June-end funds plus proceeds from its July offering were expected to fund operations and capital expenditure requirements into Q3 2023; this estimate depends on assumptions and may prove inaccurate.
- Balance sheet: Total assets were $284.0 million, total liabilities $36.4 million, and accumulated deficit $305.3 million at June 30. No conventional operating margin is meaningful given the absence of revenue.
Material changes and notable items
- Q2 R&D expense increased $27.3 million year over year, primarily as ZN-c3 and ZN-c5 trials advanced, with additional preclinical, manufacturing and laboratory costs. First-half R&D rose $52.5 million. First-half G&A rose $9.2 million, largely from employee-related costs, including noncash stock-based compensation.
- On July 1, 2021, Zentalis completed a follow-on offering of 3.565 million shares at $48.50 per share. The filing reports approximately $172.9 million gross proceeds before costs in the subsequent-events note; the liquidity discussion also describes approximately $172.9 million as net proceeds. These descriptions are inconsistent and should be reconciled.
- In July, Zentera raised approximately $75 million gross in a Series B financing. Zentalis reported an approximately 40% interest in Zentera afterward; previously, Zentalis entities held a majority interest. Zentera collaborates on development and commercialization in China, Macau, Hong Kong and Taiwan.
- The company had entered into two real-estate leases that had not commenced by June 30, with approximately $105.9 million of minimum payments and 10- and 11-year terms; commencement was expected in Q4 2021.
Outlook, pipeline and risks
- Management expected R&D and G&A costs and operating losses to rise as trials and development programs expand. The company expects to need substantial additional capital; no committed external funding source or credit facility was reported. Further equity financing could dilute shareholders.
- ZN-c3: In interim Phase 1 monotherapy data, the reported objective response rate was 43%; three of seven evaluable uterine serous carcinoma patients had responded. FDA concurred in principle that the proposed Phase 2 USC study could have potential for an accelerated-approval pathway, subject to the development and regulatory process. A biomarker-driven Phase 2 trial was expected by year-end 2021, subject to FDA feedback.
- ZN-c5: Interim Phase 1 data at 300 mg once daily reported a 54% clinical benefit rate and 13% objective response rate. Interim combination-trial results were expected in the first half of 2022. The company also expected interim monotherapy and palbociclib-combination results in that period.
- Other candidates: ZN-d5 initial Phase 1 results were expected in the first half of 2022; ZN-e4 initial Phase 1/2 results were expected in Q4 2021. These are management timelines, not guarantees.
- Clinical updates were interim and subject to change as more data accrue and verification proceeds. Key risks include clinical failure or delay, regulatory uncertainty, patient enrollment and safety, reliance on CROs and manufacturers, competition, intellectual-property challenges, and COVID-19 disruptions. The company specifically noted trial-site and enrollment delays, supply-chain issues and constrained laboratory operations. Some clinical manufacturing takes place in China.
- The filing reported no material legal proceedings and stated that disclosure controls and procedures were effective as of June 30, 2021.
Important facts for investors to verify
- Reconcile the July offering’s reported gross and net proceeds and confirm the resulting share count and dilution; 45,052,904 common shares were outstanding as of August 6, 2021.
- Assess the assumptions behind the stated Q3 2023 cash runway, including trial expansion, lease commitments and the timing and net amount of July financing proceeds.
- Review final, updated clinical data and regulatory feedback for ZN-c3 and ZN-c5; interim response and tolerability results may change and do not establish approval or clinical benefit.
- Confirm the commencement, accounting treatment and cash-payment schedule for the two leases with approximately $105.9 million of minimum payments.
- Monitor Zentera’s financing, ownership and development progress, along with COVID-19, China manufacturing and other supply-chain exposures.