Zentalis Pharmaceuticals, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; the filing is an annual report, not a standalone Q4 filing. Financial amounts are in U.S. dollars.
Business context
Zentalis is a clinical-stage oncology biopharmaceutical company with no approved products and no product-sales revenue. Its clinical pipeline includes ZN-c3 (Wee1 inhibitor), ZN-c5 (oral SERD), ZN-d5 (BCL-2 inhibitor) and ZN-e4 (EGFR inhibitor). The company also advances preclinical programs. It retains worldwide rights to most programs, with certain Asian rights licensed to SciClone or its joint venture, Zentera; Zentalis held a 40.3% interest in Zentera at year-end.
Financial and operating results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $175.6 million | $84.9 million |
| General and administrative expense | $40.9 million | $33.9 million |
| Total operating expenses / operating loss | $216.5 million | $118.8 million |
| Consolidated net loss | $166.1 million | $118.5 million |
| Net loss attributable to Zentalis | $158.7 million | $117.8 million |
| Net loss per share, basic and diluted | $3.72 | $4.19 |
| Net cash used in operating activities | $154.1 million | $86.8 million |
Gross margin and operating margin are not meaningful because the company had no product revenue. FY2021 reported loss included a $51.6 million gain from deconsolidating Zentera, partly offset by an $8.8 million impairment of Kalyra in-process R&D and a $1.8 million equity-method investment loss. The Q4 2021 net loss attributable to Zentalis was $50.1 million; Q4 operating expenses were $48.2 million.
At December 31, 2021, cash and cash equivalents were $59.7 million and available-for-sale marketable securities were $280.2 million, totaling $339.9 million in cash and securities. Current assets were $350.8 million versus current liabilities of $43.9 million. The company reported no indebtedness; it had $45.9 million of operating lease liabilities, including $1.5 million current and $44.5 million long-term. Accumulated deficit was $359.6 million.
Financing provided $178.5 million of net cash in 2021, primarily from a July follow-on offering and ATM sales. The follow-on raised $172.9 million gross; ATM sales raised $10.0 million gross. Year-end common shares outstanding were 45.5 million.
Material changes and management outlook
- R&D expense more than doubled, rising $90.7 million, reflecting pipeline advancement, higher clinical-trial and personnel costs, manufacturing costs, milestone payments and other program spending.
- Operating cash use rose to $154.1 million from $86.8 million. Management said year-end cash, equivalents and marketable securities were expected to fund operating and capital requirements into Q3 2023, but not all activities needed to complete product development.
- Zentera’s July 2021 financing diluted Zentalis’s ownership and changed governance; Zentalis deconsolidated the venture, recorded its retained interest at $37.5 million, and recognized a $51.6 million gain. The venture continues clinical development in China.
- Management expected continued significant losses and higher R&D spending. Planned 2022 activities included combination trials of ZN-d5 plus ZN-c3 in AML and ZN-c5 plus ZN-c3 in breast cancer, and reporting selected trial updates. These are plans, not assured outcomes.
Pipeline updates, risks and unusual items
- ZN-c3 received FDA Fast Track designation for recurrent or persistent uterine serous carcinoma; it also has orphan-drug and rare-pediatric-disease designations for osteosarcoma. The filing described early clinical findings, but emphasized that interim data may change and require verification.
- ZN-c5 combination trials with palbociclib and abemaciclib were ongoing; initial results were expected in the first half of 2022. ZN-d5 and ZN-e4 remained early-stage clinical candidates.
- Key risks include clinical and regulatory failure or delay, uncertain translation of early data, substantial future capital needs and potential dilution, competition, intellectual-property challenges, reliance on CROs and third-party manufacturers, and COVID-19-related trial and supply disruptions. The company had no long-term supply agreements or fully redundant manufacturing arrangements for all candidates.
- The filing reported no material legal proceedings. Management stated disclosure controls and internal control over financial reporting were effective at year-end; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Current cash runway and spending against management’s Q3 2023 estimate, including whether additional financing is needed sooner.
- Updated, complete clinical efficacy and safety data for each candidate, especially ZN-c3 and ZN-c5; distinguish interim results from confirmed outcomes.
- Whether planned 2022 trials and data readouts occurred on schedule, and whether regulators agree with proposed trial designs or accelerated-development pathways.
- The effect of Zentera’s deconsolidation, ongoing equity-method losses, ownership changes and any future financing on reported results and shareholder dilution.
- Manufacturing capacity and supply continuity, particularly reliance on third parties and suppliers in China, alongside clinical-trial enrollment and COVID-19 impacts.