Zymeworks Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2023; filed August 10, 2023. Zymeworks is a clinical-stage biopharmaceutical company developing multifunctional biotherapeutics, with no approved products or product-sale revenue.
Business context and strategic developments
- Lead candidate zanidatamab is being developed through partnerships with Jazz Pharmaceuticals and BeiGene for HER2-expressing cancers.
- In May 2023, Jazz acquired Zymeworks’ zanidatamab-focused subsidiary, certain assets and employees, and assumed responsibility and costs for specified program activities. Zymeworks remains eligible for reimbursement of certain retained activities and future milestone and royalty payments.
- Zymeworks continues to develop zanidatamab zovodotin and preclinical candidates ZW191, ZW171 and ZW220.
- The company had 237 full-time employees as of June 30, 2023, reflecting personnel transferred to Jazz.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Collaboration revenue | $7.0 million | $5.4 million | $42.6 million | $7.4 million |
| Research and development expense | $39.4 million | $56.0 million | $85.3 million | $118.5 million |
| General and administrative expense | $21.7 million | $15.2 million | $38.7 million | $27.3 million |
| Loss from operations | $54.1 million | $65.8 million | $81.4 million | $138.5 million |
| Net loss | $51.2 million | $64.6 million | $75.5 million | $137.2 million |
| Net loss per share | $0.76 | $0.97 | $1.13 | $2.15 |
| Net cash used in operating activities | Not separately stated | Not separately stated | $89.6 million | $110.2 million |
- Q2 revenue included $26.6 million of Jazz development support, offset by a $20.1 million contractual credit to Jazz. Six-month revenue included $57.5 million of Jazz development support, a $3.5 million drug-supply amount and the same $20.1 million credit.
- Interest income was $4.8 million in Q2 and $9.6 million for the six months, compared with $0.4 million and $0.7 million, respectively, in the prior-year periods.
- Cash, cash equivalents and marketable securities totaled $431.4 million at June 30, 2023, comprising $142.1 million of cash and cash equivalents and approximately $289.3 million of investments.
- The company had no reported debt financing. Lease liabilities totaled $27.3 million, including operating and finance lease obligations.
- Accumulated deficit was $634.3 million. Total stockholders’ equity was $448.9 million.
- On June 16, 2023, the company sold 3.35 million shares under its ATM program for net proceeds of $26.2 million, increasing outstanding common shares to 67.7 million at June 30, 2023.
Material changes versus the prior comparable periods
- Six-month collaboration revenue increased $35.2 million, or 476%, primarily because of Jazz-related development support and drug-supply revenue. Management expects Jazz development-support and drug-supply revenue to decrease significantly in future quarters after the transfer of program responsibility.
- Research and development expense declined $16.6 million in Q2 and $33.2 million for the six months, principally because of lower zanidatamab manufacturing and development costs, lower headcount and lower severance expense. Zanidatamab-related third-party costs declined 50% in Q2 and 45% for the six months.
- General and administrative expense increased $6.5 million in Q2 and $11.3 million for the six months, driven mainly by higher professional fees and other expenses.
- Net cash used in operations improved by $20.6 million for the six months, but investment purchases produced $198.9 million of investing cash outflows, resulting in a $258.8 million decline in cash and cash equivalents during the period.
- Available-for-sale investments generated a $1.2 million year-to-date unrealized loss recorded in other comprehensive loss.
Guidance, outlook, risks and unusual items
- Management expects existing cash, cash equivalents and short-term investments, together with certain anticipated collaboration milestones, to fund operating and capital requirements for at least the next 12 months from the filing date. The anticipated milestone payments are uncertain.
- The company expects continued operating losses and states that substantial additional funding will be required for zanidatamab zovodotin, preclinical programs and longer-term development plans.
- Management plans to present additional zanidatamab zovodotin data before year-end 2023, continue development at a recommended Phase 2 dose of 2.5 mg/kg every three weeks, and submit IND or equivalent applications for ZW191 and ZW171 in 2024 and ZW220 in the first half of 2025.
- Zanidatamab clinical data remain subject to regulatory review and further trial outcomes. No product candidate has received regulatory approval, and no regulatory agency has determined that any candidate is safe or effective for general use.
- Key risks include clinical-trial failure or delay, manufacturing and supply constraints, dependence on Jazz and other partners, achievement of collaboration milestones, intellectual-property disputes, cybersecurity and data-privacy incidents, regulatory changes, competition, and the need for additional capital that could dilute shareholders.
- Contingent consideration related to the Kairos acquisition had a fair value of $1.7 million at June 30, 2023; potential future milestone payments under that arrangement may total up to C$8.5 million, plus royalties.
- The company reported no material legal proceedings and stated that disclosure controls and procedures were effective at June 30, 2023.
Important facts for investors to verify
- Timing, amount and probability of future Jazz and BeiGene milestone payments, royalties and reimbursements.
- Expected post-transfer revenue and expense levels after Jazz assumed specified zanidatamab program responsibilities.
- Clinical, regulatory and safety progress for zanidatamab and zanidatamab zovodotin, including the timing and quality of upcoming data.
- Cash runway under scenarios excluding uncertain milestone receipts and incorporating planned clinical and preclinical spending.
- Potential dilution from the ATM program, outstanding options, pre-funded warrants, exchangeable shares and future financings.
- Progress toward planned 2024 and 2025 IND or equivalent submissions for ZW191, ZW171 and ZW220.