Zentalis Pharmaceuticals, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Zentalis is a clinical-stage oncology company with no approved products and no product-sales revenue. Its lead candidates are ZN-c3 (WEE1 inhibitor) and ZN-d5 (BCL-2 inhibitor); ZN-c5 and ZN-e4 are also in clinical trials.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Research and development expense | $46.1 million | $38.4 million |
| General and administrative expense | $11.8 million | $12.0 million |
| Total operating expenses / operating loss | $57.9 million | $50.3 million |
| Net loss | $59.2 million | $50.4 million |
| Net loss attributable to Zentalis | $59.1 million | $49.9 million |
| Basic and diluted loss per share | $1.31 | $1.24 |
| Net cash used in operating activities | $50.2 million | $37.5 million |
Cash, cash equivalents and marketable securities totaled $289.4 million at March 31, 2022, versus $339.9 million at December 31, 2021. Cash and cash equivalents alone were $30.6 million; available-for-sale marketable securities were $258.8 million. Cash, cash equivalents and restricted cash at quarter-end were $33.4 million. The company reported no indebtedness. Current assets were $301.3 million and current liabilities $43.5 million. No meaningful operating margin comparison applies to this pre-revenue company.
Changes versus the prior comparable period
- R&D expense increased $7.7 million, primarily reflecting higher clinical-trial costs, personnel expenditures and preclinical, manufacturing and materials activity. Product-candidate R&D included $12.6 million for ZN-c3, $5.0 million for ZN-d5, $3.0 million for ZN-c5 and $0.4 million for ZN-e4.
- Operating cash use rose $12.7 million to $50.2 million. Net loss attributable to Zentalis increased $9.2 million.
- Net loss included a $1.8 million loss on the equity-method investment in Zentera; there was no comparable loss in Q1 2021.
- General and administrative expense was down $0.2 million. Net loss per share increased from $1.24 to $1.31.
Outlook, commentary and material items
- Management expects significant expenses and operating losses to continue and R&D spending to rise as programs advance. It estimates current resources at March 31, together with the April Pfizer investment, prioritization of ZN-c3 and ZN-d5, and budget reallocation, will fund operating and capital needs into Q1 2024. Management cautions that assumptions may prove inaccurate and resources could be used sooner; the estimate does not cover all activities needed to complete candidate development.
- On April 29, 2022, Pfizer purchased 953,834 shares at $26.21 per share, generating approximately $25.0 million gross proceeds ($24.7 million after stated offering expenses). The parties agreed to collaborate to advance ZN-c3 clinical development; Zentalis retains full economic ownership and control of ZN-c3 and its pipeline. This was a subsequent event, not part of Q1 cash flows.
- Available-for-sale securities had $1.1 million of gross unrealized losses at March 31. The company attributed these to market conditions rather than credit losses and stated it did not intend, and was not more likely than not required, to sell before recovery.
- Zentalis held a 40.3% interest in Zentera, which it accounts for under the equity method. Q1 collaboration reimbursements of $2.1 million were recorded as a reduction of R&D expense. A $0.2 million early-stage asset divestment was also reported.
- Clinical outlook included expected initial ZN-c3 osteosarcoma trial results in the second half of 2022 and planned 2022 initiation of ZN-d5 plus ZN-c3 combination testing in AML and ZN-c5 plus ZN-c3 testing in CDK4/6-inhibitor-resistant breast cancer. The company also planned 2022 reporting of ZN-e4 trial results.
- COVID-19 had caused or risked trial-site initiation and enrollment delays, supply-chain disruption, added costs and delays to laboratory and research programs. The filing also identifies financing access, inflation, supply constraints, the Russia-Ukraine conflict, clinical and regulatory uncertainty, competition, third-party manufacturing and CRO dependence, and intellectual-property protection as significant risks.
- The company stated there was no substantial doubt about its ability to continue as a going concern within one year after issuance. It reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2022.
Most important facts for investors to verify
- Whether clinical-trial enrollment, safety and efficacy data, and stated 2022 trial milestones support management’s development plans.
- Whether the projected runway into Q1 2024 remains valid given the $50.2 million quarterly operating cash use and expected spending increases.
- The terms, accounting and strategic implications of the Pfizer share issuance and ZN-c3 collaboration, including dilution and any future obligations.
- Zentera’s development progress, financial performance and related-party arrangements, including the impact of reimbursements and the equity-method loss.
- Potential effects of COVID-19, supply-chain and China manufacturing exposure, financing conditions, and marketable-security valuation changes.