Zentalis Pharmaceuticals, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Zentalis is a clinical-stage biopharmaceutical company developing oncology medicines. It has no approved products and has not generated product-sales revenue.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | No product-sales revenue | No product-sales revenue | No product-sales revenue | No product-sales revenue |
| Research and development expense | $46.8 million | $42.2 million | $138.0 million | $132.1 million |
| Total operating expenses | $62.7 million | $54.2 million | $231.6 million | $175.5 million |
| Net loss attributable to Zentalis | $55.5 million | $54.4 million | $231.3 million | $181.8 million |
| Basic and diluted loss per share | $0.79 | $0.96 | $3.64 | $3.56 |
| Net cash used in operating activities | Not reported for quarter | Not reported for quarter | $167.2 million | $126.4 million |
As of September 30, 2023, cash and cash equivalents were $110.8 million and available-for-sale marketable securities were $405.9 million, totaling $516.6 million. Current assets were $528.3 million and current liabilities $58.9 million. Total assets were $585.7 million, total liabilities $103.8 million, and stockholders’ equity $481.8 million. The company reported no indebtedness. Profit margins are not meaningful given the absence of product revenue and continuing losses.
For the first nine months, financing activities provided $237.3 million, primarily from a June 2023 common-stock offering that generated $235.7 million net proceeds. Cash, cash equivalents and restricted cash increased by $67.7 million to $113.4 million; investing activities used $2.4 million, largely reflecting purchases and maturities of marketable securities.
Material changes and unusual items
- Q3 operating expenses rose $8.5 million year over year. R&D increased $4.6 million and general and administrative expense increased $3.9 million. Higher investment income partly offset the operating-cost increase.
- Nine-month operating expenses rose $56.1 million, including $45.6 million of Zentera in-process research and development expense. The company also recorded a $16.0 million loss on its equity-method investment in Zentera, including a one-time charge related to the termination transaction.
- In June 2023, Zentalis terminated its Greater China collaboration with Zentera, reacquired rights to azenosertib, ZN-d5 and ZN-c5 for the region, and returned its 40.3% equity stake in Zentera for de minimis consideration. Consideration included a $30 million upfront payment, forgiveness of $9.4 million in receivables, contingent consideration valued at $0.5 million, and a low-single-digit royalty on future Greater China net sales after approval and commercialization.
- The June follow-on offering issued approximately 11.0 million shares at $22.66 per share for $250.0 million gross proceeds. Shares outstanding were 70.6 million at September 30, versus 59.3 million at December 31, 2022.
- A $5.0 million impairment charge related to New York office lease assets followed a sublease arrangement; the company recorded $0.6 million of sublease income for the nine-month period.
Outlook, clinical programs and risks
- Management estimates current cash, cash equivalents and marketable securities will fund operating expenses and capital requirements into 2026. This is an estimate based on assumptions; management says resources may be used sooner and will not fund all activities needed to complete product development. The company expects substantial expenses and losses to continue and may need additional capital.
- Azenosertib is being studied as monotherapy and in combinations across cancer indications. The company targets its first NDA submission in a gynecologic malignancy in 2026. It expected topline data from the Cyclin E1-positive ovarian cancer Phase 2 trial in the first half of 2025, and from several other studies during 2024–2025, as described in the filing.
- Reported clinical results include preliminary or interim findings and may change with further follow-up, data review and verification. In an azenosertib chemotherapy study, reported response rates varied by regimen; Cyclin E1-positive patients showed higher response and longer progression-free survival in the reported evaluable subgroup. These findings do not establish approval or commercial success.
- Zentalis is developing ZN-d5 in combination with azenosertib in relapsed or refractory acute myeloid leukemia and expected initial data in the second half of 2024. It said it would not further develop ZN-d5 in non-Hodgkin lymphoma or light-chain amyloidosis, focusing resources on the azenosertib franchise.
- Key risks include clinical safety and efficacy uncertainty, trial enrollment and execution, regulatory review, biomarker and diagnostic development, competition, reliance on third-party manufacturers and CROs, intellectual-property protection, and the need for additional financing. The company also cited potential disruption from macroeconomic conditions, rising interest rates, and manufacturing or supply exposure outside the U.S., including China. Deposits at financial institutions exceed insured limits.
- On November 1, 2023, Chief Scientific Officer Kevin Bunker announced he would resign effective December 31, 2023 and serve as an advisor afterward. Mark Lackner was named successor, effective that date. The filing reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of quarter-end.
Important facts for investors to verify
- Whether the reported cash runway into 2026 remains consistent with spending, trial plans and financing needs.
- Progress, enrollment, safety, efficacy and final data from azenosertib trials, particularly biomarker-defined studies and the targeted 2026 NDA timeline.
- Whether the $45.6 million Zentera asset-acquisition expense, $16.0 million equity-method investment loss and lease impairment are nonrecurring, and the terms and potential value of contingent payments and royalties.
- Potential dilution from future equity financing, outstanding awards and the remaining $140.3 million capacity under the ATM program at September 30, 2023.
- Execution of the CSO transition and the company’s reliance on external clinical and manufacturing partners, including suppliers located outside the United States.