Zentalis Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Business context and reporting period. This unaudited filing covers the three and six months ended June 30, 2020. Zentalis is a clinical-stage oncology company developing small-molecule cancer therapies; it has no approved products and reported no product revenue. In April 2020, the company converted from an LLC to a corporation and completed its IPO.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $17.5m | $8.7m | $30.7m | $15.8m |
| General and administrative expense | $9.9m | $1.9m | $13.1m | $3.6m |
| Consolidated net loss | $27.3m | $10.6m | $43.5m | $19.3m |
| Net loss attributable to Zentalis | $26.9m | $10.5m | $43.0m | $18.8m |
- Q2 2020 basic and diluted loss per common share was $0.78. Profitability and operating margins are not meaningful given the absence of revenue and ongoing losses.
- At June 30, cash and cash equivalents were $96.0m and available-for-sale marketable securities were $137.2m, totaling $233.2m. Current assets were $238.5m; current liabilities were $15.6m. The company reported no indebtedness.
- Six-month operating cash use was $38.9m, versus $16.0m in 2019. Investing cash use was $137.3m, primarily purchases of marketable securities; financing provided $205.1m, including IPO proceeds, a preferred-unit financing, and contributions from noncontrolling owners.
- Accumulated deficit was $126.0m at June 30. Management said available funds at quarter-end plus August follow-on proceeds were expected to fund operations and capital needs into 2023, while cautioning that estimates depend on assumptions.
Material changes and unusual items
- Year-over-year increases in R&D reflected advancement of ZN-c5 and ZN-c3 clinical trials, preclinical work, manufacturing and study costs, and higher staffing and overhead. G&A rose with headcount, public-company costs, professional fees, insurance, and substantial noncash share-based compensation.
- Q2 share-based compensation was $7.7m, compared with $0.1m in Q2 2019; $5.2m of the increase in quarterly G&A employee costs was attributed to noncash stock compensation.
- The April IPO generated $172.4m in net proceeds. In August, after quarter-end, the company raised approximately $135.0m net from a follow-on offering of 4.125m shares at $35.00 per share; underwriters also received a 30-day option for 618,750 additional shares.
- Zentera, a majority-owned joint venture for development and commercialization in Greater China, received $18.4m net from noncontrolling owners in May; Zentalis consolidated its results.
- A planned San Diego lease carried approximately $23.1m in minimum payments. It was terminated in July after the landlord found a replacement tenant; Zentalis paid approximately $0.9m.
Outlook, commentary, and risks
- Management expected R&D and G&A costs and operating losses to continue increasing. Zentalis anticipated relying on additional equity, debt, collaborations, licensing, or other funding; it had no credit facility or committed external capital source.
- Pipeline plans included advancing ZN-c5, ZN-c3, and ZN-e4; initiating a ZN-c5/abemaciclib Phase 1b trial in H2 2020 with Lilly supplying abemaciclib at no cost; and expected 2021 trial starts and data milestones across its programs. Zentalis remained responsible for the Lilly trial’s conduct and costs.
- COVID-19 had caused delays in trial-site initiation and enrollment, supply-chain activities, and laboratory and research programs, with additional costs. The company expected continued effects but said their duration and financial impact were uncertain.
- Key risks include clinical and regulatory failure or delay, patient enrollment, manufacturing and supplier dependence—including manufacturing in China—competition, intellectual-property challenges, and the need for future capital. The company said no conditions raised substantial doubt about its ability to continue as a going concern within one year of issuance.
- The filing reported no material legal proceedings. Management concluded disclosure controls were effective at the reasonable-assurance level; an integrated accounting and consolidation system was implemented during the quarter.
Important facts for investors to verify
- Whether clinical timelines and data expectations for ZN-c5, ZN-c3, ZN-d5, and ZN-e4 remain achievable, particularly given COVID-19 disruptions.
- Whether the stated runway into 2023 remains supportable as trial scope, costs, and cash use evolve.
- The actual net proceeds and share dilution from the August offering, including any exercise of the underwriters’ option.
- Terms and economics of the Greater China licensing arrangements, the Lilly collaboration, and contingent Recurium milestone and royalty obligations.
- Whether manufacturing, supply, enrollment, or regulatory issues create additional delays or expenditures.