Zentalis Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. The report covers the three months ended March 31, 2020. The financial statements are for Zentalis Pharmaceuticals, LLC, before its April 2, 2020 conversion to a Delaware corporation. Zentalis is a clinical-stage oncology company with no approved products and no product-sales revenue.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $13.3 million | $7.1 million |
| General and administrative expense | $3.1 million | $1.6 million |
| Total operating expenses / operating loss | $16.4 million / $(16.4) million | $8.7 million / $(8.7) million |
| Net loss | $(16.2) million | $(8.7) million |
| Net cash used in operating activities | $(16.9) million | $(9.0) million |
| Cash and cash equivalents at period-end | $63.7 million | Not provided here |
At March 31, 2020, total current assets were $66.0 million and current liabilities were $16.9 million. The company reported no indebtedness. It had an accumulated deficit of $99.1 million. Profit margins are not meaningful because the company had no revenue and incurred operating losses.
Material changes versus the prior comparable period
- R&D expense increased $6.2 million year over year, principally as ZN-c5, ZN-c3 and ZN-e4 advanced in clinical trials, alongside additional preclinical, manufacturing and laboratory costs.
- G&A expense rose $1.5 million, mainly from higher employee-related and professional-services costs.
- Net loss widened by $7.6 million; operating cash use increased by $7.9 million.
- February financing generated $14.2 million of net proceeds from Series C preferred units. Preferred units had a $155.9 million carrying value at quarter-end and were classified as temporary equity, not debt.
Outlook, commentary, risks and unusual items
- Management expected cash and cash equivalents at March 31, together with the subsequent IPO proceeds, to fund operating and capital expenditure requirements into 2022. This estimate depends on assumptions and may prove inaccurate.
- On April 7, 2020, after the quarter, the company completed its IPO, selling 10.557 million shares at $18 per share for $190.0 million gross proceeds and approximately $172.4 million net proceeds. The LLC conversion and IPO are subsequent events, not Q1 operating results.
- Management expected initial top-line data from the ZN-c5 Phase 1 monotherapy dose-escalation portion in the second half of 2020, subject to COVID-19 impacts. Initial results from Phase 1 portions of ZN-c3 and ZN-e4 trials were expected in 2021; a Phase 1 ZN-d5 trial was planned for the first half of 2021. These are expectations, not assurances.
- COVID-19 had disrupted trial-site initiation and enrollment, restricted laboratory operations and delayed research-stage work; further effects on timelines, costs and financing needs were uncertain.
- The company expects continuing losses and rising R&D and public-company costs, and says it will need substantial additional capital beyond available resources to complete product development. No committed external funding source was reported.
- Existing operating lease liabilities totaled $2.3 million. A separate real-estate lease with approximately $23.1 million of minimum payments was expected to commence in Q1 2021, with a 10-year term.
- Potential Recurium license obligations include up to $21.5 million in development and regulatory milestones at the ownership level indicated after the IPO, plus mid-single-digit royalties on relevant product sales. These are contingent obligations, not current-period expenses.
- The filing reports no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether COVID-19 affected clinical enrollment, trial sites, laboratory work, supply or the stated development timelines after the filing date.
- Whether the projected runway into 2022 remains valid given actual spending, trial progress and any additional financing needs.
- Clinical progress and data quality for ZN-c5, ZN-c3 and ZN-e4, and the regulatory and trial status of ZN-d5.
- The terms, triggers and potential cash impact of Recurium milestones, royalties and sublicense payments.
- The commencement and payment obligations of the planned real-estate lease, and subsequent changes to lease commitments.