Zymeworks Inc. (NYSE:ZYME) Q4 2023 Earnings Call Transcript
Zymeworks Inc. (NYSE:ZYME) Q4 2023 Earnings Call Transcript March 6, 2024
Zymeworks Inc. beats earnings expectations. Reported EPS is $-0.2, expectations were $-0.39. Zymeworks Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. This is the conference operator. Welcome to Zymeworks Fourth Quarter and Year End 2023 Results Conference Call and Webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Shrinal Inamdar, Director of Investor Relations. Shrinal, please go ahead.
Shrinal Inamdar: Thank you, Operator. Good afternoon. I’d like to welcome you all to our fourth quarter and year-end 2023 results conference call. Before we begin, I’d like to remind you that we’ll be making a number of forward-looking statements during this call, including without limitation, those forward-looking statements identified in our presentation slides and the accompanying oral commentary. These forward-looking statements are based upon our current expectations and various assumptions, and are subject to the usual risks and uncertainties associated with companies in our industry and at our stage of development. For discussion of these risks and uncertainties, we refer you to our latest SEC filings as found on our website and as part of the SEC.
In a moment, I’ll hand over to Dr. Chris Astle, our Senior Vice President and Chief Financial Officer, who will be discussing recent scientific and corporate updates, along with our financial results for the fourth quarter 2023, including certain non-GAAP measures. A description of our non-GAAP measures and a reconciliation to the most directly comparable financial measures as determined in accordance with GAAP are described in our press release, which is available on our website at www.zymeworks.com under the Investor Relations tab. Following this, Paul Moore, our Chief Scientific Officer, will talk about key expected milestones that underpin another potentially transformative year for Zymeworks, both through expected upcoming regulatory approvals and launches, and more broadly through executing on our development strategy for our early-stage product candidates.
At the end of the call, Chris and Paul will be joined by our Chair and Chief Executive Officer, Ken Galbraith, for Q&A. As a reminder, the audio and slides from this call will also be available on the Zymeworks website later today. I’ll now turn the call over to Chris, our Senior Vice President and Chief Financial Officer. Over to you, Chris.
Dr. Chris Astle: Thanks, Shrinal. And thank you everyone for joining us today for our fourth quarter and full year 2023 earnings call. With that, I will begin today’s call with an overview of key achievements from our development programs over the course of 2023, as well as our financial results. Throughout 2023, we successfully positioned Zymeworks as a thought leader in the development of antibody drug conduits, or ADCs, and multispecific antibody therapeutics. We have done so through multiple data catalysts from our Phase 2 clinical trials of zanidatamab in both gastroesophageal adenocarcinoma or GEA, and biliary tract cancers or BTC, which validate our protein engineering expertise and antibody screening capabilities. We’re very pleased to see positive results for these patient populations and look forward to further advancements of zanidatamab’s development in multiple indications, led by our partners, Jazz Pharmaceuticals and BeiGene.
These developments, coupled with our work on demystifying the ADC dogma by reviewing 40 years of clinical data and taking these learnings to redefine our own approach to develop the next generation of ADCs, are key differentiators for Zymeworks, as we aim to develop practice-changing therapeutics and indications with higher medical needs. We have significantly accelerated the development timeline for our early-stage 5x5 programs, with the majority of our product candidates having now been nominated. Most recently, ZW251, our GPC3-targeting ADC, being developed for the treatment of hepatocellular carcinomas. We remain on track to accomplish our goal of submitting two INDs or foreign equivalent submissions in 2024 for ZW191 and ZW171, and to nominate our fifth candidate with a planned IND submission in the first half of 2026.
We also remain on track for two further IND or foreign equivalent submissions in 2025 for ZW220 and ZW251. We have strategically expanded the global footprint of our early-stage development team by establishing a presence in the key locations of Ireland, California and Singapore in preparation for our clinical development plans. This has allowed us to retain top talent and establish fit-for-purpose facilities, which will enable us to accelerate pipeline development as we move forward with our 5x5 program. Execution on our strategy throughout 2023 has allowed us, together with our partners, to target late 2024 for the pivotal Phase 3 topline readout from HERIZON-GEA-01, where we will see progression-free survival data. Our partners, Jazz and BeiGene, also remain on track to complete the Biologics License Application, or BLA, submission for zanidatamab in second-line BTC by the first half of 2024 in the United States and in the second half of 2024 in China, with the goal of potentially launching zanidatamab in the United States and China in 2025 or sooner.
We would also like to highlight that, as per recent guidance provided by our partner, Jazz, the Phase 3 confirmatory trial to evaluate zanidatamab as first-line treatment for patients with metastatic BTC has now been initiated. We see the anticipated commercialization of zanidatamab as a near-term opportunity, with more than $2 billion in revenue potential, starting with potential approval in BTC, which remains an area of particular unmet patient needs. We agree with the thoughtful approach taken by our partners to seek to take zanidatamab to market initially in BTC, as it may enable a faster go-to-market strategy and potentially expedite the regulatory review process for other indications where zanidatamab can leverage sBLA filings. GEA would be the second indication which has a much larger patient population, estimated to be 63,000 HER2-positive cases annually in the United States, Europe and Japan.
Jazz has expanded their clinical efforts for zanidatamab in breast cancer, where there remain many opportunities in both the early stages and late stages of disease. We’re also very excited about the potential for zanidatamab to provide a chemo-free regimen, which we know would be of great value to patients and we look forward to data from the I-SPY program and Jazz’s collaboration with MD Anderson. As you can see from this slide, there are many opportunities beyond these indications in other HER2-expressing tumors, which makes zanidatamab a potentially very rewarding financial investment, both for our partners and for shareholders of Zymeworks, while also supporting our goal to improve the standard of care for difficult-to-treat diseases for patients with high unmet needs.
Beyond zanidatamab, we are pleased to be starting the year having nominated four of the five product candidates that we set out to define a year ago. Today, we have a broad and differentiated pipeline with novel candidates focused on validated targets in areas of significant interest, which continue to provide multiple opportunities for business development collaboration -- and collaborations. We remain committed to advancing the development strategy for our pipeline of unencumbered product candidates, all of which have the potential to increase the standard-of-care for patients in disease areas with high unmet needs and with commercially attractive targets. We believe the next six months to 18 months are set to be transformational for Zymeworks as our partners’ approach potential regulatory approvals and launches, and more broadly, through the advancement of our differentiated early-stage product candidates.
Our Chief Scientific Officer, Dr. Paul Moore, will talk more about the future of our pipeline. But first, I would like to spend some time on our financial results. This afternoon, Zymeworks reported financial results for the fourth quarter and year ended December 31, 2023. Zymeworks’ net loss for the year ended December 31, 2023, was $118.7 million or $1.72 loss per diluted share, compared to a net income of $124.3 million for the year ended December 31, 2022. Net loss in 2023, as opposed to net income in 2022, was primarily due to non-recurring upfront fee revenue from our collaboration agreement with Jazz in 2022, which was partially offset by higher collaboration revenue, lower operating expenses, higher interest income and lower income tax expenses in 2023.
As reported, our revenue for 2023 was $76 million, compared to $412.5 million in 2022. 2023 revenues included $71.5 million for development support and drug supply revenue from Jazz, and $4.5 million from our other partners for research support and other payments. Revenue for 2022 included $375 million in upfront fees from Jazz, $24.3 million in development support payments from Jazz and a $5 million upfront fee from Atreca, as well as an $8.2 million in research support and other payments from our other partners. Research and development expense was $143.6 million in 2023, compared to $208.6 million in 2022. The decrease was primarily due to a decrease in expenses for zanidatamab at our transfer agreement and amended and restated collaboration agreement with Jazz.
This was partially offset by an increase in preclinical expenses, primarily with respect to preclinical product candidates ZW171 and ZW191, and higher zanidatamab’s overdose in program costs. Salaries and benefit expenses decreased due to lower headcount in 2023 and non-recurring severance expenses. General and administrative expenses were $70.4 million, compared to $73.4 million in 2022. The decrease was primarily due to a decrease in salaries and benefits expenses due to lower headcount, lower non-recurring severance expenses in 2023 and a decrease in expenses for professional services. This was partially offset by an increase in other expenses related to higher depreciation on facilities and higher technology spending in 2023. Other income net increased by $14.1 million in 2023, compared to 2022, due to income earned on higher cash resources and at higher rates of return in 2023.
Income tax expense decreased by $11.5 million in 2023, compared to 2022, primarily due to a reduction in United States taxes under the global intangible low-taxed income rules in 2023. In 2023, we incurred a net loss compared to a net income in 2022, primarily due to the income from the Jazz partnership in 2022. As of March 4, 2024, we have approximately 70.6 million shares of common stock outstanding, and 5.1 million pre-funded warrants issued in December 2023. As of December 31, 2023, we had 456.3 million of cash resources consisting of cash, cash equivalents and marketable securities, comprised of $157.6 million in cash and cash equivalents and $298.7 million in marketable securities. Based on current operating plans, we expect our existing cash resources as of December 31, 2023, when combined with receipt of certain anticipated regulatory milestone payments, will enable us to fund planned operations into the second half of 2027.
For additional details on our quarterly and year ended results and for a description of our non-GAAP financial measures and a reconciliation of GAAP’s non-GAAP measures, I encourage you to review our earnings release and other SEC filings as available on our website at www.zymeworks.com. Our strategy of refocusing the business and building a diverse clinical-stage product pipeline of ADCs and multispecific antibody therapeutics continues to provide a solid foundation, helping to achieve our long-term goal of identifying additional product candidates and seeking valuable partnership options with a strong financial position of $456.3 million as of the end of December 31, 2023. And this, together with certain anticipated regulatory milestones, gives us an expected runway into the second half of 2027.
We may also be able to extend this runway through potential additional regulatory and commercial milestone payments in connection with our partnership with Jazz and BeiGene, and in addition, pending regulatory approval, we are eligible to receive tiered royalties between 10% and 20% on Jazz’s annual net sales of zanidatamab and between 10% and 19.5% on BeiGene’s sales. No development or commercial milestone payments or royalties have been received to-date. With that, I’d like to hand over to our Chief Scientific Officer, Dr. Paul Moore, who will talk about our novel topoisomerase inhibitor or TOPO1 payload, which is the foundation for three of our ADC candidates, and speak more broadly about the key milestones for our early-stage pipeline.
Over to you, Paul.
Paul Moore: Thank you, Chris. And as you said, I want to start by focusing on our TOPO1 inhibitor platform, for which we recently published a manuscript in Molecular Cancer Therapeutics. First of all, it’s important to recognize there are significant challenges with repurposing older toxins not originally developed for ADCs. Limitations in their biophysical properties, pharmacokinetic and pharmacodynamic profiles often result in heightened toxicity levels diminishing their suitability for ADC applications. As such, our team has sought to design novel compounds specifically with characteristics amenable to bioconjugation to an antibody and that behave like small-molecule chemotherapeutics after they are released from the antibody to optimize the full therapeutic potential of this treatment modality.
As many on this call will know, in recent years, the field of ADCs has seen a resurgence, largely driven by the clinical benefit observed in patients treated with ADCs incorporating camptothecin-based TOPO1 inhibitor payloads. Advances in the design and engineering of ADCs as mechanisms for targeted drug delivery have widened therapeutic application of this modality and the difference it could make in patients’ lives. With this in mind, we would like to highlight our novel camptothecin, ZD06519, specifically designed for its application as an ADC payload. A commonly held notion in ADC development is that increasing payload potency and bystander activity hold the potential advantage of effectively targeting tumor cells with lower antigen expression.
However, it’s important to consider that more potent and more permeable payloads may also lead to increased toxicities, potentially requiring a reduction in the antibody dose, a challenge we have seen for many prior assets in the clinic. We believe that higher antibody dose with a moderately potent TOPO1 inhibitor payload could be a preferred strategy to overcome antigen sink effects and enhance tissue penetration, ultimately leading to increased payload delivery into tumor cells. In addition to linker design and payload potency, intrinsic payload properties such as metabolic flexibility, susceptibility to transporters play a crucial role in ultimately determining the efficacy and safety profile for patients. New molecular entities such as camptothecin payloads can be selected to address these factors and optimize the overall therapeutic profile of ADCs based on the antibody, target and indication.
Striking the right balance between ADC efficacy and tolerability remains an ongoing challenge, making a critical factor in designing a new ADC platform, ultimately enhancing the likelihood of clinical success. To identify this novel camptothecin payload with optimal properties, we leveraged insight from gain from 60 years of camptothecin structure activity relationship data to generate a library of approximately 100 compounds featuring different substituents at the C7 and C10 positions. A panel of camptothecin analogs with different substituents at the C7 and C10 positions of the camptothecin core were then prepared and tested in vitro. Selected compounds spanning a range of potency and hydrophilicity were elaborated into drug linkers conjugated to trastuzumab and evaluated in vitro and in vivo.
ZD06519 was selected based on its favorable properties as a free molecule and as an antibody conjugate, which include moderate payload -- free payload potency of approximately 1 nanomolar, low hydrophobicity, strong bystander activity, robust plasma stability and high monomeric ADC content. When conjugated to different tumor-targeting antibodies via clinically validated MC-GGFG-based linker, ZD06519 demonstrated impressive efficacy in multiple xenograft models and noteworthy tolerability in healthy mice, rats and non-human primates. In the context of addressing poor outcomes often associated with intertumor and intertumor heterogeneity, our focus has been on designing an ADC with a payload characterized by moderate potency with bystander properties.
Our hypothesis revolves around the notion that our payload’s heightened membrane permeability facilitates its infiltration into neighboring tumor cells as illustrated in preclinical studies. This strategic design aims to enhance response rates across diverse expression profiles without compromising safety due to toxicities. This slide fleshes out these two characteristics. One is target dependency, which is shown in the left graph, with the desire to have enhanced activity on target expression cell lengths indicated in blue relative to target negative cell lengths indicated in orange, something you see nicely achieved with our selected payload indicated within the box. On the right, you see data evaluating bystander activity, another important feature we wanted incorporated.
In these assays, what we are looking for is a decrease in the viability of tumor target antigen negative cells when co-cultured with target antigen positive cells, shown in brown, but limited impact on the viability of tumor antigen negative cells when cultured alone, shown in red. Again, as indicated within the box, we chose a payload demonstrating these features to make sure that when the payload is released, it is able to also enter and inhibit nearby cancer cells regardless of target antigen expression and hence maximize anti-tumor activity. Our TOPO1 inhibitor platform is one of several proprietary Zymeworks linker payload platforms. TOPO1 inhibitor-based technologies show meaningful clinical benefit in a wide range of solid tumors, including hard-to-treat solid tumors, and have been validated across many targets.
Based on empirical findings and our own preclinical data, we believe our novel payloads could provide us with improved efficacy and tolerability, and have utilized ZD06519 in three of our ADC product candidates. ZW191, an ADC that targets polar receptor alpha-expression tumors, including ovarian, other gynecological and non-small-cell lung cancer, is built using our drug conjugate platforms, including our novel TOPO1-based payload technology. A drug antibody ratio of 8 was selected to balance tolerability and efficacy, the folate receptor alpha monoclonal antibody incorporated in ZW191 was generated in-house, selected based on enhanced internalization characteristics, to enable targeting of high, mid and low levels of folate receptor alpha expressing.
Folate receptor alpha is a clinically validated target and data supports its expression in approximately 75% of ovarian carcinomas and in 70% of non-small-cell lung cancer. Our preclinical data is encouraging, with strong anti-tumor activity demonstrated across a range of patient-derived non-small-cell lung cancer and ovarian xenograft models. ZW220, an ADC that targets sodium-dependent phosphate transporter 2b or NaPi2b, expressing non-small-cell lung cancer or ovarian cancer is, like, ZW191, built using our proprietary TOPO1 inhibitor-based payload technology. A DAR of 4 was selected to balance tolerability and efficacy. The NaPi2b targeting monospecific antibody incorporated in ZW220 was generated in-house and selected based on favorable binding profile and enhanced internalization properties to enable targeting of both high and low-expressing NaPi2b -expressing tumors.
NaPi2b is found in approximately 95% of ovarian and 85% of non-small cell lung cancer, with anti-tumor activity being demonstrated in patient-derived cell lines and growth inhibition in CD spheroid non-small-cell lung cancer models. The bystander effect of the TOPO1 payload may help address NaPi2b heterogeneity across different cancers. The overall differentiated design of ZW220, featuring our TOPO1-based payload with moderate potency and mid-range DAR, we believe will overcome issues associated with prior ADCs targeting NaPi2b. ZW251, a potential first-in-class ADC molecule designed for the treatment of glycogen-3-expressing paracellular carcinoma, which incorporates the same Zymeworks proprietary bystander active TOPO1 payload utilized in ZW191 and ZW220.
A DAR of 4 was selected to balance tolerability and efficacy. With ZW251 anti-tumor activity observed on multiple patient-derived xenograft models of HCC, reflecting a range of GPC3 overexpression. GPC3, a GPI-anchored cell-surface oncofetal antigen, is overexpressed in most of the paracellular carcinoma patients and displays minimal normal adult tumor expression, making it an appealing ADC target. We are encouraged by published research demonstrating the potential of GPC3-targeting antibody in HCC patients, as evidenced by tumor localization of iodine radiolabeled condrituzumab, a prior clinical stage anti-GPC3 mAb, and believe that antibody drug conjugate-based target of GPC3 could enable a novel and effective approach to treatment of the paracellular carcinoma.
Our ADC design holds strong promise for clinical efficacy, leveraging a payload derived from a validated class of toxins, specifically camptothecin, incorporating a known linker, the MC-GGFG-based linker. This strategic approach capitalizes on the established efficacy associated with the chosen toxin class, ensuring a solid foundation for potential therapeutic success. Furthermore, the utilization of a known linker enhances the predictability and reliability of our ADC’s performance, providing confidence in its potential clinical utility. By combining these elements in ZW191, ZW220 and ZW251, we believe we are poised to deliver a robust therapeutic solution to address unmet medical needs across various tumor types. These three candidates, along with our 2+1 mesothelin-targeting bispecific T-cell engager, ZW171, featuring a novel anti-GPC3 specificity, provide us with multiple data catalysts in the next 24 months to showcase our innovative and differentiated approach.
We look forward to sharing insights from our preclinical and clinical development at medical conferences throughout the year, including AACR, where five abstracts have been accepted for presentation. Abstracts accepted from our multispecific antibody therapeutics team include two presentations focusing on our TriTCE Co-Stim platform, a next-generation trispecific T-cell engager platform with integrated CD28 costimulation, for which we will present data both on the platform itself and in the context of two tumor-targeting antigens, Claudin 18.2 and DLL3, highlighting enhanced mechanistic and anti-tumor activity over clinical benchmark CD3 bispecifics, targeting the same antigens and also showcasing the versatility of the platform. From our ADC team, abstracts include updated data on ZW191, our folate receptor alpha-targeting antibody drug conjugate, showcasing strong preclinical activity across multiple folate receptor alpha-expressing indications.
We will also be sharing progress we have made on designing and functionally screening panels of bispecific ADCs to identify those optimally formatted to overcome challenges associated with individual tumor-target heterogeneity. Lastly, for our ADC abstracts at AACR, we will also be presenting data on the development of 3D cancer cell line spheroid models for the in vitro functional characterization of cytotoxic antibody drug conjugates to enable lead-molecule selection. In addition, zanidatamab zovodotin remains ready for a Phase 2 clinical trial in combination with pembrolizumab at a RP2D of 2.5 mg per gig every three weeks, based on data from the Phase 1 clinical trial. However, the initiation of the planned Phase 2 study has been deprioritized, pending more clarity from the evolving clinical landscape.
We continue to explore potential development and commercial collaborations for zanidatamab zovodotin. We look forward to continue to share our progress at additional conferences, as well as nominating our final product candidate in our 5x5 portfolio this year. Looking ahead for 2024, as Chris touched on earlier in the call, we view zanidatamab as a near-term derisk value driver for the company, with the BLA for BTC expected to be completed in the first half of the year by our partners, Jazz. Following on from this, we look forward to the continued development of zanidatamab for first-line treatment of BTC with the confirmatory trial initiated by Jazz. Behind this, our partners, BeiGene, are also expected to submit their BLA with the NPA in China for treatment of HER2-amplified inoperable and advanced or metastatic BTC in the second half of the year.
Outside of BTC, we also expect to share the pivotal Phase 3 data readout for zanidatamab in GEA for the HERIZON-GEA-01 study, targeted for late 2024. Our partners, Jazz, are hosting an R&D Day focused entirely on zanidatamab on March 19th, where you can hear more about their development plans for zanidatamab, ahead of a potential launch for zanidatamab in second-line BTC in the USA during 2025 or earlier. On our earlier stage programs, we’re in track to advance our development plans for our unique and differentiated product pipeline with two INDs for our mesothelin-targeting bispecific antibody ZW171 and our folate receptor alpha-targeting TOPO1 inhibitor-based ADC ZW191. We are also on schedule to nominate our fifth IND candidate later this year, which we anticipate being a trispecific T-cell engager.
Beyond these near-term milestones, we are continuing our IND enabling work for our NaPi2b TOPO1-based ADC for ZW251 for GPC3-targeting TOPO1 ADC, both on track for anticipated IND submission in 2025. We are very fortunate at Zymeworks to have a wealth of experience in proprietary technology, which provide the foundation for continuous innovation for our next-generation of candidates for ADCs, multispecific antibody therapeutics and beyond. We look forward to talking more about how we can leverage our clinically validated technologies and harness the flexibility of our proprietary platforms as we -- as a foundation to solve biological challenges with new mechanisms of action at our R&D Day planned for the second half of this year. Despite the accelerated development of our pipeline, we have maintained our strong financial position and remain financially disciplined with projected cash resources to support operations into the second half of 2027.
We feel very comfortable with this cash run we have to be able to support our R&D initiatives. We’ll continue to evaluate opportunities to broaden or accelerate our development efforts through the formation of strategic partnerships and collaborations. We’re excited for what comes next, both with zanidatamab as topline data becomes available and as it moves through the process of potential regulatory approvals initiated by our partners, Jazz and BeiGene, and for our early-stage assets that we had -- as we head into the clinic. With that, I’d like to thank everyone for listening and I’ll turn the call over to the Operator to begin the question-and answer-session. Operator?
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