Zymeworks Inc. (NYSE:ZYME) Q1 2024 Earnings Call Transcript

Zymeworks Inc. (NYSE:ZYME) Q1 2024 Earnings Call Transcript May 2, 2024

Zymeworks Inc. misses on earnings expectations. Reported EPS is $-0.41513 EPS, expectations were $-0.31. 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 First Quarter 2024 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 first quarter 2024 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. 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 Ken Galbraith, our Chair and Chief Executive Officer, who will be discussing recent scientific and corporate updates, along with our financial results for the first quarter 2024. Following this, Dr. Paul Moore, our Chief Scientific Officer, will talk about recent data shared at the Annual American Association for Cancer Research or AACR meeting and key takeaways. At the end of the call, Ken, Paul and Bijal Desai, our VP of Finance and Strategy, will be available for Q&A. As a reminder, the audio and slides from this call will also be available on the Zymeworks website later today. I will now turn the call over to Ken.

Ken Galbraith : Thank you, Shrinal, and thanks, everyone, for joining us today on our first quarter 2024 earnings call. With that, I'll begin today's update with an overview of key achievements from our development programs as well as our financial results. We're pleased to be reporting on another busy quarter where we've had a chance to present some really interesting data from our R&D team, which showcase the capabilities and internal expertise we have in screening and optimizing our candidates as presented at AACR, which Paul will speak to later in this call. Beyond that, we've also made progress on the clinical development readiness of our teams, including conducting steering committee meetings at various regulatory agency consultations to fine-tune our clinical strategy for our two upcoming investigational and drug applications, or INDs, and foreign equivalents coming up this year.

We've also been strengthening our presence in key locations to carry out a broad Phase I clinical trial program in North America, Europe and Asia Pacific, with the majority of our patients in our upcoming Phase I studies expected to be recruited outside the United States. And I look forward to talking more about our plans in the near future when we posted our respective study protocols publicly on the clinical trials website and are actively recruiting in the dose escalation stage of our Phase I studies. To support this continued growth, we've brought in Dr. Neil Gallagher to join our experienced Board. His experience in leadership in leading multiple development programs through the global regulatory approval will support our efforts to rapidly advance our 5x5 programs into clinical studies and our continued pipeline expansion of novel antibody-drug conjugates and multispecific antibodies in the years ahead.

Dr. Gallagher is in very good company and will provide complementary guidance along with the new and longer-serving members of our Board. I'm very confident that these advances, coupled with R&D reprioritization and some difficult but necessary personnel decisions over the past two years, will position us for success as we approach pivotal milestones for Zymeworks this year and in the years ahead by focusing our resources and energy on our most advanced and highest potential clinical value drivers. On our later-stage asset, we're very pleased that Jazz has completed its BLA submission seeking accelerated approval for zanidatamab in second-line biliary tract cancers, or BTC, in the United States as monotherapy. Yesterday, Jazz also guided their plans to submit a marketing authorization application, or MMA, to the European Medicines Association for zanidatamab are proceeding.

Similarly, Beijing is expecting to submit their BLA for zanidatamab with the National Medical Products Administration in China during the second half of this year. Jazz also initiated a Phase 3 confirmatory trial for zanidatamab as first line treatment in BTC in combination with the current standard of care, and enrollment for this trial is ongoing. Jazz has also noted that they expect to present updated data with longer follow-up, including overall survival findings from the Phase 2b Horizon BTC-01 trial at the 2024 ASCO Annual Meeting. Additionally, Jazz is targeting the top-line PFS data readout from the pivotal Phase 3 trial of zanidatamab in first line gastroesophageal adenocarcinoma, or GEA, in late 2024. Furthermore, Jazz announced they expect to initiate a Phase 3 trial anticipated for the second half of 2024 for zanidatamab in HER2-experienced patients with HER2-positive breast cancer.

We sincerely appreciate the progress achieved and commitment shown by our partners, Jazz and BeiGene, in leading zanidatamab towards commercialization initially in BTC and then with additional clinical development investment for potential label expansion, including in GEA and metastatic breast cancer. Turning now to our financial position this afternoon. Zymeworks reported financial results for the first quarter of 2024. Zymeworks net loss for the three months ended March 31, 2024, was $31.7 million or $0.42 loss per diluted share compared to a net loss of $24.4 million for the same period in 2023. The increase in net loss was due mainly to a decrease in revenue, which was partially offset by a decrease in operating expenses and an increase in interest income.

As reported, our revenue for the three months ended March 31, 2024, was $10 million compared to $35.6 million for the same period in 2023. Revenue for the three months ended March 31, 2024 included $9.9 million for development support and drug supply revenue from Jazz and $0.2 million from our partners for research support and other payments. Revenue for the same period in 2023 included $34.4 million in revenue for development support and drug supply payments from Jazz and $1.2 million from our partners for research support and other payments. The decrease in revenue from Jazz was the result of a transfer of responsibility for certain clinical trials regarding zanidatamab to Jazz for our transfer agreement and amended collaboration agreement with Jazz.

Overall operating expenses were $47.8 million for the three months ended March 31, 2024, compared to $62.9 million for the same period in 2023, representing a decrease of 24% year-over-year. The decrease in overall operating expenses resulted from a decrease in both research and development expense as well as a decrease in general and administrative expense. The decrease in R&D expense was primarily due to a decrease in expenses for zanidatamab as a result of the transfer of responsibility for the program to Jazz for our transfer agreement and embedded collaboration agreement. This decrease compared to the same period in 2023 was partially offset by an increase in preclinical expenses, primarily with respect to the preclinical product candidates ZW171, ZW191 and ZW220.

Salaries and benefit expenses decreased compared to the same period in 2023 due to a lower headcount in 2024, which was partially offset by an increase in stock-based compensation expense in 2024. The decrease in general and administrative expense was primarily due to a decrease in expenses related to external legal spending and insurance expenses compared to the same period in 2023. April 30, 2024, we have approximately 70.7 million shares of common stock outstanding and approximately 5.1 million shares of common stock issuable under prefunded warrants. As of March 31, 2024, we had $420.5 million of cash resources consisting of cash, cash equivalents and marketable securities as compared to $456.3 million as of December 31, 2023. Based on our current operating plans, we expect our existing cash resources as of March 31, 2024 when combined with the seat of certain anticipated regulatory milestone payments will enable us to fund planned operations into the second half of 2024.

For additional details on our quarterly and year-end results, I encourage you to review our earnings release and other SEC filings as available on our website at www.zymeworks.com. With respect to our SEC filings, you may notice that our current shelf registration statement expires later this year. And as a matter of good financial housekeeping, we filed an automatic shelf registration statement today to take advantage of our new well-known season issuer or [indiscernible] status. This automatic shelf registration statement, like our existing ATM equity program, provides us with flexibility to consider various financing alternatives in the future as other biotechnology companies do, but does not commit us to raise any new equity capital. As further financial housekeeping, you may see some further upcoming filings with the SEC to bring our existing prospective supplement filings regarding our exchangeable shares and our ACO program under our new WICC [ph] automatic shelf registration statement.

Turning to Slide 7. Our strategy of refocusing the business and building a diverse clinical stage product pipeline of antibody drug conjugates and multispecific antibody therapeutics continue to provide a solid foundation helping to achieve our long-term goal of identifying additional product candidates and seeking valuable partnership options where appropriate to assist in global development and commercialization. Our strong financial position of $420 million in cash resources as of March 31, 2024, together with certain anticipated regulatory milestones payments, gives us an expected runway into the second half of 2027. We may also be able to extend this runway or fund an expanded R&D scope through potential regulatory approval milestone payments in connection with our existing partnerships with Jazz in BeiGene or new partnerships and collaborations, which we may choose to form.

In addition, pending regulatory approval, we are eligible to receive commercial milestone payments based on annual sales of zanidatamab and tiered royalties between 10% and 20% on Jazz's annual net sales and between 10% and 19.5% on BeiGene sale. With that, I'd like to hand over to our Chief Scientific Officer, Dr. Paul Moore, who will talk more about the really interesting work our team presented at AACR on our ADCs and multi-specific antibody therapeutics. Over to you, Paul.

Paul Moore : Thanks, Ken. As you said, we were pleased to be able to showcase some of these capabilities at AACR and provide insights into how these technologies can be applied to the screen and optimization of our preclinical development candidates, keeping the specific targets and patient populations in mind with the aim of derisking clinical development efforts. Posters presented on our multispecific antibody therapeutics focused on our TriTCE Co-Stim platform, a next generation tri specific T-cell engager with integrated CD28 co-stimulation. We presented data on the platform itself and in the context of two tumor targeting antigens, highlighting enhanced mechanistic and antitumor activity compared to clinical benchmark CD3 bispecifics targeting the same antigens.

By providing balanced activation of both Signal 1 through CD3 and Signal 2 through CD28 in a single molecule, TriTCE Co-Stim molecules have the potential to ingest more sustainable T-cell responses in the tumor microenvironment beyond that achievable with conventional bispecific T-cell engagers that only engage CD3 or CD28 alone. Providing up the potential therapeutic modality to treat solid tumors with low T-cell infiltration and poor T-cell function that are underserved by existing immune-based therapies. On Slide 10, summarizes the first TriTCE Co-Stim presentation, which utilizes Claudin18.2 as a model tumor target. And it focused on the various design features optimized through protein engineering and reiterated functional screening to enable certain key functional properties desired in the platform.

This includes conditional binding of CD28 contingent on CD3 binding, obligate T-cell binding of CD28 and CD3 with no T-cell cross linking between CD3 and CD28 on separate T-cells and with T-cell activation contingent upon tumor antigen engagement. In the presence of tumor cells expressing Claudin 18.2, the simultaneous engagement of Claudin 18.2 on tumor cells with dual CD3, CD28 co-engagement on T-cells is anticipated to yield higher functioning T-cells capable of driving more durable T-cell responses culminating in sustained antitumor activity. As shown in the left, we tested this hypothesis in an in vitro serial repeat challenge assay with results demonstrating superior T-cell viability, T-cell proliferation and tumor cell cytotoxicity over time with the lead Claudin 18.2 TriTCE molecule relative to clinical stage benchmark bispecifics from Amgen and Astellas.

On the right-hand side of the slide, you can see that this also translates into enhanced antitumor activity in established gastric cancer models. Building on data shared in prior presentations on the platform demonstrating lack of systemic cytokine release, we also continue to characterize the safety profile of the platform. In pilot NHP studies, Claudin 18.2 TriTCE Co-Stim was well tolerated upon repeat dosing at 3 mg per kg with mild changes in peripheral cytokines and no histopathological changes observed in the stomach where Claudin is expressed. Taken together, we view these results as very encouraging, further validating the potential of the TriTCE Co-Stim approach and supporting continued evaluation against additional tumor targets. The second TriTCE Co-Stim presentation described the design and characterization of a DLL3 targeted TriTCE Co-Stim module.

Again, incorporating balanced CD3 and CD28 T-cell activation to enhance cytotoxic T-cell responses against DLL3 expressing tumor cells beyond that achieved with benchmark DLL3 CD3 bispecifics. As described in the presentation, molecule selection was achieved through a rigorous evaluation and functional screening of various formats, geometries and paratope affinities, while also leveraging advances in the platform described in the Claudin 18.2-based poster. This slide shows a subset of data from the poster. On the left, we show example in vitro cytotoxicity results performed at low ET ratio, demonstrating favorable activity of DLL3 TriTCE Co-Stim relative to benchmark clinical stage DLL3 CD3 bispecifics such as AMG 757 or trastuzumab at HPN328 from Harpoon.

In additional experiments reported in the poster, we further demonstrated that the DLL3 TriTCE, as by design, improves T-cell proliferation and survival, resulting in more sustained T-cell cytotoxicity and rechallenge experiments relative to benchmark TCEs, while maintaining desired T-cell engagement properties such as conditional binding to CD28 that requires co-engagement with CD3. Similar to our Claudin 18.2 TriTCE, the novel geometry that prevents binding of the CD28 paratope in the absence of CD3 binding reduces the potential of cytokine release syndrome as tested using a predictive in vitro model through monitoring cytokine release. Finally, as shown in the right-hand side of the slide, in vivo studies using a high bar established small cell lung cancer Humanized Xenograft Model comparing the DLL3 TriTCE to the AMG 757 benchmark demonstrates tumor regression with the DLL3 TriTCE not observed with the benchmark control.

Taken together, we feel both AACR posters describing the trispecific T-cell engager platform illustrate our ability to engineer T-cell engagers to supplement CD3 activation with CD28 co-stimulation to enhance T-cell responses and antitumor activity, while maintaining a desired tolerability profile, paving potential opportunity to expand and enhance therapeutic responses in solid tumors patients beyond that achieved thus far with T-cell engagers. On Slide 12, as you are no doubt aware, the appeal of incorporating CD28 co stimulation into T-cell engager strategies is also being pursued by others in the industry, as shown in gray on this slide, highlighting the exciting potential of CD28 co-stimulation to augment T-cell based therapeutic strategies.

Zymeworks approach, highlighted in green, however differentiates from these competitor approaches in several key features. First and foremost, we have designed tumor targeted T-cell engagers that incorporate both CD3 and CD28 co-engagement in a single molecule, engineering balanced CD3 and CD20 activation to enable an optimal level of T-cell activation through Signal 1 and Signal 2. This differs from companies developing CD28 bispecifics alone or in combination with either anti PD1 or with CD3 bispecifics. While others have developed CD3, CD28-based tripecifics, in contrast to their approach, we have been very careful to engineer conditional CD28 binding and activation contingent on CD3 binding to offset the potential for T-cell, T-cell engagement and peripheral T-cell activation.

Zanidatamab's advancement to regulatory review marks a significant milestone and validates our protein engineering expertise, including the asymmetric platform also a core component of our multi-specifics, used in the next generation T-cell engager ZW171 alongside our latest TriTCE Co-Stim candidates. Much like our design and optimization of ZYME as a next-generation anti HER2 agent, we anticipate our protein engineering expertise and attention to design features of next-generation T-cell engagers will likewise provide enhancements and therapeutic benefits beyond the limits of first-generation T-cell engagers. And we look forward to nominating a TriTCE molecule at the end of this year as the final molecule of our 5x5 strategy. From our ADC team, we had three posters.

For ZW191, our folate receptor targeting antibody drug conjugate, we shared additional preclinical data this demonstrating, this differentiated profile relative to other full receptor targeting ADCs, its strong antitumor activity across an expanded set of forward receptor alpha tumor indications and its favorable tolerability in repeat dose in each nonhuman primate studies. On this slide, we highlight a few of these results. On the left, we demonstrate the relative internalization, payload delivery and tumor spheroid penetration supported by ZW19 folate receptor and alpha mAb compared to folate receptor alpha targeting antibodies incorporated in four other ADC programs. As you can see, ZW191 mAb in blue, in dark blue demonstrated higher levels of internalization, seropentration and piloted liverate compared to the mAbs from Elahir, MORAb-202, STRO-002 and PRO1184.

This observation is consistent with our decision to select the ZW191 mAb from a larger pool of polypeptide receptor alpha antibodies based on its optimal ability to deliver payload through enhanced internalization and consistent with our care and factoring in all components of the ADC when designing our candidates. On the right-hand side of the slide, we demonstrate ZW191 antitumor activity in a range of PDX models. Consistent with prior data, we saw greater total activity of 191 compared to MIRV with ZW191 demonstrating activity in full lip receptor high, medium and low models of ovarian cancer. We also reported promising results in folate receptor alpha expressing non-small cell lung cancer, endometrial and triple negative breast cancer models with representative examples of responses shown.

Further for ZW191, we disclosed updated data from our GLP tox studies, toxicology studies supporting our IND filing, where we reported the highest non-severely toxic dose to nonhuman primates was 60 mg per kg, presenting a compelling profile for potentially efficacious dosing. Beyond the ZW191 poster, our ADC team also presented development of a novel tumor spheroid model system applicable to multiple cancer types to aid in the screening characterization of our ADC molecules including TOPO-based ADCs that is more predictive of antitumor activity in vivo than traditional two T-cell line models. It also is in the detection of ADC mechanism of action such as the tumor sparing penetration data shown in the ZW191 presentation. Finally, we also shared progress made on the design and functional screening of bispecific ADCs to identify those optimally formatted in affinity, valency and design to overcome challenges associated with tumor target heterogeneity associated with targeting a single tumor antigen.

And we look forward to presenting more data from that novel technology in the future, including applications to additional tumor target peers. In addition, to today's updates, we anticipate further opportunities to showcase our progress from for both our preclinical and clinical milestones at upcoming conferences in 2024, including the nomination of our final product candidate within our 5x5 portfolio. Our commitment to innovation and mission to provide effective treatment options for patient remains at the heart of what we do at Zymeworks. We're actively exploring alternative mechanisms of actions and harnessing new modalities to optimize efficacy while minimizing toxicity, ultimately with the aim of raising the bar for the standard of care, particularly in challenging to treat diseases.

We're excited about the journey ahead and remain dedicated to advancing transformative therapies. Ken, back over to you.

Ken Galbraith : That's great. Thank you, Paul. In summary, as mentioned earlier, we're very pleased with the BLA submission seeking accelerated approval for zanidatamab in second line BGC in the United States having been completed. And we continue to work very closely with our partner Jazz and BeiGene to achieve key near-term milestones. We're encouraged by our progress to date in 2024 and as excited as ever about the future of Zymeworks. As we prepare to enter multiple Phase 1 trials in the next coming 24 months, our commitment to advancing innovative solutions remains evident with more preclinical data for our early stage pipeline to be presented throughout 2024. Beyond that, we wish to further build upon and leverage the differentiated platform at Zymeworks to generate continued long-term R&D productivity with the ability to expand our therapeutic focus and research scope beyond the current pipeline with the potential for two new INDs annually from 2027 onward.

Our cash runway remains on track to support the development of our 555-product pipeline and invest in our long-term R&D strategy called Advance. While we approach milestones that may result in the further extension of this runway or allow us to expand our R&D scope, we remain diligent in efficiently managing our operating expenses as we continue to execute on the strategic clinical development plans for our assets. We look forward to reporting our continued progress against our key priorities during the remainder of 2024. With that, I'd like to thank everyone for listening to our call. I'd like to turn the call over to the operator now to begin the question-and-answer session. Operator?

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