Zymeworks Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to DesignWorks' fourth quarter and full year 2022 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone keypad. At this time, I would like to turn the conference over to Mr. Jack Spinks of Investor Relations for DesignWorks. Sir, you may begin.

Good afternoon and welcome everyone. My name is Jack Spinks, Head of Investor Relations here at Zimeworks. Today we will discuss our fourth quarter and full year 2022 financial results, as well as provide an update to our ongoing business. Before we begin, I'd like to remind you that we will 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 those risks and uncertainties, we refer you to our latest SEC filings as found on our website and as filed with the SEC. Later in this call, Chris Astle, our Senior Vice President and Chief Financial Officer, will be discussing our financial results, including certain non-GAAP measures. A description of our GAAP measures and a reconciliation to the most directly comparable financial measures as determined in accordance with GAAP are described in detail in our press release, which is available on our website at www.zineworks.com under the Investor Relations tab. As a reminder, the audio and slides from this call will also be available on the Zineworks website later today. Now, I would turn the call over to Chris, our Senior Vice President and Chief Financial Officer. Chris?

Thanks, Jack, and thank you everyone for joining us today for our fourth quarter and full year 2022 earnings call. As a reminder, I'd like to note that while I'll be presenting the prepared remarks today, Kenneth Galbraith, our chair and CEO, and other members of our executive team will be available for Q&A following this portion of the call. With that, I'd like to begin today's call with an overview of our financial results, followed by a few recent developments and noteworthy updates across our business before we open the lines for Q&A. This afternoon, SignWorks reported financial results for the fourth quarter and year ended December 31st, 2022. SignWorks' net income for the year ended December 31st, 2022 was $124.3 million, or $1.90 earnings per diluted share, compared to a net loss of $211.8 million for year ended December 31st, 2021. The swing from an annual net loss to net income was primarily related to revenue received from our collaboration agreement with JAS, partially offset by increases in expenses incurred in 2022 relative to 2021. As reported, our revenue for 2022 was $412.5 million, compared to $26.7 million for 2021. Revenues for both the year and most recent three-month period ended December 31, 2022, primarily related to the $375 million in upfront payments received from JAS as a result of the completion of the Xanadetimab licensing agreement, combined with approximately $24 million in reimbursements from JAS for expenses incurred for Xanadetimab between October 19th and December 31st, 2022. Research and development expense for the year ended December 31st, 2022 was $208.6 million, compared to $199.8 million for the year ended December 31st, 2021. This increase of $8.8 million, or 4% from the prior year, related primarily to higher manufacturing and clinical trial expenses for Xanadetamab in 2022, and due to the restructuring exercise undertaken in the first quarter of 2022. These were partially offset by a decrease in expenses related to reduced preclinical Xanadetamab's overdosing-related expenses in 2022. As of October 19, 2022, ZymeWorks is entitled to reimbursement from JAS for all Xanadetimab-related expenses related to ongoing studies under the terms of the collaboration agreement finalized in Q4 2022. General and administrative expense for the year ended December 31, 2022 was $73.4 million compared to $42.6 million for the year ended December 31st, 2021. This year-over-year increase of $30.8 million, or 72%, was driven primarily by severance and other expenses related to our reduction in force and R&D reprioritization program that occurred in early 2022, and an increase in consulting and professional fees primarily related to the company's re-domicile to become a Delaware corporation, the JAWS licensing agreement, and other non-recurring project-based expenses. During 2022, the company's workforce was reduced by more than one-third through the reduction in force and voluntary attrition from 450 full-time employees to less than 300 full-time employees. Our cash resources, consisting of cash, cash equivalents, and short-term investments, were $492.9 million as of December 31, 2022. largely driven by the receipt of the upfront payments from JAS totaling $375 million in the fourth quarter. Our cash resources as of December 31st, 2022 did not include $24 million in reimbursements associated with Xanadetamab related expenses from October 19th through year end 2022. Our licensing and collaboration agreement with JAS completed a series of financially beneficial transformation initiatives in 2022, which we believe will fund our planned operations through at least 2026 and potentially beyond. We completed an equity offering in January 2022 comprised of a combination of common shares and pre-funded warrants for gross proceeds of $115 million, which included the exercise in full of the underwriter's option to purchase additional shares. As of March 3rd, 2023, We had approximately 65.25 million shares of common stock and pre-funded warrants outstanding and shares issuable pursuant to our Canadian exchangeable shares. We did not issue any shares of common stock under our ATM facility either during 2022 or as of March 7th, 2023 for the current year. In January of this year, we also issued financial guidance related to our net operating cash burn for 2023. Given the significant change in our overall net cash burn, we expect to experience this year due in large part to the reimbursement of Zanadetimab-related expenses under our collaboration agreement with JAS. We continue to expect our net operating cash burn for 2023 to be between $90 and $120 million, including planned capital expenditures of $15 million. This cash burn guidance, as well as our cash runway guidance, includes forecasted expenses that are primarily related to our early R&D programmes, as well as incremental expenses to support our planned Phase 2 clinical development programme for Xanadetamab-Zovidotin. For additional details on our quarterly results and for a description of our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, I encourage you to review our earnings release and other SEC filings as available on our website at www.signworks.com. Now, I'd like to spend a few minutes talking about our early R&D portfolio, followed by a brief discussion on Xanadetimab Sovidotin and Xanadetimab, our most advanced clinical product candidate. We reprioritized our R&D strategy early in 2022 and had an exciting and productive year with substantial progress on executing this new R&D strategy. To quickly recap, we recruited Dr. Paul Moore as our new Chief Scientific Officer in June of last year, and hosted an early research and development day in October, where we previewed preclinical product candidates emerging from both our antibody drug conjugate and multi-specific platform technologies designed to overcome limitations of existing therapies. At that same event, we disclosed our two lead candidates for INDs by 2024, ZW171 and ZW191, both of which are on track to be submitted next year. Additionally, we set an ambitious target of progressing five novel and differentiated preclinical product candidates, including ZW171 and ZW191, into clinical studies by 2027. We believe that our pursuit of this goal, along with our scientific vision and path forward in the ADC and multispecific antibody space, will help generate a diverse and valuable oncology product portfolio of wholly owned product candidates. In addition to developing our own internal oncology pipeline, we anticipate additional preclinical product candidates derived from our ADC and multi-specific technologies to progress with resources available from potential partners and collaborators. We are continuing to evaluate opportunities to form additional collaborations and partnerships around both our publicly disclosed and confidential preclinical product candidates. This partnership strategy is important as it can help us to accelerate development and advance potential opportunities without the use of ZymeWorks' shareholder capital to complement our wholly owned product pipeline. We hope to announce the completion of additional collaborations and partnerships before the end of this year for multiple preclinical product candidates. In helping further this objective, we are excited to announce the acceptance for publication of 11 abstracts of the American Association for Cancer Research or AACR, to be presented in mid-April in Orlando, Florida. These abstracts will be made publicly available by AACR on March 14th. At AACR, we will be able to share with you additional progress and preclinical data on the announced preclinical product candidates that we spoke to at our early R&D day last year, as well as continued progress on our technology platforms for generating additional ADC and multispecific antibody therapeutic candidates to add to our preclinical product pipeline beyond 2024. Subsequent to these presentations in Orlando, we will also plan to host a conference call to discuss the results and strategic impact these new data will have on our path forward. In addition to our in-house development efforts, we continue to have multiple active licensing agreements with key pharmaceutical and biotechnology partners. This portfolio of legacy platform partnerships which consist of partnerships where we are required to expend little, if any, capital to advance the programmes, represent a significant source of past and potential future non-dilutive funding. To date, we have received approximately $180 million in upfront and milestone payments, not including any amounts received for Xanadetimab or Xanadetimab's overdose. Further, throughout 2023 and 2024, we expect to earn additional milestone payments under existing agreements, as product candidates continue to be advanced through development stages by our partners. We also retain the ability to monetize all or a portion of the future cash flows from these agreements, pulling forward the value of future cash payments to provide an additional source of non-dilutive capital should it be needed. Here on slide 6, we can take a moment to touch on Xanadecimab-Zobidotin, or Xanizo for short. As you likely noticed from our earnings release issued earlier this afternoon, we are planning to continue with a data-driven development program for Xanizo and advance into selected patient cohorts in Phase II clinical studies. This will appropriately move this product candidate forward by studying Xanizo in combination with other approved agents, especially checkpoint inhibitors, with incremental clinical investment and predetermined benchmarks. Previously, we had anticipated a protocol expansion of our ongoing phase one clinical study. However, after careful evaluation and a better understanding of both timelines and what we believe will be the most valuable to any potential future partner, thus building potentially meaningful value to our shareholders, we have chosen to proceed with separate phase two studies to be conducted. One evaluating Xanizo in combination with PD-1 inhibitors in non-small cell lung cancer, and another in patients with breast cancer after progression on T, DXD, and HER2 low patients in combination with PD-1 inhibitors. With this design, we believe we can obtain the clinical data necessary to both enter into a registrational path for Xaniso before the end of 2025 and attract an appropriate partner to assist with XUS development and commercialization, which is something we currently expect would be required before moving forward into a registration pathway. We continue to consider other areas of interest for clinical development in evaluating Xanizo with the current standard of care in HER2-amplified colorectal cancer patients, HER2-expressing gynecological cancer patients, and HER2-positive gastroesophageal adenocarcinoma, or GEA. We anticipate that our Phase 2 studies for Xanizo will be implemented using Assignment's two-stage study design. This allows us to clearly designate and define hurdle rates and stage our investment in Xanizo going forward. We expect that the conduct of these phase two studies will be expanded geographically to additional clinical sites in Asia and Europe to both improve the speed of patient recruitment and lower the overall clinical development cost of patient recruitment. Our newly formed regional hubs will help us provide the appropriate support for this geographic expansion of our clinical development program for Janizo. We continue to believe that the phase one clinical data presented last year at ESMO at 2.5 milligrams per kilogram, dosed every three weeks, shows that Xanizo has a differentiated tolerability profile relative to other HER2 ADCs and acceptable single agent activity in a range of HER2 expressing tumors. The keratitis seen in our phase one study is well characterized and primarily low grade, being grade one or two, which is both manageable and reversible. An appropriate dose reduction management strategy was effective in managing any patients affected with keratitis in our Phase 1 study without any significant discontinuation from the clinical study. Importantly, we did not see other tolerability signals of concern common to other HER2 ADC products, and consequently, an attractive part of what we believe Zanizo can offer is the potential ability to combine with other agents currently used as standard of care in areas where we see the patient need and where we may be able to improve upon current efficacy seen with existing standards of care. Incremental investment in these Phase II studies, which are planned to begin enrolling patients in 2023, is warranted based on the clinical data generated to date and our recent interactions with KOLs and potential partners. While the spend represents a small component of our anticipated net cash operating burn guidance of $90 to $120 million for 2023, We think that Xanizo represents an important and investable opportunity worth pursuing as a differentiated HER2 ADC in post-TDXV patient population and could provide the company with the ability to retain development and commercial rights in the U.S. while working with a partner in ex-U.S. markets. Finally, on Xanizo, while we have continued to enroll and follow patients on our Phase 1 study treated at the recommended Phase 2 dose of 2.5 mg per kg, every three weeks with monotherapy, we will be closing the weekly cohort in order to eliminate any future additional costs associated with keeping this portion of the study open. We expect to be able to present further data before the end of this year on that weekly data, as well as additional monotherapy data generated since the data cut off for the 2022 ESMO presentation. However, going forward, we will be focused on opening the initial two Phase II studies and generating combination data as quickly as practicable. Finally, before we open things up for Q&A, I will briefly touch on Xanadetamab, as we still have an exciting year ahead of us and recently presented important data at ASCO-GI this January. At ASCO-GI, we presented updated data from our Phase II trial evaluating Xanadetamab in frontline HER2-positive metastatic GEA. These data included a first look at Xanadetamab's overall survival data, which showed an impressive 84% overall survival at 18 months, with the median overall survival having not been reached. Further, the data included an overall confirmed objective response rate of 79%, including three complete responses, a median progression-free survival of 12.5 months, and a median duration of response of 20.4 months after 26.5 months of patient follow-up. The regimen was manageable, tolerable, and consistent with the observed safety profiles reported for other standard regimens for patients with HER2-positive GEA. We are working closely with JAS and Beijing to continue enrollment of patients in the Phase III randomized clinical trial, Horizon GEA-01, evaluating Xanadetamab in combination with chemotherapy, plus or minus Tuzolizumab, as a first-line treatment for HER2-expressing metastatic or advanced GEA. We continue to expect top-line results from this pivotal study to be available in 2024. Additionally, last quarter, ZynWorks reported positive top-line data from our Phase 2b open-label single-arm clinical trial, Horizon BTC01, studying Xanadetamab as a monotherapy in patients with previously-treated HER2-amplified and expressing biliary tract cancers. With a confirmed objective response rate of 41.3% and a median duration of response of 12.9 months in patients with HER2-amplified and expressing, or IHC2-plus and 3-plus disease, these data represent a potentially important step for HER2-amplified patients with BTC because Zanodetamab has the potential to be the first HER2-targeted therapy in this indication. and represents a chemotherapy-free treatment option for patients who would otherwise receive standard-of-care chemotherapy in second line, which typically elicits overall response rates of between 5% and 15%. Further, we expect the full results from these data to be presented at a major medical meeting in the first half of this year, and look forward to confirming that presentation as soon as practicable. We remain very encouraged by these positive top-line results for Xanadetamab, as well as the recently presented results at ASCO-GI, including the first look at overall survival data for Xanadetimab in our Phase 2. With our partners JAZ and Beijing, we continue to work towards the potential regulatory path forward with the relevant regulatory bodies in various countries where the BTC data may support an accelerated or full approval. We will continue to work with our partners, who will provide guidance at the appropriate time for any regulatory filings. While the initial development path and global regulatory interactions will be focused in BTC and GEA, the two most advanced indications with ongoing pivotal trials, we and our partners continue to evaluate the development path in other indications beyond BTC and GEA. We have ongoing clinical development in additional indications and remain excited about the broad potential of Xanadetamab in indications outside GI cancers. To this point, Xanadetimab is currently being used in the iSpy platform trials for patients with HER2-expressing tumours in the neoadjuvant treatment of locally advanced breast cancer. This and other ongoing development efforts for Xanadetimab will help determine the path forward in these indications. Last year was an important year for the company, with numerous ambitious goals that were set in January of 2022 to reset the company's strategy. As we reflect on the past year, We were able to make significant progress across multiple aspects of our business, including on the non-scientific front, where we successfully completed a redomital to Delaware, resulting in positive inflows due to index inclusion in U.S.-based indices, as well as a stock exchange listing change from the New York Stock Exchange to the NASDAQ stock market, where we better aligned with peers in the biotechnology sector. As we look towards 2023, we have identified five important pillars of value, our enterprise value framework, that we will look to advance in order to continue generating value. These five pillars are two Xanadetimab collaborations with Beijing and Jazz, our early research and development programs, Xanadetimab's Ovidotum, and our legacy platform licensing portfolio. From a business and financial standpoint, we believe we are well positioned for success with our new strategy. We have sufficient cash to pursue our planned development activities with a significantly reduced net cash burn, a focused clinical program with planned phase two studies for Zanodecimab-Zovidotin, and a number of exciting preclinical product candidates that we are working to progress to clinical studies with a specific focus on development of a mix of antibody drug conjugates and multi-specific antibodies. We believe this focused investment and moderated future spending, when combined with the scientific expertise and people working hard behind the scenes, makes for a very compelling opportunity going forward. As we remain focused on our operational goals, we will also stay true to our vision to discover, develop, and commercialize novel medicines that can make a meaningful difference in the lives of patients around the world impacted by difficult to treat cancers and other serious diseases. To all of those who have been with us through what was a challenging 2022 for everyone investing and working in biotech, Zyneworks now looks forward to the future from a strong financial and scientific footing, and we expect to continue delivering upon these results, generating long-term value for our shareholders and ultimately improving the lives of patients by generating antibody-based therapeutics with the potential to dramatically improve on current standards of care in difficult-to-treat cancers. With that, I'd like to thank everyone for listening to our prepared remarks. And I'll turn the call over to the operator to begin the question and answer session. Operator?