Zymeworks Inc.

Good day and thank you for standing by. Welcome to ZymeWorks first quarter 2023 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. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Jack Spinks, Director of Investor Relations. Please go ahead.

Good afternoon and welcome, everyone. My name is Jack Spinks, Head of Investor Relations here at DesignWorks. Today, we'll discuss our first quarter 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 these 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. 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 detail in our press release, which is available on our website at www.signworks.com under the Investor Relations tab. As a reminder, the audio and slides from this call will also be available on the ZynWorks website later today. Now, I will turn the call over to Chris, our Senior Vice President and CFO. Chris?

Thanks, Jack, and thank you everyone for joining us today for our first quarter 2023 earnings call. As a reminder, I'd like to note that while I'll be presenting the prepared remarks and participating in Q&A today, Kenneth Galbraith, our Chair and CEO, Neil Klompas, our President and COO, and Paul Moore, our CSO, will also 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, Zyneworks reported financial results for the first quarter ended March 31st, 2023. Zyneworks' net loss for the quarter ended March 31st, 2023 was $24.4 million or 37 cents per diluted share compared to a net loss of $72.6 million for quarter ended March 31st, 2022. This decrease in net loss of approximately 66% year over year was driven largely by revenue from the reimbursable amounts received due to our collaboration agreement with JAS and a decrease in R&D expenses. As reported, our revenue for the first quarter of 2023 was $35.6 million compared to $1.9 million for the same period in 2022. The increase in revenues were largely due to reimbursable amounts received for Xanadetimab's clinical development and manufacturing pursuant to our collaboration and licensing agreement with JAS and research support and other payments from partners. Research and development expense for the quarter ended March 31st, 2023 decreased by $16.6 million to $45.9 million as compared to $62.5 million for the quarter ended March 31st, 2022. This decrease of 27% from the prior year related primarily to lower CRO and manufacturing expenses related to Xanadetimab development and lower headcount related expenses due to a decrease in headcount as compared to the same period in 2022. These were offset partially by an increase in clinical investigator costs for Xanadetimab and an increase in preclinical expenses for the continued development of our preclinical pipeline programs. As a reminder to those listening today, as announced on April 26, Zyneworks and Jazz entered into a transaction which, when closed, will transfer certain assets, contracts and employees associated with the development of Xanadetamab from Zyneworks to Jazz. This transaction was contemplated in order to simplify, focus, and potentially expedite the clinical development and commercialization of Xanadetimab. The financial terms, as previously disclosed under the original licensing and collaboration agreement, remain unchanged. SignWorks will continue to be eligible for reimbursement of certain costs for activities where we maintain responsibility, and SignWorks is also eligible for reimbursement of certain prepayments to third parties for services or other expenses under contracts to be transferred to JAS pursuant to the agreement. In connection with our entry into these agreements, we anticipate our future research and development expenses and corresponding reimbursement revenue relating to Xanadetimab under the license agreement with JAS to decrease significantly. This reflects the transfer of responsibility as contemplated under the agreement, where JAS will directly bear the ongoing Xanadetimab-related costs incurred following the closing, as opposed to the previously contemplated reimbursement mechanism. In connection with our amended agreement with JAS certain costs that we expect to incur will not be recovered by us and the reimbursements to us from JAS for the first quarter 2023 expenses will be reduced by the final agreed costs in connection with the transfer of the contracts and responsibilities to JAS. We expect to begin recording the effect of these non-recoverable costs in future periods. We expect our working capital requirements relating to our agreements with JAS will be significantly reduced in Q2 due to the transfer of prepaid expenses to JAS and the reduction in the receivables from JAS under the reimbursement mechanism. For the quarter ended March 31st, 2023, general and administrative expenses were $16.9 million compared to $12.1 million for the same period in 2022. Excluding the significant non-cash recovery of 5.1 million in stock-based compensation, but including the impacts of restructuring as recorded in the first quarter of 2022, our general and administrative expenses decreased by approximately 2 million year-over-year on a non-GAAP basis, in line with our expectations. Our cash resources, consisting of cash, cash equivalents and marketable securities, were $412.4 million as of March 31st, 2023. As of May 8th, 2023, we had approximately 66.7 million fully diluted chairs outstanding. With the continued focus on the balance sheet and the significant transformative impacts of the non-diluted inflows from our licensing and collaboration agreement, We continue to expect our cash resources to fund our planned operations through at least 2026 and potentially beyond. In addition, we are reiterating our net cash operating burn guidance of between $90 and $120 million for the full year 2023. Neither of these guidance figures have changed from previous expectations as a result of the transfer of the ZZI entity to JAS and amendment to the licensing and collaboration agreement with JAS. 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 with the SEC filings as available on our website at www.zineworks.com. Now, I'd like to spend a few minutes talking about our early R&D portfolio, which we recently highlighted at AACR, as well as some brief updates to our clinical program. Last year was an important year for our early R&D programs, as we unveiled four new preclinical candidates and multiple platform technologies that enable us to continue developing novel therapeutics. This year, we have continued that momentum with a significant presence at AACR, where we presented 11 posters showcasing the focused development program we have in the antibody drug conduit, or ADC, and multi-specific antibody therapeutics, or MSAT, space. While I will encourage you to listen to our AACR webcast that discusses these product candidates and technology platforms in detail, I would like to highlight that we expect to nominate this year an additional IND candidate slated for 2025 submission. We also continue to remain focused on utilizing partnerships as a means to both fund and expedite development of additional programs while leveraging additional non-dilutive funding mechanisms. Our partnership strategy is purposeful. With the five by five strategy we laid out in October of last year, which outlines our plan to have five new INDs by 2027, and we believe we will have the opportunity and funding to bring five candidates to the clinic. Our robust technology platforms and world-class early R&D team provide us with the tools to continue growing our pipeline of early stage preclinical product candidates beyond just these five in-house programs. These potential preclinical product candidates represent both a potential source of non-dilutive funding and also can act as a source of screening for opportunities that we believe will help create a portfolio of both in-house and partnered candidates. We anticipate that for the in-house candidates developed via our five by five strategy, we would progress candidates through phase two clinical studies where we would then pursue an ex-US partnering strategy. With that, I'll briefly touch on Xanadetimab, our clinical candidate recently partnered with Jazz Pharmaceuticals in the fourth quarter of last year. As you may have seen, our partners Jazz and Beijing recently announced two exciting upcoming presentations at ASCO in June of this year. The first I will speak to today represents the first Xanadetimab abstract to receive an oral presentation at a major medical meeting. where we intend to discuss the full findings from our phase two pivotal study of Xanadetimab as monotherapy in previously treated HER2-amplified biliary tract cancer, or BTC. Second line BTC has no FDA-approved HER2-targeted treatment options, and our top line data, which showed a confirmed ORR of 41.3%, and a median duration of response of 12.9 months in previously treated patients, with HER2-amplified and expressing disease as presented in December of 2022 would represent a potentially significant step forward in the treatment of patients with previously treated HER2-amplified BTC. We look forward to the presentation of the full dataset by our partner JAS in June at the 2023 ASCO Annual Meeting in Chicago. The second abstract accepted for a poster presentation at ASCO to be presented by our partner, Beijing, will be an update to the previously presented results from the Phase 1b-2 study of Xanadetimab in combination with docetaxel as a first-line therapy for patients with advanced HER2-positive breast cancer. Presented at ASCO 2022, this study provided a promising ORR of 90% in the study population. The future potential milestone and royalty payments from our Zanadecimab licensing and collaboration agreement with JAS, which will remain unchanged following our entry into the amended collaboration agreement, and our similar agreement with Beijing, are expected to continue to be a significant source of non-dilutive capital for Zyneworks as Zanadecimab progresses towards potential approval, which would come with regulatory and commercial milestones. Along with our global partner JAS and Asia-Pacific partner Beijing, we look forward to the continued global development of Xanadetimab, where we believe Xanadetimab has the potential to treat a broad range of HER2-expressing cancers, including potential to address unmet need outside of our two pivotal studies in BTC and GEA. We continue to have an exciting calendar ahead of us over the coming two years. As I mentioned earlier, with the upcoming presentations at ASCO and additional potential publications over the coming months, Our partners will continue to present Xanadetimab data that we believe can help position it, if approved, as the HER2-targeted antibody of choice for patients with HER2-expressing cancers. Later this year, we also plan to present additional data from our weekly cohort of Xanadetimab zovidotin, or Xanizo, are HER2-targeted ADC and expect to launch our two phase two studies in non-small cell lung cancer in combination with PD-1 and in breast cancer after progression on TDXD and in patients with lower levels of HER2 expression. We continue to pursue a combination strategy and would expect to partner this asset prior to any registrational studies. While we need to gather more clinical data in the target indications, We believe that Xanizo has the potential to be a preferred HER2-targeted ADC after patients progress on TDXD or where a combination approach with the use of an ADC may make sense. We look forward to the continued development of this asset and reporting on the continued progress. Moving on to our portfolio of preclinical assets, we expect to nominate the next preclinical product candidate this year with an IND filing plan for 2025. We also continue to expect 2024 IND filings for ZW191, our folate receptor alpha targeting topoisomerase ADC, and for ZW171, our mesothelium targeting 2 plus 1 format T-cell engaging bispecific antibody. Further, we anticipate nominating a 2026 IND candidate in calendar year 2024 as well. This timeline highlights our commitment to our five-by-five strategy targeting five new INDs for 2027, which underpins the potential future development of our next-generation antibody-based therapeutics. On the partnering front, we expect to continue pursuing preclinical partnerships to progress our preclinical development programs. This includes our expectation this year of partnering some of our early-stage assets as we continue progressing our ADC and MSAT portfolio in the coming years. As we leverage our focused R&D engine, we intend to continue our work to generate candidates where a partner may be the ideal choice to move them forward. For these assets, we will continue to seek attractive economics with upfront payments that help fund development of our in-house candidates. 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?