Zymeworks Inc.

Thank you for standing by. This is the conference operator. Welcome to ZyWorks second quarter 2023 results conference call and webcast. As a reminder, all participants are on a listen-only mode. And the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, to ask a question, press star 11 on your telephone keypad. I would now like to turn the conference over to Diane Papole. Director of Corporate Communications at Zynwerks, Diane. Please go ahead.

Good afternoon and welcome everyone. My name is Diana Popov, Director of Corporate Communications here at Zynwerks. Today we will discuss our half-year 2023 financial results, as well as provide an update on our ongoing business. Before we begin, I would 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 our 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. In a moment, Chris Assel, our Senior Vice President as Chief Financial Officer, will be discussing our financial results, 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 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 Vineworks website later today. Now, I will turn the call over to Chris, our Senior Vice President and CFO.

Thanks, Diana, and thank you everyone for joining us today for our second quarter 2023 earnings call. I'll be presenting prepared remarks and participating in the Q&A today. Our Chair and Chief Executive Officer, Ken Galbraith, and our Chief Scientific Officer, Paul Moore, will also be available for Q&A at the end of the call. With that, I will begin today's call with an overview of our financial results, followed by a review of a few recent developments and updates across our business. This afternoon, SignWorks reported financial results for the second quarter and six-month period ended June 30th, 2023. SignWorks' net loss for the six-month period ended June 30th, 2023 was $75.5 million, or $1.13 per diluted share, compared to a net loss of $137.2 million for the six-month period ended June 30, 2022. The decrease in net loss of 45% was primarily due to revenue from our collaboration agreement with JAS, a decrease in research and development expenses, and an increase in interest income. which were partially offset by an increase in general and administrative expenses. Revenue for the six-month period ended June 30th, 2023, was $42.6 million compared to $7.4 million for the same period in 2022. Revenue during this period included $40.9 million for development support and drug supply revenue from JAS, net of a credit issued to JAS for amendments to our partnership agreement, and $1.7 million for research support and other payments from our other partners. Revenue for the same period in 2022 included $7.4 million in research license fees, research support, and other payments from our other partners. Research and development expenses for the six-month end of June 30th, 2023 were $85.3 million compared to $118.5 million for the six-month end of June 30, 2022. Excluding stock-based compensation and 2022 restructuring expense, research and development expense decreased on a non-GAAP basis by $27.9 million in the first half of 2023 compared to the same period of 2022. This decrease was primarily due to lower manufacturing expenses for Xanadetamab and a reduction in development costs. as a result of the terms of our amended collaboration agreement with JAS, partially offset by an increase in preclinical expenses compared to the same period in 2022. In addition, salaries and benefits expenses decreased compared to the same period in 2022 due to lower headcount in 2023 and lower non-recurring severance expenses. For the six-month end of June 30th, 2023, General and administrative expenses were $38.6 million, compared to $27.3 million for the same period in 2022. General and administrative expenses increased by $11.3 million for the six-month end of June 30, 2023, compared to the same period in 2022, or a $7.8 million increase on a non-GAAP basis, excluding stock-based compensation and non-recurring restructuring expenses. This increase was primarily due to an increase in professional services expenses, partially offset by a decrease in salaries and benefits costs, as a result of lower headcount in 2023 following our prior year restructuring activities. Overall, our total employee headcount has been reduced by almost 50% over the last 18 months, from 455 full-time employees as of December 31, 2021, to 237 full-time employees as of June 30, Our cash resources, consisting of cash, cash equivalents, and marketable securities, were $431.4 million as of June 30, 2023, a net reduction of $60.8 million from December 31, 2022. For the six-month end of June 2023, our cash used in operations was negatively impacted by working capital movements, primarily due to higher levels of receivables which we expect to partially reverse by the end of 2023. During the second quarter, there are a number of financial impacts on our balance sheet due to our amended collaboration agreement with JAS in May 2023. As of June 30th, 2023, we have approximately $46 million in receivables from JAS reflecting reimbursement for Zanadetanab development costs, which we expect to be reimbursed subsequent to the end of the second quarter. In addition, we received $15.4 million from JAS for purchase of prepaid expenses for Zanadetamab development contracts that will be transferred to JAS, which has been deferred on our balance sheet as of June 30th, 2023, and will be offset against the related prepaids when the underlying agreements are legally transferred to JAS. Moving forward, the accounting for our JAS collaboration should be simplified given that the majority of Zanadetamab development expenses will be incurred directly by JAS. Any continued Xanadetimab development expenses incurred by us and reimbursed by JAS will be reflected as a reduction in operating expenses rather than collaboration revenue. We continue to expect further development support and drug supply payments from JAS, which will continue to be reported as collaboration revenue. Due to the transfer of a significant number of our employees dedicated to Xanadetimab development to JAS, We recently decided to vacate our existing Seattle office location and have secured a fit-for-purpose office facility in Bellevue to accommodate our remaining Seattle-based workforce. The majority of the financial impact related to this decision will be reflected in our Q3 financial results. With the continued focus on the balance sheet and the significant transformative impacts of the non-dilutive inflows from our licensing and collaboration agreements with Jazz and Beijing, we continue to expect to have cash resources to fund planned operations through at least the end of 2026 and potentially beyond. As of August 9th, 2023, we had approximately 67.79 million shares of common stock outstanding. During the second quarter, we issued 3.35 million shares of common stock pursuant to our at the market facility for net proceeds of $26.2 million. For additional details on our quarterly and six-month ended results, 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 recent business highlights. The first half of 2023 is highlighted by several important developments, that reflect progress in our product pipeline. Together with JAS, we presented full clinical results from our Phase 2b study of Xenodetabab monotherapy in previously treated HER2-amplified biliary tract cancers at the American Society of Clinical Oncology annual meeting in June in Chicago. We also announced our next expected investigational new drug application candidate, ZW220, and NAPI2B-targeted topoisomerase-1 inhibitor antibody drug conjugate scheduled for IND filing in the first half of 2025. This announcement is the most recent step in our five-by-five goal of having five new INDs for preclinical development candidates from our ADC and MSAT product portfolio filed and approved to commence clinical studies by 2027. Our other preclinical development candidates, ZW171 and ZW191, currently remain on track with expected IND filings in 2024. We were also pleased to announce that industry veteran Carlos Campoy has joined our board of directors. Carlos is a skillful, thoughtful, and performance-driven financial executive with a successful track record in leading culturally diverse pharmaceutical and biotechnology organizations through complex transformational changes in the US and internationally. We look forward to his input as a member of our board. We're also pleased to report that both of our regional hubs in Dublin and Singapore are operational and will be instrumental in clinical study execution for our early stage R&D portfolio over the next several years in Europe and the APAC regions. Our early stage development organization in the United States continues to expand in both Bellevue and our planned new hub in California in light of our planned US clinical studies. Now I'd like to spend a few minutes talking about our R&D portfolio. Our presentations at ASCO represent an important milestone in the development of Xanadetimab and in our partnership with Jazz and Beijing. Multiple abstracts were presented, including data from the Horizon BTC01 Phase 2B Pivotal Study of Xanadetamab Monotherapy in previously treated HER2-amplified BTC patients. The results were published simultaneously in Lancet Oncology. Presentations at ASCO also included updated results from a Phase 1B2 study of Xanadetamab in combination with docetaxel as a first-line therapy for patients with advanced HER2-positive breast cancer. In the ASCO presentation for the Phase IIb Pivotal Study, we announced that data from 80 patients with HER2-amplified BTC, defined as in-situ hybridization-positive immunohistochemistry 2 plus or 3 plus, demonstrated a confirmed objective response rate of 41.3%, with a Kaplan-Meier estimated median duration of response of 12.9 months. The KM estimated median PFS was 5.5 months, with a range of 0.3 to 18.5 months. As our lead investigator, Shubham Pant, MD, Professor of Gastrointestinal Medical Oncology and Investigational Cancer Therapeutics at the University of Texas MD Anderson Cancer Center, noted in our press release announcing the results. A confirmed ORR of 41.3%, median duration of response of 12.9 months, and median PFS of 5.5 months represents a significant step forward for second-line treatment of HER2-amplified BTC. But current chemotherapy treatments have been reported to provide only a 5% to 15% ORR and median PFS of 1.4 to 4 months. Additional presentations on Xanadetimab are planned for the second half of 2023, including two poster presentations recently accepted for presentation at the European Society of Medical Oncology, or ESMO, in Madrid this October. In partnership with JAS, we will be presenting quality of life outcomes from the Phase 2b Horizon BTC01 study evaluating patients with Xanadetimab-treated HER2-positive biliary tract cancer. In partnership with Beijing, updated results from the Phase 1b2 study of Xanadetimab plus chemotherapy and Tislamizumab as first-line therapy for patients with advanced HER2-positive gastric, gastroesophageal junction, and adenocarcinoma will be presented. These results provide data with a longer follow-up period from the original data presented on this clinical study at ASCO 2022. The future potential milestone royalty payments from our Zanadetimab licensing and collaboration agreement with JAS and our agreement with Beijing remain unchanged and are expected to continue to be a significant source of non-dilutive capital for Zyneworks as Zanadetimab progresses towards the final stages of regulatory review, which would include additional regulatory and commercial milestones, as well as double-digit royalties of up to 20% of sales. We continue to support efforts and regulatory interactions by each of JAS and Beijing for initial regulatory filings for potential accelerated approval of Xanadetamab in second-line BTC. As announced by JAS yesterday, they have alignment with the US FDA on a confirmatory study in first-line metastatic BTC to support JAS's US regulatory efforts. With an initial focus in BTC and gastric, We believe that Xanadetimab has the potential to improve the current standard of care and address a large unmet need in a range of HER2-positive cancers. Horizon GEA01, the pivotal trial evaluating Xanadetimab in first-line GEA, is ongoing and top-line data are expected in 2024. Much of our progress in the first half of 2023 has been a reflection of our goal to have five novel therapeutic candidates in clinical studies by 2027. We are building a very exciting pipeline based on the strength of our technology platform and look forward to our expected IND filings for ZW171 and ZW191 in 2024. We also remain on track to initiate a phase two clinical study of Xanadetamab zovidotin or Xanizo plus Pembrolizumab in HER2 positive non-small cell lung cancer patients. In addition, we continue to explore a pathway for further clinical development of Xanizo in post-TDXD breast cancer patients, likely in collaboration with a strategic partner. As discussed, we have nominated ZW220 as our third preclinical development candidate in our 5x5 objectives and are moving forward with a planned IND filing in the first half of 2025. We believe that NAPI2B represents an excellent target for a toposomerase-1-based antibody drug conjugate and a potential first-in-class opportunity. NAPI2B is highly expressed in 64% of serious ovarian cancer and 68% of lung adenocarcinomas, as well as being a relevant biomarker of interest in other solid tumors. CW220 is another example of therapies that are built on Zymox's drug conjugate platform technology. leveraging cysteine conjugation with a cleavable traceless linker to enable potential optimization of the appropriate drug-to-antibody ratio, or DAR, with our novel topoisomerase-1 inhibitor-based payload technology. The monoclonal antibody incorporated in ZW220 was developed in-house and selected based on its favorable binding profile and efficient internalization and payload delivery. The DEAR in ZW220 was selected to balance efficacy and tolerability by incorporating an average of four topoisomerase-1 inhibitor payloads per antibody. We look forward to the continued development of our early-stage R&D portfolio and to reporting on the continued progress. We do expect to have opportunities throughout the second half of 2023 to provide presentations at medical and scientific meetings on our progress with Zanizo ZW171, ZW191, ZW220, and other product candidates. On the partnering front, we expect to continue to pursue partnerships where advantageous to progress our preclinical development programs and to broaden our clinical development program for Zanizo. As we leverage our focused R&D engine, we intend to continue our work to generate candidates with the potential to be co-developed with partners. For these development programs, we will continue to seek attractive economics with upfront payments that help fund development of our in-house candidates as well as attractive royalty and commercial milestones and or retained commercial rights to such product candidates in the United States. In summary, we remain on track for important achievements and milestone opportunities during the remainder of 2023 and especially 2024 when we expect top line data from the first-line GEA Phase III study of Xanadetimab to be reported. 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?