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 5×5 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 5×5 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 5×5 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?

See also 15 Best Places to Retire in Kansas and 20 Fastest Growing Fintech Companies In 2024.

Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Stephen Willey of Stifel. Your line is now open.

Stephen Willey: Good afternoon. Thanks for taking my questions. Maybe just a couple of ZYME questions for me. So, Ken and perhaps Paul, just curious as to your thoughts regarding Merck’s disclosure of the OS benefit that we’ve seen in KEYNOTE-811. And I know that there was some suggestion that this could be the case per the interim analysis that we saw at ESMO back in October. But just wondering if you think that if this changes the longer-term competitive dynamic at all in frontline GEA and if that now kind of raises the bar for perhaps what the triplet arm needs to show in the Horizon trial?

Ken Galbraith: Yes. Thanks for the question, Steve. I mean, obviously, we don’t know much more than what was put in the press release about the OS outcome. There’s no actual data there, so it’s hard for us to comment further about the strength of that data, the consistency across the patient population. Obviously, the OS was determined on ITT as it needs to be across the population. Obviously, the previous PFS result was not across the entire patient population, but only in the PL-1 positive stratified part of that study. So, until we see the actual data presented, until we understand what’s on the label, it’s difficult for us to evaluate your question about the attractiveness of that regimen versus our own. And I think for us and Jazz and BeiGene, we’re focused on completing the horizon GAA1 study and we’re more focused on seeing the results of our own combinations, ZYME plus chemotherapy and ZYME plus chemotherapy with Tisla and how that compares to our own active control arm.

TRAS and chemo in the patient population we’re studying, which remember is different than the KEYNOTE-811 patient population just because of the inclusion of the esophageal adenocarcinoma patients. So, I think we’re more interested in the patient recruitment in our study, understanding the PFS results and continuing to follow the patients. And I think once we have more data available on our study and the other study, then it will be probably a little bit easier to understand the competitive environment for everyone.

Stephen Willey: And then, I know Jazz, obviously has outlined plans to pursue registration in post and HER2 metastatic breast. And I think there was some KOL discussion on their call regarding the need for prospectively generated data in this patient population. But just curious, given that most KOLs think in HER2 is going to become frontline standard of care, I’m just kind of interested in your thoughts regarding the relevancy of this trial with respect to gaining utilization in the second line setting, if indeed that in HER2 upstream move into frontline occurs? And I guess from a relevancy perspective, I’m just questioning the thought, right, that one would need to assume that the Cleopatra regimen and KADCYLA are kind of completely displaced and not repositioned as later line treatment options post in HER2. So just kind of curious as to your thoughts there.

Ken Galbraith: Yes. I mean, I think Jazz indicated in their call yesterday, they’re going to talk more about that study design in the second half of this year when it’s initiated. So, I don’t want to get ahead of that. I’ll say from our own perspective, we obviously did a number of studies in different combinations in the metastatic breast cancer setting. And you can certainly see the potential for ZYME in combination with other agents just because of its if its tolerability nature makes it a great combination with other agents as we’re doing in GEA and as we’ll seek to do in biliary tract cancers. So, you can certainly see the potential for ZYME to find a place in the treatment paradigm for metastatic breast cancer. And I know from the KOL work that we did when I got here before the Jazz transaction, there was certainly a need for something in a post in HER2 environment where patients may have got a response, but then progressed.

And I think there was some sense that maybe having a different mechanism than another ADC at that time frame might be something that might be attractive. So, obviously, looking at ZYME being a unique bispecific antibody in the HER2 space surrounded by a wave of different ADC formats including T-DXd, might be a really attractive proposition provided you could find the clinical and regulatory pathway to that type of label. And I think we’ll let Jazz describe their study in more detail when they initiate the second half this year to for you to understand more of the clinical regulatory pathway that they intend to pursue, but from a commercial opportunity, it was evident to us that that was something that was very attractive. Obviously, we just didn’t have the capital to pursue that on our own.

And one of the benefits of the Jazz transaction for us is that they do have capital that they could put to work beyond which we could do on our own in attractive opportunities beyond biliary tract cancer and GEA. And that’s what they’ve announced they intend to do, and that’s fantastic.

Operator: Next question comes from the line of Yigal Nochomovitz of Citi. Your line is now open.

Ashiq Mubarack: Hi, guys. This is Ashiq Mubarack on Yigal. Thanks for taking my questions. I just have one operational question and one scientific question. Just first on the sort of financing, I mean, you’re guiding to, cash runway, I think, in the second half of 2027, including some regulatory milestones. I’m just kind of wondering if you can give us a little color on what of that runway or how much of that runway is being contributed to from potential milestone payments? Are you able to break those out in more detail?

Ken Galbraith: Yes. And not beyond the guidance that we’ve previously given. And again, not all of the milestones that we may be entitled to for approval from our current deals with Jazz and BeiGene are included in that. So, there is some element, but not all. But I think we feel comfortable with our current financial position and current financial outlook, that we can fund the R&D strategy that we have right now through the second half of 2027 in a number of different scenarios. So, I think we feel we have a very strong financial position, a good outlook for the business. Obviously, a number of other biotechnology companies in our sector went and accessed additional equity capital through offerings or ATMs in the first quarter of this year.

We were not one of those, because I think we feel very confident in our current financial position and our runway and the outlook for the business. And that’s why we chose not to do so. But I can’t go beyond the details we’ve previously provided until the milestones start to be received, and then we’ll obviously be in a position to announce those.

Ashiq Mubarack: Maybe one more. On the on the, the TriTCE platform, which I which you shared at AACR, I thought that was pretty interesting. I’m just curious if you could talk a little more about how you expect in the clinic the CRS profile might be differentiated compared to more traditional CD3 bispecific? I think you alluded to the idea that peripheral cytokines might be less. But I’m just curious if you think the improvement could be meaningful enough in something like CRS that there may be practical differences in terms of maybe less steroids or less step dosing or maybe potential to be in the outpatient setting versus continuous IV, etcetera. I’m just curious what you can comment from maybe a practical potential standpoint?

Ken Galbraith: Yes, sure. Good question. And just yes, let me clarify that a little bit. So, for the TriTCE, something that we were very careful of was actually the level of interaction with T-cells that could trigger T-cell activation. So, we actually, we are using a lower affinity CD3 and the CD28 binding is actually quite is weak. But upon affinity binding through CD3, CD28, we get engagement of T-cells when we co engage with a tumor target, okay? So, the amount of binding seen in the periphery is very low. Only when we engage the target and then engage the T-cells do we see this nice ability powered CD28, CD3 activation. So that we feel is important. It’s something we’ve also embedded in the ZW171 program where we’re using a lower affinity novel CD3 epitope that so far when we’ve modeled that in preclinical studies both in vitro and nonhuman primates does not support the level of T-cell activation we see with other CD3s.

So, that’s kind of how far we can take it. Obviously, we’ll need to see a lot of it. A lot of the T-cell activation that you see in the clinic will also be driven by the target that you pair with the T-cell engager. So, that’s also a factor that we consider. But, overall, we’ve done what we think to engineer peripheral cytokine activation that’s independent of tumor engagement.

Ashiq Mubarack: Maybe the last question for me. I’m just curious, I mean, I think you said that the final program in the 5×5 will be one of these TriTCEs. I’m just wondering if it potentially might be the DLL3 or the Claudin 18.2 programs you kind of outlined or could it be something else entirely?

Ken Galbraith: Yes. I mean, we obviously have a pretty broad program in both the TriTCE with the Co-Stim, but also other trispecific formats that we’ve been more kind of research, so we haven’t disclosed yet. I think we have published data preclinically around the Claudin 18.2 and DLL3 because those were good programs to work on to benchmark ourselves against other product formats and understand what that TriTCE Co-Stim might give you that you don’t see in another bispecific antibody or an ADC or just a simple antibody approach. I think we will make a nomination of the candidate we want to move forward with as our fifth later this year. But I don’t want to speculate as whether it’s one of the two that we published data on or something else that we still continue to work on as a part of our broad portfolio approach there. That’s beyond those two and you just have to wait until we nominated to see that and that will be this year.

Ashiq Mubarack: Got it. Thanks very much.

Operator: Our next question comes from the line of Akash Tewari of Jefferies. Your line is now open.

Ivy Wang: Hi. This is Ivy Wang for Akash. Thank you for taking our question. So ProfoundBio was recently acquired by Genmab, which is the lead molecule RENA S, which is a folate receptor alpha targeting with a TOPO ADC. That is ahead of time when encouraging initial human data. I guess, where do you think you can differentiate with ZW191, and what is your approach here that’s, yes, different than RENAs? Thank you.

Ken Galbraith: Yes. Again, we don’t know enough about that molecule I think to do a proper comparison and whether it’s encouraging or not. I guess it was acquired, so it must be encouraging. But I don’t know how to speculate on data that’s publicly available versus public data that Genmab may have had available to it. So, I can really only comment on our own program and approach with ZW191. And I think that’s reflected in data we previously published and also at AACR where I think we think there’s a lot of differentiation in what we’re doing around the payload. So, we did disclose earlier this year our proprietary payload 519, which was through a significant medicinal chemistry effort to find a payload that was a campathies and analog but proprietary to us and with properties that we believe are ideal to be used in an ADC including in the indication of interest in folate receptor alpha.

I think from the standpoint of the antibody, we think we have made some innovations around how optimization of an antibody can make an ADC more effective. And obviously that was the purpose of one of our publications at AACR was to focus on not just binding, but internalization and tumor penetration as a way to get efficiency out of the payload with maybe less tolerability given up to get that activity. And so, we’re really interested to put that to the test in clinical studies and it won’t be too long from now. And I think then we’ll understand the characteristics of our own molecule. We definitely have some differentiated features in there from any of the other folate receptor alpha ADCs including the one you mentioned. But I’m more interested in looking at our own data to understand the activity that can be generated, find a dose, understand the tolerability of that agent and then be able to understand where we can create clinical differentiation against a host of competitors and it’s just difficult for us to try and make a comparison at this point between any of the other agents.

Operator: Next question comes from the line of Brian Cheng of JPMorgan. Your line is now open.

Brian Cheng: Hi, Ken and team. Thanks for taking our questions today. We’re seeing some excitement around the application of T-cell engagers in the autoimmune space, like scleroderma and myasthenia gravis just these recent weeks. Just curious if you have any interest or whether you have any potential ability to whether you see any potential ability to disrupt that space with your TriTCE platform?

Ken Galbraith: Yes. No. Thanks, Brian. No, it’s obviously we, Zymeworks has never been exclusively an oncology company. We have been working in autoimmune and inflammatory and dermatology indications for some time period. We just decided when I got here not to focus on because we wanted to have a focused R&D program for the 5×5. But we definitely have some platforms and capabilities and experience in that area given things we work on preclinically. And if you look at the folks who have added since I got here including Paul, we do have a number of folks who have some great experience in commercializing in the autoimmune and inflammatory space. So, I think as we think about going beyond the 5×5, we definitely have an interesting understanding of some of our platforms and assets can be really differentiated from what we see from others and be applicable to a patient population beyond oncology.

And I think we haven’t talked a lot about that. I think by the time we get to our R&D day in Q4 this year, you should probably expect that we’ll outline some more thoughts around assets and approach and differentiation against others who are in that space. So, the answer is yes.

Brian Cheng: And then maybe just a follow-up. On your prepared remarks, you talked about, you mentioned partnership and I think in the past partnership had always been a core part of your approach. We’re about halfway through the year, so just curious if there is also particular direction that you’re looking at from a partnership standpoint. And then on top of that, are you looking for partnership to kind of accelerate your development on autoimmune side? Just any color they can provide would be super helpful.

Ken Galbraith: Yes. I think clearly partnership is a part of our strategy for a number of reasons. One is obviously access to capital and it’s no surprise that transactions in both ADCs and T-cell engagers have gotten to a much higher valuation at an earlier time point in development. We also look at partnerships’ ability for us to accelerate and compete. And obviously with the acquisitions which have occurred over the past period of time in both ADCs and T-cell engagers, we find ourselves against larger and more formidable competitors. And with the potential for broad applications, especially in 191 and 171 going to the clinic first in both mesothelin and foliocepare alfa, those targets are of interest in a pretty broad patient population.

I think we learned from ZYME that, there was a certain breadth of opportunity to ZYME, which was probably beyond the reach of ourselves on our own and completed the Jazz partnership as you see with their subsequent developments, may allow them to pursue that where we couldn’t do that on our own. And hopefully, we structured that in a way that allows us to continue to share in a good portion of the success for that. So that’s a good learning for us to look at. But we’ve also been very clear with ZYME being partnered exclusively with Jazz in BeiGene that for our follow-on agents in 5×5, we would like to have the ability and opportunity to build a future late stage development and commercial opportunity for ourselves. And we’ve talked about it as a U.S., Ex-U.S. potential partnering strategy.

There’s other forms we could do, but we’d obviously like to, if we’re fortunate to find another agent in our 5×5, which has the potential that ZYME seems to have in a peak sales potential, which Jazz guided on that we’d like to be able to keep some of that for ourselves and not look at a fully licensed strategy going forward. So, obviously, there’s a substantial amount of interest as you know in innovative products in both ADCs and T cell engagers, which gives us good optionality for potential partnerships and collaborations and the timing of those. But we also have a strong balance sheet which and talent pool in the company, which allows us to execute those 5×5 programs in the early clinical data without requiring partnerships or collaborations as a part of that.

So, I like the position we’re in where we have optionality and not a requirement to partner. I think there is considerable interest in both of these spaces as well as autoimmune. So, I think we’ll continue to consider interest and have discussions, but make sure we can meet the requirements we might have for future capital, folks to help us accelerate and compete against larger competitors as well as retaining rights and commercial opportunities for ourselves. And until we find the right partnership, I’m willing to give up the optionality that we have by having a host of unencumbered assets, which are really interesting to us and are just going to clinical studies over the next 24 months for all five of them.

Operator: Our next question comes from the line of John Miller of Evercore. Your line is now open.

John Miller: I wanted to ask a question on the Tri specific stuff that you presented at AACR. In particular, in addition to the reduced CRS or cytokine release, purple cytokine release that you already touched on, I also noticed was interested by improved T-cell survival or it would look like improved characteristics of the stimulated T-cells that are coming from those reduced affinity CD3, C28 binders. Obviously, you have the spider plots in the decade and those were up there at AACR. But do you have evidence that improving T-cell health means that you get continued stimulation? I mean that is to say like as you get in longer and longer in timeline, do you see longer the ability to generate stimulated T-cells further on into treatment after continuous treatment, than you would with a CD3 bispecific alone, if that question makes sense? Did you buy more T-cell activity by using these binders in terms of durability not in terms of potency?

Ken Galbraith: Yes. Sure enough. I’m glad you brought that up because I think that’s an important point that what we’re trying to do here is by having that CD28 co-stimulation, we’re generating T-cells that are more durable and don’t become exhausted and that they then provide enhanced antitumor activity. So, it’s a little, we’ve done some modeling of the sustainability of the response in vitro where we can do these kind of repeat challenges where we take the T-cells and continue to restimulate them. And we can see that under those conditions that we can maintain response for much for longer if we challenge them with the Tri specific with the CD28 compared to the CD3. So, that’s consistent with what you would expect by having fitter T-cells and that was described in the poster.

And then when we’ve gone in vivo, what we have seen is we’ve reported this in some studies that we do see more T-cell we look at T-cell infiltration in the tumors. We see evidence for that. But I think what was very clear in the one example I showed today was that we were seeing responses, tumor responses or antitumor responses with the TriTCE platform that you don’t see with the bispecific CD3. So that suggests to us that in the tumor microenvironment not only this enhanced durability and sustainability, we’re seeing better activity and responses where you don’t see responses without CD3 bispecifics with CD3 bispecifics, you don’t see with CD3 bispecifics alone. So that tells us that we are indeed doing something in the tumor microenvironment in an animal model, albeit that is supportive of our hypothesis.

And we then, of course, anticipate that, that hopefully will translate in the clinic to better responses.

John Miller: I guess one more on a related topic. If, obviously the CD3 bispecifics are active drugs. They’re used to great effect in many indications. Do you expect the sort of trispecific platform that you’re talking about to be a fully generic improvement that is, is this going to be better in every case or are there certain indications of tumor antigens where you would expect this to be this sort of technique to be relatively most important or give you the relatively best benefit versus CD3 bispecific?

Ken Galbraith: Yes. No, that’s another great question. I think we do anticipate that, overall, this should yield better responses. Even where CD3 bispecifics work, I don’t want to be too hypothetical, but I think when you think about the CAR T space without co-stimulation on those T-cells, the responses were not generally as good without it. So, you needed that co-stimulation. So, there’s a potential that we could have broader overall better response with this. And I think that’s why other companies are pursuing CD28 co-stimulation as well. It’s fundamental T-cell biology. But, I think where we see maybe the biggest need is in solid tumors where low T-cell infiltration or T-cells are already anergic, need a little bit more than just CD3, that’s where you could really see the greatest potential impact. And so that’s part of the design feature and the thinking behind developing this type of technology.

Operator: Next question comes from the line of Derek Archila of Wells Fargo. Your line is now open.

Unidentified Analyst : Hi. This is Eva on for Derek. Thanks for taking our question. A quick one from us. Can you share how the IND filing activities are progressing for 191 and 171? And when are we expecting are you expecting to initiate the Phase 1 studies? Like, I’m just trying to understand, like, is this like a 2024 event for any of these molecules? Thanks.

Ken Galbraith: Yes. We previously guided that it was our intention to file INDs and commence first in human studies for both 171, 191 this year. We haven’t given any more guidance specifically to that and I won’t on the call today. I think once both of those studies are up on clinical trials, which means we’ve initiated our first site. Then we’d be happy then to talk more about the details of the study design and timing that’s available on clinical trials. So, I think once you see them up there, we’ll be happy to publicly comment on them. But until then, we’re on track. We’re a little bit ahead of schedule where we might have been. And hopefully, we can keep that a little bit ahead of our schedule and be discussing those in the near future. But until we have those publicly disclosed and initiated, we won’t be talking about them further.

Operator: [Operator Instructions]. Our next question comes from the line of Jon Miller of Evercore.

Jon Miller: One thing that you mentioned in the prepared remarks, I just wanted to get a little bit more color on. You mentioned that you expected that your Phase 1 would have mostly ex-U.S. They’d be global studies, but mostly ex-U.S. patients. Obviously, you’re not commenting on the specifics of trial design at this point, but I would love to hear you talk a little bit more about strategy on where you’re running where you anticipate running the studies and what the pushes and pulls are in terms of where you’re getting your patients from?

Ken Galbraith: Yes, absolutely. I think we took the decision a while ago that we could go faster and potentially get a higher quality and more diverse set of patients even from the very first dose escalation cohort if we structure ourselves to be able to globally recruit patients. So, you should see in our Phase 1 studies not just IND filings, but for an equivalence very quickly thereafter, so that we can get up a pretty global program, which encompasses sites in Europe, North America and Asia, pretty concurrently, so that we can recruit in all those jurisdictions even from the early dose escalation cohorts. And I think that just allows us to go quickly, get high quality and diverse patients from the start. And more importantly, if we see data that looks pretty interesting and compelling, we can go further faster to follow those data signals in a broader Phase 1 program as we move from dose escalation to expansion cohorts and eventually the combination cohorts and eventually beyond Phase 1.

So, I think we’ve thought a lot about how we would execute this. I think we structured our groups internally and externally to be able to do this. And the hope is that we can go fast, with high-quality diverse patients. So, the data that comes out of that will come to us faster, and also in a way that allows us to interpret it in a more significant way. So, we will have U.S. sites, but I would expect the majority of patients in both those studies in Phase 1, the vast majority will be recruited outside the United States. And hopefully, we structured ourselves and made those decisions to accomplish what we want, which is a faster Phase 1 study and clear data and a more diverse data set by recruiting patients, globally. So, we’ll love to see if we can do that, but that is the goal and you’ll see evidence of that, pretty soon.

Operator: All right. Thank you. There appear to be no further questions. I’d like to turn the conference back over to Ken for closing remarks.

Ken Galbraith: Thank you very much. And I really appreciate everyone taking time today to listen to our call and ask the questions. Hopefully, we’re able to answer them fully. If there’s any follow-up questions, please don’t hesitate to reach out to us. We’re happy to address any questions or clarify. And in the evening call, hopefully you can see we’re very excited about 2024. This is getting very interesting for us this year and next year. And we are all in on executing the plan in front of us in the best way possible and look forward to reporting the results of that execution to you as we move forward through 2024. So, thank you for everyone for listening today.

Operator: This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.