Zymeworks Inc. (NYSE:ZYME) Q2 2024 Earnings Call Transcript

Zymeworks Inc. (NYSE:ZYME) Q2 2024 Earnings Call Transcript August 1, 2024

Zymeworks Inc. beats earnings expectations. Reported EPS is $-0.26, expectations were $-0.27.

Operator: Thank you for standing by. This is the conference operator. Welcome to Zymeworks Second 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, and thank you for joining our second quarter 2024 results conference call. Before we begin, I would 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 slides and the accompanying oral commentary. Forward-looking statements are based on 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 a 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 will hand over to Bijal Desai, our VP of Finance and Strategy, who will be discussing recent corporate updates, along with our financial results for the second quarter 2024.

Following this, Dr. Paul Moore, our Chief Scientific Officer, will talk about key highlights for our second quarter, including the investigational new drug application therapies, ZW171 and ZW191 by the FDA. At the end of the call, Bijal, Paul and Ken Galbraith, our Chair and CEO, will be available for Q&A as well as Pranshul Chauhan, Associate Medical Director for early-stage development for ZW171. 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 Bijal.

Bijal Desai: Thanks, Shrinal, and thank you, everyone, for joining us today for our second quarter 2024 earnings call. I will begin today’s call with an overview of key achievements from our development programs as well as our financial results. In the second quarter, we achieved key milestones regarding the global regulatory review of our late-stage assets, zanidatamab, including being granted priority review of the Biologics License Application, or BLA, for zanidatamab as second-line treatment for biliary tract cancers or BTC, in the United States with a target action date of November 29, 2024. Similarly, the European Medicines Agency has validated the marketing authorization application for zanidatamab in second-line BTC and regulatory reviews for zanidatamab in BTC remain underway in China.

We are pleased to have received a milestone payment of USD8 million in July under the terms of Zymeworks, Asia Pacific license and collaboration agreement with BeiGene in conjunction with zanidatamab BLA acceptance in China. Our partner, Jazz has confirmed that the pivotal Horizon GEA-01 trial evaluating zanidatamab in first-line gastroesophageal adenocarcinoma or GEA is ongoing, and enrollment remains on track. Based on a blinded assessment of progression events, Jazz estimates top-line progression-free survival or PFS data will be available in second quarter 2021. Jazz continues to track events in the trial relative to the initial protocol assumptions. Near-term, we look forward to a potential approval for zanidatamab in second-line BTC in the United States and based on the expected timeline and subject to approval, Jazz is aiming to launch zanidatamab in the United States for second-line BTC in the fourth quarter of 2024.

Together with our partners, we look forward to opportunities where we can continue presenting promising data that support deep and durable responses, further highlighting zanidatamab’s potential to provide meaningful benefits for patients. This includes the first ever overall survival findings from the Phase 2b Horizon BTC-01 clinical trial for zanidatamab presented at the American Society of Clinical Oncology Annual Meeting by our partner, Jazz. Results from this long-term analysis of the trial indicate that zanidatamab as monotherapy demonstrated sustained and durable antitumor responses in previously treated patients with HER2-positive BTC and support the clinically meaningful benefit of continued treatment with zanidatamab. The safety profile in all enrolled patients remained manageable with favorable tolerability compared with the initial analysis.

In addition, we are pleased to report significant progress for our wholly-owned pipeline, which transitions two of Zymeworks early-stage programs into clinical candidates. We have successfully cleared IND applications by the FDA for ZW191 and ZW171 with first-in-human studies planned to initiate in the second half of 2024 in the United States, and we are actively progressing applications seeking regulatory permission to commence clinical studies for ZW191 and ZW171 in other non-US jurisdictions in the second half of 2024. With these advancements in mind, following a strategic review of our emerging wholly-owned pipeline, we made the decision to formally discontinue the clinical development program of our HER2-targeted antibody drug conjugate, zanidatamab zovadotin, also known as ZW49 or Zanizo.

This decision aligns with our commitment to focus on the development of our early-stage programs, which we believe have the potential to be best-in-class and/or first-in-class therapeutics. By reallocating our resources, we can focus on accelerating the progression of ZW171 and ZW191 into the dose escalation stage of the respective Phase 1 clinical trials as well as the planned IND filings for ZW220 and ZW251 in 2025. We believe Zani-Zo remains a promising Phase 2 ready asset, and we continue to explore partnering discussions or Zani-Zo may provide complementary coverage to a pipeline for non-small cell lung cancer, breast cancer and other indications. Our team extends heartfelt gratitude to the patients, families and health care professionals involved in the Zani-Zo development program.

We remain committed to the highest degree of scientific rigor in our development processes with the goal of focusing on candidates with the potential to deliver the greatest benefit to patients. Our broader oncology development program continues to be a priority with two Phase 1 trial anticipated to commence in 2024, including enrollment of patients with non-small cell lung cancer. Turning to our financial position. This afternoon, Zymeworks reported financial results for the second quarter of year 2024. Zymeworks net loss for the six months ended June 30, 2024, was $69.3 million or $0.91 loss per diluted share compared to a net loss of $75.5 million for the same period in 2023. The decrease in net loss was primarily due to lower research and development and general and administrative expenses, which was partially offset by a decrease in revenue and an impairment charge recognized in 2024 related to Zanidatamab zovodotin.

As reported, our revenue for the six months ended June 30, 2024, was $29.3 million, compared to $42.6 million for the same period in 2023. Revenue for the six months ended June 30, 2024, included $20.7 million for development support and drug supply revenue from Jazz, $8 million of milestone revenue from BeiGene in relation to the acceptance by the CDE of the NMPA in China of the BLA for zanidatamab for second-line treatment of HER2-positive DTC, $0.4 million from BeiGene for research support payments and $0.2 million from our partners for research support and other payments. Revenue for the same period in 2023, included $61 million for development support and drug supply revenue from Jazz, which was partially offset by a $20.1 million credit issued to Jazz for contractual amendments to our partnership arrangement and $1.7 million from our partners, for research, support and other payments.

Overall operating expenses were $110 million for the six months ended June 30, 2024, compared to $124 million for the same period in 2023, representing a decrease of 11% 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 research and development expense was primarily due to a decrease in expenses for zanidatamab, as a result of transfer of responsibility for this program to Jazz. This decrease compared to the same period in 2023, was partially offset by an increase in expenses of other development programs, primarily with respect to product candidates, ZW171 and ZW251. Costs incurred for manufacturing activities to support the IND for ZW220 and other preclinical and research programs.

Salaries and benefits expenses decreased compared to the same period in 2023, due to non-recurring severance expenses in 2023, 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 external consulting expenses for Information Technology, Legal Fees and Other Expenses for Advisory Services, a reduction in insurance costs and a decrease in depreciation and amortization expenses compared to the same period in 2023. This was partially offset by costs due to the termination of our long-term facility lease in Seattle in 2024. During the six months ended June 30, 2024, we recorded a non-cash impairment charge of $17.3 million, as a result of the company’s decision to discontinue the Zanidatamab zovodotin clinical development program, which utilize the technology represented by acquired and processed research and development assets.

As of July 31, 2024, we had approximately 71 million shares of common stock outstanding and approximately 5.1 million shares of common stock issuable under pre-funded warrants. As of June 30, 2024, we had $395.9 million of cash resources, consisting of cash, cash equivalents and marketable securities as compared to $456.3 million as of December 31, 2023. 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. Our strategy of refocusing the business and building a diverse clinical stage product pipeline of Antibody Drug Conjugates, or ADCs, and multi-specific antibody therapeutics continues to provide a solid foundation, which we believe will help 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.

Based on current operating plans, our strong financial position of $395.9 million in cash resources as of June 30, 2024, together with certain anticipated regulatory milestone 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’s net sales.

With that, I’d like to hand over to our Chief Scientific Officer, Dr. Paul Moore, who will provide more details regarding our wholly owned pipeline and specifically on ZW191 and ZW171 moving into the clinic. Over to you, Paul.

Paul Moore: Thank you, Bijal. So today, I’m delighted to be talking about our growing oncology pipeline, which is currently built on two fundamental pillars: modality focus and therapeutic area focus. To date, we have targeted three areas of high unmet medical need, ecological cancers, lung cancer and cancers of the digestive system, while balancing EDP and T cell engagers across these various therapeutic areas. We believe this approach ensures both the broad and comprehensive coverage of these challenging diseases. Moving forward, as we continue to progress with the development of our early-stage assets, we believe that expanding on both our modality and therapeutic areas of focus will be key in driving the growth of our pipeline in the coming months and years.

This includes leveraging our deep technical expertise to combine and adapt various modalities with the aim to improve patient outcome. You will hear more about that on our plans for growth and expansion later in the year, including the nomination of our fifth product candidate, a trispecific T-cell engager or TriTCE. Our strategic balance of wholly-owned ADCs and T cell engagers targeting clinically validated antigens like folate receptor alpha, NaPi2b and mesothelin underscores our commitment to delivering innovative treatments that meet the highest standards of care, not only as monotherapy but also in combination with agents that have already shown previous activity and benefit. ZW171 and ZW191 are both designed to optimize efficacy starting with its election targets with the highest level of expression.

As you can see here, across ovarian cancer, mesothelin fol receptor and NaPi2b are expressed at relatively higher levels compared to other targets such as [indiscernible], providing a broad and comprehensive coverage of ovarian cancer, something which also holds in non-small cell lung cancer. We believe that the relatively high tumor expression levels are crucial for maximizing the efficacy of our therapeutic agents, helping the ADCs and T cell engagers to effectively buying to and eliminate cancer cells regardless of modality. By leveraging T-cell calling food enhance 2+1 format in unique geometry, our ZW171 candidate offers a potentially robust and precise immune response against mesothelin expressing tumors and helps her enhance our position in the competitive landscape.

Similarly, leveraging a unique antibody Pod linker for ZW191 offers a potential robust an effective against fully receptor alpha expressing tumors. This quarter, we have achieved significant milestones in progressing our pipeline by advancing both ZW171 and ZW191 into clinical stage development. With the FDA clearance of these INDs, we are one step closer to our goal of providing patients with potentially best-in-class therapeutics that could improve the standard of care for these treatment landscapes. T cell engagers offer great opportunity for more effective therapies, and in particular, ZW171 has the potential to keep patients with the right range of tumors with moderate to strong mesothelin expression from ovarian cancer, pancreatic cancer, non-small cell lung cancer and endometrial cancer.

However, the opportunity for developing T cell engager targeting these mesothelin expression cancers — doesn’t come without its challenges. For 171, we have taken a thoughtful approach to what our target profile would look like for this patient population. And we believe in our design approach, which uses an ability to end mesothelin banging 2 mesothelin paratope to enable selective cystic is to tumor cells with high mesothelin expression relative to normal tissues and reduces the impact of soluble mesothelin impotency potentially minimizes of tumor on target toxicity. On Slide 13, the preclinical data shown here demonstrates 171’s ability to exhibit mesothelin toxicity across various cancer cell lines, including on Lung, ovarian, colorectal and mesothelioma.

The cancer cell lines with relatively high for moderate mesothelin expression, including representative of lung, ovarian cancer, CRC and mesothelial with cancer cell in, 171 demonstrates potent cytotoxic effect, significantly reducing tumor cell survival at low concentration. Importantly, in cell lines with relatively low mesothelin expression relative — reflective of mesothelin expression on normal healthy tissue, 171 showed minimal cytotoxicity effect similar to the negative control. We believe that select of activity helps to ensure that 171 specifically targets mesothelin-expressing tumor cells, minimizing potential off-target effects and improving safety profiles. The demonstrated efficacy across high and moderate mesothelin expression tumors suggests a broad therapeutic potential for 171 in treating various cancers as shown in the previous slide.

Based on these promising preclinical results, we are preparing to further validate these findings in a clinical set. We expect to dose the first patient this year in our Phase 1 open-label multicenter study of 171 and participants advanced for metastatic ovarian cancer, non-small cell lung cancer and other mesothelin expression cancers. The Phase 1 study design is now available on clinicaltrials.gov website under the NCT number 06523803. The global study is expected to enroll 160 participants across North America, Europe and Asia Pacific regions. Part one of the study will evaluate the safety and tolerability of 171 and part two of the study will evaluate the non-tumor activity of 171. According to the RECIST evaluation criteria, while continuing to evaluate the safety and tolerability, criteria includes pathologically confirmed diagnosis of cancers with evidence of locally advanced unresectable and/or metastatic disease, cases that are refractory to all available standard of care treatment, cases for which no standard treatment is available, while the participant cannot tolerate or refuses standard care of therapy.

We look forward to reporting first patient dose in the near future and discussing progress in the coming earnings calls. Now moving to ZW191, which highlights our continued focus on targeting antigens with high levels of expression of the discrete value. As illustrated in the attached slide, folate receptor alpha is frequently over-expressed in a substantial portion of non-small cell lung cancer, ovarian cancer and endometrial cancer, in non-small cell lung cancer adenocarcinoma, for example, over 70% of patients have been reported to exhibit full receptor alpha positivity with significant portions demonstrating high expression levels at the time by PTS over 50%, and I see score of greater than equal to two plus. Similarly related in ovarian cancer around 80%, platinum-resistant ovarian cancer tumors express some level of full receptor alpha with 35% scoring as fully receptor alpha high.

Endometrial cancer also presents a notable opportunity with 33% of tumor scoring that’s full receptor alpha positive, and 15% is bullet receptor alpha high. By focusing on receptor alpha, which are commonly expressed in these cancers, we aim to develop treatments that not only demonstrate strong therapeutic efficacy, but also minimize off-target effects, potentially improving patient outcomes. We are pleased to report that the FDA has cleared IND submission for 191. We are looking forward to seeing how our unique design and novel plot for this series translates in a clinical setting. As we’ve discussed previously on these calls, our efforts on developing a novel Topoisomerase 1 inhibitor or TOPO 1 payload known as ZD06519 that’s focused on selecting properties that we expect would drive strong efficacy while maximizing tolerability specifically moderate potency with high base standard activity.

6519 was designed and selected to potentially allow high antibody dose in humans compared to DCs with more prudent TOPO 1 inhibitor payloads as evidenced by the T-DXd. The nonhuman primate studies with their superior tolerability of the 519 ADC exemplify at the 120 mg per kg dose of ADCs with a drug antibody ratio of four. We then implemented well-established and clinically validated liquor and antibody attachment chemistry with a balanced approach of designed instability. As you can see here in the bottom section of the table, ADCs with higher stability show an unexpected a higher toxicity compared to the DXd platform. On Slide 17, as we highlighted in our AACR poster presentations earlier this year, we demonstrate the relative internalization by 191’s folate-receptor-alpha monoclonal antibody compared to folate-receptor-alpha targeting antibodies incorporated for other ABC programs.

As you can see, 191’s monoclonal antibody in dark blue demonstrated higher levels of internalization compared to the monoclonal antibodies from Elahir, Morav-202, Stro-002, and Pro-1184. This observation is consistent with our decision to select the 191 monoclonal antibody from a larger pool of antibodies for its ability to deliver payload through enhanced internalization and our care in factoring in all components of the ABC in designing our candidates. This type of spheroid model is more protective of anti-tumor activity than in vivo models and traditional 2D cell-like models and also aids in the detection of ABC mechanism of action, which gives us confidence in being able to replicate these results in humans. Further, for 191, we are pleased to have achieved the highest non-severely toxic dose in non-human primates of 60 mg per kid, presenting a compelling profile for potential efficacious dosing in our Phase I clinical trial expected to initiate later this year.

I will now hand over to Ken, our CEO, and chair for closing remarks before we begin the Q&A portion of the call.

Ken Galbraith: That’s great. Thank you, Paul. We’re excited to see how our data-driven approach for designing and developing both ZW171 and ZW191 translates into our respective Phase I studies, and we remain dedicated to advancing transformative therapies with IND submissions for ZW220 and ZW251 in 2025, as well as nominating our tri-TCE product candidate later this year. On another business update, we’re pleased to announce the appointment of Leone Patterson as Executive Vice President, Chief Business Officer and Chief Financial Officer effective September 1st. Ms. Patterson brings more than 20 years of public company biotech experience with a proven track record of guiding strategy, finance, operations, and government through multiple phases of growth.

Leone’s expertise in planning and executing successful financial strategies will be key as we continue to plan for the next period of growth and expansion for the company. We’re pleased to announce that our partner, Jazz, has initiated the Phase III EMPOWHER, trial, which is designed to evaluate zanidatamab in combination with chemotherapy after progression on INHERTU, where there’s an opportunity for zanidatamab to be the first HER2-targeted therapy to demonstrate efficacy and safety in breast cancer patients after INHERTU treatment. Together with our partners, Gaz and Beijing, we look forward to sharing more data on zanidatamab’s efficacy this year during peer-reviewed medical meetings where we can further validate zanidatamab’s potential to improve the standard of care for these patients.

We’re also looking forward to the pivotal Phase III readout, top-line data readout in our first-line GEA study by our partner, Jazz, to estimate top-line CFS data will be available in the second quarter of 2025. In the near term, we also look forward to an important catalyst, our upcoming FDUFA date of November 29, 2024, for our zanidatamab filing in second-line BPC in the United States. Before we turn the call over to Q&A, I’d like to talk about the share repurchase program, which was announced via a press release concurrent with our second quarter 2024 financial report. As disclosed in the press release, our board has authorized a $60 million share repurchase program with $30 million of the program repurchases expected to begin promptly and continue during the second half of 2024.

This decision reflects our confidence in the future outlook for our business, the potential of our product candidate portfolio, and the long-term value of our preclinical and clinical development pipeline. We believe our strong capital position, [indiscernible] partnerships, enables us to execute on the share repurchase program while maintaining ample cash resources to continue advancing our product candidate portfolio and providing optionality around strategic capital allocation. The share repurchase program is further supported by our decision to deprioritize the development of Zani-Zo, which allows us to reallocate that associated R&D spending. We also expect to maintain our projected cash runway in the second half 2027, assuming completion of the full $60 million share purchase program based on existing cash resources and assuming the receipt of certain anticipated regulatory milestone payments.

We believe our stock is currently undervalued and see this buyback as a strategic way to invest in ourselves through thoughtful capital allocation ahead of upcoming expected catalysts in 2024 and 2025. Our plan to execute the share repurchase in two phases gives us the flexibility to manage repurchase over time, allowing us to adapt to market conditions and pursue additional growth opportunities as they may arise. By reserving the remaining $30 million for future repurchases, we maintain flexibility that can enable us to capitalize on strategic opportunities without compromising our cash resources. This balanced approach and thoughtful capital allocation enables us to make prudent decisions that we believe will benefit our shareholders, both now and in the future.

With that, I’d like to thank everyone for listening, and I’ll turn the call over to the operator to begin the question-and-answer session. Operator?

Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Stephen Willey at Stifel. Stephen your line is now open.

Stephen Willey: Yes, good afternoon. Thanks for taking the questions and thanks for getting 171, 191 in the clinic. Just wondering if you can speak to the levels of testing and fully receptor help expression that you’re acquiring at baseline for the Phase 1. What are the IHC cut-up values that you’re requiring for both? And then is there anything that you might be able to say about the starting ZW171 dose, the cadence of any step-up dosing you’ll be using and any requirements for inpatient administration? Thanks.

Ken Galbraith: Sure. Thank you, Stephen. Maybe I’ll ask Pranshul, who’s the Global [indiscernible] for ZW171 who wants to answer some, but maybe not all of those questions Stephen.

Pranshul Chauhan: Hi Stephen. Thank you for your question. I can share with you what the key available on clinicalstrials.gov. To start off, I think you asked about the expression levels of [indiscernible] and folate receptor Alzheimer studies. Initially in our dose escalation phase, we’ll be analyzing expression levels prospectively. So, there’s no cutoff as such as some of these are yet to be validated for [Indiscernible] for example. Your second question regarding dosing strategy, this is something that we haven’t made available publicly yet. However, we do intend to explore various dosing formats of ZW-171 in clinic. And your — what was your last — these would be questions, Stephen, sorry.

Stephen Willey: Just a question of any starting to step-up dosing and then any inpatient administration requirements?

Pranshul Chauhan: The starting dose is something we haven’t shared publicly yet. There will be requirements for inpatient in small subset patients during the dose escalation phase, and this is mandated by regulatory requirements in our discussions with the regulatory bodies. However, we do intend to work at different strategies for dosing, where we will explore dosing with hospitalization requirements later on in the study.

Stephen Willey: Okay. Could I just ask a clarification question, so just — so that I’m clear? On the mesothelin side, and I guess maybe even on the folate receptor alpha side, you will be enrolling tumor types that you know to be enriched for expression of each of these target antigens and then you’ll be retrospectively looking at expression levels via IHC?

Ken Galbraith: Exactly.

Stephen Willey: Okay. Thank you for taking the questions.

Ken Galbraith: Thank you.

Shrinal Inamdar: Thanks Stephen.

Operator: Thank you. Our next question comes from Yigal Nochomovitz from Citi. Yigal, your line is now open.

Q – Unidentified Analyst:

[Indiscernible]:

Shrinal Inamdar: No, two great questions. Paul, would you like to answer both of those questions.

Paul Moore:

[indiscernible]: And then regarding your question about using that across three different targets. We feel all of those three targets could benefit within our disease indication from ADCs with this type of payload. And so where our preclinical data supports that when we benchmark it against competitor programs or prior programs, both the efficacy profile and the breadth of patients that we can tackle with this payload balance with the antibody really looks very favorable. So that supports our moving forward in the clinical of all three programs.

Q – Unidentified Analyst: Thanks. That’s helpful.

Operator: Thank you. Our next question comes from the line of Akash Tewari from Jefferies. Akash, your line is now open.

Q – Unidentified Analyst: Hi. This is Ivy on for Akash. Jazz announced yesterday, that data from Horizon G801 was pushed back from late 2024 to Q2 2025. Does that mean that enrollment is progressing slower than originally anticipated? Or is it just related to not enough PFS events getting accumulated as prespecified by the interim analysis protocol? And have you disclosed any of the number of events for PFS to be accumulated for the preplanned interim announcement? Thank you.

Ken Galbraith : Yes. And as to your first question, I think Jazz was very clear on the guidance as in their earnings call because I did listen to it. And they were very clear that enrollment is on track and the delay in unblinded study was related to getting to the required number of events to unblinded study, which is currently targeted in our estimates being Q2 2025. And the answer to your second question is no, there’s no disclosure of the actual number of events.

Q – Unidentified Analyst: Okay. Understood. Thank you.

Ken Galbraith: Yes. No worries.

Operator: Thank you. Our next question comes from the line of Brian Cheng at JPMorgan. Brian, your line is now open.

Unidentified Analyst: Thanks for taking our question. This is Sean on for Brian. So firstly, on 171, we saw that the Phase 1 was posted on clinicaltrials.gov. How should we think of the side effect profile based on the target you selected? Just curious if there’s any additional preclinical insights that you can share? And how many doses are you evaluating? And I have a quick follow-up.

Ken Galbraith: Paul, do you want to take the first question about the preclinical characterization, the tolerability of mesothelin what might have seen?

Paul Moore : Yes. That’s a good question because others — is a target that almost very highly expressed on cancer takes. There is some level of normal expression of mesothelin. And so you have to think carefully about how you differentiately target the tumor with avoiding the normal. And so that’s why we spend so much time preclinically trying different formats to get a format that gave us that better window, where we wouldn’t have activity on low-expressing models that represent normal tissue levels of mesothelin, but has very potent and doesn’t compromise the anti-tumor activity on the mesothelin positive tumors, high expressing. And that we’ve seen in our preclinical profile, we’ve taken the molecules into non-human privates.

We’ve done a lot of other valuation of the molecules on regarding safety. And there, we haven’t seen evidence of toxicity. Of course, we have to — going into the claim, we’ll have to monitor that. The attention there that’s part of the dosing strategies that Pranshul alluded to that we’ll be evaluating. But so far, really, we really try to come up with the design of the mode to address exactly what you’re asking.

Ken Galbraith: And I’ll let Pranshul answer the second question about the number of dose levels planned for the Phase 1 study.

Pranshul Chauhan : Yes. So we can’t evaluate six different levels. This may increase or decrease based on the safety and tolerability profile and DLT evaluation period is 21 days for the study. And — but we will continue to gather safety and tolerability data as long as the participant remains on trial and there to remain on trial until the toxicity or progression. I hope that answers your question.

Ken Galbraith: I think you had another question, Sean.

Unidentified Analyst: Yes. Thank you for the clarification. I just have a quick modeling question. So we saw that the catch run rate hasn’t changed. But with Zanizo now discontinued, is there any near-term impact that we should model for the R&D expenses? Thank you.

Ken Galbraith: Yes. There will obviously be a subsequent decline in some of the expenses that would have been related to continue spending on [indiscernible] to complete the plan Phase II study and prepare for our registration study. So that will decline over the next period of time. And again, that’s approximately $30 million that was allocated, which coincidentally matches the initial repurchase program from our share repurchase program. So we would expect that, that will be released from future R&D expense, and we’ll be using that capital to reallocate to the share repurchase program over time.

Unidentified Analyst: Thanks for taking our questions.

Ken Galbraith: You are welcome.

Operator: Thank you. Our next question comes from the line of Jon Miller at Evercore. Jon, your line is now open.

Jon Miller: Thank you very much for taking the question. I’ll start on the deal program. I know you mentioned you’ll be looking at mesothelin expression retrospectively in some of these patients. I guess, what are your expectations for those mesothelin negative patients, presumably there would be an absence of expected activity there. But does the absence of sufficient antigen, I know you said you don’t see tax from a sales perspective, a normal expressing intention, but can you drive CRS or T cell exhaustion by circulating T cells if you don’t have a good antigen sync to sop up the bispecific to the tumor itself. And sort of separately, maybe relatedly, you note in the slide that you have a potency even in the presence of soluble mesothelin and I’d love to get a little bit more color on that. Is that driven by the blending mode? Do you not buy in [indiscernible] or is there something else going on that’s helping you maintain activity.

Ken Galbraith: Thanks, Jon. Paul, do you want to address both of those questions for mesothelin?

Paul Moore: Yes. Sure. So maybe on the first question about patients that you wouldn’t have mesothelin target or it would be limited as possible. I mean, my most of the tumor types that we’re going in to have some level of mesothelin. So we would probably not think as possible, unlikely, but you’re right, it period happen. And I think then with your question about the that then leading to potential deleterious effects through T cell exhaustion or having a negative part of the design, consistent with other T cell engagers as well, but we also make sure on 171, you don’t get T-cell activation, the interaction that we’ve got with the CDC is very low affinity, and it’s not — it requires first that you coengage 2, binding sites on mesothelin to really set the molecule down the mesothelin target population, and then you engage the CD3 and then that gives you the activation.

And that’s pretty comprehensively looked at. So I’m not so worried about that being a negative effect. The other part about the soil mesothelin there, we tested that in vitro and you basically just combined with mesothelin and there’s — there’s very limited impact on the killing and you can still get to maximum levels of killing. And I think, again, that there is partly visibility-driven effect that we have and the fact that to get any impact on activity, you really need to be launched or binding to a cellular surface as opposed to a soluble protein. So that — happy to share more data on that with you and discuss it further join. The data speaks to that and support that mechanism in…

Jon Miller: Make sense. I would love to talk more about the detail there, but not on the Q&A session here. I guess — can I ask a follow-up on the folate receptor alpha program. One of the things you said in the prepared remarks was that you were specifically looking for a payload that would support a higher antibody dose. And I guess I’m curious why that’s intrinsically valuable, given that blocking FRα isn’t in itself affected. So what’s the benefit to giving a higher dose versus a lower dose, if aggregate payload toxicity is similar?

Paul Moore: Yes, it’s a good question. I think there’s — there partly the thinking is that the higher the dose that you can get into a patient, the more chance you’ve actually got of getting the drug to target. So you may be aware that lower doses you’ve got just to penetrate through into the tumor, only 1% to 2% of the antibody actually gets to site. So the higher dose you’ve got in a patient, the more than you’ve got getting a threshold level of antibody ADC into that tumor. And that also gives me an opportunity to also promote as well. That’s why it’s so important on the front end of the antibody as well. That’s why we bring up this point about us having better on canalization, because you also want what does get to the tumor to also internalize there efficiently.

So that’s where our thinking on the design there is. And by having a more moderate tailor or potency similar to DXD that allows you to get that higher dose into a patient so that you’ve got that better amount of drug that can then get to tumor.

Jon Miller: Makes sense. And then I guess one final one on the share repo. I guess I’m just curious about this as a use of capital given expectations for 5-plus programs in the clinic and a very — obviously, a very active drug discovery effort, is there really excess capital at this point to return cash to shareholders versus driving value through clinical development?

Ken Galbraith: No, good question. I think if you look at our current operations now, obviously, ZW171, ZW191 are going very fast and are well funded, ZW220, ZW251 are on schedule to go into the clinic next year. They’re well funded beyond that, the fifth indication and what’s in Paul’s portfolio behind that, which we call advanced right now is well funded and moving forward. So we think we’re adequately funding all the opportunities we have in front of ourselves and are quite happy with the level of R&D investments. Strategically made the decision to claw back the capital allocation we had for Zani-Zo to complete the Phase 2 and prepare for a registration study for the reasons we outlined. And that happens to provide about $30 million of cash, which doesn’t need to be allocated to the remaining portfolio 5×5 or Paul’s advanced portfolio.

We’ve looked for a little while about opportunities that might be outside to use for that capital. But I think right now, the most thoughtful capital allocation we can make with our current valuation, the Catalyst in front of us, the strength of our cash runway, the optimism we have about the outlook being positive going forward is to, again, invest in ourselves, which we think will boost total shareholder return. And we’re certainly convinced that a thoughtful capital allocation process as with periodic buybacks and a smart R&D strategy can coexist in a biotech company. And hopefully, that’s the way to optimize total shareholder return over the long-term, and that’s what we’re committed to. And we’ve seen the opportunity now uniquely to do it in front of some Catalyst in 2024 and 2025 with some cash that we surely think is excess for now.

And therefore, we’re going to utilize that in a shareholder program to invest in ourselves. And we think that’s of a benefit to all of our shareholders. And that’s what we’ve chosen to do.

Jon Miller: All right. Thanks very much.

Ken Galbraith: You’re welcome

Paul Moore: Thank you.

Operator: [Operator Instructions] Our next question comes from the line of Robert Burns at H.C. Wainwright. Robert, your line is open.

Robert Burns: Absolutely. Thanks and congrats. Three from me if I may, with regard to 171, from a go/no-go signal perspective in the dose escalation, what are you looking to achieve in particular with regards to ovarian cancer and NSCLC? And would GavicEl [Ph] demonstrated in ovarian chance or be a good reference point for us.

Paul Moore: Good question. I’ll let Pranshul decide how we wants to answer that question about what we’re looking for.

Pranshul Chauhan: Yeah. Very good question, I think initially, we want to assess the safety and tolerability of our assets. Paul’s group has spent a lot of time in a lot of time and thought into the design of the structure. We feel we have a strong candidate that we’re bringing to clinic. So the focus would be on a tumor-targeting agent that shows safety and tolerability. So that’s the core of the Phase 1 study. We will gather data on efficacy in these tumor types. And these will be measured using reasons criteria to measure our objective response rate. We’ll be gathering other data such as PFAS data and OS data, but the fundamental of the Phase 1 study is to focus on safety and tolerability.

Robert Burns: Thank you.

Operator: Thank you. I’m showing no further questions in the queue, at this time. I would now like to turn it back to Shrinal, for closing remarks.

Shrinal Inamdar: For closing instructions, I hand back over to Ken for closing remarks.

Ken Galbraith: That’s great. Well, thank you very much for taking time today and listening to questions, and we very much look forward to reporting on progress against our milestones for the remainder of 2024. And please stay tuned. And we’ll provide some updates on progress throughout the course of the year. Thank you very much.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.