Zymeworks Inc. (NYSE:ZYME) Q3 2023 Earnings Call Transcript

Zymeworks Inc. (NYSE:ZYME) Q3 2023 Earnings Call Transcript November 7, 2023

Operator: Good day, and thank you for standing by. Welcome to the Zymeworks Third Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today’s conference is being recorded. I would now like to hand the conference to your first speaker today, Shrinal Inamdar, Director of Investor Relations. Please go ahead.

Shrinal Inamdar: Thank you, operator. Good afternoon, everyone. My name is Shrinal Inamdar, Director of Investor Relations here at Zymeworks and I’d like to welcome you to our third quarter 2023 results conference call. On Slide 2, before we begin, I would like to remind you that we will be making a number of forward-looking statements during this call, including without limitation those forward-looking statements identified in our presentation slides and the accompanying oral commentary. Forward-looking statements are based upon our current expectations and various assumptions and are subject to the usual risks and uncertainties associated with companies in our industry and at our stage of development. For a discussion of these risks and uncertainties, we refer you to our latest SEC filings as found on our website and as filed with the SEC.

In a moment, I’ll hand over to Chris Astle, our Senior Vice President and Chief Financial Officer, will be discussing our financial results, including certain non-GAAP measures, a description of our non-GAAP measures and a reconciliation to the most directly comparable financial measures as determined in accordance with GAAP are described in detail in our press release, which is available on our website at www.zymeworks.com under the Investor Relations tab. Following a discussion of our financial results, Dr. Paul Moore, our Chief Scientific Officer will talk about our early stage pipeline and introduce our latest IND candidate ZW251, a potential first-in-class ADC molecule designed for the treatment of glypican-3 or GPC3-expressing hepatocellular carcinoma, or HCC.

At the end of the call, Chris and Paul will be joined by our Chair and Chief Executive Officer, Ken Galbraith 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 hand over to Chris, our Senior Vice President and Chief Financial Officer.

Chris Astle: Thanks, Shrinal, and thank you, everyone for joining us today for our third quarter 2023 earnings call. With that, I will begin today’s call with an overview of our financial results. This afternoon, Zymeworks reported financial results for the three and nine months ended September 30, 2023. The nine months ended September 30, 2023, Zymeworks’ net loss was $104.2 million, or $1.53 per diluted share, compared to a net loss of $185.1 million for the same period in 2022. The decrease in net loss of 44% was primarily due to revenue from our collaboration agreement with Jazz and an increase in interest income, as well as a decrease in research and development expense. This was partially offset by an increase in general and administrative expense and an increase in income tax expense.

Revenue for the nine months ended September 30, 2023 was $59.1 million, compared to $10 million for the same period in 2022. Revenue for the nine months ended September 30, 2023 included $56.3 million for development support and drug supply revenue from Jazz, and $2.8 million for research support and other payments from our partners. Revenue for the same period in 2022 included a $5 million research license fee from our Atreca licensing agreement and $5 million from our partners for research support and other payments. Research and development expenses for the nine months ended September 30, 2023 were $118.1 million, compared to $155.6 million for the same period in 2022. Excluding stock-based compensation and 2022 restructuring expense, research and development expense decreased on a non-GAAP basis by $31.4 million in the nine months ended September 30, 2023, compared to the same period in 2022.

This decrease was primarily due to a decrease in expenses for zanidatamab as a result of our transfer of this program to Jazz during the three months ended June 30, 2023 per our transfer agreement and the Amended Jazz Collaboration Agreement. This decrease compared to the same period in 2022 was partially offset by an increase in preclinical expenses, primarily with respect to preclinical product candidates of ZW171 and ZW191. In addition, salaries and benefits expenses decreased compared to the same period in 2022 due to lower headcount in 2023. For the nine months ended September 30, 2023, general and administrative expenses were $55.6 million, compared to $43.2 million for the same period in 2022. Excluding stock-based compensation and 2022 restructuring expenses, general and administrative expense increased on a non-GAAP basis by $9.9 million in the nine months ended September 30, 2023, compared to the same period in 2022.

This increase was primarily due to an increase in expenses for professional services and other expenses related to higher depreciation on facilities and higher technology expenses in 2023 compared to the same period in 2022. This was partially offset by a decrease in salaries and benefits expenses compared to the same period in 2022 due to lower headcount in 2023. Overall, our total employee headcount has been reduced by approximately 45% over the past 21 months, from 455 full time employees as of December 31, 2021, to 252 full time employees as of September 30, 2023. Our cash resources, consisting of cash, cash equivalents, and marketable securities were $390.2 million as of September 30, 2023, a net reduction of $102 million from December 31, 2022.

For the nine months ended September 30, 2023, our cash used in operations was negatively impacted by working capital movements, primarily due to higher levels of receivables, which we expect to partially reverse by the end of 2023. As of September 30, 2023, we have approximately $64.3 million in receivables from Jazz, reflecting reimbursement for zanidatamab development costs, which we expect to be reimbursed subsequent to the end of the third quarter. Moving forward, the accounting for our Jazz Collaboration should be simplified, giving that the majority of zanidatamab development expenses will be incurred directly by Jazz. Any continued zanidatamab development expenses incurred by us and reimbursed by Jazz will be reflected as a reduction in operating expenses rather than collaboration revenue.

We continue to expect further development support and drug supply payments from Jazz, which will continue to be reported as collaboration revenue. Due to the transfer of a significant number of our employees dedicated to zanidatamab development to Jazz, we recently decided to vacate our existing long-term leased Seattle office location and have secured a fit for purpose office facility on a short-term financially attractive lease arrangement in Bellevue to accommodate our remaining Seattle based workforce. Majority of the financial impact related to this decision was reflected in our Q3 financial results. With the continued focus on the balance sheet and the significant transformative impacts of the non-dilutive inflows from our licensing and collaboration agreements with Jazz and BeiGene, we continue to expect to have cash resources to fund planned operations through at least the end of 2026 and potentially beyond.

As of November 6, 2023, we had approximately 70 million shares of commerce stock outstanding with all previously issued prefunded warrants exercised. For additional details on our quarterly and nine months ended results and for a description of our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, I encourage you to review our earnings release and other SEC filings as available on our website at www.zymeworks.com. With that, I’d like to hand over to our Chief Scientific Officer, Dr. Paul Moore, who is going to talk about recent data readouts, our early stage pipeline and our latest IND candidate ZW251. Over to you, Paul.

Paul Moore: Thank you, Chris. Before I move on to our early stage programs, I’d like to spend a few minutes first talking about data highlights from this quarter on our lead candidate zanidatamab shown here on this slide. Data presented by our partners Jazz and BeiGene at the European Society for Medical Oncology Annual Congress highlight zanidatamab’s continued efficacy and tolerability. Two abstracts were presented. The first described clinical results from the ongoing global open-label Phase 1b/2 study for zanidatamab plus chemo and tisle, an anti-PD-1 monoclonal antibody for first line treatment of HER2-positive gastric/gastroesophageal junction adenocarcinoma. With an overall response rate exceeding 75%, this study resulted in encouraging data for the triplet regimen, with a median duration of response of 22.8 months and a median progression free survival of 16.7 months.

The second abstract described quality of life outcomes from the Phase 2b HERIZON-BTC-01 study evaluating patients with zanidatamab treated HER2-positive biliary tract cancers in patients with centrally confirmed HER2-amplified tumors. We previously reported data from this Phase 2b study where zanidatamab as monotherapy in this patient population had a confirmed overall response rate of 41.3% and 51.6% in the IHC 3+ patients, as well as a median progression fee for survival of 5.5 months. As we continue to monitor other development stage candidates for GEA, we have yet to see data reported in first line GEA patients comparable to the Phase 2 data for zanidatamab on chemo with or without a PD-1 inhibitor. We believe the differentiated mechanism of action from our bispecific HER2 antibody zanidatamab is responsible for the encouraging and durable patient responses we have seen in our GEA study conducted to date.

Having reviewed the current results from other development candidates, including those presented at ESMO, we believe that the potential for positive outcomes from HERIZON-GEA-01 could dramatically change the standard of care for GEA patients in the first line setting. Unlike data seen from development – other development candidates, we see the potential for clinically meaningful benefit for both PD-L1 positive and PD-L1 negative patients in our study, with the potential for additional clinical benefit as seen in our recent Phase 2 study in patients with high PD-L1 scores. We believe that zanidatamab’s tolerability profile allows for combination with other agents, including chemotherapy and immuno-oncology agents, that may help achieve patient responses not achievable with monotherapy approaches.

As I said, both zanidatamab presentations at ESMO provide continued positive efficacy, safety and tolerability data for zanidatamab, used in both GEA and BTC. The outcome of the current randomized study is widely anticipated among KOLs in the GI community, and we look forward to that top line pivotal data in 2024. I’d like to now turn to the next slide and talk a little bit about our R&D focus for our preclinical programs, which you have probably heard us refer to as our 5 by 5 pipeline. The idea behind this starting in 2022 was to nominate and initiate five – clinical trials and five new molecules by 2027. Today, I’m pleased to announce the nomination of our fourth candidate, ZW251, which I will discuss in more detail shortly. Overall, we are very pleased with the speed at which our team has been able to identify opportune targets and develop quality candidates, something achieved thus far ahead of our own expectations for the first four slots and we hope to nominate the final IND candidate for a 5 by 5 pipeline during 2024.

To reach this goal, we begin by using an integrated internal R&D engine for both antibody drug conjugates or ADCs and multi-specifics. Technologies, we believe will continue to be extremely valuable for us in the long-term. And we do this with a commercial focus around what kind of target product profile will support a substantial increase in the standard of care for patients in commercially attractive markets, especially in the U.S. where we would seek to eventually become a commercial company. Essentially, our approach is quite straightforward. We select difficult to treat cancers, validated targets or pairs of targets from those cancers. We have a range of technologies available to us internally to decide which product mortality to pursue and how to design those.

The result of those platforms is either an innovative antibody conjugate, as you’ll see with our latest IND candidate, ZW251 or an innovative multi-specific antibody. As I mentioned, our candidates must meet both a very rigorous R&D and commercial business case before we begin development. Our teams look at each aspect of the candidate’s potential, which includes development complexity, commercial opportunity, competitive landscape, probability of success, as well as investment and partnering of potential. We have a strong focus on finding opportunities for ADCs and multi-specific antibodies to be used throughout the continuum of care for patients with difficult to treat cancers, both as monotherapy and in combination with other agents currently approved as standard of care.

This requires a strong focus on both efficacy and tolerability to ensure the potential for combination therapy and is important consideration in the selection of targets of interest and product formats. Finding a way for ADCs and multi-specific antibodies to be used in earlier stages of therapy in combination with standard of care may be the best approach to make breakthroughs in patient outcomes in these difficult to treat cancer indications. The last point, we recently have seen the benefits of partnerships with significant transactions in ADC space, validating Zymeworks’ focus on developing IND candidates in the growing area of topoisomerase 1 inhibitor ADCs. These candidates provide us with multiple opportunities beyond zanidatamab to advance compelling therapeutics, focusing on targets of interest into clinical studies as soon as next year.

So now I’d like to move and introduce ZW251, our latest IND candidate, which is a potential first-in-class GPC3 targeting topoisomerase inhibitor ADC for the treatment of hepatocellular carcinoma. Liver cancer, both in the U.S. and worldwide, presents a substantial health burden. Globally, HCC is the third most common cause of death from cancer. This burden has been on the rise due to factors such as the increasing prevalence of alcohol consumption, obesity and lifestyle induced HCC. Despite progress, in improving the prognosis of many cancer, liver cancer continues to have a dismal survival rate. This unmet need fits with our strategy to develop therapies in such areas. The limited treatment options available for HCC further reinforce our commitment to this disease.

Historically, mainline treatments primarily relied on multi-kinase inhibitors, but more recently, there has been a shift to focus on antiangiogenic agents and checkpoint inhibitor combination therapies. Liver cancer is challenging to treat with various modalities showing only partial effectiveness, while cytotoxic chemotherapies demonstrate some response, better outcomes are achieved with local regional therapies such as transarterial chemoembolization or TACE versus systemic therapies. Despite recent approval of these agents, we’ve only seen a modest overall increase in survival for HCC patients. Systemic chemotherapy has been investigated to treat HCC in the past, and older trials investigating chemotherapy show objective responses in the rate achieved by multitargeted tyrosine kinase inhibitors and immune-oncology combinations.

Moreover, TACE is used to treat intermediate stage HCC and often employs DNA damaging chemotherapies like doxorubicin and cisplatin. We interpret this as demonstrating HCC is indeed chemosensitive, provided enough drug can be delivered and we can reasonably expect to reach the same doses as things such as deruxtecan conjugates based on our preclinical toxicology studies. If we reach those same doses of the deruxtecans being 5 milligrams per kg or more, we believe that we can deliver sufficient payload to potentially shrink the tumors. So guiding our approach, leveraging the ADC modality to enhance the efficacy of cytotoxics in liver cancers offers a new dimension to treatment to enable the delivery of such cytotoxics. The potential to improve efficacy with an ADC and expand on limited targeted therapies in HCC provide an opportunity for us to develop a potential first in class candidate for this patient population.

The focus of interest on TOPOs has been due to the notable clinical success of TOPO1 inhibitor bearing ADCs against solid tumors. Further, topoisomerase inhibitors as systemic treatment to HCC have found to be active but yield mixed responses and there remains room for improvement. Meanwhile, novel therapies like CAR T cells, while promising, face challenges as they must overcome the strong immunosuppressive environment of HCC. Moreover, engineered cell therapies are more costly than the off-the-shelf options like ADCs and are not suitable for patients that cannot tolerate high intensity conditioning regimens. The range of available treatments yield fairly low responses and medium progression pre-survival rates as shown in the right hand side of the slide, with later lines of treatments being an exercise in combining limited approved regimens, piling the need and opportunity for new treatments with a lack of competition for ADC in this area.

If we can develop an effective and tolerable ADC to be used as both monotherapy and in combination with other approved agents, we may be able to provide a new treatment option for patients throughout the continuum of care of HCC, including in early lines of treatments which may provide the ability to transform survival outcomes for these patients. Next slide, like to talk a little bit more about target. So what is the target that we’re targeting, GPC3 or glypican-3? And what makes it a good target? So GPC3 is considered an oncofetal glycoprotein, which is important in fetal development but down regulated in adult tissues. This key attribute of minimal expression in normal healthy tissues while showing frequent and high expression in HCC, has been corroborated then by multiple groups.

This profile makes GPC3 a validated and highly selective approach to treat HCC, which has also been seen in the clinic. For example, studies with radiolabeled versions of the anti-GPC3 condrituzumab demonstrated rapid and selective uptake into liver cancer lesions in a study of HCC patients, reinforcing our hypothesis that antibody targeting of GPC3 is a good way of specifically targeting HCC. We believe this level of selectivity makes GPC3 a really exciting target and a potential turning point for treating liver cancer. The next slide, what we have laid out here are some of the key characteristics of ZW251, which we believe make it a fitting candidate for targeting GPC3 and HCC. The antibody itself was selected for strong binding specificity and internalization foundational features for all our ADC programs.

We then combined this quality antibody with our own proprietary TOPO1 payload with the desired and appropriate balance of stability, potency, tolerability and bystander activity. TOPO1 based technologies show meaningful clinical benefit in a wide range of solid tumors, including hard to treat solid tumors, and have been validated with other targets. We are therefore optimistic about the combination of a GPC3 targeting antibody and TOPO platform for the treatment of HCC. As for our standard development process, a DAR 4 and a DAR 8 ADC were evaluated to let us make data-driven decisions on the next steps, and it was determined that we will be taking forward a DAR 4 molecule in line with our philosophy to balance efficacy and tolerability. Altogether, we see ZW251 as a unique asset and to the best of our knowledge, no other liver cancer ADCs are being actively developed against GPC3.

Switch to a data slide, which highlights two key features of ZW251. On the left are examples of anti-tumor activity against patient derived xenograft model. We’ve demonstrated this in multiple models at conferences. And equally important, on the right hand side demonstrates the tolerability of ZW251 in non-human primates, where we’ve gone up to 60 mg/kg and 120 mg/kg on repeat doses for a DAR 8 and DAR 4, respectively. So turning to the next slide. You’ll see the expected then IND, progression of INDs from the 5×5. We expect to see – we’re on track for submissions for 171 and 191 in 2024, followed by ZW220 in the first half of 2025 and ZW251 in the second half of 2025. We’re then hopeful to be able to nominate our fifth product candidate in 2024 with a planned idea IND filing in 2026.

Given our improved R&D productivity over the course of 2022 and 2023, this would accomplish our 5×5 portfolio nomination about one year ahead of schedule. So we’re beginning to strategize and plan on a longer-term R&D strategy beyond the 5×5 development pipeline. On this next slide, what we’ve done is to provide a perspective on the coverage, the tumor coverage of our nominated 5×5 programs overlaid together with our clinical stage development programs, zanidatamab and zanizov that reiterates again our focus on cancer types with the poorest overall five year survival. This tumor landscape, this focus will form the basis also of new programs moving forward. We’re already thinking about the next – and we’re already thinking about what the next advanced pipeline could look like, and we’ll share that vision in subsequent slides.

Taken together, we believe this portfolio construction gives us a diverse range of targets with multiple opportunities for success in the coming years. I’d like to now switch to our longer or thinking beyond the 5×5, where we believe still that the antibody based platform technologies at Zymeworks disposal, both in drug conjugates and protein engineering, has us well positioned to continue pursuing the development of cutting edge multifunctional biologics where we can weave into a single molecule multiple mechanism of actions to overcome complex disease states that will require a multi-targeted approach to provide patient benefit. With our infrastructure and talent in place, combined with the diversity and approaches our platform technologies afford, we believe we are well positioned to deliver two INDs – two IND ready molecules annually.

While there is obviously clear need to improve the outcome for oncology patients, particularly in the cancer types with poorer survival, such as liver cancer as described today, we also see opportunity in other disease states to leverage our technology. In particular, we see opportunity in autoimmune inflammatory disease where multi-specific technology lends itself to blocking dual pathways or leveraging key signal pathways. Importantly, we also have the internal personnel with experience in developing such molecules from concept to clinic, and the infrastructure in place from preclinical through manufacturing and clinical development that can be leveraged. Financially we believe this goal will be sustainable through a combination of internal funding and external partnerships to take molecules forward into the clinical – into clinical development.

So the next slide I wanted to just share, give you a flavor of this what we’re calling our advanced portfolio and some additional details on that which we see taking shape beyond our 5×5. Again where we see the ADCs and multi-specific molecules as the platform technologies we leverage and evolve to meet the challenging of addressing complex disease states and really making impactful change to patients. Within the ADCs, we see great opportunity in combining Zymeworks bispecific technology with drug conjugates, something we have deep experience with in the field with zanizov, a biparatopic ADC. In particular, we see opportunity through both biparatopic or dual epitope binding molecules and bispecific or dual antigen targeting molecules to broaden responses in cancer types, to enable broader and deeper responses.

That’s on the antibody targeting side of the molecule. On the payload drug linker side, we also see need for alternative payloads and our chemists who generated our novel TOPO payload are already at work on additional payload strategies to complement TOPO and MTI payloads already in our toolbox. Within the immune cell engagers, we have our first in-house T cell engager for which we expect to file an IND in 2024, employing a novel low affinity anti-CD3 and targeting mesothelin using an optimized 2+1 structure enabling anti-tumor activity models not observed with other designs or formats, including prior clinical stage programs. We will be building on that. And if you have been following our recent presentations at AACR and SITC, you’ll be aware we are advancing trispecific T cell engagers where in one version we incorporate into the T cell engager, a conditional CD28 costimulatory arm.

Importantly, CD28 engagement has been engineered to bind and trigger signal only upon synapse formation between the tumor cell and the T cell, resulting in a more productive T cell response than observed with CD3 engagement alone. Moving forward, we see potential utility of CD3, CD28 based trispecifics across multiple cancer types to prove the breadth, depth and length of responses to T cell engagers. We have additional design thoughts in T cell engagers to enhance response by incorporating additional functionality beyond costimulation, such as checkpoint inhibition in addition to the dual tumor antigen and targeting to enhance potential therapeutic window. Beyond immune cell engagers, there is a metric platform also affords opportunities in immunooncology outside of immune cell engagers, including cytokine engineering combined with masking, something we have presented on previously as an example, an affinity modulated masked IL-12 design to agonize immune system enhanced tumor responses in addition to opportunities such as simultaneous blockade of multiple checkpoint inhibitors.

Finally, as alluded to on an earlier slide, outside of oncology, we’re excited about opportunities in the autoimmune and inflammatory disease space where we can leverage our multi-specific platform to block multiple drivers of disease, including multiple cytokines. For the past five years, we have had an ongoing development collaboration with LEO Pharma in the AI and eye disease area has provided us an opportunity to gain experience and insight regarding the potential utilization of our technology platforms outside of oncology. With the recently announced change in this collaboration, we now have sole unencumbered rights to a number of preclinical products in AI and eye, and we are actively evaluating incorporating certain of these preclinical products candidates into our advanced R&D strategy.

So to wrap up in just over two years from now, we are anticipating to have five IND submissions with early clinical data being generated from a number of these product candidates and potential additional quality IND candidates coming out of our R&D organization from 2027 and beyond. We’re already working on the future beyond the 5×5, but not losing focus on making sure we translate these 5×5 preclonical programs into the clinic in a way that’s quick, that’s valuable and that’s meaningful in terms of the data that’s created, while also starting to work on a longer-term R&D strategy. We look forward to updating you on these developments in the coming months and expect to schedule another R&D Day in the fourth quarter of 2024 to reflect on the progress with the 5×5 portfolio and to discuss the longer term R&D strategy for the company in more detail.

We believe a lot of hard work has been done in 2022 and 2023 to craft and execute a focused and cohesive R&D strategy around two key areas of interest, ADCs and multi-specific antibody therapeutics supported by an appropriate financial and partnering strategy. We’re ahead of our schedule with 5×5 portfolio construction, while maintaining financial discipline on R&D investments with an expected cash runway to fund our planned operations through at least the end of 2026 and potentially beyond. In addition, we believe the company is well positioned for a series of important milestones to be achieved in 2024 and 2025, especially potential initial regulatory approvals for zanidatamab in BTC and the top line data from the Horizon GAA1 study with zanidatamab, which will be available next year.

These are expected to be significant events in the company’s history and we’re really looking forward to reporting on this progress. As we continue to develop unencumbered product candidates from our focused R&D engine, we will continue to evaluate the potential to be co-developed with partners in order to broaden and accelerate respective development programs in an ever increasingly competitive environment. With these development programs, we will continue to seek attractive economics with upfront payments and committed development payments to help fund development of our in-house candidates, as well as attractive royalty, commercial milestones and/or retained commercial rights to such product candidates in the United States. With that, I’d like to thank everyone for listening to our prepared remarks, and I’ll turn the call to the operator to begin the question-answer-session.

Operator?

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Jonathan Miller from Evercore.

Jonathan Miller: Hey guys, thanks so much for taking my question. I’m going to start on the new GPC3. I guess we’re seeing some interest there for another CAR T’s especially, but also like radio ligand approaches, TCRs, et cetera. But also Roche failed in the indication. So can you give us a little bit more color on what the opportunities are specifically for an ADC, for your version of an ADC here relative to other modalities against this same target? And then maybe secondly, I noticed that you said this quarter that your runway could extend beyond 2026, and I’m just wondering what levers are on that potential for going beyond 2026? Does that require additional partnerships or milestones that you’re not baking in? What’s new this quarter that’s leading you to think you could push it even further?

Paul Moore: Yes. This is Paul. I can take the first question. So, regarding how do we see our opportunity differentiated from what others are doing? So, first of all, I would say the fact that there are multiple programs being developed against GPC3 speaks to the attractiveness as a target in HCC. We are certainly, to our knowledge, really the lead or focusing on the use of ADCs to target GPC3. So we feel like we have a differentiated strategy based on using an ADC. We think the ADC rationale is strong there. From our package of data that we’ve looked at from our pre-clinical setting, from the tumor efficacy we’ve seen across a lot of models, and the safety profile we’ve seen in non-human primates, the payload that we’re employing here is our own proprietary payload and we’ve designed it with a lot of care to have features that we think will support the product profile.

Certainly other approaches have also been used, are also being explored, the CAR T’s that you mentioned. Others have tried antibodies. In the past no one has really tried a TOPO payload ADC. And also when we develop our antibodies, we’re also very careful about developing an antibody that we think has the key features to support the delivery of a payload – our payload. So I think that from our preclinical data, does give us confidence that we’ve done something that others haven’t tried before and has good opportunity for us to develop that. And the profile supports development.

Ken Galbraith: And just your second question, Jonathan. I can take that. I think we’ve consistently stated since the Jazz partnership closed in the fourth quarter last year that our runway took us to at least 2026 and potentially beyond. Maybe it wasn’t in bold print, though it is in the slide in our SEC filings, but I think we’ve always felt comfortable that our cash runway would take us beyond 2026. We still feel that way. We continue to say that I think it doesn’t include any new partnerships or collaboration we form, which would obviously give us a much bigger runway to fund things like advance or get us beyond 2026. So we do have a little bit of unallocated R&D investment capital that we’ve not put on onto the 5×5 portfolio.

So it gives a little bit of flexibility to deal with the situation we have now, which is the 5×5 portfolio is 12 or 18 months ahead of schedule. So now we’re starting to think about what we do next and how we start to put some seed money to work on that advanced portfolio, and we can certainly accommodate that within that cash runway and still beyond 2026. I think it’s a pretty consistent statement we may continue to say it, and we get more confidence as we say it as we continue to work our way through 2023.

Jonathan Miller: Got it. Makes sense. Thanks so much, guys.

Ken Galbraith: Yes. You’re welcome.

Operator: Please stand by for our next question. Our next question comes from Yigal from Citi.

Ashiq Mubarack: Hi, team. This is Ashiq Mubarack on Yigal. Thanks for taking my questions. This one might be a little premature, but for your GPC3 ADC, you alluded to this asset being potentially combinable with other agents. I’m just wondering what types of combos might make the most sense, given the target and the mechanism of action. I guess there’s a few different potential options, atezo-bev, TKIs, chemo, and so on. Are you thinking about something potentially even more novel of those? Thanks.

Ken Galbraith: Yes, maybe I can try and answer that in general, with the whole portfolio. And GPC3 is a good example of that. We’ve thought very carefully and intentionally about the portfolio we’re constructing with both ADCs on the T cell engagers, designing molecules that are against targets and indications where we believe being able to use those agents as monotherapy or in combination with standard of care, just gives you access to the patient population in the entire continuum of care for these patients. So that’s really been something we thought about as we picked these molecules and designed and engineered them. On GPC3 specifically, we firmly believe that an ADC approach could be very effective. We think being effective in the earliest line of therapy for these patients gives you probably the best chance of getting a response rate that’s better than we’ve seen now, and turning that response rate into something durable, where we can start to talk about reasonable long-term survivals of this patient population.

And designing of the GPC3 ADC we took into account that current standard of care, as we identified, is A+B and other combinations. And we would look very early on, after our monotherapy Phase 1 to look at the ability to combine in a tolerable way with these other standards of care, to hopefully intervene in a patient’s disease in the earliest line of therapy possible. So that’s throughout. It’s a delivered strategy throughout the entire portfolio. It’s where you should expect us to go with our foliate receptor ADC, NaPi ADC, our T cell engagers, and specifically GPC3 ADC. So what we’re looking for is really making the most out of ADC technologies, which means earlier line of therapies, which means in combination with standard of care, which means the design and selection of these agents have to hopefully allow for that to happen, and we’ll know that pretty quickly out of Phase 1.

We understand the tolerability of these agents on their own, and then look to move very quickly to combinations in every one of these programs.

Ashiq Mubarack: Got it. That’s very helpful color. And if I could squeeze in one more. I guess, what are the gating factors for filing the INDs for your leading preclinical assets? I guess where are you in IND enabling studies, especially for 191 and 171? I’m just wondering if you can give us a sense of how much work is left before you can enter the clinic.

Ken Galbraith: Yes. Those are both on target for 2024 as we stated. We haven’t given more guidance than that yet. We may give some more guidance as we move into 2024. But you’re more likely just to see a clinical study up on clinical trials and an indication that we’re recruiting patients along the way. So I think we’re in really good shape with where we’re at. I think you’ll have to wait for more guidance next year, early next year, or just wait for some events, which shows we’re actually recruiting patients on both those studies.

Ashiq Mubarack: Got it. Thanks very much.

Operator: Thank you. [Operator Instructions] Our next question comes from Charles from Guggenheim Securities.

Charles Zhu: Hey, good evening, guys, or good afternoon, guys. And thanks for taking the question. Maybe one from me with a bit more of a nearer-term focus and regarding zanidatamab, some of those milestones coming up next year, a couple of ones here. Any reactions to the KEYNOTE-811 data from ESMO, as well as from I believe it was the European review and how that sets a bar for HERIZON-GEA. And as well as similar to that, we do have the I guess the headline figures on some of those near-term milestones from Jazz as well as BeiGene related to zanidatamab milestones in 2024. But could you also perhaps quickly remind us like how much of that could be accounted for with BTC and GEA? Thank you.

Ken Galbraith: No, thanks for the question or a couple of questions that you sneak in there one question. Thank you. No, I think for guidance on those two programs, we’ll defer to both Jazz and BeiGene. I know Jazz has their earning call tomorrow, so in terms of what guidance they’d like to provide, we’ll let them make that. Obviously, in the arrangement we have with Jazz, we have $525 million in development milestones remaining on that deal based on approval of zanidatamab and different geographies and different indications. I don’t think we can say any more than that, other than that’s a pretty reasonable milestone payments in a time period. But I think would be really helpful for us to continue to fund both the 5/5 portfolio further in the clinic, as well as see the additional R&D we’d like to do.

With advance, I think beyond that, we’ve been following KEYNOTE-811 since the study started, and we’ve been 12 or so months behind that study. I think it’s safe to say from the data that was available at ESMO and before that in the European review is that I think the commercial opportunity for zanidatamab to be the standard of care in the first line GEA patients, regardless of PD-L1 status, but also with the possibility of being used in combination with chemo and potentially a PD-1 is better than we’ve seen, I think better than we thought it might have been 12 months ago. So I think there’s obviously a stronger commercial opportunity. I think we and our partners are anxious to get to that point. So we’re really looking forward to getting the top line data from our study next year, which is still on target, and then sharing that data with regulators to understand on the earliest opportunity that we could make this therapy available for patients based on that data outcome.

So it’s always hard to have a substantial competitor 12 or more months ahead of you in this marketplace. But I think given the data that we’ve seen so far, and what we continue to see from zani, we’re very optimistic and more optimistic about the potential uses of zani in this patient population, the potential benefit we could provide to these patients, and therefore the commercial opportunity being pretty exciting for ourselves and our partners, as well as for patients.

Charles Zhu: Great. Thank you.

Operator: Thank you. [Operator Instructions] And our next question comes from Akash from Jefferies.

Ivy Wang: Hi, this is Ivy on for Akash. Thanks for taking our questions. We just have one quick question. So how does the Merck-Daiichi data in CDH6 change your appetite to go after FR alpha in ovarian cancer? Thanks.

Paul Moore: Yes. No, we saw that data and it looks very encouraging for a TOPO1i-based payload, that data and for ovarian cancer, we have looked at the expression profile of that target, and we feel both the folate receptor alpha and the NAPi2b expression in ovarian cancer and other cancers is supportive of also pursuing those antibody based drug conjugates. So we think that it doesn’t deflect from our motivation and excitement about those targets. We think that the profile is supported, especially when you compare it to the profile of [indiscernible]

Operator: Okay. [Operator Instructions] Our next question comes from Stephen from Stifel.

Stephen Willey: Yes. Good afternoon. Thanks for taking the questions. Maybe two quick ones. So, on the updated frontline data, zani chemo tislelizumab that was presented at ESMO, can you say if PD-L1 status was centrally determined? And I guess, do you know if BeiGene has made any attempt to go back and see if any of those sub 5% PD-L1 scores actually fell below that 1% threshold? And then I guess also pertaining to that data update, it looks like there were a bunch of patients who upon central HER2 reading were scored negative. And just wondering if there’s kind of any explanation for the disconnect there. I think there’s actually maybe five or six patients that ended up being determined negative when assessed centrally.

Ken Galbraith: Thanks for the question. For that study by BeiGene, inclusion was based on local testing confirmed centrally later. Again, small data sets, so it’s too hard to carve the numbers. I think the most important thing for us in our Phase 2 that we did in the doublet, which was centrally confirmed, so it’s a little bit different. But between both of those studies collectively, we still feel very confident that zani plus chemo is going to provide a very consistent, durable, and quick response, regardless of PD-L1 status. That’s what our data shows us right now. We can certainly see how PD-1 inhibitor on top of zani plus chemo for certain patients may provide an additional benefit to justify the immune related adverse events that come along with using a PD-1 inhibitor.

I think we’ll have to wait for the randomized Phase 3 study to understand exactly what that group is, and I think that’ll be important information for clinicians to understand the additional benefit you may see. And some of it you can see in the small Phase 2 we have, but also understand how that corresponds with the adverse event profile that goes with adding a PD-1. So we still feel very confident in the collectiveness of the Phase 2s that we’ve conducted so far that we obviously hope to confirm and need to confirm in the Phase 3 study that reads out next year and I think these little items that you talked about, I think is we’re better off waiting for the Phase 3 data to available next year to get a full understanding of that data set.

Stephen Willey: Okay. And then maybe just one quick one on HERIZON, I think one of the narratives around the KEYNOTE-811 data was that the control arm outperformed what was observed in ToGA and I guess that’s a byproduct of improved HER2 scoring, et cetera. But just wondering how you feel about the statistical powering when you go back to the underlying plan and kind of plug in a higher than anticipated PFS and OS in the control arm. Thanks.

Ken Galbraith: Yes. I mean, obviously, we haven’t seen all the data from KEYNOTE-811. We’ve seen as much as we can in the European Review, and I imagine there’s going to be more disclosed next year, either through the FDA process or by the sponsor of the study. I think it is a little hard to know what to make of that study, because there’s some disclosures on ITT, and there’s some disclosures on only the labeled indication, which is different. So it’s hard to understand that, obviously the recruitment of that study was skewed a little bit differently than we might have thought a real world population would be. So we’re not sure what to make about that as well. I think from our standpoint, if we look at the control arm and the ITT population and look what you saw from not really an ORR perspective, but you look at a PFS perspective, from median-PFS, it was around seven months.

So a little bit better than ToGA, but very consistent with the assumptions that we use in our physical design if you look through what we disclosed previously around this physical design. So we didn’t see anything in the active control arm of KEYNOTE-811 that makes us think that we’re – our design was not consistent with what we expected. So I think that part of that study gave us increased confidence in our clinical design. So that’s great. And obviously the comparison from the triplet in that study and its limited ability to drive OS so far, and its limited ability to really show benefit in the PD-L1 negative population gives us more confidence, obviously, in our ability to have a successful study and really be the choice of therapy in the first line GEA patient population, regardless of PD-L1 status, it’d still be our goal.

Stephen Willey: Very good. Thank for take the questions.

Operator: Thank you. [Operator Instructions] Our next question comes from Brian Cheng from JPMorgan.

Brian Cheng: Hey guys, thanks for taking my call this afternoon. We spoke a lot about your thoughts around the strategy with your ADCs in the pipeline in the past. When you think about ZW251, I’m just curious, do you see this asset as an asset that you can potentially take it all the way to the finish line or is this asset something that you want to see proof of concept first and then engage a partner to partner it off, given the indication or target? And then on top of that, just a housekeeping question, you’re looking at your INDs that are in the plan with two programs rolling out next year and also to after in 2025. How should we think about your expense trajectory and any color that would be super helpful for us from the modeling perspective. Thank you.

Ken Galbraith: No, two good questions. I think strategically on the portfolio, and we’ve tried to be very transparent about this, so investors can understand the rationale and obviously the prospects of the entire 5 by 5. And it also makes it easier for us to have very open and active discussions with potential collaborators. So you can see that at least with the four agents we’ve nominated now, there is a bit of a therapeutic concentration around both on the ADC and multi-specific side around focused on gynecological cancer patients and also on lung cancer patients. And that’s not unintentional. Those are two areas where we think we could make some strides with the agents we have both on T cell engagers and on ADCs in those areas.

I think when you look at other areas that we have experience in with zanidatamab, definitely on the GI side, between GEA and BTC, it made sense for us to look for an opportunity that was consistent with some of our experience. So HCC was a natural thing for us to look at. We obviously look for a less unencumbered and proven space. So I think GPC3 as a target is well understood. But I think we have the first chance to take an ADC approach to HCC with a TOPO payload and we’re excited about that for GPC3. So I think there was some sense that we have some experience in the GI space. HCC is something that we can broaden into a little bit, but we definitely have a concentration in gynecological cancer and lung cancer that when we talk to potential partners about multiproduct collaborations, it’s obviously around those therapeutic categories.

HCC is probably the one opportunity in GPC3 that we have the very active interest in collaborating, but probably more of a compelling reasons to hopefully hold on to that one for longer until we see clinical data. Both ADCs and multi-specifics are areas of interest that we see continue growing. We continue to see value attributed in transactions to quality assets at preclinical or early clinical stage that those values continue to go up, and we think that’s going to continue. So we have the capital and talent and infrastructure to be able to execute these programs on our own. But it doesn’t mean, we don’t have discussions about putting ourselves in a better position with a strong collaboration, either on a product basis, a multiproduct basis, or around that therapeutic concentration in gynecological cancers, lung cancer, or GI.

Moving forward, obviously moving things from preclinical into clinical studies takes on some additional cost. I think we’ve worked really hard this year and last year to build an infrastructure that’s a little more nimble and a little more cost effective than maybe we had when we were developing zanidatamab. So I feel very comfortable with the cost efficiency we’ve done in that infrastructure to be able to move quickly at a very cost effective way, and in a way that’s much more recruiting patients outside the United States and inside the United States, not just for cost purposes, but to try and get access to patients more quickly and also to patients who might be of a higher quality because they have fewer pretreatments available to them.

So that’s a strategy we’ve been working on since last year. If we’re right, we’ll be able to execute all five of these clinical programs in a very fast nimble way, in a very cost effective manner and generate meaningful data from the very first [indiscernible] we’re working on hard and we’ll see – we’ll get a chance over 2024 and 2025 to see us put that into action.

Brian Cheng: And just any thoughts or early color on how we should think about the expense projection given the two INDs and the two INDs in 2024 and 2025, respectively?

Ken Galbraith: Yes. I think right now, obviously, we’re – for this year, we’re looking at spending 20% odd of the cash balance we started the year with, obviously, that’s going to go up with more programs. But some of these preclinical programs, in terms of doing GMP and GLP tox are a sizable investment as well. So I think you’ll see the cost structure go up just because the number of programs that are either in preclinical or clinical is getting higher. And if we assume there’s no new collaborations and partnerships that will be the case. We feel very comfortable right now with moving all five of those ahead absent collaborations and partnerships, and obviously partnerships and collaborations and milestones from zanidatamab approvals will be things that we’ll rely upon to think about beyond 2026.

So I think you’ll see – we’ll give some financial guidance early in 2024 – about 2024. So you’ll likely see an increase from our cost structure because of the level of activity and size of the product portfolio, but not to a degree that we can’t handle that with our current cash runway.

Brian Cheng: Great. That’s super helpful. Thanks, Ken.

Ken Galbraith: You’re welcome. Thank you, Brian.

Operator: I’m showing no further questions at this time. I would like to turn it back to Ken for closing remarks.

Ken Galbraith: That’s great. Thank you. Thank you everyone for listening today. Obviously, we felt very encouraged by our progress to date through 2022 and year-to-date in 2023. And inside the company, we’re as excited as ever about the future of Zymeworks and what 2024 and 2025 holds for us. We’re very much looking forward to reporting our continued progress against our key priorities. During the remainder of 2023, because we’re not done the year yet, and into what we think will be a really exciting 2024 for us throughout the entire product portfolio. And with that, I want to thank you again for joining us. Appreciate your support and have a wonderful rest of your day. Thank you.

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