Zymeworks Inc. (ZYME) Earnings Call Transcript & Summary

Hello, everyone. I'm Frank Tang with the investment banking team at Morgan Stanley. I'm very pleased here to have Zymeworks with us today. Just quickly before we get started, I need to read a disclosure statement. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So we're excited to be on stage today with Chairman and CEO, Kenneth Galbraith; as well as CFO, Chris Astle. Maybe I'll just turn it over quickly for you guys to introduce yourself before we jump into some Q&A.

That's great. No, thanks, Frank. I really appreciate being back here again at Morgan Stanley to update you on our progress. Although it's really early in the morning, but I appreciate all those who are in attendance today. I'm Ken Galbraith, I'm the Chair and CEO. I took over as the Chief Executive in January 2022. And happy to update kind of the progress in the 18 months since I've joined.

Yes. Good morning, everybody. My name is Chris Astle, I'm the CFO. I've been with Zymeworks for a couple of years now. And yes, we're looking forward to talking to the story.

Great. So for those who aren't as familiar with the story and the platform, maybe if you can give us an overview of the portfolio, the antibody and ADC platforms and kind of what differentiates Zymeworks' technology from your peers?

Yes. A great question, Frank. So I think Zymeworks today is about what it was when it started. What is our belief that multifunctional therapeutics, the way we define it, is designing more than one mechanism into a biologic structure might provide some differentiated mechanisms that won't be available to patients through combinations of individual agents. So we work on multifunctional therapeutic strategy with 2 current technology platforms. One is our antibody drug conjugate platform, our earlier ADCs, which were based on auristatin payloads; and our next-generation ADC is the first of which we're doing clinical studies next year based on our own proprietary TOPO payload platform. The other side of our business, which we do equally as well, is on our multi-specific antibody therapeutics, which started in a more of a bispecific format like zanidatamab, which is our lead compound that's in late-stage development and ready to be commercialized in. Beyond that, we're really looking at developing our true trispecific platform, which we think is the -- the next-generation bispecific is a trispecific. We do both of those with an integrated internal R&D engine of high-quality folks. And we develop all of this ourselves with a high-quality science to build in the different components into each of those structures to try and then accomplish with 2 or 3 mechanisms built into a single structure what may not be possible in combination for patients, focused entirely on the most difficult-to-treat cancers that we have today. So anywhere where there's a lowest overall survival rate or anywhere where innovation has not reached a patient population, that's where we're trying to apply these multifunctional therapeutics.

Great. Yes. So you obviously have very strong technology platforms, but zani is also an advanced asset that continues to deliver a lot of clinical data and positive data. So maybe we can start there. And if you can give us a high-level overview of the data around BTC and maybe also an update on the partnership with Jazz and BeiGene?

Yes, absolutely. I think Zymeworks has been working on this technology space for a long time. We really turned the corner over the last period of time, and we'll continue to do so to not really be a technology platform company. It's still there. Azymetric, our original platform, is still the basis of everything we started with, but we're really becoming a product-focused company. So focusing on indications of interest, targets of interest, deciding on what the right biological structure is, whether it's an ADC or a trispecific, and then applying that structure to that patient population. Obviously, zanidatamab is the most advanced indication -- or product for us, which we have in 2 late-stage studies, one in biliary tract cancers you mentioned, which data readout last year; and our large Phase III global GEA study HERIZON-GEA-01, where top line data will be read out next year. For the biliary tract cancer data, I think we're starting to collect data, and that was a part of it in our pivotal study, which really shows how the mechanism of zanidatamab being so differentiated has led to these differentiated clinical results in patient populations. So in a second line, biliary tract cancer indication for patients originally amplified, we found a 41% ORR, which in this patient population is pretty great. What we found is those who've got a response got such a rapid response, median time to response 1.8 months. That's 2 cycles of zanidatamab. This is a monotherapy, so nothing added in combination. Beyond that, we found the duration of response for patients who had a response was dramatically longer than we've seen with other HER2-targeted agents, of which there's nothing approved today. That was pretty exciting data for our KOLs and in the future for patients. So as you know, we've decided not to market that ourselves. We've structured partnerships with both BeiGene and Jazz in different global territories, who will take over the continued development, regulatory aspects and then eventual commercialization. So we're working very closely with Jazz and BeiGene to take that data set and find regulatory filing opportunities. So we've been very focused mostly on China with BeiGene and obviously the United States with Jazz. Jazz has given update on the recent quarterly earnings call, indicate they've worked out the nature of a confirmatory study with FDA that has to be initiated before they file the BLA, and that's because of accelerated approval pathway. And they're working on completing their filings. So we're really excited that we're continuing to see data sets from zanidatamab clinical programs that indicate the potential of zanidatamab to really make a difference in monotherapy in the case of biliary tract cancer. And as we've seen in our Phase 2 studies in GEA, in combination with chemo and also potentially in combination with a PD-1 inhibitor, could be able to make a difference for patients. It's not been seen with other product modalities or prior products that have been under development. So we're really at a very interesting stage of having zanidatamab at the stage of having turn the card over on one pivotal study, which will be the base of initial regulatory indications, and looking forward to our top line data from next year in GEA, which then allow us to potentially reach a much broader patient population globally.

Okay. Anything that investors should look forward to regards to the GEA pivotal data?

Yes. I think obviously it's a -- this is a competitive business, and we've seen one of our competitors who's ahead of us have some regulatory action on their Phase III study and we will see more of that data at ESMO in Madrid in October. I think it's fair to say from our standpoint, the clinical data we've seen to date is probably not quite as good as we might have expected in terms of looking at your competitor who is ahead of you and trying to understand how you would fit in and compete in the end. So I think that data set has definitely left some room for zanidatamab to help a patient population where it's obvious that other combination just has not been able to show data to say it would. So I think in esophageal cancer patient population, which is on our Phase III and not in the competitors, I think in the PDL negative population, that study that read out just was not successful. So it's not being filed on label. And I think overall, we found that as adding trastuzumab to chemo did earlier on, we've been able to incrementally change the course of patient disease, the PFS with that competitor data. Adding a PD-1 inhibitor moves that incrementally forward again. But our outlook for zanidatamab based on our Phase II data is to make a substantial difference in not just PFS for patients but OS eventually. Our Phase II data directs us towards that, the reason you want a randomized study. The readout next year is to really prove that with the proper randomized large study and the proper confidence intervals. But we really strongly believe from the data we've seen that zanidatamab can make a substantial difference in standard of care. And we're really looking forward to having our Phase III trial readout next year and then looking at how that allows us to help a broader group of patients globally.

Perfect. Okay. So as we look beyond zani, maybe if you could talk about the rest of the pipeline and maybe discuss your 5x5 goal. I think a large part of your pipeline assets are now focused on kind of the ADC approach. If you could tell us your philosophy around that and your focus and how you're looking to differentiate?

Yes. I think the big change in our R&D strategy since I took over 18 months ago is I think the company was entirely focused in the HER2-targeted space. With zanidatamab, which is a great antibody, and with an ADC format of the same antibody, zanidatamab zovodotin with an auristatin payload, I felt strongly that this company could be well positioned to explore a number of biomarkers and targeted strategies beyond the HER2 space. And that's what we set out to do. We set out to do it in both sides of our portfolio. So we think there's some diversity in not just being an ADC solely focused company or just being solely a protein engineering company. You have both those skills. So we decided we would try and craft an initial portfolio of 5 oncology agents that would address different targets, different difficult-to-treat cancers and be developed with both antibody-drug conjugates and our multi-specifics in a portfolio. We would like the diversity of that. We like the value that could come in from that. We liked our ability to kind of scale our resources, maybe move more quickly with that portfolio. So in the meantime since then, we've identified 3 of those programs which are in the 5x5 portfolio. The other 2 -- we have a pretty good idea of what we want to put in the portfolio, and as soon as we're absolutely sure, we'll name those. And I think it will be easier for investors to kind of look at those and assess the quality of those opportunities. We're really excited. We're probably 12 or 18 months ahead of schedule in being able to formulate that and construct that portfolio. And that then should allow us to move that into clinical studies more quickly. So as you probably know, we have 2 programs going to clinical studies next year, ZW171 and ZW191. Beyond that, we now have expectations of having 2 additional INDs and programs moving to clinical studies in 2025, and the last one moving in the first half of 2026. So I think that really forms out what we expect to be our ability to develop a portfolio around these technology platforms that gives us some diversity. There is some concentration in gynecological cancers just because we've seen now that it's been validated with one of our competitors, Merck. And the idea of using a TOPO payload ADC is pretty interesting in that patient population to see if we can get some responses beyond what we've seen with Merck as well as some breadth. Beyond that, we do have a concentration in non-small cell lung cancer. It's obviously a large unserved patient population where we think there's a number of biomarkers of interest to pursue with our 2 different product modalities to see if we can make a difference for patients there. And I think even looking at a specific biomarker, which might be a small slice of a patient population. The market is so large and so underserved. And you've seen that with all the clinical data coming out of the Singapore meeting this weekend at the World Lung Cancer Conference. It's just an area that we want to focus. So it gives us a number of opportunities in different biomarkers, in different product modalities to try and move forward on PFS and OS and quality outcomes for this patient population. So we love what we're constructing right now. We're completely on track. We're ahead of schedule with putting these things into clinical studies. And I think the quality of every one of them is the highest possible. And clinical data will start out whether those [ specific ] hypotheses and quality of the work going into the construction of each of them was the best it could be.

So I guess you touched on efficacy and kind of differentiation. But I guess what are you targeting in terms of safety and tolerability and kind of therapeutic windows in terms of how you would compete against some of the existing assets out there?

Yes, we have a really strong hypothesis towards both antibody drug conjugates and also T-cell engagers, that in order to move those to the next generation, we need to find a way to move up to earlier lines of therapy in these patient populations where we can really truly make a difference with these multifunctional therapeutics. So we think in order to do that, we need to focus a lot more on the tolerability that it takes to generate the efficacy. So we think being able to be more tolerable let's you maybe work into an earlier line of patients in their lines of therapy. But also, it allows for combinations with standard of care and other agents. So I think when we think about ADCs and T-cell engagers now going forward, we think about them not as monotherapy agents which will work on their own. And generally, we've done that a lot because they are now tolerable enough to add something to them. So then we've really focused on -- focus on tolerability that's necessary to generate the efficacy and leave some room in the tolerability index for other agents to be utilized in a combination in standard care. So I think if you look at our folate receptor ADC program, that's a key strategy. If you look at our NaPi ADC program, if you look at our mesothelin T-cell engager, all of those are structured to try and drive the best efficacy we can for patients, but really focused on understanding the relative importance of the tolerability in extra patients that we're using up. So our selection of molecules, our selection of DAR and ADC, our thoughts about dosing and accessing certain patient populations is really based on this hypothesis that we need to move to an earlier line of therapy for these patient populations to be able to make a bigger difference in a broader set of patients. And that's in our thinking about the way we engineer all of these molecules from the very start. And then we hope that in clinical studies for all these agents we're able to prove that and maybe move into patient populations that weren't accessible to other ADCs or T-cell engagers either in the past or others who are in development who don't share that same philosophy.

Great. As we talked about the 5x5 plan and kind of the identified targets, can you elaborate on the strategy you're using and the philosophy around how you pursue additional targets as you think about the remaining potential assets that would be part of the 5x5?

Yes. I think on our -- our sense in constructing at least the 5x5 portfolio -- and these are not the last of our ideas. We have other ones. But I think in the 5x5 strategy, we decided that since we were -- we were being innovative in a number of different areas with both our ADCs and MSATs. On the ADC, we're testing our own proprietary TOPO payload for the first time. We're working with unique antibody structures that have never been seen before. The folate receptor antibody we have on our ADC is a unique binding epitope. So there are some things we're being very innovative of because that's going to be necessary to boost efficacy for these patient populations. So on the multispecific antibody side, we're testing a brand-new CD3 antibody epitope that's never been used before. So I think we've made a key decision with those first 5 programs that are in the 5x5 strategy. We would work on targets where our biology has been validated. And they're validated in different degrees. So in folate receptor, there's obviously an improved product, there's obviously other TOPO payloads which are in the clinical studies right now. But I think the biology around that receptor is well understood and we want to explore the breadth across patient populations even outside of ovarian cancer. With NaPi2b, obviously, we had 2 programs, one from Genentech one from Mersana which weren't successful. But the biology around that target is really well understood. We just think no one's ever applied a TOPO payload ADC there. And I think the unique antibody structure we have is interesting. So it's validated to be, but not with an approved product. In GPC3 with our ADC, this target is mostly being explored in HCC with CAR-T. But there's a lot we can learn from the biology of that target from even looking at a different product modality. We're looking to be the first-in-class ADC against that target for this patient population. So although we're working on validated targets as opposed to purely novel things that we did ourselves in novel biology, we think it makes sense to try to control the overall risk of what we're trying to do with the 5x5 program. We're focused on biology that others have validated that we're following. But there's different degrees of validation, different degrees of competitiveness and strategies within that 5x5. And we think the diversity of all that added up -- because it's a pretty unique and diversified portfolio of oncology agents. So we think as it's constructed, it to us looks like a reasonable R&D investment. And hopefully to investors, that looks like a reasonable, yes, share investment.

That makes sense. Okay. Maybe I can quickly pivot over to Chris briefly. And if you can give us an overview of the financial situation, cash as well as your runway? And then maybe some of the upcoming catalysts that investors should focus on?

Sure. Thanks, Frank. So really, the recent Jazz licensing agreement was very transformative to the strength of our balance sheet, with Jazz taking on the ongoing clinical development of zanidatamab and the future commercialization. This together with other cost rationalizations that we've done in the last 18 months means that we've significantly reduced our burn. The upfront of $375 million from Jazz along with certain other regulatory milestones from both Jazz and BeiGene means that our cash runway is through 2026 and potentially beyond. And that includes the funding of ongoing clinical development of zani zovodotin and the development of the 5x5 strategy. And really with those assets being unencumbered, that offers us additional opportunity to do further partnerships to raise additional non-dilutive capital, which will further extend that runway. As for a catalyst, I think a significant value driver for us is the pivotal data readout next year for gastric cancer. I think that's a pretty significant value driver that I think shareholders should really be looking out for.

Okay. Well, thank you for the great overview, Ken and Chris. Is there any other -- anything else about Zymeworks that you would like us to highlight?

Yes. I think what's clear over the past 18 months of my tenure as CEO, we've fundamentally changed much about the company. The opportunity in multifunctional therapeutics, our platforms, the way we apply them to products ourselves and others hasn't changed. I think we've made a fundamental change in the size and shape of the company as well. I think when I arrived here in January 2022, we had a employee base of about 455 employees. That's about half right now. It's about 240. So I think we're a much more focused company around a more focused R&D strategy. I think what people don't understand too is, of those 240 employees, only 66 of them were here when I first go out here. So during the past 18 months, we brought in more 174 new people with different types of experience that are necessary for us to be successful. So I think we've positioned the management team and the workforce to be successful. They're a lean -- much leaner, nimble team focused around a well-understood strategy, what we want to do in developing the breadth of our portfolio that we do in the 5x5. And I think now that we're kind of a year or 18 months ahead of that process, we're already starting to think about what's next. So for us, we have key decisions about -- as clinical data arises from these 5 new medicines we're putting in the clinic over '24, '25 and the first half of '26, it's then to understanding clearly what are our hurdles for moving forward. We have very high scientific standards to move something into the clinic. We have very high standards to move something past Phase I. We really need to have a good sense so we're going to make a clear difference in PFS and OS for these patients, we need a clear understanding of how we can combine with other agents in standard of care. I think we have a very high standard. So then the question is, as we move this forward, how are we going to work with others to potentially move those forward. So we've obviously done a licensing arrangement with zanidatamab with BeiGene and Jazz, which I think was the right decision. And I think we've developed this molecule in a good way. We can use the infrastructure of Jazz and BeiGene to access patients in a way that still provides a fair share of the financial, commercial success to our shareholders moving forward. I think we want to be seen as a productive R&D company with this 5x5. I think if we can show productivity in multiple agents coming out of our R&D group, then I think we can think about transitioning to becoming more of a commercial company, at least in the United States initially. So the way we think about a partnering strategy, whether we look for a really broad collaboration with one party who might like everything we're doing as opposed to individual partner arrangements with those who want to work in a specific therapeutic area with us, that would be great. I think in our mind we like to find a way to retain -- keep rights unencumbered longer, eventually retain the ability to commercialize our own products in the United States if we're able to be productive as an R&D organization. So we've got some key decisions to make around the clinical data that comes out of the 5x5 strategy in terms of making sure we keep the rigor and discipline of assessing the data honestly in terms of being able to then justify the next investment. We got some key decisions to make around them strategically. If that clinical data is interesting to us, it's going to be interesting to others. How do we interact with partners to try and accelerate the relevant, broaden development, but also retain a greater share of the commercialization rights for our own shareholders. And I think what's important also is because we're 12 or 18 months ahead of the 5x5, we're getting into discussions today internally that we didn't think we'd have for another year or 1.5 years, which is what do we do next? If we can show ourselves to be productive in that 5x5 portfolio, I think there's a whole host of other products we can generate with our platforms and our R&D group inside the company. So I was starting to think about, what does that look like? We're not going to stop doing clinical studies. We're not going to stop moving things from preclinical to clinical. There's all sorts of ideas being generated by the R&D group. So we're already thinking about the next wave, which we call Advance, which we'll disclose at some point why we call it that. But for us, it's kind of -- then we got to advance the 5x5 portfolio. So what's next? What's the cadence? I could probably find in our internal R&D group 2 great products with the clinic annually from '27 onward. So I think we have a rich portfolio. I think we have also areas that we can expand into that are broader than we currently work on. We're already working on the next-generation payload beyond TOPO that we hope to use in our future ADCs. We're already working on trying to find ways to combine our protein engineering skills in bispecifics with ADCs to start really generating bispecific ADCs, which we think is a pretty interesting concept in the future. And our platform really allows us to develop products well that way. We're thinking about all the different trispecific platforms that we could move to once we proved in the 5x5 that, that platform really does generate the clinical returns that we thought in the laboratory. So we're already thinking about what this next wave will be as Advance, what is included. We've always talked about potentially if we can be successful in oncology, there are other areas outside oncology where we could apply our platform to generate products. Obviously, autoimmune and inflammation is work we've done before. We're just focused on oncology right now. There are other areas outside of ADCs and MSATs that we have experience with inside the company. So I think we're already trying to find the future beyond the 5x5 while not losing focus over making sure we translate these preclinical programs into the clinic in a way that's quick, that's valuable, that's meaningful in terms of the data that's created and keep those on track. But also start to work on the longer-term strategy. So I think we worked really over the last 18 months to really position -- not just position us to reset our balance sheet and reset our strategy, but really put down a number of different things in place that will allow the long-term success of the company. So as we build on the success with zanidatamab, which we think is going to be a great success commercially and really help a broader group of patients, which is fantastic. We can build on that success with hopefully success in the 5x5 portfolio and then we can then be well positioned to move to success with the next wave of R&D agents that come out from us, while making sure that we keep a sound financial strategy, keep the scientific discipline of only working on things that we think are really truly going to make a difference for patients and have the right commercialization and partnering strategy to make sure that for our shareholders we're keeping an appropriate share of the financial success that comes from the innovation that we do. So I think we have a lot going on near term. We have a lot of data announcements coming up at medical meetings during the remainder of 2023. We've got a great event next year for us. And we're looking forward to a top line data readout from our Phase III HERIZON-GEA-01 study we're running with Jazz and BeiGene. We've got the first of our 5x5 going in the clinic. The next one is moving forward as well. And then -- while also we'll try to start to define what that next wave of R&D might look like so we can build success and success and success. So I think it's been a lot of hard work over the last 18 months to really make a number of changes to reset ourselves. I think we've done really well and done it ahead of schedule. And I think we're very well positioned to follow the success that might come from translating our platforms to preclinical programs into clinical studies with data that's meaningful for patients.

Yes. Thank you. It's a lot of good progress and a very well thought out strategy. Thank you. Well, I'd like to thank you for your time today and thank you for joining us at the conference.

Yes. We really appreciate the opportunity to come back this year and already looking forward to what we might be talking about next year when we're setting up the...

Looking forward to it.