Zymeworks Inc. (ZYME) Earnings Call Transcript & Summary

Good morning. Thanks for joining us for another session at the 43rd JPMorgan Healthcare Conference. I'm Brian Cheng. I'm one of the senior biotech analysts here at the firm. I'm joined by my associate, [ Sean Kaman ], [ Marian Maki ], who are also in the audience. On stage, we have the team from Zymeworks. I will now pass the mic to their CEO, Ken Galbraith, for a short presentation, followed by a live audience Q&A. Ken, the stage is yours.

That's great. Thanks very much, Brian, and good morning, everyone. I'm not the entire team. I just one member of the team, but happy to be here today to present. I appreciate all of you sticking around for Thursday morning of JPM for me to be able to provide an update on Zymeworks. This is the 3-year anniversary of my tenure starting as the Chair and CEO of Zymeworks, been really excited about the progress we've made over the past 3 years, but even more excited about the next 3 years for Zymeworks. I'd like to explain that to you. I think this is the third chance I've had to present Zymeworks at JPMorgan on a Thursday morning. And really, every year, we've been able to do this with making progress that's beyond the expectations that we've set the guidance that we set at the beginning of each year. And fortunately, for us, with increasing market capitalization every year, which probably reflects that progress, and obviously, over the course of next year, we would hope to meet or exceed the guidance that I'll talk about today and hopefully get enough credit for that to be back in that same position next year. So I will intentionally make forward-looking statements today. So I do refer you to our SEC filings that govern those forward-looking statements that I will be making during the course of my presentation. It is Thursday morning, I'll try and keep my presentation pretty short. It's a pretty skinny slide deck, and then happy to leave more time for questions or for you to wander off to the next presentation or meeting. So this is my third year at Zymeworks, but obviously, we've been making a tremendous amount of progress over the last 10 years. Enzyme from the very early days of our original antibody engineering platform is a metric where we started life is really making very interesting bispecific formats for partners, including, people know this, including Janssen, which is still prosecuting what I think is a really interesting one in clinical studies. Then we turned our attention to making something that was -- we thought was very innovative for ourselves, and that's where zanidatamab came from, a very unique bispecific or biparatopic antibody, which we invented, developed, partners came along the way, BeiGene and Jazz Pharmaceuticals to end up in a situation where we got our first FDA approval of our very first medicine last year, as you know, in second-line biliary tract cancer monotherapy in the U.S. and Jazz has now launched that in the U.S. market. So entirely proud of the tradition that we've had, but we do continue to evolve our platforms, continue to innovate. So lately, you've seen us now develop 5 ADCs and T cell engagers of our own making in a solid tumor portfolio, which continues to be wholly owned as well as most recently as we laid out at our R&D Day in December, now moving to from -- even from best-in-class opportunities to things that are a little bit more novel, a little bit more diverse and give us a chance to have both first-in-class and best-in-class opportunities and also expand our horizons beyond solid tumors and looking at patient populations that are in need in both hem/onc and also in autoimmune with our first program announced in December at R&D Day targeted for a 2026 IND. We do embrace the diversity of both being an ADC company, and I think what is a great protein engineer as we've proven with zanidatamab and something we've made for partners. So we like the ability of having options and product modalities to solve issues around targets or pairs of targets that we like. We're going to continue to look for opportunities to be diverse, but also continue to look for opportunities to meld those skills together that are both inside the company. So we will be looking a lot more bispecific, biparatopic formats of ADCs in the future beyond what we were able to do in the first part of the 5x5 portfolio. So really excited about how far we've advanced in 10 years to get to our first FDA approval. And I think the future beyond this looks pretty interesting for us. If we continue to innovate and evolve in an increasingly competitive environment, as you're aware. So I'd like to kind of explain where I think we're going with that. Over the next period of time, we've been very fortunate to always work with the mentality of working with partners where we can to advance our new medicines more quickly, more broadly with maybe more capital or more resources than we can. We started this early on with folks like GSK and Jansen, as I said, and more recently, it was extremely important for us to have strong partners like BeiGene and Jazz Pharmaceuticals to really get zanidatamab development finished, get onto the market and still have a number of indications and opportunities to expand zanidatamab or Ziihera, as is now known into other indications and more globally. So we still do think about this strategic partnership advantage and being able to move faster, move more broadly, maybe have a broader portfolio than we can undertake on our own. We're well financed, but I think partners can bring something to us in drug development, which might be very important. We're very proud of the middle graph here, which is not a lot of biotechs get to the point of being able to say they've got an FDA-approved medicine. That was internally developed and discovered by the same scientists who are still at Zymeworks working on the next innovation. So really proud of Ziihera. It is the only approved bispecific antibody in the HER2-targeted space, initially for second-line biller cancer, but obviously, with a number of other registration studies ongoing, including a very significant Phase III readout targeted for Q2 this year in first-line GEA, which is a very significant patient population globally, and we really have an opportunity based on our Phase II data to hopefully change the standard of care for a pretty broad patient population that's in need of an improved standard of care for that disease. So really excited to have that table inside with the #1 beside it, but our goal is we're not finished yet. So the goal that we're striving for at Zymeworks is to turn that 1 in that middle table to 2 or maybe 3 in the future. And that's the focus of what you see on the right-hand side of the slide with the wholly-owned candidates. So we now have 6 agents that are other in clinical studies are moving towards clinical studies, 5 in solid tumors, 1 in autoimmune disease, COPD. We think these are really interesting innovative medicines. The preclinical packages supporting these are very high quality, and we're looking forward to seeing how we can translate those innovations into clinical studies and understand whether we can really get a benefit that's a unique mechanism, a differentiated clinical benefit and maybe be able to move standard of care beyond what we see now from current standard of care or other emerging developments. That's what we did with zanidatamab. So we know we can do it, and we're looking forward to having the opportunity to do that again with both these 6 new medicines, but also with other agents that we continue to work on behind these. And we get some comfort from knowing that we have a very strong financial position to prosecute the size of this portfolio. It is wholly owned. And obviously, we do think clearly about how partners could join us on the route for some of these products. and move us faster or broader. And we'll always look for opportunities where that may be beneficial for us to move these medicines because we do really believe in that strategy. And we have the opportunity to do this. Nice that it's wholly owned right now. I think we have some really interesting medicines in areas of ADCs and T-cell engagers and the bispecific autoimmune program we have that are obviously things that are of interest right now to potential partners. Beyond that, this is our current product pipeline. It's a little busier than when it was just zanidatamab. So that's an evolution over the last 3 years. I won't have time today to go through the diversity of all the molecules that we've made. It seems broad, but we still are very focused in solid tumors. really around gynecological cancers, GI and thoracic. So I think we tried to stay focused even within solid tumor. We are moving a little bit further afield into hem/onc and autoimmune, but again, in a very focused way and looking specifically at indications or diseases where we think our multifunctional therapeutic approach might be advantageous to move the needle on standard of care. So I think we can be a little bit broader, but still maintain the focus that we've done over the past few years, which has allowed us to really exceed expectations for what we set out 3 years ago. I think I talked about a 5x5 strategy of trying to have 5 new medicines in clinical trials over 5 years, and we did that in -- we should be able to do that in 3.5 years now, if you look at our current guidance. So I think we have been more productive. We have been more efficient. I think you need to be. We've had a lot of talk at this conference about enhanced competition on a global basis. I think that's really good for the sector. It's been really good for us. It's pushed us to be more innovative. It's pushed us to be more aggressive in time lines. I think we'll continue to do that. And I think that will leave us with a sector overall, which I think is more innovative, more aggressive in moving medicines to patients more quickly. So we really embrace additional competition no matter where it comes from around the globe, and I think it's going to push our sector to really be better overall, and we're really attuned to doing that. I will focus most of my time today talking our 2 clinical agents, which have moved into the clinic last year, ZW171, which is our mesothelin 2 plus 1 format T cell engager, which is trivalent, not trispecific, but we'll talk about that. And also our first ADC with our proprietary 519 payload on it ZW191, which is a target against fuller receptor alpha in a DAR8 version. So we'll talk about those 2 things, but I would want to draw your attention to ZW220. I don't have a slide on it today, sorry, but we will give updates later. But ZW220 is our next ADC in the clinic. It's targeted as NaPi2b. It's in a DAR4 format with a very different Fc mutation around it. We did make a very big presentation at the Triple Target Meeting in Barcelona or the ENA meeting of Barcelona in October. That entire presentation is on our website. I really want you to pay attention to that, if you could, moving forward. That's our next thing in the clinic. I think the preclinical presentation we made in Barcelona was very fulsome and really presents an excellent opportunity to maybe address the same patient populations as we're targeting full receptor in gynecological and non-small lung cancer, but with a different target, different expression profile and also a different ADC. So we're really excited about 171 and 191. Talk with us today. Don't have time to talk about 220, but that's going to the clinic next. We're on schedule for it. And I encourage you to really take a look at that because I think that's going to be a really exciting molecule for us as we move into clinical studies. So with that being said, I'll talk about the 2 that I'm supposed to talk about today. So ZW171 was our first agent in the clinic, the very uniquely designed T-cell engager with a 2+1 format to really -- it's our approach to really try and find a way to improve T-cell engagement results in solid tumor applications. And so it's on target with the areas that we're interested in. It's a broadly expressed target mesothelin gynecological thoracic digestive system. Those are areas of focus. It utilizes the trivalent structure, which we think the next bispecific should always be a trivalent or trispecific approach to try and get more out of an agent. So this is our approach of using kind of a 2+1 format with 2 binding arms of mesothelin, which are single chain fragment variable arms and a low affinity CD3 approach. And this is our way of trying to get directed T cell engagement on tumor as opposed to off tumor, although they're both on target with mesothelin. So it's our way of trying to really direct T-cell engagement where you would like it. Others have other approaches with conditional activation, tumor activation, masking approaches. We think using an antibody, and if you look on the left-hand side of the diagram, the schematic there, and there's more detail probably, you'll see it's a very interesting geometry of how we set up this trivalent approach. And again, that's intentional because this approach really does drive at least preclinically, amazing activity against the areas where we want to in mesothelin-expressing tumors, but seems to really dampen down. So we got great tolerability out of this agent. So great, we were able to use a different methodology to move into Phase I with QSP from an FDA perspective to get a much higher starting dose than you might expect normal T-cell engagers to get because the tolerability profile was really, really amazing in preclinical development. So really excited about using our protein engineering skills here to really drive a next level bispecific mesothelin as a target we chose because it is broadly expressed, it's on our target areas, but we could also use this 2+1 format in the way that we do it against other targets in the future. So we're really excited to see what we can do here. Obviously, mesothelin has been a target of interest for more than 10 years. Other approaches have not really been able to get enough activity in a tolerable range, especially with ADCs. So we think this might be uniquely engineered to be able to use mesothelin as an important target and some pretty big indications. It's not only in ovarian cancer, but lung cancer and also for us, digestive system cancers, which is more of the focus of our solid tumor portfolio going forward beyond the 5x5. So we moved this into clinical studies. We've done this with a very broad global footprint. So we have maybe a more unusual number of Phase I sites, and you would expect you would need for a dose escalation study. But I think as we've learned from others, if you would like to go fast in clinical development, putting a big global footprint down early, just allows you to follow your data if it's positive in a much more aggressive and timely manner. So in this case, we're up and running in the U.S. several European countries and South Korea. It's a very traditional dose escalation process to start at first in a 3+3 format. This is being done in unselected patients. So these patients will be mesothelin positive or negative. It's a broadly expressed target. So majority of the patients will be positive. But we won't select them in dose escalation. We will do that afterwards. Obviously, when we think about backfill cohorts and moving to the dose escalation. This program was translated from preclinical to clinical pretty quickly last year. Phase I is up and running at a really broad footprint, and I think there's a broad available number of patients for us to move this quite quickly. We did talk at R&D Day about possibly having data to share on this initially during 2025. That still is the guidance that we have. It will be in a peer-reviewed medical meeting, not by press release and company event because that we do believe, I know others have done differently, we do believe that's the way you should present progress in clinical development is in front of KOLs and investigators and the medical community. So we will look for the opportunity to do that in 2025, provided we continue to progress the way we are and provided we have data that we think is meaningful enough to present in front of a medical community, and that's kind of our benchmark. So really excited about the opportunity to see what data comes out of 191. And again, it's a very broad Phase I forefront. We should be able to find the right diversity of patients and expression profiles and tumor types. In this case, we're only recruiting patients with ovarian and non-small cell cancer malignancies. We've not included endometrial or pancreatic in this yet, but you can see they are on the chart here for expansion cohorts. ZW191 was our first ADC with our proprietary 519 payload, which we talked and published about before. It's our approach to trying to find a more modestly potent [ Camptothecin ] analog payload, which is proprietary to us, which we hope has the right potency range and also the right drug-like properties in an ADC format to go along with our thoughts about linker stability and to go along with our thoughts about what I think we've done as an innovation in these 3 ADCs going to the clinic, which is really focused on internalization and tumor penetration properties of the antibodies that we designed. So we optimize antibodies to try and improve the performance of ADCs. And this might be something we do more than others because we're able to other protein engineering expertise, but we think it's very important to get more effective payload delivery at the target site. And so this is the first one where we'll see evidence of whether that approach was correct, hope it is because we've got 2 more coming along with very similar philosophies, similar payloads, different targets, different patient populations, maybe different DARs, but this is quite an interesting approach for us. It's quite different from what others are doing. This is obviously a target of interest. It's been validated with a non-top payload by mirvetuximab, which is on the market for gynecological cancer that's exciting. We think we have the opportunity to go beyond ovarian cancer to look at other fuller receptor alpha expressing targets. And so that was the design of the antibody that hopefully will allow us to do that. With a modestly potent payload, we think that approach may be really interesting in some of these opportunities outside, not just in monotherapy, but potentially in combination. So again, we've started this, again, with a very high starting dose because the tolerability profile of this agent was beyond, I think, what's been seen with ADCs to date. So tolerability in nonhuman primates and GLP tox is 60 milligrams per kilogram. That's well beyond what we've seen with ADCs without giving up activity in our preclinical models. So starting at a -- obviously, having a high starting dose allows us to get into active range much more quickly as we expect to do with ZW171. Again, this is a pretty broad footprint for a Phase I dose escalation study. You can see that there's a large number of countries in Asia Pacific, which are up and running as clinical sites. We think they're excellent quality investigators. They have a broad group of patients with very diverse characteristics in tumor tissues that we want to target and also expression profiles. Initially, we're focused on ovarian, endometrial non-small cell lung cancer. There are obviously other folate receptor alpha-expressing tumors that we could go to. So again, this is up and running quite quickly. We're very hopeful, again, as I said, with 171 to be in a position to provide some initial clinical data on this during the course of 2025 at a major medical meeting in a peer review format where the timing lines up and we have data that's meaningful to talk about. But really happy now with the way we've translated these first 2 programs from preclinical to clinical. We have 3 more coming, one in solid tumor portfolio and one in autoimmune, and I hope that our team can keep up the speed and quality of the execution we've had over the past year, and I'm sure they can. So for us, we're still investing in the future beyond the 6 compounds that in the wholly-owned pipeline. We talked about this at R&D Day. We have thoughts of trying to be -- continue to be more novel, more diverse with mechanism structures, targets. As we move forward, we talk about it as advancing the portfolio even further, advancing novelty, advancing diversity. So we call this our advanced portfolio. It's distinct just because we have the ability to drive more novelty into the next stage of our innovation wave at Zymeworks. We think we have some skill sets and platforms inside the company that we didn't utilize in the first 6 programs, which we can still come back to, so bispecific, biparatopic ADCs, dual payloads. We have a novel payload that goes beyond the Camptothecin analog class that we're really excited about. On the T-cell engager side, we have a lot more we can provide. We do have lots of masking and conditional platforms. We didn't choose to use them in the first 2 T-cell engagers, but we can. And obviously, we have good protein engineering skills to look at the ability to use a trispecific, trivalent structure in different ways, including dual-targeting TCEs. So really excited about working on behind these first 6 programs. And also, I think our autoimmune program, just reminding people that we do have good cytokine engineering skills as well, which we did in a more traditional bispecific format for COPD with our IL-4 receptor, IL-33 program. But I think we have a breadth of opportunities behind the first 6 programs. Looking forward to that. And we think some of those programs could have applicability in multifunctional opportunities within hem/onc, autoimmune and inflammatory disease. Other 1 solid tumors will continue to work there, but more likely in GI tract and maybe opportunistic in thoracic. So what does that mean for the next year or more for Zymeworks, as I said, really proud of what we've been able to accomplish as a team at Zymeworks over the past 3 years, moving our first medicine to FDA approval, which is an exciting point for biotech, putting ourselves in a strong financial position, identifying an initial portfolio of 6 wholly-owned agents, which we're prosecuting really quickly, and I think they're all of high quality right now, but we have optionality on which ones to take forward, how many, how partners might help us with that? So really excited about the position we put ourselves in, in the past 3 years. And after 3 years, we're getting a little bit of credit for it from Wall Street, although we still consider ourselves to be very undervalued compared to the prospects that we see ahead of ourselves. We obviously have a significant Phase III readout in Q2 in first-line GA with our partners, Jazz and BeiGene. Excited about that. Both our partners, Jazz and BeiGene are investing in a very significant way in clinical development behind the initial applications. So I can't be more pleased with what those partnerships have brought to the ability to get Ziihera to a broader patient population globally and a broader patient population with multiple indications, which is great. We're on track, as I said, with ZW220 to go in the clinic this half of this year. Pay attention to it as I try to foreshadow. And I think beyond that, the GPC3 ADC that's coming later this year, is much -- we're much more alone in trying to bring ADCs into HCC or liver cancer, but we really think that's an interesting approach. And in 2026, we've got our final of the 5x5 solid tumor portfolio and our DLL3 tried TCE, which we think is just a way to be a little different than the wave of ADC approaches against that same target as well as our first foray into autoimmune, which we're really excited about the ability of our IL-4, IL-33 to really maybe structurally and through the engineering, get to a broader group of patients in COPD in a more significant way than when we've seen with [ dupi ], which is approved this year in COPD and that we may see with some of the IL-33 antibodies on their own, which are Phase III data is due later this year for at least one of those. So incredibly excited about the next 3 years for Zymeworks compared to the even excitement of the past 3 years and guaranteed the team at Zymeworks is very committed to over the course of the next year, giving clear guidance on what we want to achieve this year. I think we've done that in our R&D Day. Trying to meet or exceed all of that guidance wherever we can through the hard work and collaboration we have and then hopefully coming back next year on Thursday morning or earlier in the week to give you an update on what we've done and hopefully being able to progress the company that way gives us a chance also to provide some shareholder value, not long term, but even on a short-term basis as we've done the past 3 years. Happy to answer any questions you might have. But thank you for your attention on Thursday morning for the presentation.

Thank you, Ken. Thanks for the presentation. We're going to switch over to Q&A. Ken, do you want to join me here?

[indiscernible].

Actually you can present.

I answer better when I'm standing. I don't know why that is, but hopefully, I do. You can judge, but...

I guess for those who are in the audience, if you have any questions, you can raise your hand and we do have a runner on the floor. And for those joining us virtually, you can submit questions on the conference portal. Ken, over the last year or 2 -- or actually over the last 2 years, we've been seeing Zymeworks doing a lot of strategic moves, right? Now you're at a place where your 555 is very real. And I guess just kind of more of a broad stroke, right? What really made it work? I think what's interesting to me is I think last -- in December, you hosted that R&D Day, I think we'll touch on that a little bit. But just how are you organizing your R&D internally to make it efficient? And you're not just working on one modality, which is very distinct from other biotech company. So how are you optimizing your internal R&D franchise to make sure that the products are rolling out in the exact time frame that you have laid out today?

Yes. No, good question. Obviously, from what I presented, we're progressing really well on the quality of the preclinical assets we have and transitioning those to the clinic. I'm never quite sure what we've done right to make that happen, but we tend to have a strong focus inside the company. So clarity of what we're trying to do is in every single employee in the company. I think we did try to focus ourselves in solid tumors around those 3 areas: gynecological cancers, thoracic and GI. We made a really great bispecifc antibody for Janssen and prostate with the KLK2-CD3 that's progressing, but we're not working in prostate cancer right now. So trying to be focused. Within there, I think we didn't try to take on too much. We said let's put 5 new medicines in the clinic to get an initial portfolio. There's 3 ADCs. We did make it easier for ourselves by same payloads. Those are all monobinding antibodies and ADCs. We didn't go to biparatopic or by bispecific. We think they're all interesting and unique. But we didn't try to take on too much. On the T-cell engager side we took 2 approaches, one to trivalent, one to trispecific, which I think tested our skills but we didn't take on a dual targeting TCE or all at the same time. So I think having 5 was appropriate. And then we just built a team who could kind of make sure that we could handle that. So our clinical development team, which is not just in North America, but also in Singapore and Dublin, can execute those 5 programs in early clinical studies, with the team we built, and they can do it in a very efficient way with an outsourced component to that in a global manner because we have people in Singapore and Dublin who can complement the folks who've got in the U.S. So I think we built the team necessary to execute that. I think that's good. So not taking on too much. There were things we were working on when I got here, we stopped. We had a CD47 preclinical program, which just decided we shouldn't work on. And so we did take away some of that. So it allowed us to focus on the solid tumor programs, but at the same time, we left enough room on our desk to work on autoimmune, which I think we might have talked a little bit about last year, and now you can see where we're going with that. So I think we have found a way so far to balance focus, but have a broad enough portfolio. We can decide how partnering works with that. There'll obviously be attrition. Not everything we've done can be best-in-class. We think we're really great inside the company, but a 100% hit rate from preclinical to approval just doesn't seem to be possible in our business. So there will be some of that. So let's just manage that portfolio. If you only have 1 product in a biotech company, it's hard to decide that, that's not best-in-class, and we shouldn't work on it. So I think we've been able to balance the -- moving the clinical portfolio away. I've just been really impressed with how we've moved the preclinical portfolio forward even more. So really advanced a lot of the things that you didn't see here. And that's probably due to Paul Moore, who joined the company in 2022 with me, who has got a long track record in ADCs and T-cell engagers and dual checkpoint inhibitors, et cetera. And I think he's brought a really collaborative approach to the research group. And that research group that's been here for 10 years is still here. So longevity of that core research group has meant a lot because they're a team, they've worked together, they can go quickly. And I think we've just motivated them with external pressures. I mean we -- you have to go quickly in this business, and that's only going to increase because competition is coming from all over the world. It's just not 1 country, it's everywhere. And I think that's just driving us to be better. So I think we're getting better at picking the best ideas. We're much faster from idea to IND right now. And so far, we're pretty quick from IND to Phase I data. I hope we keep doing that. So I think whatever we've been doing inside the company, culture-wise, teamwork, the type of people we brought on board, the collaborative nature of it, the global footprint we have, which is a little unusual for a small biotech, I think it's just enabled us to keep that going much more quickly in a high-quality way. Hopefully, I don't mess that up by doing something different, but we do also need to change as we move along and progress, but can't complain about the results that we have so far in the quality and speed at which we've been developing these molecules.

Looking ahead into later this year, one of the major catalysts that you have is the GA readout. As a partner assets, so I understand that your commentary could be a little bit more on the limited side, but I mean -- but you have been developing the any for some time. So I'm just curious how do you frame what you want to see in this upcoming top line? How should we think about what a win scenario is because there is a bit of a nuance in PD-L1 negative, PL1 positive patients. I don't know if you can kind of provide some commentary around just what to look for to take the extent that you can?