Zymeworks Inc. (ZYME) Earnings Call Transcript & Summary

So it's my pleasure to have with me the CEO of Zymeworks, Ken Galbraith. Welcome. Thank you so much.

Thank you.

So welcome to those in the room and those listening online. I'm Yigal Nochomovitz. I'm covering Zymeworks since the beginning, at least since the beginning as a public company, which goes back quite a number of years. And so there's been a lot of advances with your pipeline. You had some, of course, excellent data recently with your partner, Jazz, which we can briefly talk about. But before we get to that, let's talk about the big news, which is the change in strategy or evolution in strategy, maybe is a better word, to move to this royalty-based model. So kind of talk about the evolution of that, why you decided to do that now? What are the advantages both from a financial perspective as well as from just a pipeline and a portfolio prioritization perspective as to why you decided to do that now? And we'd love to hear how you're thinking about it.

That's great. No, thanks for that. Now I know how we're going to fill up 40 minutes of time. No, yes. I mean I wouldn't call it really a pivot or something drastic. I think we always thought back in 2022 when we started to make decisions about what we need to do at Zymeworks to turn it from a great science company into a great biotech company. We always had in mind once we did the partnership with Jazz, which I think allowed us to do a lot of different things inside Zymeworks, what we would do once we turn the corner from being a biotech that kind of needs capital to fund itself to being something that looks like it has excess capital and what that means to a biotech. Obviously, the HERIZON-GEA-01 data gave us the thought there's a lot more visibility and confirmation that we will be in an excess capital situation in our company for a substantial time period. And therefore, you need to think thoughtfully about how you're going to run the company that might be different than you did before that. So I think if you look at what we did in the last 3.5 years at Zymeworks, we took a company that had, I think, good IP, good platforms, good capabilities but an unpartnered asset in zani that needed help to get to the market. And obviously, when I joined, we were -- started 2 registration studies, including the HERIZON-GEA-01 study, but we were 7 months from Chapter 11. So obviously, we didn't have the financing strategy right. And we certainly had an asset like Ziihera that we felt had applicability in the HER2 space, especially in GEA, which is a meaningful population, and we just felt that, that could be the standard of care. And I think the data we received recently 3.5 years later shows that that's the case. It's practice changing that I think the data support that's going to be the standard of care, and it's very meaningful for patients. So when we did the Jazz partnership in 2022, we were very deliberate. We obviously got a nice upfront payment of $375 million. We got a nice structure of milestones and royalties, which we would share in the success of zanidatamab going forward. We didn't try to sell it outright. We thought there was a lot more value by holding that through development, clinical outcomes, regulatory, getting to commercialization. At the same time, we took the $375 million and decided we didn't want to be a one-product company. So we decided we would build a portfolio of novel ADCs and T cell engagers within the context of having a really valuable licensed product. And so we've been working on that for the last 3 years. It's a pretty big portfolio. It's wholly owned, lots of diverse things in there, some in the clinic, some ready to go in the clinic, some still preclinical. We love what we've created. So from 2022 onward, we kind of created a construct where you had a really valuable licensed product that was going to appreciate significantly in value if we held on to it through the commercialization and even more upside from there. And we created an R&D organization that I think is pretty productive in creating really unique agents, which gives us a balance of a licensed product with an unencumbered R&D portfolio right now. At the same time, all those capabilities were there. We just didn't have the right capital allocation. We probably should have partnered zani sooner. I think that partnership really unlocked our ability to get value. And at the same time, like 3.5 years later, the company is worth 5x what it was, and there's still lots of upside in zanidatamab and the other assets beyond that. The share price is up 5x, too, because we didn't dilute our shareholders during the course of doing that. We actually reduced share count recently. So I think the construct of how we took something that was good IP, good assets, good capabilities, but in the wrong strategy for a biotech, the wrong capital allocation, the wrong financial discipline and found a way to put those assets in a great position. Now we see the return on value so far. The outlook is very promising in the way we did that. So I think in looking at how we transform Zymeworks over that time period, we start to think, right now, all of our R&D agents are all things we did ourselves. I've got 2 licensed products that are pretty -- have pretty good potential, both Ziihera and now pasritamig, the KLK2 T-cell engager that we work with J&J on. Those are both really interesting. There's lots of upside in our valuation as those get to see the potential peak sales. We found a way for those things to live together, but they're all internal. They're all things we invented. They're all things that we licensed ourselves to get licensed products. And we started to think about if we had excess capital, which we think we will have, we can fund R&D. We funded all of it to date in the last 3 years. More of that will probably be funded by partners in the future because we do need to integrate partnerships and collaboration to keep that whole portfolio moving forward. So we'll be doing that. So R&D is pretty well funded. We can buy back shares, which we have done over the past year. So we reduced the share count by 6% the past year on the basis that we felt there were good events that were happening that justified doing that. We obviously bought it back at a weighted average cost that's half the current price, which is great short term. But on a longer-term basis, reducing share count drives total shareholder return. And finally, if you can find a way to continue to grow value inside Zymeworks while reducing share count, that's even -- the outlook for greater outsized returns in later years is phenomenal. We certainly do that with the R&D context. We think we can also do that with the idea of bringing in external R&D assets and external licensed products that we can add to our portfolio in a way that it doesn't have to be something we invented, doesn't be something we licensed. Maybe it's something that we -- somebody else invented, but we did the licensing of it. We think that can drive a really great appreciation and value for the licensed product portfolio we have, much greater than thinking about it as a royalty return rate. I mean the appreciation of the value of zanidatamab from 2022 to 2025 now has driven phenomenal returns for our shareholders. And the outlook is that, that can continue for some time period. pasritamig is now at the same stage, just starting Phase III studies. If I can hold that through hopefully successful Phase III programs that J&J is conducting through approval, commercialization, if it is the high end of their guidance at $5 billion peak sales instead of $1 billion low end, that's tremendous. And all we need to do is to hold that. I've already invented it. We've already licensed it. I don't need to do anything else other than be patient and hold that for the benefit of my shareholders. Those rates of returns are pretty great, and they're long term. We'd like to hold those assets for continued value appreciation. So I'm going to hold them though. We think maybe actively managing that as a portfolio approach of licensed products could generate returns, which means I need to have the capabilities and strategy to access things externally that I can bring inside the company, both R&D assets I can work on and then partner appropriately and things I might bring in that also include licensed products. So I think all we're trying to do is just looking at what we did with Zymeworks and the transformation that we've had in the past 3 years, the value we created for that, the upside we still have left and think can I do that with maybe assets that didn't originate with me as opposed to just focusing on the assets that originate to me. If I can do that, there's a bigger universe of the potential for us to transform those assets for the benefit of my shareholders. And so that's what we're trying to accomplish. It's hard to say all that in a really short press release and have people interpret it effectively. But I think we've shown the skills to transform our own company, and I think there's a bundle of assets whether it's IP together some assets, another platform that we can take inside Zymeworks, apply the same skills and strategy we did at Zymeworks and transform that and unlock that value by being patient, making the right decisions. And if I can do that, I can continue to maybe compound the returns that we've gotten for our shareholders so far. And that's something that we can certainly strive to do.

So what can we sort of expect in terms of when will this all start? I mean now the cash is going to start coming in even more. There's a lot of steps there to get -- to realize all the value out of the commercial value out of Ziihera and then the J&J one potentially. So you have -- you mentioned the platform acquisitions and the in-licensing of assets. I mean how broad is your aperture going to be? Are you going to go beyond oncology in terms of what you're looking for? And when does it all start? When do we start to see some transactions? What's the expectation?

I think we've been thinking a lot about this since 2022 about what life might be like if the GEA study reads out positively, and that was really a target for us in our mind. We did look at other models of running the business after that, that might be attractive. We did look at maybe you just monetize all of it and give some money back to shareholders and maybe just go back to being an R&D company. We did look at the option of separating them into 2 different entities on the basis that licensed products that drive passive income can't coexist with an active R&D program. We just don't think that was the optimal way with the assets that we have and the outlook we have to drive shareholder value. So we decided the best strategy was to hold on to these licensed products for the benefit of my current shareholders while they appreciate in value significantly and continue to conduct an active R&D program and have those two things integrated together. There certainly synergies between how those things work together, and we'll show how that happens in transactions. So I think understanding where we wanted to get to was helpful. I think we have a very strict criteria for how we're going to operate this other element of our strategy, the same way we've done internally. I think we've been very disciplined around investing our shareholder money in this wholly owned R&D portfolio, how we decide what to invest in, when to stop it, when to accelerate, how broad to make it, how big of an exposure we want to unpartnered assets before you think about integrating partnerships into it to share risk and capital and monetize some of the value. We've really been disciplined about that. I think you'll see the same discipline being applied because even more so now, these licensed products in Ziihera and pasritamig have a substantial value in the future for my shareholders. We need to be very careful and disciplined about making sure that whatever we do enhances that value. So we have very strict criteria around the cost of capital that we will apply to this. Not surprisingly, we've had that for the past 3.5 years. We haven't done a marketed offering since January 2022. We bought back shares over the past 3 years to reduce share count. I think we're disciplined about the cost of equity being too high, won't utilize it. So I think we have a very strict cost of capital, and we have a very strict return criteria for the rates of return we would expect to get in external assets, the same way we do with our internal programs that we work on in R&D. So I think you'll see the same disciplined approach. For us, looking at what we do with Zymeworks, finding something that's similar to that would be good. That's not be so similar with therapeutic area, product format. Obviously, something closer to what you've done gives you thought you could be more successful with that. But if you want some more diversity in the licensed product portfolio and approach, you can go maybe into different therapeutic areas without worrying about commercializing those assets because you might want to eventually convert them to partnerships and license products to add to the portfolio. So I think we have a lot of optionality -- but we'll be very cautious about making sure what we do now enhances shareholder value because we've got a great appreciation track going ahead of us. So we need to make sure we're very careful about what we do there. So the cadence and size will all be within the magnitude of making sure whatever we're doing gives us more value in the licensed product portfolio, maybe a higher peak, a longer tail, more diversity around the -- where royalties and milestones come from. On the R&D assets, it's got to be something that we feel comfortable working on as if it was internal. It gives us access to externally, gives us a little bit more breadth and diversity of what we can work on rather than be constrained by only working on internal assets. I think as we find things that fit that parameters and we add them to what we're doing, then I think people will see that. There's no determined cadence of size. There's no determined cadence of timing. Given no guidance around that, we won't. You'll see the cadence in the rearview mirror when we've done that just because the current business is really strong and the outlook is very strong. And even then, we still think at today's market price, buying back our own shares is attractive. That's why we have another repurchase plan. But just because it's really strong, it doesn't mean you don't try to see if you can do even better than that. And that's what we're trying to do with this kind of new approach, which is really what we were doing from 2022 when I started with our own assets, just trying to see if we can be additive with other assets that we didn't invent.

I mean I haven't calculated -- I should probably do this. I haven't calculated the IRR on zani directly, but we can do it. But nonetheless, I know it's a high number. So that sets a high bar in terms of what you would want to do as far as, as you say, bringing in other assets with comparable return profiles that sort of does that shrink the universe in terms of what you would look at? Or you just search for those assets that are going to produce a similar return?

Yes. I think -- I mean the standards are high and appropriately so. I mean we're -- we've been able to generate, at least in the last 3 years, some outsized returns. But just by having a different strategy and different capital allocation, different discipline around what was always a great scientific team, a great platform, it was obvious to me that Ziihera would be a meaningful product in HER2. We just had to focus on the right indications, find a partner to help us along the way. And there's still a lot of upside. There's more upside now in Ziihera than there maybe was evident in 2022. It does set a high bar, but that's what we need to do. The goal right now is to see if we can just not just scale, but to replicate on a long-term basis, the returns we've been able to generate from zani so far and pasritamig in the past few years at Zymeworks. And the outlook going forward is very promising as well. There's a lot more appreciation in both the assets that are licensed and in the wholly owned R&D assets. So can I find a mechanism to show that I can replicate that on a long-term basis? And if I can get those returns over and over again, that's a really interesting biotech construct. I don't care if you can't figure out if it's a royalty company or a normal biotech or a mix of the two. Those returns are substantial. And so being a little different and having the synergies between the two, creating optionality for yourself, making sure that the excess capital is used wisely and not waste, those are all things that we've been trying to do the last 3 years, showing evidence we can. We'll try to replicate. But we're trying to improve upon what's already a really strong outlook. So you have to find things that make that even stronger and not dilute your outlook. And so we'll be very careful and cognizant of the need to find things that we think we can really execute on with the skill set we already have to generate returns that will be substantial.

So does this mean you're going to apply sort of even more scrutiny and a higher bar to your proprietary ADC, TCE platform? I know there were some programs that you decided not to pursue like mesothelin, given it didn't meet your internal standards. But now given what you've said and described this approach with the cash that you're generating, is that going to change the internal strategy for being more -- even more selective about what gets promoted into later-stage studies?

No, I think the standards we've had for internal programs have always been really high, and I think that's appropriate. What you find Ziihera and pasritamig so things that are really differentiated and really potentially practice changing. So we need to keep searching for those. And so internally, we've always had those high standards. And when our standards aren't met, either with initial clinical data, not performing the way we thought it would or with something strategically not being as aligned as where we thought it would be, we've already shown our ability to do that. So I think we'll apply the same strong standards we do to our internal portfolio to anything we might look at externally. And whether that's performance of an R&D asset that we bring in that we think has partnerability if we work on it or whether it's looking at our licensed product portfolio and saying those returns are really great, if I'm going to add something to it, it better be giving me the same types of returns or higher. So we'll have the same high standards applied to that. I think our shareholders would expect us to do that. We work really hard to put ourselves in a really good situation. Now we're trying to make it even better. We have to be careful not to make it worse.

So the incremental dollar may go to an external program or it may go to an internal program. You will make that decision sort of in real time depending on how you foresee the returns that you would expect from the investment.

Yes. And over the past year, we invested $60 million in our own business by reducing share count for the benefit of our other shareholders who didn't sell their shares into that. That's a really high return.

And that buyback is continuing.

Yes. And if we look at it, even short term, that's a really great return. If you look at 5-year TSRs based on where the value of the business can go to, it's even better. And that's why we renewed the plan to have $125 million share purchase program to allow us to continue to do that. So I've always got the ability to think some of the best investment I can make is in my own business, and I know what those returns are. It provides a pretty good hurdle rate to thinking about funding another R&D asset that we bring externally or bringing another licensed product to add to the portfolio we have. There's a pretty high hurdle rate just related to -- I've always got the ability to do that until I run out of shares, I guess, but I always got the ability to do that. It's just that reduced share count that goes along with some capital growth in both the R&D side and the licensed product portfolio side can really generate some outsized returns, much more than just thinking about distributing money that comes in from Ziihera. If I can find a way to reinvest and compound those rates of returns that have already gotten in the last 3 years and continue to do that going forward while reducing share count at the same time, that's the secret. So I think the mix of allocation will always be we want to be an R&D company. That's why we put the upfront payment from Jazz in 2022 into our wholly owned portfolio. That's how we got in this position by creating Ziihera and helping create pasritamig. So we'll always do that. Might be in a more partnered way because you do want to share capital and risk and upside in that portfolio. I think if we can find a way to enhance our licensed product portfolio, we'll do that. Reducing share count at the same time and having the right mix between those three is really the way we think you can build a really successful biotech company with long-term returns that are outsized with maybe a different risk profile because the licensed products give you something different than unencumbered R&D assets.

Would you ever consider a dividend yield or that's going too far for where you are right now?

Well, I mean, I think you always have different mechanisms to return capital to shareholders. Right now, we've been focused on reducing share count while value builds in the business. So we think about the value of Ziihera the past 12 months now with it being approved in BTC while studying GEA, the value of that to us has grown dramatically. Reducing share count underneath that has just driven TSR for my shareholders. So that's really the approach we've been taking. That's why we've been renewed a share repurchase plan, not some other mechanism to return capital to shareholders.

Okay. Can we focus a little bit on the proprietary pipeline?

Sure.

Maybe just educate us as far as or educate the audience as far as what are the key assets that are in your proprietary pipeline. How do you see them in terms of probability of success and market size and opportunity?

Yes. I think back in 2022, when we decided we would take the upfront money from the Jazz deal and build a wholly owned portfolio because we didn't really want to be just a company that had just a licensed product, I think there was a lot more to Zymeworks beyond that. We really had 3 research themes that we wanted to focus on. So we stopped doing some of the stuff we were doing before I got there and focused on these 3 themes, and these are all in progress. So we did develop our own ADC portfolio around our own thoughts around a proprietary payload, a '519 payload, a linker strategy and some really interesting antibody and optimized antibodies around properties we thought were effective. So we have 4 of those we've kind of declared to date between the folate receptor alpha ADC, the GPC3 ADC, the NaPi ADC, which is NaPi2b ADC, which is still IND ready and the Ly6E, which is fourth, but really interesting. So we have a platform that all contain the same payload, the same linker strategy, just different antibody targets, which give you different access to different tumor types. So those are the portfolio are really interesting. Obviously, 191 is the most advanced of that. And obviously, the early data gave us some real encouragement that our design implications around that whole portfolio might have been as good as we hope they would be. So we're still studying that one. But that's a really interesting context and looking at what that ADC portfolio could be as a meaningful portfolio, both for ourselves and for potential partners. The second theme is we wanted to go beyond bispecific T cell engagers. So we decided we would make them more complicated by making them trispecific but by building in the functionality of the third arm, the first case, CD28. That's really interesting. I know everybody is focused on kind of DLL3, ZW209 that's going into the clinic next year. But there's a whole platform behind that of thinking about where a TriTCE might be more effective and more durable than a bispecific T cell engager. And so other solid tumor indications, but hem/onc and even autoimmune. So that's a really interesting platform. It's still based on Azymetric, our underlying platform of the company. That's really interesting. There's other trispecific formats beyond incorporating CD28 Co-Stim factor that we can do. We do dual targeting T cell engagers, et cetera. So this whole idea of a trispecific platform giving you more functionality and maybe better clinical outcomes than a bispecific is something that's really interesting for us, and we're still pursuing. It's pretty broad. And then third, we decided to take our bispecific engineering skills that we use from Azymetric outside of oncology into autoimmune. And the first one of that is ZW1528 scheduled to go in the clinic next year, which builds in known biology around IL-4 receptor and IL-33 into unique biology of a bispecific structure. And that bispecific structure, we hope gives you something unique in combination that you don't get with the combination of 2 known targets based on the clinical data. That's what happened with zani. When putting that biparatopic together, it's different than [ tras and pert's ] unique biology that became meaningful. You can see that with the GEA outcome and other studies we've done. Hopefully, that's the same thing. It just opens up another way for us to use our bispecific skills. Now there's biologics in COPD and asthma and other areas. Using a bispecific approach in some of those areas could be really interesting. So we focus on those 3 research teams in the past couple of years. I don't know if I know enough data now to tell you where the next Ziihera sits in there. I hope it's in one of those 3 themes. I think once it shows itself, we'll be able to figure out how to circle around that as another interesting product. But I think we've got a pretty broad research focus. Again, that's all wholly owned, all our own capital, all our own selection in the last 3 years. I think we're at the stage now where we can transition that to thinking about integrating partnerships into that, maybe working on some targets that we didn't have access to that partners do on some of those platforms, maybe bring in partners to help us move forward on some of those things when they get to a certain clinical proof-of-concept space, and we've talked about that for ZW191 or folate receptor alpha ADC. And maybe we'll bring in some partners that can maybe allow us to broaden out the focus of what we're trying to do that we can't do alone and share some of that with partners. The TriTCE platform is pretty broad between solid tumors, hem/onc and autoimmune. It's hard for us to see how we can exploit all of the potential indications with that platform. So I think bring a partner to maybe share some of that where we keep some and they take on some might be interesting. So I think we're at the time period now where we have what we want in the wholly owned portfolio, and we'd like to bring in some partnered capital. As we bring it in, we'll always have some unencumbered independent research we're doing. When we partnered zani back in 2022, it was really important for us to then have some other products that were our own that we can keep unencumbered. So we'll never be in a position where we look like a fully partnered company or look like everything is a licensed product because I think we just eliminate the chance for upside that you'll get independent research. But it's always got to be measured. It's always got to be -- meet all the standards. You do have to pay attention to how much exposure you have financially to unpartnered assets, helping you get partners and trying to stay relevant in a fast-moving sector. So we always pay attention to those aspects. But we love the research capabilities that we have. We love the assets we developed. Got to pay really close attention to how you generate value from those and the next moves that you make. And we showed how to do that with zanidatamab and hopefully, we'll show that with the rest of the portfolio.

You must have a sense for -- or maybe you don't, I don't know because you're very data-driven, which of these you enumerated you kind of want to keep for longer versus earlier partnering. I mean you mentioned proof of concept for like 191, but which are the ones that you have a sense now? I know this is one I want to hold longer versus maybe partner off.

Yes. I think it's always -- I think these are all differentiated. They all have good potential. I think strategically, we all think they can have a place to help patients. So I think we feel very clearly about everything we work on. We've got high standards for target product profile, high standards for executing these quickly to get to a data decision. Sometimes the partnering is just not all data driven. I think sometimes it's understanding the breadth of the opportunity. I think if you look at zani, we're quite happy with the Jazz deal we did in 2022, and that really certainly allowed us to pursue a broader set of applications than we could do ourselves. We probably had partnering opportunities before that back in 2021 that might have gotten us to a potential breast cancer indication sooner by having a Phase III started sooner. I mean we have one underway now. That's great. But I think the data even then was telling you that zanidatamab had a greater peak sales potential and broader use in multiple applications within the HER2 space and maybe a partner would have allowed us to explore all of that and maximize or optimize the value of that brand by sharing some of it with a partner sooner. We didn't do that. We got close to Chapter 11 as a part of that but ended up in a really good spot. I think we have to be really happy with where we ended up. So sometimes these decisions about when to partner, just not data-driven is trying to look at optimizing the value of what you can get. And sometimes that means bringing someone in to share the upside with you, but they also share the risk and share the capital and maybe get you to a broader set of indications more quickly. And so we always evaluate things with that mindset. We can't work on everything ourselves. We do need partners for this. So we just need to figure out when and how we integrate partnerships and collaborations and do really interesting wholly owned portfolio right now.

So does the R&D budget sort of stay level? Or you -- is it growing? I mean what -- just talk a little bit more about just operationally, what's happening there?

Yes. I mean you have optionality to manage it yourself. So you can determine the growth spend. And I think some companies don't think they can, but we do actively manage it. So we do decide how much exposure do we have, want to have unpartnered assets to different technology platforms, different clinical indications. So we do manage it effectively that way. The new element for us now is that we can integrate partnerships and collaborations into the portfolio. So I think not only can you manage the gross operating spend in R&D, you can also manage the net by deciding what types of partnerships and the structure of them that you bring in and when you bring them in. We've talked about wanting to do that. So we would expect in the future that net investment in R&D is going to go down. How much it goes down depends on the partnerships, depends on how much we want to continue to invest in unpartnered assets over time. Look back in 2022, we partnered zani with Jazz, we had no unencumbered assets. We took the upfront money from Jazz of $375 million decided to build the portfolio. Nobody spent it all. But obviously, as that's grown over the past 3 years, we have a much higher investment in assets that are wholly owned and not partnered. And obviously, sharing risk and monetizing some of that value are things that we'd like to do as we move forward. So I wouldn't expect that R&D investment is going to go up on a gross basis. And I expect on a net basis, it will go down over time as partners provide more funding for things we want to do, realizing that we always want to have some element of independent R&D that's unencumbered because that gives us upside to go along with the licensed products.

Back in the older days, before you took the leadership of the company, there was this sort of legacy license -- you licensed the platform Azymetric to several pharma partners. There used to be a slide in the deck at one point, I believe, which added all. Is there anything in there that you'd like to rehighlight as interesting or there could be upside that people have sort of somehow forgotten about?

Yes, I think there is. I think this Azymetric platform that we developed has been an amazing tool for designing bispecific antibodies. I think we've had numerous pharmaceutical companies partner with us to access Azymetric to build bispecifics that they think are very unique. We decided to do that broadly. So we made that platform available to a whole range of partners. We also used it for ourselves for things like zanidatamab and other things that are currently in the wholly owned R&D portfolio. All of those legacy programs still exist. We obviously don't control the timing of development of those. So you have to be a little patient to see which one of those might be interesting for us. If you'd asked me 2 years ago, I couldn't spell pasritamig. I don't think they named it yet, but it wasn't obvious to me that, that one would be so interesting. KLK2 is a very unique biology that J&J was pursuing. No one else really was from what we saw. So when they brought that to us and wanted to use Azymetric to make an interesting bispecific T cell engager, it could have been like other ones that were worked on and deprioritized for whatever reason. That one went pretty quickly from Phase I data that showed that's a really interesting target and a really interesting type of T cell engager for prostate cancer to moving into Phase III studies pretty quickly with guidance from J&J that, that could be a $1 billion to $5 billion peak sales opportunity. Do we have other ones that are in clinical studies that would look like that? I would hope so. Fortunately, you just got to be patient and hold on to those financial interest to see which ones might develop into something meaningful as they advance. We've got a whole lot -- a number of them that are in Phase I studies that could develop the same way, but they could also be deprioritized along the way, which pharma companies like to do. But I like the approach we took of taking a viable, a great platform, using it with a whole range of partners to try and get a whole stream of potential opportunities for licensed products that might grow in value in addition to using it for our own portfolio, which is where Ziihera came from.

I mean I know you're -- it's much more than just sort of like your typical royalty play, but are you going to do those traditional like buying royalty deals, too? Or that's -- how much of that figures into this approach, just to own the royalty with an upfront? Is that part of it or not necessarily?

I think if you look in a traditional royalty sense, I don't think we're going to compete with people who've got better advantage than weighted average cost of capital, et cetera. So it's unlikely we're going to do that. But I think if you look at sometimes what happens is that those licensed products sit in companies that don't want to part with them or can't. They're just kind of stuck inside the company. The way we think about trapped cash and companies, they're just trapped and they don't know what to do with it and they can't access it. So sometimes there might be things that we can take advantage of that they can't. I think on the biotech side, there's always people in biotech looking for external assets to bring inside their company, but sometimes those also come with licensed products that have no value to them. I think what we're trying to exploit with having both elements integrated together is there's situations where maybe there's something that comes with both a licensed product opportunity, an asset that probably should be partnered, but the company doesn't do it and maybe another asset that we want to work on and develop further and then potentially partner overall. Those are things that we could see participating in, spending the time, being patient to realize the value. It's what we did in Zymeworks in the last 3 years. Those are not things that traditional royalty monetization players or even other biotechs really want to get involved in. And I think we've shown that if we get involved in the situation, at least internally, we were able to make something really great out of that. So maybe we can do that again. So we're probably looking at things that are not typically screened or looked at by others because it's just not something they can execute on. It doesn't mean we can't work with some traditional players on the royalty side to do something together, where there's something of value to us and something of value to them or we share the value because we can be complementary to them. On the biotech side, there might be areas where a licensed product doesn't have any value to them, but it might have value to me because I've got a long-term interest in having a portfolio of these things. And so I think there's ways for us to work that will be a little like traditional. And maybe in that sense, we get better input prices. We're working in areas that aren't as competitive. Working in unique situations as long as we're willing to do the work and we see the outcome that can be achieved, then those are probably the situations that we'll be interested in, but it may not be obvious on the outside. So I think we have a very differentiated view of how we can be successful, and we'll stick to those areas.

You stick to biologics, or would you be willing to look beyond small molecules or oral drugs or that's TBD depending on what you see out there?

Yes. Well, I mean, obviously, you want to do things that are within your capabilities. So obviously, doing something that you're closer to gives you a sense that you can be more confident about being successful with execution of it. But there's lots of skills and experience inside Zymeworks for people who have worked on things outside of oncology and autoimmune, they've worked in different product formats. We also have a strong biologics experience, but we've modified that a little bit to bring in people who might be able to help us look at things that are different product formats. Different therapeutic areas. If your thought is to think about working on something that's more going to end up as a licensed product in your portfolio after some work versus something you take to market yourself, you get a little bit more flexibility to think about those things. pasritamig an example. We never would have gone into prostate cancer on our own. It's not a therapeutic area of interest for us. But we're happy to work on Azymetric with J&J and they can create something that brings a financial return to us in an area where we don't really have expertise in that therapeutic category. But if a partner does, then we can still find a way to execute. So I think we want to be open to diversity of what ends up inside the licensed product portfolio, what ends up in the R&D assets. For the R&D assets, if you want a little bit more diverse, you can take a more hub-and-spoke model that others have done. So you have other examples of people who have got a strong interest in gene therapy and a strong interest in oncology, and they find a way to make that work together because they take this hub-and-spoke approach. We kind of have that already if you look at our ADCs versus our multispecific antibodies. Those are 2 separate research groups who really work on their own to compete for capital to generate molecules that we'll put in our R&D portfolio. So we kind of already use that. They tend to coexist in the same lab in the same city in Vancouver, but it's still really a hub-and-spoke model of having these independent research groups competing. And you can find people who know ADCs on one side and something else on another side. So we want to be open. But I think obviously, there's some comfort in being closer to things you've done before, closer to experience and skills that you've got. But I've got people working in multiple therapeutic areas, multiple product formats who can bring those skills and experience to us. And if we don't have it, we can find a way to do that. So I wouldn't expect us to go too far astray, but we have some optionality to at least examine those things.

That one, the J&J one, is that the only asset in late-stage development in prostate with that target? I just -- I don't know the details on that. How much competitive is there on that target?

Yes. I mean so far, it's pretty unique to J&J. I mean I think they were really the only company that we've seen until really recently exploring KLK2 as a novel target in prostate cancer. I think when they brought us that target, we didn't know what it was. And we thought if it's interesting, why isn't everybody doing the same biology around? That's what happens in our business. But I think they saw something that others didn't, and they had the biological approach to really unlock that target. And if you look at the early data that they've put out so far, there's no question that that's the most interesting target in prostate cancer right now. And that T cell engager they created is the most interesting thing, I think, you can think about as being used in combination with other agents. So that's really unique to them. But like with everything, I'm sure there's others working on that target now. But it's a pretty unique space they have right now being in Phase III and multiple studies now moving towards the market with Phase I data that's pretty compelling.

All right. Well, we're down to 30 seconds, but thank you so much, Ken. Very good. I look forward to all the opportunities coming down the road.

Yes. We're obviously really excited about the HERIZON-GEA-01. And obviously, the data is going to be presented on January 8 at ASCO GI. So looking forward to put numbers with the words in the press release that you saw already.

That's helpful.

And hopefully, people see why we're so excited to then go to the next stage and pursue strategic options that are just a little bit different than what we've done but really comparable to what we have in the past few years and how we built value in ZYME.

Thank you very much.

Thank you.