Zymeworks Inc. (ZYME) Earnings Call Transcript & Summary

All right. All right. Hello, everyone. My name is Frank Tang, and I'm with the Investment Banking Division at Morgan Stanley. Thank you all for joining us for the Fireside Chat with Zymeworks. I'm joined here today by the Chairman and CEO, Kenneth Galbraith. Kenneth, hello. How has it evolved since last year, since we were here? It would be great if you could provide an update on where Zymeworks stands today and give us an overview of your broad model across licensed royalty assets, Zanidatamab, the wholly owned T-cell engagers (TCEs), your ADC platform, and now the TheraVents acquisition.

No, it's a great thing. And again, great to be back here again this year with you, back to school, back to work. I think it's a long week already, but I'm really happy to be here and have a chance to update you on Zymeworks. For 2026, we've had an amazing year already as a company, and it's not finished yet. But obviously, with the recent FDA approval of Zanidatamab in first-line GEA patients and HER2 overexpressing GEA patients, we've made this amazing journey from discovering this molecule inside our company 11 years ago. A great protein engineer came up with this idea of creating this bispecific antibody that would really create a brand new class of agent to be able to use in the HER2 class. And over the past 11 years, we've traveled that journey of trying to move that into clinical studies and move that closer to commercialization, in this case with our partners, Jazz and BeiGene, in different territories. We found ourselves in this position of getting an FDA approval at the end of the day in the place where every biotech wants to be. You know, we changed the standard of care after 12 years of an amazing molecule, Herceptin, to be able to make an advancement for patients. And whenever you're in a situation where you can move the median OS six or months or more for a patient population overall, in this case, it was seven months, you just realize the fundamental change you're going to make in people's lives and a large group of patients on a global basis. It's the reason that we do this in this business. So having that really just recharged us to think again about how do we build a company with that behind us. And in front of us, how do we, how do we do that again? And how do we do that maybe in different ways when we think about success? So what else comes with that is obviously there's a tremendous financial return that comes to the company from being the innovator and developer of that agent. And so when we start to look at the royalties and milestones that will come to us in a product that Jazz has guided recently to be a $3 billion to $5 billion peak sales opportunity. And so we have some responsibility for those financial returns for our shareholders to make sure that we take care of them, protect them, grow them, use them wisely. And that's kind of the next step for us. But certainly amazed at the journey that Zanidatamab has taken Zymeworks on to get here. Beyond that, we have another Phase 3 trial readout coming from Zanidatamab in metastatic breast cancer setting in a post-HER2 patient population, which is going to be fully recruited by mid-next year, and then read out by late 2027, early 2028. So we have another chance to be back in front of the FDA. It might make a meaningful change in that breast cancer setting with Zanidatamab. That's not that far away. And in addition to this, our next product that we've worked on with J&J, Pazuritamaab, which is an incredible product, an incredibly innovative KLK2 CD3 T-cell engager, will have its first Phase 3 readout next year. And it's something that J&J has guided to the potential of $1 billion to $5 billion in peak sales. Very excited about it and increasing their clinical development investment in that agent, and that reads out next year. So I think for us, we clearly see where we've come from. It's amazing to be in this place, a biotech company, and certainly solidifies our financial future. But we have some additional Phase 3 readouts coming very quickly for us next year, and at the same time we've moved our wholly owned R&D portfolio forward this year, in four or five different themes between oncology, hem-onc, and also autoimmune inflammatory. We have an opportunity over the next six to 12 months to showcase some additional clinical data and preclinical data around that diverse part of the portfolio. It's still wholly owned. And we did set goals earlier this year to figure out how we would integrate partnerships, collaborations, maybe the use of spin-off vehicles to bring other capital in that so that we can move forward this very broad and diverse portfolio. So that's been really exciting this year. At the same time, we made our first acquisition, which we talked about as a strategy. So we haven't closed our acquisition of TheraVents yet. But hopefully, it really showed what our acquisition strategy is about in trying to find interesting companies who have multi-component that we can attribute value to, whether it's a royalty stream or a profit share like they have in the Ypelry, which is on the market, an R&D asset to our portfolio that we can evaluate to decide if we want to move forward or license. Some tax attributes and other things. So hopefully we illustrated the way we think about the acquisition strategy, helping the overall growth of our company moving forward, all of that within the capital discipline that we have inside the company, and at the same time continue to buy back our own shares, which was one of our goals we set out back in the summer of 2024, was to try and buy back a significant part of the company before everyone else caught up on the underlying value of the assets that we think we have in front of us. So since the summer of 2024, including this year, we've repurchased 10.5 million common shares. That's about 14% of our outstanding stock. Allocated about $215 million to that allocation, and we certainly think that just provides liquidity for current shareholders who want to exit. But more importantly, it will provide an additional advantage to total shareholder return as we continue to grow the company. And so we've been able to continue to do that this year. So I think every aspect of what we set out to do in January, we've been able to execute so far. 2026 not finished. And I think we have a number of things we'd like to get done before the end of the year that hopefully people will see as another illustration of how we run this company in the future. But nothing can be as great as getting an FDA approval on something that really changes the standard of care for a big group of patients after an 11-year journey from lab to hospitals where docs can treat patients with something they didn't have available to them before. It's why we do this. It just encourages us to do it again. Maybe we do it in different ways.

But we're really, really excited and energized by that. Great. I mean, you have so many different major pillars for the story. Thank you for giving us that overview. I'd like to maybe first start by going a little bit deeper into Zanidatamab. Last year, we were focused on the timing of GEA data. And now that you've secured approval in first-line HER2-positive, could you walk us through what that approval means, how that launch is going with your partners, and kind of maybe a little bit into the milestones and the financial side of those partnerships?

Yes, absolutely. I think when I took this job, almost five years ago to become the Chairman and CEO of Zymeworks, we had Zanidatamab, which was just getting ready to go into Phase 3 trials. And I think there was this tremendous feeling that Zanidatamab did not have a place. It could not be a meaningful medicine. At that time, we started to see the launch of TDXD, which seemed like it was going to dominate the market segment in every indication available. And we just felt that Zanidatamab could be a meaningful medicine in a way that others couldn't be. And the differentiation of being really the only bispecific antibody being developed in the space just made us think about where it could be positioned to do well. And we certainly focused on gastric cancers, both GEA and BTC, which was subject to our first approvals, to look for a situation where we could be the first-line therapy. We could be standard of care. And so it was an important step for us to really execute clinical studies in those segments as opposed to maybe moving to try to compete with TDXD in metastatic breast cancer or try to be one of the others that would be behind the first line, what was going to eventually be the first-line therapy in TDXD. And I think after, you know, five years of clinical studies, we certainly see now where we can be the standard of care on those indications. And that provides us a leverage point to then look at other indications, which you can add on to that in the HER2 space, but obviously gives us a base of revenues for our partners to start with. It gives us a base royalty and milestones that we can then utilize in the rest of the business. So that was a very important thing for us to do. I think these are indications that I think if you look at our partners, Jazz and BeiGene, they're ideally suited to execute on. I think if you look at Jazz's strategy of wanting to be more of a rare disease company and whether that's rare CNS or rare oncology, it's an excellent fit with their capabilities and what their strategy is. And if you look at the benefit of what we on our GEA studies of looking at the combination of Zanidatamab and chemo and a PD-1, I think BeiGene was very well positioned to bring Vimbra to that combination and that provides them an opportunity for another indication to build the Vimbra sales and also to sell Zanidatamab in their markets in Asia Pacific, and Asia Pacific, you know, sell both. So I think our commercial partners are doing a great job of positioning, getting the product approved and positioning it commercially to make it as broadly available as they can. You know, this is a U.S. approval. We've obviously got filings and future filings to go around the world, but I think they're perfectly suited for maximizing or optimizing the brand. And beyond GEA, I think Jazz has already laid out the next clinical studies they hope to do beyond the metastatic breast cancer Phase 3 that's reading out next year. They've outlined a registration study in metastatic colorectal cancer, and non-small cell lung cancer in the HER2 overexpressing market, an early gastric cancer indication, because there is an early gastric cancer patient setting as well as some additional early breast cancer indications of interest. I think they've laid out a pretty aggressive and broad clinical development investment behind Zanidatamab that's going to be necessary to build that to that $3 billion to $5 billion in peak sales eventually. And so I think we're well positioned for launch. I think they've done a great job of understanding what will be necessary. They've been in the marketplace for a while with the biliary tract indication, which has allowed them to do things like get a J code and get on formularies and like 90% of the centers where you might then want to prescribe Zanidatamab for GEA. So they've done really well in preparing for the rapid adoption of Zanidatamab and this new indication approved by the FDA. And we're just, you know, waiting to see the results of that in the next couple of quarters, but we're really expecting this to, you know, it is the standard of care, it's a new standard of care, it's a huge improvement over what was available for patients and things like that usually see some rapid adoption curve.

And it's good to see the rapid expansion beyond GEA. I guess you mentioned metastatic breast cancer as well as colorectal. Any other specific tumors that you're excited about that it might be expanding into?

Yes, I think if you look at, you know, we also, you know, have had a pan-tumor study underway for some time, which could get us a tumor agnostic label indication in the U.S., similar to what TDXD did, and I think that has had a positive effect on TDXD usage in the U.S. So that study has been underway for some time frame. So that would be interesting to take a look at. I think if you look at the Phase 1 data set that we had a number of years ago, you could see that Zanidatamab could be meaningful and useful in a whole range of patient settings, similar to where you've seen TRAS usage, but even broader than that, and overlay where you might see TDXD usage as well. So I think there are a number of other tumor types where I think Zanidatamab could be beneficial of, most of those in a first-line setting, most of those looking at it as an interesting combination agent with other classes of molecules, and whether that's chemotherapy or checkpoint inhibition. So I think its combinability is one of its strongest features and its tolerability is so good. You seem to be able to combine it very well with different classes of molecules. And I think that was very important in the trastuzumab becoming the top-selling agent in the HER2 space. We certainly have some elements of that, and we have at least a randomized study with an FDA approval that shows that in that first GEA indication, Zanidatamab provides more activity than trastuzumab being different combinations. So excited to explore, you know, the full range of indications that we can, try to reach every patient we can everywhere in the world where Zanidatamab can provide the standard of care improvement that we've been able to show so far in GEA. It's a great foundation.

Moving on a little bit to talk about T-cell engagers, including your next generation T-cell engager approach, including your DLL3 program, and ZW209 kind of heading into IND. How would you characterize your T-cell engager effort today? Where does it stand, and how do you expect ZW209 to differentiate from other DLL3 targeted therapies?

Yeah, we, you know, obviously we've been trying to, you know, following the development of bispecific T-cell engagers for some time. I think I've been working in that field for 20 years now, and certainly they're becoming more meaningful, but not yet enough approved. And I think we felt a couple years ago that there was an element that might be missing to try and improve upon activity and tolerability for a bispecific T-cell engager. So we started this idea that because we can engineer multi-specific antibodies, we could look at a tri-specific capability. And if you had an extra arm and a bispecific that you could add, what would you add for functionality? What would you add for durability? And so we came up with this concept, of which ZW209 is the first agent, which is due to go in the clinic this year, of trying to incorporate a CD28 co-stimulatory factor in with a T-cell engager and really provide some more durability activity to CD3, but not as an independent signal, but as a conditional signal. So conditionally activated CD28. And so what we found, at least in preclinically, is that we were able to generate something completely different than looking at a standard bispecific T-cell engager. So DLL3 is the first one we selected. We just thought that was really interesting. We certainly have validation with Tarlatamab being available in the marketplace now on its own or with PD-1. And the thought is that maybe we could provide something extra than tarlatamab for that specific indication in small cell lung cancers. That's the first place we started, but that's not the only place we think this could be potentially applied. We have a host of other solid tumor targets in hem-onc and also in autoimmune inflam, which are again around this tri-specific understanding. It may be a tri-specific, though more complex, can provide more functionality to a bispecific antibody. I think it's what a number of companies have been trying to do, proper protein engineering is really the key to solving that. And so we think we've come along with something that's really interesting. And if ZW209 can show that in concept in clinic that we're correct, then we can replicate that many more times against different targets and different tumor types, just looking forward to putting 209 into the clinic and seeing where that part of our R&D strategy can go to.

Any, uh, any key milestones to be aware of in the next 12 to 18 months?

Yes, I tried out a lot of them. We're pretty active in a whole range of things within the company, so I think for us, you'll see... For ZW209, you'll see that go to the clinic, but we'll start to give some visibility to what's behind that in our tri-specific TCE portfolio.

Got it.

Uh I think we've said before, we, you know, we need to integrate some partnerships and collaborations and funding sources into our R&D portfolio because it's wholly owned now, but it's really diverse and broad. Our R&D group in Vancouver is very productive, which is great, but they're providing too many opportunities for us to try to pursue on our own capital. So I think trying to find a way to integrate partnerships and collaborations from others into that portfolio, finding opportunities where we can maybe think about spinning off something to a dedicated entity, which we can work them with outside investors on, while maintaining an equity stake and a royalty stake. And that's something we're pursuing as well. As we talk publicly, we're thinking about that as an outcome for our Pan-RAS inhibitor payload ADCs, which we disclosed earlier this year at AACR. And that seems like that might be a good structure for us to move a part of our portfolio forward faster and broader than if we relied just on our own capital.

Yes. Yes.

We can maintain a very significant equity stake and royalty interest in that development. And so we're kind of excited about executing on a number of those things to see how they move forward. And so we look forward to being able to announce some of those completed transactions that we had talked about earlier this year. Yeah, I thanks, Mark.

For mentioning ADCs, I think it's a good shift. You've now demonstrated very strong data from ZW191 in platinum-resistant ovarian cancer. What do you think is the takeaway from that data set? What do you want investors to take away from it? And then how do you expect it to differentiate in the competitive folate receptor alpha landscape?