ZYMEWORKS INC. The following discussion should be read in conjunction with the attached financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes thereto and management's discussion and analysis of financial condition and results of operations for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission (the "SEC") onFebruary 24, 2022 and with the securities commissions in all provinces and territories ofCanada onFebruary 24, 2022 . This Quarterly Report on Form 10-Q, including the following sections, contains forward-looking statements within the meaning of theU.S. Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. As a result of many factors, including without limitation those set forth under "Risk Factors" under Item 1A of Part II below, and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update forward-looking statements which reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q, except as required by law. Throughout this discussion, unless the context specifies or implies otherwise, the terms "Zymeworks ," "we," "us," and "our" refer toZymeworks Inc. and its subsidiaries.
Overview
Zymeworks is a clinical-stage biopharmaceutical company dedicated to the development of next-generation multifunctional biotherapeutics. Our suite of complementary therapeutic platforms and our fully integrated drug development engine provide the flexibility and compatibility to precisely engineer and develop highly differentiated product candidates. These capabilities have resulted in multiple product candidates with the potential to drive positive outcomes in large underserved and unaddressed patient populations. Our lead product candidate, zanidatamab, is a novel bispecific antibody that targets two distinct domains of the human epidermal growth factor receptor 2 ("HER2"). Zanidatamab's unique binding properties result in multiple mechanisms of action that may enable it to address unmet need in patient populations with HER2-expressing cancers. In clinical trials, zanidatamab monotherapy and zanidatamab in combination with chemotherapy have been well tolerated with promising antitumor activity in patients with treatment-naive and heavily pretreated HER2-expressing cancers, including individuals whose disease had progressed on multiple prior treatment regimens that included HER2-targeted agents. Based on these data, a number of global multicenter clinical trials have been initiated to evaluate zanidatamab in specific indications and lines of therapy. These include pivotal clinical trials in (i) previously treated HER2 gene amplified biliary tract cancer ("BTC") and (ii) first-line locally advanced or metastatic HER2-positive gastroesophageal adenocarcinomas ("GEA") in combination with chemotherapy with or without BeiGene, Ltd.'s ("BeiGene") tislelizumab, as well as proof of concept trials in (iii) first-line locally advanced or metastatic HER2-positive colorectal cancer ("CRC"),GEA , or BTC in combination with standard of care chemotherapy, (iv) first-line locally advanced or metastatic HER2-positiveGEA in combination with tislelizumab and chemotherapy, (v) first-line locally advanced or metastatic HER2-positive breast cancer in combination with docetaxel, (vi) previously-treated locally advanced or metastatic HER2-positive, hormone receptor-positive breast cancer in combination with Pfizer's Ibrance (palbociclib) and fulvestrant, and (vii) previously-treated locally advanced or metastatic HER2-expressing cancers (including HER2-positive and HER2-low breast cancer) in combination with ALX Oncology Inc.'s ("ALX Oncology") evorpacept (ALX148). Our second product candidate, ZW49, combines the unique design of zanidatamab with our ZymeLink antibody-drug conjugate ("ADC") platform, comprised of our proprietary cytotoxin (cancer cell-killing compound) and cleavable linker. We designed ZW49 to be a best-in-class HER2-targeting ADC to further address unmet need across a range of HER2-expressing cancers. A Phase 1 clinical trial to establish safety and antitumor activity of ZW49 is currently ongoing.
We are also advancing a deep pipeline of preclinical product candidates and discovery-stage programs in oncology (including immuno-oncology agents) and other therapeutic areas.
Our proprietary capabilities and technologies include several modular,
complementary therapeutic platforms that can be used in combination with each
other and with existing approaches. This ability to layer technologies without
compromising manufacturability enables us to engineer next-generation
biotherapeutics with synergistic activity, which we believe will result in
improved patient outcomes. Our platforms include:
•Azymetric, our bispecific platform, which enables therapeutic antibodies to
simultaneously bind multiple distinct locations on a target (known as an
epitope) or to multiple targets. This is achieved by tailoring multiple
configurations of the antibody's Fab regions (locations on the antibody to which
epitopes bind);
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•ZymeLink, our ADC platform, comprised of cytotoxins and the linker technology
used to couple these cytotoxins to tumor-targeting antibodies or proteins. This
platform can be used in conjunction with our other therapeutic platforms to
increase safety and efficacy as compared to existing ADC technologies;
•EFECT, which enables finely tuned modulation (both up and down) of immune cell
recruitment and function; and
•ProTECT, which enables tumor-specific activity that may reduce systemic
toxicity and simultaneously enhances localized immune co-stimulation or
checkpoint modulation that may increase efficacy.
Our protein engineering expertise and proprietary structure-guided molecular
modeling capabilities enable these therapeutic platforms. Together with our
internal antibody discovery and generation technologies, we have established a
fully integrated drug development engine and toolkit capable of rapidly
delivering a steady pipeline of next-generation product candidates in oncology
and other therapeutic areas.
Our Azymetric, EFECT and ZymeLink therapeutic platforms have been further
leveraged through multiple revenue-generating strategic partnerships and
collaborations with the following pharmaceutical companies: Merck Sharp & Dohme
Research GmbH ("Merck"), Eli Lilly and Company ("Lilly"), Celgene Corporation
and Celgene Alpine Investment Co. LLC (now a Bristol-Myers Squibb company,
"BMS"), GlaxoSmithKline Intellectual Property Development Limited ("GSK"),
Daiichi Sankyo Co., Ltd. ("Daiichi Sankyo"), Janssen Biotech, Inc. ("Janssen"),
LEO Pharma A/S ("LEO"), BeiGene, Iconic Therapeutics, Inc. ("Iconic") (and
through our relationship with Iconic, Exelixis, Inc. ("Exelixis")), and Atreca,
Inc. ("Atreca").
Our goal is to leverage our next-generation therapeutic platforms and
proprietary protein engineering capabilities to become a leader in the
discovery, development and commercialization of best-in-class multifunctional
biotherapeutics for the treatment of cancer and other diseases with high unmet
medical need.
Our key priorities to achieve this goal are to:
•fully recruit the HERIZON-BTC-01 pivotal clinical study for zanidatamab by mid-2022; •fully recruit the HERIZON-GEA -01 pivotal clinical study for zanidatamab by the end of 2023; •complete or close out other ongoing early-stage clinical studies for zanidatamab as data become available, and use these data to identify and support strategic decisions regarding future clinical development opportunities beyond the ongoing pivotal clinical studies; •finalize a clear clinical development path for ZW49 based on additional clinical data expected in the second half of 2022 from the ongoing Phase 1 clinical trial; •select and advance two new ADC or multispecific product candidates leveragingZymeworks' novel, therapeutic platforms (Azymetric™, ZymeLink™, EFECT™ and ProTECT™) to Investigational New Drug ("IND") enabling studies to provide the ability to submit two IND applications by the end of 2024; •execute on new partnerships and collaborations to support the development and commercialization of zanidatamab andZymeworks' early-stage R&D pipeline and technology platforms; •continue to support and advanceZymeworks' core technology platforms and collaborations; and •improveZymeworks' financial position over 2022 and 2023 through a combination of alternatives, including forming additional partnerships and collaborations, monetizing existing assets and products and securing additional financing. We commenced operations in 2003 and have since devoted substantially all of our resources to research and development activities including developing our therapeutic platforms, identifying and developing potential product candidates and undertaking preclinical studies and clinical trials. Additionally, we have supported our research and development activities with general and administrative support, as well as by raising capital, conducting business planning and protecting our intellectual property. We have not generated any revenue from the sale of approved products to date and do not expect to do so until such time as we obtain regulatory approval and commercialize one or more of our product candidates. We cannot be certain of the timing or success of approval of our product candidates. Since our initial public offering ("IPO") in 2017, we have funded our operations primarily through follow-on public offerings, including the issuance of pre-funded warrants, and payments received under our license and collaboration agreements. Payments received from our license and collaboration agreements include upfront fees, milestone payments, as well as research support and reimbursement payments. Prior to our IPO, we also received financing from private equity placements and the issuance of convertible debt, which was subsequently converted into equity securities, and a credit facility. From inception toMarch 31, 2022 , we received$910.5 million , net of equity issue costs, from these sources of financing including proceeds from exercises of stock options and employee stock purchase plans. As ofMarch 31, 2022 , we had$300.5 million of cash resources consisting of cash, cash equivalents and short-term investments. 19
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Although it is difficult to predict our funding requirements, based upon our current operating plan, we anticipate that our existing cash and cash equivalents and short-term investments as ofMarch 31, 2022 , combined with certain existing collaboration payments we anticipate receiving, will enable us to fund our planned operations for at least the next twelve months from the date this Quarterly Report on Form 10-Q is filed with theSEC . We reported a net loss of$72.6 million for the three months endedMarch 31, 2022 and throughMarch 31, 2022 , we had an accumulated deficit of$755.7 million . Over the next several years, we expect to continue to incur losses as we increase our research and development expenditures in connection with the ongoing development of our product candidates and other clinical, preclinical and regulatory activities. Recent Developments COVID-19: COVID-19 has impacted our research and development activities, but has not caused significant disruptions to our business operations to date. InMarch 2020 , we transitioned our workforce to a remote working arrangement to protect the health and safety of our employees. InJune 2020 , we implemented a program to facilitate the phased return of employees to our lab and office facilities pursuant to enhanced health and safety protocols consistent with guidelines issued by local health authorities. Our preclinical research activities were supplemented by support from external contract research organizations ("CROs") to complement the temporarily reduced capacity at our lab facilities. Certain clinical trial activities, including patient enrollment and site activations, were delayed or otherwise impacted by COVID-19. To date, COVID-19 has not had a material impact on our financial condition, liquidity or longer-term strategic development and commercialization plans. The extent to which COVID-19 may cause more significant disruptions to our business and greater impacts to our results of operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the location, duration and severity of outbreaks, including potential future waves or cycles, and the effectiveness of actions to contain and treat COVID-19. A lack of coordinated responses on risk mitigation and global vaccination deployment with respect to the COVID-19 pandemic could result in significant increases to the duration and severity of the pandemic and could have a corresponding negative impact on our business. Insufficient vaccine availability, reduced effectiveness of vaccines over time or against new variants, or resistance to vaccination by certain persons may result in increasing infection and hospitalization rates, which have been and could be further complicated by the emergence of more virulent or infectious variants of the virus. We cannot predict the duration, scope and severity of any potential business shutdowns or disruptions that may result from future waves or cycles of outbreaks, including impacts to our ongoing and planned clinical studies and our regulatory approval prospects. Further prolonged shutdowns or other business interruptions could result in material and negative effects to our ability to conduct our business in the manner and on the timelines currently planned, which could have a material adverse impact on our business, results of operations, and financial condition. The COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the effects of COVID-19 on our business. See Part II - Item 1A, "Risk Factors - Risks Related to Our Business and the Development and Commercialization of Our Product Candidates - Our business has been and may continue to be adversely affected by the COVID-19 pandemic."
Zanidatamab Clinical Program:
In
Also inApril 2022 ,Zymeworks , in conjunction with itsAsia-Pacific partner BeiGene, announced the acceptance of abstracts and plans to present data at the upcoming ASCO meeting in June on the first-line treatment of patients with HER2+ metastatic breast cancer using zanidatamab plus chemotherapy and on the first-line treatment of patients with HER2+ metastaticGEA using zanidatamab in combination with chemotherapy and tislelizumab.
ZW49 Clinical Program:
In our ongoing ZW49 Phase 1 dose-escalation study, the expansion cohorts
evaluating 2.5 mg/kg every three weeks have completed enrollment of 30 patients.
In parallel, we continue to evaluate an expansion cohort evaluating dosing at
1.5 mg/kg weekly and continue to enroll into the escalation cohort evaluating
1.75mg/kg weekly. Patient enrollment continues to progress well in both the
weekly expansion and escalation cohorts and we remain on target to submit data
for presentation at a major medical meeting in the second half of this year.
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Preclinical Programs:
InMarch 2022 , we presented information on our topoisomerase 1 inhibitor ("TOPO1i") ADC technology at the World ADC London conference. The presentation highlighted preclinical data and the development of our TOPO1i-based payload technology to be used in conjunction with our auristatin-based payload technology in the generation of fit-for-purpose and indication-specific ADCs.
Licensing and Collaboration Agreements:
InApril 2022 , Atreca announced a licensing agreement withZymeworks to utilize our ZymeLink technology to develop novel ADCs. We received an undisclosed upfront payment in association with this licensing agreement in conjunction with future option exercise fees and development, regulatory, and commercial milestones as well as tiered royalties on net sales of any licensed products at single-digit royalty rates. Financing Activities: OnJanuary 31, 2022 , we announced the closing of our underwritten public offering which consisted of the issuance of 11,035,000 common shares, including the exercise in full of the underwriters' over-allotment option to purchase 1,875,000 additional shares, and, in lieu of common shares, to certain investors, pre-funded warrants to purchase up to 3,340,000 common shares. The common shares were sold at a price to the public of$8.00 per common share and the pre-funded warrants were sold at a price of$7.9999 per pre-funded warrant, for aggregate gross proceeds to the Company of$115.0 million , before deducting underwriting discounts and commissions and estimated offering expenses. The securities were offered inthe United States pursuant to our final prospectus, datedJanuary 26, 2022 , to ourU.S. automatic shelf registration statement on Form S-3ARS, including a prospectus datedOctober 1, 2021 . No securities were offered or sold, directly or indirectly, inCanada or to any resident ofCanada .
Executive Team Changes and Restructuring:
OnJanuary 5, 2022 , we announced the appointment of Mr.Kenneth Galbraith as Chair of our Board of Directors, Chief Executive Officer and President, effectiveJanuary 15, 2022 . In connection withMr. Galbraith's appointment, Dr.Ali Tehrani resigned from the positions of President and Chief Executive Officer and as a member of our board of directors, effectiveJanuary 15, 2022 . We also announced the promotion of our Chief Financial Officer, Mr.Neil Klompas , to the dual position of Chief Operating Officer and Chief Financial Officer. Our Board of Directors also appointed Ms.Lota Zoth as the Board of Directors' lead independent director, effectiveJanuary 15, 2022 . OnJanuary 19, 2022 , we announced a restructuring of our workforce (the "Restructuring"), with a target of reducing employee headcount by at least 25% across the organization by the end of 2022. We took these steps as part of our renewed focus on achieving our key strategic priorities and to help create a more cost-efficient organization in order to execute on our strategic priorities. In connection with the Restructuring, we announced changes in our leadership, with the Executive Vice President,Early Development & Chief Scientific Officer ,Chief People Officer and Chief Commercial Officer leaving the Company. As ofMarch 31, 2022 , we had exceeded the previously announced workforce reduction of 25%, ahead of schedule. The Company has incurred other restructuring charges in connection with the reduction in workforce which are disclosed in note 14 of our interim condensed financial statements included in this Quarterly Report on Form 10-Q. The Company recognized the majority of these charges during the three months endedMarch 31, 2022 and does not expect to incur any material additional costs related to the Restructuring. OnFebruary 24, 2022 , we announced the appointment of Dr.Christopher Astle to the role of Senior Vice President and Chief Financial Officer of the Company.Dr. Astle succeedsMr. Klompas in the role of Chief Financial Officer. FollowingDr. Astle's appointment,Mr. Klompas has continued in his position as the Company's Chief Operating Officer.
Strategic Partnerships and Collaborations
Our novel product candidates, together with the unique combination of proprietary protein engineering capabilities and resulting therapeutic platform technologies, have enabled us to enter into a number of strategic partnerships, many of which were subsequently expanded in scope. Our strategic partnerships and collaborations, including with Merck, BMS, GSK, Daiichi Sankyo, Janssen, LEO, BeiGene, and Iconic, provide us with the ability to accelerate clinical development of our product candidates in certain geographical regions and provide our strategic partners with access to components of our proprietary therapeutic platforms for their own therapeutics development. (Per an amendment of a sublicensing agreement between Iconic and Exelixis inDecember 2021 , Iconic notified us that they will receive a one-time fee from Exelixis in exchange for all future milestones for Iconic's ICON-2 program. As such, we will receive a share of this payment to Iconic. We continue to be eligible to 21
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receive future royalties pursuant to our agreement with Iconic.) In addition, these strategic partnerships have provided us with non-dilutive funding as well as access to proprietary therapeutic assets, which increase our ability to rapidly advance our product candidates while maintaining commercial rights to our own therapeutic pipeline. Under our strategic partnerships and collaboration agreements, we have received over$240.0 million to date in the form of non-refundable upfront payments and milestone payments. In addition, under our active strategic partnerships and collaboration agreements, we are eligible to receive up to$2.9 billion in preclinical and development milestone payments and$6.1 billion in commercial milestone payments, as well as tiered royalties on potential future product sales. It is possible, however, that our strategic partners' programs will not advance as currently contemplated, which would negatively affect the amount of development and commercial milestone payments and royalties on potential future product sales we may receive. Importantly, these partnerships include predominantly non-target-exclusive licenses for any of our therapeutic platforms, so we maintain the ability to develop therapeutics directed to many high-value targets utilizing our platforms. There have not been any material changes to the key terms of any of our licensing and collaboration agreements, sinceDecember 31, 2021 . For further information on the terms and conditions of our existing collaboration and license agreements, please refer to "Item 1. Business - Strategic Partnerships and Collaborations" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Financial Operations Overview Revenue Our revenue consists of collaboration revenue, including amounts recognized relating to upfront non-refundable payments for licenses or options to obtain future licenses, research and development funding and milestone payments earned under collaboration and license agreements. We expect that collaboration revenue from our strategic partnerships will be our primary source of revenue for the foreseeable future. Operating Expenses Our operating expenses consist primarily of research and development expenses and general and administrative expenses. Personnel costs including salaries, benefits, bonuses and stock-based compensation expense, comprise a significant component of research and development and general and administrative expenses. We allocate certain indirect expenses associated with our facilities, information technology, depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee.
Research and Development Expense
Research and development expenses consist of expenses incurred in performing
research and development activities such as conducting clinical trials and
preclinical research studies, technical and manufacturing operations, regulatory
affairs and other indirect expenses in support of advancing our product
candidates and therapeutic platforms. Research and development expenses include
third-party program costs, internal personnel costs and other indirect costs as
follows:
•fees paid to CROs, consultants, subcontractors and other third-party vendors
for work performed for our clinical trials, preclinical studies and regulatory
activities;
•fees paid to third-party manufacturers to produce our product candidate
supplies;
•amounts paid to vendors and suppliers for laboratory supplies;
•fees, milestone payments and other expenses incurred in connection with license
agreements and amendments;
•employee-related expenses such as salaries and benefits and stock-based
compensation;
•depreciation of laboratory equipment, computers and leasehold improvements; and
•overhead expenses such as facilities, information technology and other
allocated items.
It is difficult to determine with certainty the duration and completion costs of
our current or future clinical trials and preclinical programs of our product
candidates, or if, when or to what extent we will generate revenue from the
commercialization and sale of any of our product candidates that obtain
regulatory approval. We may never succeed in achieving regulatory approval for
any of our product candidates. The duration, costs and timing of clinical trials
and development of our product candidates will depend on a variety of factors,
including the uncertainties of clinical trials and preclinical studies,
uncertainties in clinical trial enrollment rates and significant and changing
government regulation. In addition, the probability of success for each product
candidate will depend on numerous factors, including competition, manufacturing
capability and commercial viability. We will determine which
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programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate's commercial potential. Our research and development expenses may increase in the future as we continue to develop our platforms and product candidates.
General and Administrative Expense
General and administrative expenses consist of salaries, benefits and stock-based compensation costs for employees in our executive, finance, legal, intellectual property, business development, human resources and other support functions, as well as legal and professional fees, business insurance, facilities and information technology costs and other expenses. Our general and administrative expenses may increase in the future as we expand our infrastructure to support our ongoing research and development activities.
Other Income (Expense)
Other income (expense) primarily consists of interest income and foreign exchange gain (loss).
Critical Accounting Policies and Significant Judgments and Estimates
Our critical accounting policies are those policies that require the most significant judgments and estimates in the preparation of our interim condensed consolidated financial statements. A summary of our critical accounting policies is presented in note 2 of our annual consolidated financial statements for the year endedDecember 31, 2021 . Our management's discussion and analysis of financial condition and results of operations is based on our interim condensed consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these interim condensed consolidated financial statements requires us to make estimates, judgments and assumptions that are inherently uncertain that affect the amounts reported in the interim condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. We review and evaluate these estimates on an ongoing basis. These assumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities and amounts that have been recorded as revenue and expenses. Actual results and experiences may differ from these estimates. The results of any material revisions would be reflected in the interim condensed consolidated financial statements prospectively from the date of the change in estimate. There have been no material changes in our critical accounting policies and significant judgments and estimates during the three months endedMarch 31, 2022 as compared to what has been described in our most recent annual consolidated financial statements. The full extent to which the COVID-19 pandemic may directly or indirectly impact our business, results of operations and financial condition, including revenues, expenses, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are evolving and highly uncertain, such as the duration and severity of outbreaks, including current and potential future waves or cycles, and the effectiveness of actions taken to contain and treat COVID-19. We considered the potential impact of COVID-19 when making certain estimates and judgments relating to the preparation of our interim condensed consolidated financial statements. While there was no material impact to our interim condensed consolidated financial statements as of and for the three months endedMarch 31, 2022 , our future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in a material impact to our consolidated financial statements in future reporting periods.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements is presented in note 3 of our
interim condensed consolidated financial statements for the quarter ended
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Results of Operations for the Three Months Ended
Revenue
Three Months Ended
March 31, Increase/
2022 2021 (Decrease)
(dollars in millions)
Revenue from research and collaborations $ 1.9 $ 0.6 Our revenue relates primarily to non-recurring upfront fees, expansion payments or milestone payments from our licensing and collaboration agreements.
Total revenue increased by$1.3 million in the three months endedMarch 31, 2022 compared to the same period in 2021. Revenue for the three months endedMarch 31, 2022 included$1.9 million from our partners for research support and other payments. Revenue for the same period in 2021 included$0.6 million from our partners for research support and other payments.
Research and Development Expense
Three Months Ended
March 31, Increase/
2022 2021 (Decrease)
(dollars in millions)
Third-party research and development program
expenses:
Clinical development programs:
Zanidatamab $ 38.6 $ 16.6 $ 22.0 133 %
ZW49 1.6 4.4 (2.8) (64) %
Preclinical and other research programs 0.5 3.4 (2.9) (85) %
40.7 24.4 16.3 67 %
Unallocated departmental research and
development expenses:
Salaries and benefits 18.3 13.1 5.2 40 %
Stock-based compensation (recovery) expense (3.2) 1.8 (5.0) (278) %
Other unallocated expenses 6.7 5.0 1.7 34 %
Research and development expense $ 62.5 $ 44.3 $ 18.2 41 %
Research and development expense increased by $18.2 million in the three months
ended March 31, 2022 compared to the same period in 2021. For the three months
ended March 31, 2022 , research and development expense included non-cash
stock-based compensation recovery of $3.2 million comprised of a $2.7 million
recovery from equity classified awards (three months ended March 31, 2021 - $4.3
million expense) and a $0.5 million recovery related to the non-cash
mark-to-market revaluation of certain historical liability classified awards
(three months ended March 31, 2021 - recovery of $2.5 million ). Excluding
stock-based compensation expense, research and development expense increased by
$23.2 million or 55% in 2022 compared to 2021. The increase related primarily to
higher clinical trial expenses for zanidatamab, increased drug manufacturing
expenses, severance and other expenses incurred due to the Company's
Restructuring program, partly offset by lower clinical trial expense for ZW49.
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General and Administrative Expense
Three Months Ended
March 31, Increase/
2022 2021 (Decrease)
(dollars in millions)
Salaries and benefits $ 7.9 $ 6.5 $ 1.4 22 %
Stock-based compensation recovery (5.1) (8.8) 3.7 42 %
Professional fees, consulting and business
insurance 3.7 3.1 0.6 19 %
Other general and administrative expenses 5.6 0.5 5.1 1,020 %
General and administrative expense $ 12.1 $ 1.3 $ 10.8 831 %
General and administrative expense increased by $10.8 million for the three
months ended March 31, 2022 compared to the same period in 2021. For the three
months ended March 31, 2022 , general and administrative expense included
non-cash stock-based compensation recovery of $5.1 million comprised of a $2.2
million recovery from equity classified awards (three months ended March 31,
2021 - $4.2 million expense) and a $2.9 million recovery related to the non-cash
mark-to-market revaluation of certain historical liability classified awards
(three months ended March 31, 2021 - recovery of $13.0 million ). Excluding
stock-based compensation, general and administrative expense increased by $7.1
million or 70% in 2022 compared to 2021. This increase was primarily due to
severance and other expenses incurred due to the Company's Restructuring program
in 2022 as well as a non-recurring sales tax refund recognized in 2021, which
partially offset expenses in the same period in 2021.
Other Income (Expense), net
Three Months Ended
March 31, Increase/
2022 2021 (Decrease)
(dollars in millions)
Other income, net $ - $ 0.9 $ (0.9) (100) %
Other income, net decreased by $0.9 million for the three months ended March 31,
2022 compared to the same period in 2021. Other income, net for 2022 included
primarily $0.3 million in interest income and $0.3 million in foreign exchange
loss and other miscellaneous amounts. Other income, net for the three months
ended March 31, 2021 primarily included $0.7 million in interest income and a
$0.1 million net foreign exchange loss and other miscellaneous amounts.
Liquidity and Capital Resources
Sources of Liquidity
Since our IPO in 2017, we have funded our operations primarily through follow-on public offerings, including the issuance of pre-funded warrants, as well as from upfront fees, milestone payments, and research support payments generated from our strategic collaborations and licensing agreements. OnJanuary 31, 2022 , we completed a public offering pursuant to which we sold (i) 11,035,000 common shares (including the sale of 1,875,000 common shares to the underwriters upon their full exercise of their over-allotment option), at$8.00 per common share and 3,340,000 pre-funded warrants in lieu of common shares at$7.9999 per pre-funded warrant. We received gross proceeds of$115.0 million and net proceeds were approximately$107.7 million , after underwriting discounts, commissions and estimated offering expenses. OnOctober 1, 2021 , we amended our Open Market Sale AgreementSM, dated as ofNovember 5, 2019 (as amended, the "Sales Agreement"), withJefferies LLC ("Jefferies"). The Sales Agreement provides for the offer and sale of our common shares from time to time through Jefferies as our sales agent, subject to the maximum aggregate dollar amount registered pursuant to the applicable prospectus supplement. Sales of common shares through Jefferies, if any, will be made by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act. No shares of our common stock were sold under the Sales Agreement since its inception to date. 25
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As of
Cash Flows
The following table represents a summary of our cash flows for the three months
ended
Three Months Ended
March 31,
2022 2021
(dollars in millions)
Net cash (used in) provided by:
Operating activities $ (55.4) $ (40.8)
Investing activities 20.6 76.8
Financing activities 108.6 2.1
Effect of exchange rate changes on cash and cash equivalents (0.1) (0.2)
Net change in cash and cash equivalents $ 73.7 $ 37.9
Operating Activities
During the three months ended March 31, 2022 , cash used in operating activities
was $55.4 million compared to $40.8 million for the same period in the prior
year. The increase in net cash used in operating activities was primarily due to
higher clinical trial expenses for zanidatamab and increased drug manufacturing
expenses as well as, severance and other expenses incurred due to the Company's
Restructuring program, partly offset by lower clinical trial expense for ZW49
and deprioritized research projects.
Investing Activities
Net cash provided by investing activities for the three month period endedMarch 31, 2022 was primarily related to redemptions of short-term investments in marketable securities of$25.3 million partially offset by cash outflows of$4.7 million for the acquisition of property and equipment in relation to our new office and lab spaces inCanada and an increase in intangible assets including software implementation costs. Net cash provided by investing activities for the three month period endedMarch 31, 2021 was primarily related to redemptions of short-term investments in marketable securities of$77.5 million partially offset by cash outflows of$0.7 million for the acquisition of property and equipment.
Financing Activities
Net cash provided by financing activities for the three months endedMarch 31, 2022 included$107.7 million relating to net proceeds from ourJanuary 2022 public offering of equity securities and$0.9 million from the issuance of common shares in relation to our employee stock purchase plan. Net cash provided by financing activities for the three months endedMarch 31, 2021 included net proceeds of$1.3 million from stock option exercises and$0.8 million from the issuance of common shares in relation to our employee stock purchase plan.
Funding Requirements
We have not generated any revenue from approved product sales to date and do not
expect to do so until such time as we obtain regulatory approval and
commercialize one or more of our product candidates. As we are currently in the
clinical and preclinical stages of development, it will be some time before we
expect to achieve this, and it is uncertain that we ever will. We expect that we
will continue to increase our operating expenses in connection with ongoing
clinical trials and preclinical activities and the development of product
candidates in our pipeline. In addition, inflation generally may affect us by
increasing our cost of labor and clinical trial expenses. Our funding
requirements in the short-term and long-term will consist of the operational,
capital, and manufacturing expenditures, a portion of which contain contractual
or other obligations including future minimum lease payments under
non-cancelable operating leases as presented in note 11 and other commitments
and contingencies as presented in note 13 to the interim condensed consolidated
financial statements. Because of the inherent risks and uncertainties associated
with the development and commercialization of our drug candidates, we are unable
to estimate the amounts of capital outflows and operating expenditures
associated with our current and anticipated clinical trials and preclinical
studies.
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Although it is difficult to predict our funding requirements, based on our current operating plan, we anticipate that our existing cash and cash equivalents and short-term investments combined with certain anticipated milestone payments from our existing collaborations will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months from the date this Quarterly Report on Form 10-Q is filed with theSEC . We have based these estimates on assumptions and plans which may change and which could impact the magnitude and/or timing of operating expenses, capital expenditures and our cash runway. These estimates include future milestone payments which are dependent upon the successful completion of specified research and development activities by us and our collaborators and are therefore uncertain at this time. The successful development of our product candidates and the achievement of milestones by our strategic partners is uncertain, and therefore we are unable to estimate the actual funds we will require to complete the research, development and commercialization of product candidates. See Part II, Item 1A, "Risk Factors - Risks Related to Our Business and the Development and Commercialization of Our Product Candidates" and "Risk Factors - Risks Related to Our Dependence on Third Parties - We may not realize the anticipated benefits of our strategic partnerships".
We will need substantial additional funding to support our continuing operations and pursue our long-term business plans. Accordingly, our future funding requirements will depend on many factors, including but not limited to:
•the scope, rate of progress, results and costs of our clinical trials, preclinical studies and other related activities; •our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements as well as our ability to enter into new arrangements; •the timing and the costs of obtaining regulatory approvals for any of our current or future drug candidates; •the cost of commercialization activities if any of our current or future drug candidates are approved for sale, including marketing, sales and distribution costs; and •the amount of revenue, if any, received from commercial sales of our drug candidates, should any of our drug candidates receive marketing approval. If adequate funds are not available at favorable terms, we may be required to reduce operating expenses, delay or reduce the scope of our product development and commercial expansion programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves or cease operations. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. A deterioration in the equity or credit markets may make any necessary debt or equity financing more difficult, more costly and more dilutive.
Segment Reporting
We view our operations and manage our business in one segment, which is the development of next-generation multifunctional biotherapeutics.
Outstanding Share Data
As ofMay 2, 2022 , our authorized share capital consisted of an unlimited number of common shares, each without par value, of which 57,771,204 were issued and outstanding, and an unlimited number of preferred shares, each without par value, none of which were issued and outstanding. As ofMay 2, 2022 , we had 8,581,961 common shares issuable pursuant to 8,581,961 pre-funded warrants, 4,023,868 common shares issuable pursuant to 4,023,868 exercisable outstanding stock options and 4,709,137 common shares issuable pursuant to 4,709,137 outstanding options that were not exercisable at that date and 203,733 outstanding restricted stock units.
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