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-positive GEA 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, zanidatamab zovodotin (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 zanidatamab zovodotin 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 zanidatamab zovodotin 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:
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•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); •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 andCelgene 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.), 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 (achieved April 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 zanidatamab zovodotin 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 advance
•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. 20
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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 to June 30, 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 of June 30, 2022 , we had
$241.8 million of cash resources consisting of cash, cash equivalents and
short-term investments.
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 of June 30, 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 the SEC .
We reported a net loss of $137.2 million for the six months ended June 30, 2022
and through June 30, 2022 , we had an accumulated deficit of $820.3 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. In March
2020 , we transitioned our workforce to a remote working arrangement to protect
the health and safety of our employees. In June 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. For example, new waves of infections from several COVID-19
subvariants have in some cases led to record infections and increased
hospitalizations and fatalities in certain geographic regions. 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 and review our
current policies to protect the well-being of our employees and their families
in the event of any changes in government restrictions and to ensure the
continuity of our operations. 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
InJune 2022 , we, in conjunction with ourAsia-Pacific partner BeiGene, presented Phase 2 clinical data at theAmerican Society for Clinical Oncology (ASCO) Annual Meeting. The two presentations included data on the first-line treatment of patients with 21
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HER2+ metastatic breast cancer using zanidatamab plus chemotherapy and on the first-line treatment of patients with HER2+ metastatic GEA using zanidatamab in combination with chemotherapy and BeiGene's anti-PD1 tislelizumab. Both regimens exhibited promising response rates and, overall, were well tolerated in patients. InAugust 2022 , we announced that we expect top-line data from our HERIZON-BTC-01 pivotal clinical trial of zanidatamab monotherapy for the treatment of metastatic or advanced HER2-amplified biliary tract cancer to be available before the end of 2022, and anticipate presenting comprehensive clinical data from this study in the first half of 2023. In addition, we expect to present interim results from our Phase 2 study of zanidatamab in previously-treated locally advanced or metastatic HER2-positive, hormone receptor positive breast cancer in combination with Pfizer's Ibrance (palbociclib) and fulvestrant before year-end 2022. We also anticipate presenting updated clinical data in the first half of 2023 from our Phase 2 study of zanidatamab in combination with chemotherapy in first-line locally advanced or metastatic HER2-positive GEA, previously presented at theEuropean Society for Medical Oncology (ESMO) Annual Meeting in 2021.
Zanidatamab Zovodotin Clinical Program:
In our ongoing zanidatamab zovodotin 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. We anticipate presenting preliminary results from the zanidatamab zovodotin Phase 1 study inSeptember 2022 at the ESMO Annual Meeting, which results are expected to cover a basket cohort of HER2+ cancers, including GEA, breast cancer, and other solid tumors. 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. InAugust 2022 , we announced the lead preclinical product candidates, ZW191 and ZW171, for ourEarly Research & Development ("ER&D") program as well as timing for an ER&D update, which is scheduled to be held inNew York City onOctober 20, 2022 . Our lead ADC preclinical product candidate, ZW191, is an antibody-drug conjugate (target undisclosed) with a novel TOPO1i based payload that we believe may be competitive in areas with high unmet clinical need, such as ovarian cancer and other gynecological cancers. Similarly, our lead multispecific preclinical product candidate, ZW171, a novel and differentiated bispecific T-cell engaging antibody (target undisclosed) generated utilizing our Azymetric bispecific platform, targets the potential treatment of patients in multiple solid tumor indications. These two preclinical product candidates will be highlighted along with other preclinical product candidates at the ER&D update in October.
Licensing and Collaboration Agreements:
InApril 2022 , Atreca announced a licensing agreement with us to utilize our ZymeLink technology to develop novel ADCs. We recognized a$5.0 million research license fee 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-3ASR, including a prospectus datedOctober 1, 2021 . No securities were offered or sold, directly or indirectly, inCanada or to any resident ofCanada . 22
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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 six months endedJune 30, 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 succeededMr. Klompas in the role of Chief Financial Officer. FollowingDr. Astle's appointment,Mr. Klompas continued in his position as the Company's Chief Operating Officer.
On
OnAugust 4, 2022 , we announced the appointment of Mr.Neil Klompas to the role of President of the Company in addition to continuing in his position as the Company's Chief Operating Officer. Mr.Kenneth Galbraith will continue in the role of Chair of our board of directors and the Company's Chief Executive Officer.
Other Matters:
OnMay 20, 2022 , we announced that our board of directors, after thorough consultation with its financial and legal advisors, unanimously determined that an unsolicited, opportunistic, non-binding proposal from an activist shareholder, All Blue Falcons FZE ("All Blue Falcons"), and its affiliates to purchaseZymeworks for$10.50 per share substantially undervaluedZymeworks and was not in the best interest of the Company and its shareholders. OnJune 9, 2022 , our board of directors adopted a Preferred Shares Rights Agreement (the "Rights Plan").The Rights Plan will reduce the likelihood that any entity, person or group gains control of the Company through open market accumulation without paying all shareholders an appropriate control premium. It also provides our board of directors with the appropriate time to make informed judgments and take actions that are in the best interests of all shareholders. Under the Rights Plan, the rights become exercisable if an entity, person or group acquires beneficial ownership of 10% or more of our common shares, or 20% in the case of certain passive investors. In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right. The Rights Plan is scheduled to expire onJune 8, 2023 . OnJuly 15, 2022 , we announced our intention to become aDelaware corporation ("New Zymeworks"), subject to receipt of necessary shareholder, stock exchange, and court approvals (the "Redomicile Transactions"). We anticipate that the Redomicile Transactions will conclude in the fourth quarter of 2022, pending necessary shareholder, stock exchange, and court approval. Once the Redomicile Transactions are complete, New Zymeworks will continue under the currentZymeworks name and brand, and will continue to maintain significant operations in bothCanada andthe United States . To effect the Redomicile Transactions,Zymeworks will conduct a share exchange, pursuant to which holders ofZymeworks' common shares will exchange theirZymeworks common shares for shares of common stock of New Zymeworks (the "Delaware Common Stock") or, at their election with respect to all or a portion of theirZymeworks common shares and subject to applicable eligibility criteria (shareholders who meet such criteria, the "Eligible Holders") and an overall cap (the "Exchangeable Share Cap"), exchangeable shares (the "Exchangeable Shares") in the capital of a newly formed indirect subsidiary of New Zymeworks. A special meeting ofZymeworks security holders will be held to approve the Redomicile Transactions. The Redomicile Transactions will be governed by a Transaction Agreement (the "Transaction Agreement") datedJuly 14, 2022 by and among us and our wholly-owned direct or indirect subsidiariesZymeworks Delaware Inc. , Zymeworks CallCo ULC ("Callco") andZymeworks ExchangeCo Ltd. 23 -------------------------------------------------------------------------------- Table of Contents ("ExchangeCo"), as the same may be amended, modified or supplemented from time to time, including a plan of arrangement included as Exhibit A to the Transaction Agreement (the "Plan of Arrangement"). The foregoing description of the Redomicile Transactions is only a summary, and does not purport to be complete and is qualified in its entirety by reference to the Transaction Agreement, including the Plan of Arrangement, a copy of which is filed as Exhibit 2.1 of our Current Report on Form 8-K filed onJuly 15, 2022 .
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, Iconic, and Atreca, 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. 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 . InApril 2022 we added Atreca as a strategic partner. 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;
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•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 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 and six months ended
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 six months endedJune 30, 2022 , our future assessment of the magnitude and duration of 25
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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
Results of Operations for the Three and Six Months EndedJune 30, 2022 and 2021 Revenue Three Months Ended Six Months Ended June 30, Increase/ June 30, Increase/ (dollars in millions) 2022 2021 (Decrease) 2022 2021 (Decrease) Revenue from research and collaborations$ 5.4 $ 1.8 $ 3.6 200 %$ 7.4 $ 2.4 $ 5.0 208 %
Our revenue relates primarily to non-recurring upfront fees, expansion payments or milestone payments from our licensing and collaboration agreements.
Total revenue increased by$3.6 million in the three months endedJune 30, 2022 compared to the same period in 2021. Revenue for the three months endedJune 30, 2022 included a$5.0 million research license fee from our Atreca licensing agreement and$0.4 million from our partners for research support and other payments. Revenue for the same period in 2021 included$1.8 million from our partners for research support and other payments. Total revenue increased by$5.0 million in the six months endedJune 30, 2022 compared to the same period in 2021. Revenue for the six months endedJune 30, 2022 included a$5.0 million research license fee from our Atreca licensing agreement and$2.4 million from our partners for research support and other payments. Revenue for the same period in 2021 included$2.4 million from our partners for research support and other payments. 26
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Research and Development Expense
Three Months Ended Six Months Ended
June 30, Increase/ June 30, Increase/
(dollars in millions) 2022 2021 (Decrease) 2022 2021 (Decrease)
Third-party research and
development program expenses:
Clinical development
programs(1):
Zanidatamab $ 36.1 $ 20.9 $ 15.2 73 % $ 74.8 $ 37.4 $ 37.4 100 %
Zanidatamab zovodotin (0.7) 2.4 (3.1) (129) % 0.9 6.8 (5.9) (87) %
Preclinical and other research
programs 1.6 2.8 (1.2) (43) % 2.1 6.2 (4.1) (66) %
37.0 26.1 10.9 42 % 77.8 50.4 27.4 54 %
Unallocated departmental
research and development
expenses:
Salaries and benefits 12.8 13.7 (0.9) (7) % 31.1 26.8 4.3 16 %
Stock-based compensation
(recovery) expense 1.7 6.0 (4.3) (72) % (1.6) 7.8 (9.4) (121) %
Other unallocated expenses 4.5 4.9 (0.4) (8) % 11.2 10.0 1.2 12 %
Research and development
expense $ 56.0 $ 50.7 $ 5.3 10 % $ 118.5 $ 95.0 $ 23.5 25 %
(1) Clinical trial expenses incurred may vary from period to period based on underlying activities.
Research and development expense increased by$5.3 million in the three months endedJune 30, 2022 compared to the same period in 2021. For the three months endedJune 30, 2022 , research and development expense included non-cash stock-based compensation expense of$1.7 million comprised of a$2.0 million expense from equity classified awards (three months endedJune 30, 2021 -$5.8 million expense) and a$0.3 million recovery related to the non-cash, mark-to-market revaluation of certain historical liability classified awards (three months endedJune 30, 2021 -$0.2 million expense). Excluding stock-based compensation expense, research and development expense increased by$9.6 million or 21% in the three months endedJune 30, 2022 compared to the same period in 2021. The increase related primarily to higher clinical trial expenses for zanidatamab due to ramp-up of the HERIZON-GEA-01 clinical trial and increased drug manufacturing expenses, partly offset by lower clinical trial expense for zanidatamab zovodotin, as a result of amendments to third-party agreements in the ongoing clinical development program and reductions in headcount. Research and development expense increased by$23.5 million in the six months endedJune 30, 2022 compared to the same period in 2021. For the six months endedJune 30, 2022 , research and development expense included non-cash stock-based compensation recovery of$1.6 million comprised of a$0.8 million recovery from equity classified awards (six months endedJune 30, 2021 -$10.1 million expense) and a$0.8 million recovery related to the non-cash mark-to-market revaluation of certain historical liability classified awards (six months endedJune 30, 2021 - recovery of$2.3 million ). Excluding stock-based compensation expense, research and development expense increased by$32.9 million or 38% in the six months endedJune 30, 2022 compared to the same period in 2021. The increase related primarily to higher clinical trial expenses for zanidatamab due to ramp-up of the HERIZON-GEA-01 clinical trial, increased drug manufacturing expenses, severance and other expenses incurred due to the Company's Restructuring program, partly offset by lower clinical trial expense for zanidatamab zovodotin as a result of amendments to third-party agreements in the ongoing clinical development program and reductions in headcount. 27
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General and Administrative Expense
Three Months Ended Six Months Ended
June 30, Increase/ June 30, Increase/
(dollars in millions) 2022 2021 (Decrease) 2022 2021 (Decrease)
Salaries and benefits $ 5.2 $ 6.2 $ (1.0) (16) % $ 13.1 $ 12.6 $ 0.5 4 %
Stock-based compensation expense
(recovery) 1.1 6.8 (5.7) 84 % (4.0) (1.9) (2.1) (111) %
Professional fees, consulting and
business insurance 6.1 4.3 1.8 42 % 9.8 7.4 2.4 32 %
Other general and administrative
expenses 2.8 2.6 0.2 8 % 8.4 3.1 5.3 171 %
General and administrative expense $ 15.2 $ 19.9 $ (4.7) (24) % $ 27.3 $ 21.2 $ 6.1 29 %
General and administrative expense decreased by $4.7 million for the three
months ended June 30, 2022 compared to the same period in 2021. For the three
months ended June 30, 2022 , general and administrative expense included non-cash
stock-based compensation expense of $1.1 million comprised of a $1.3 million
expense from equity classified awards (three months ended June 30, 2021 - $5.3
million expense) and a $0.2 million recovery related to the non-cash
mark-to-market revaluation of certain historical liability classified awards
(three months ended June 30, 2021 - $1.5 million expense). Excluding stock-based
compensation, general and administrative expense increased by $1.0 million or 8%
in the three months ended June 30, 2022 compared to the same period in 2021.
This increase was primarily due to an increase in professional fees and other
expenses in 2022, which was partially offset by a decrease in salaries and
benefits expense as a result of decrease in headcount due to the Company's
Restructuring program.
General and administrative expense increased by $6.1 million for the six months
ended June 30, 2022 compared to the same period in 2021. For the six months
ended June 30, 2022 , general and administrative expense included non-cash
stock-based compensation recovery of $4.0 million comprised of a $1.0 million
recovery from equity classified awards (six months ended June 30, 2021 - $9.5
million expense) and a $3.0 million recovery related to the non-cash
mark-to-market revaluation of certain historical liability classified awards
(six months ended June 30, 2021 - recovery of $11.4 million ). Excluding
stock-based compensation, general and administrative expense increased by $8.2
million or 35% in the six months ended June 30, 2022 compared to the same period
in 2021. This increase was primarily due to severance and other expenses
incurred due to the Company's Restructuring program in 2022 and increase in
professional fees as well as a non-recurring sales tax refund recognized in
2021, which partially offset expenses in the same period in 2021.
We expect our operating expenses (consisting of research and development expense
and general and administrative expense) to continue to decline in the second
half of 2022, driven by a reduction in clinical expenses, technical and
manufacturing expenses and the impact of the Company's Restructuring program.
Other Income, net
Three Months Ended Six Months Ended
June 30, Increase/ June 30, Increase/
(dollars in millions) 2022 2021 (Decrease) 2022 2021 (Decrease)
Other income, net $ 1.2 $ 0.9 $ 0.3 32 % $ 1.2 $ 1.8 $ (0.6) (33) %
Other income, net increased by $0.3 million for the three months ended June 30,
2022 compared to the same period in 2021. Other income, net for 2022 included
$0.4 million in interest income and $0.8 million in net foreign exchange gain
and other miscellaneous amounts. Other income, net for the three months ended
June 30, 2021 included $0.6 million in interest income and a $0.3 million net
foreign exchange gain and other miscellaneous amounts.
Other income, net decreased by $0.6 million for the six months ended June 30,
2022 compared to the same period in 2021. Other income, net for 2022 included
$0.7 million in interest income and $0.4 million in net foreign exchange gain
and other miscellaneous amounts. Other income, net for the six months ended
June 30, 2021 included $1.3 million in interest income and a $0.5 million net
foreign exchange gain and other miscellaneous amounts.
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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$107.5 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 have been sold under the Sales Agreement since its inception.
As of
Cash Flows
The following table represents a summary of our cash flows for the six months
ended
Six Months Ended
June 30,
2022 2021
(dollars in millions)
Net cash (used in) provided by:
Operating activities $ (110.2) $ (91.2)
Investing activities (1.3) 104.1
Financing activities 108.3 2.8
Effect of exchange rate changes on cash and cash equivalents - (0.6)
Net change in cash and cash equivalents $ (3.2) $ 15.1
Operating Activities
During the six months ended June 30, 2022 , cash used in operating activities was
$110.2 million compared to $91.2 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
zanidatamab zovodotin and deprioritized research projects as well as increase in
proceeds from collaborations in 2022.
Investing Activities
Net cash used in investing activities for the six month period endedJune 30, 2022 was primarily related to redemptions of short-term investments in marketable securities of$7.1 million partially offset by cash outflows of$8.5 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 six month period endedJune 30, 2021 was primarily related to redemptions of short-term investments in marketable securities of$106.6 million partially offset by cash outflows of$2.4 million for the acquisition of property and equipment. 29
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Financing Activities
Net cash provided by financing activities for the six months endedJune 30, 2022 included$107.5 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 six months endedJune 30, 2021 included net proceeds of$2.1 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. 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
shareholders will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect our shareholders' 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
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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 ofAugust 2, 2022 , our authorized share capital consisted of an unlimited number of common shares, each without par value, of which 57,892,785 were issued and outstanding, an unlimited number of Series A Participating Preferred Shares, each without par value, none of which were outstanding, and an unlimited number of additional preferred shares, each without par value, none of which were issued and outstanding. As ofAugust 2, 2022 , we had 8,581,961 common shares issuable pursuant to 8,581,961 pre-funded warrants, 3,740,078 common shares issuable pursuant to 3,740,078 exercisable outstanding stock options and 4,271,299 common shares issuable pursuant to 4,271,299 outstanding options that were not exercisable at that date and 186,333 outstanding restricted stock units.
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