Zymeworks - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $27.1M, up 171% year over year, and above consensus; diluted EPS was -$0.30, better than consensus, aided by $17.1M in partner milestones and steady collaboration revenues.
• Revenue beat Wall Street consensus of ~$20.65M* and EPS beat consensus of -$0.70*; the variance was driven by a $14.0M GSK milestone and $3.1M Daiichi Sankyo milestone in the quarter.
• Cash resources ended at $321.6M; management reiterated a cash runway into 2H-2027, contingent on anticipated regulatory milestones.
• Pipeline and partner catalysts intensified: EMA CHMP issued a positive opinion on zanidatamab in April, and China’s NMPA granted conditional approval on May 30 (triggering a $20M milestone), expanding royalty and milestone visibility.

What Went Well and What Went Wrong

• What Went Well

  • Revenue inflected on partner milestones and collaboration activity: $27.1M vs. $10.0M YoY, with $14.0M from GSK and $3.1M from Daiichi Sankyo.
  • Management emphasized disciplined execution and cash burn control; cash of $321.6M and runway guided into 2H-2027.
  • Strategic momentum on R&D: six AACR posters across ADCs and TCEs; IND for ZW251 targeted mid-2025, with encouraging DLL3 TriTCE (ZW209) preclinical data (IND 1H-2026). “We remain financially disciplined, and well-capitalized to support our wholly-owned product pipeline” — CEO Kenneth Galbraith.

• What Went Wrong

  • Operating expenses rose 10% YoY to $52.7M, with R&D at $35.7M driven by IND-enabling work (ZW251) and preclinical activities (ZW209), partly offset by reductions in zanidatamab support and discontinued zovodotin program.
  • Other income declined to $3.5M from $6.2M YoY on lower average yields and smaller cash balances; net loss still sizable at $22.6M.
  • Royalty contribution remains nascent: Ziihera net sales by Jazz were $2.0M, generating only $0.2M in ZYME royalties in Q1 as commercialization ramps.

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator. Welcome to Zymeworks' First Quarter 2025 results conference call and webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To ask a question, press star, then 1-1 on your telephone keypad. I'll now turn the conference over to Shrinal Inamdar, Senior Director of Investor Relations. Shrinal, please go ahead.

Shrinal Inamdar (Head of Investor Relations)

Thank you, Operator, and good afternoon, everyone. Thanks for joining our first quarter 2025 results conference call. Before we begin, I would like to remind you that we'll be making a number of forward-looking statements during this call, including without limitation, those forward-looking statements identified in our slides and the accompanying oral commentary. Forward-looking statements are based upon our current expectations and various assumptions and are subject to the usual risks and uncertainties associated with companies in our industry and at our stage of development. For discussion of these risks and uncertainties, we refer you to our latest SEC filings as found on our website and as part of the SEC. In a moment, I'll be handing over to Leone Patterson, our Executive Vice President and Chief Business Officer, who will be discussing recent business updates along with the financial results for our first quarter 2025. Following this, Dr.

Paul Moore, our Chief Scientific Officer, will give an overview of our recent R&D developments, including highlights from our closed-up presentations at the American Association for Cancer Research. At the end of the call, Leone, Paul, and Ken Galbraith, our Chair and CEO, will be available for Q&A, along with Dr. Sabeen Mekan, our recently appointed Senior Vice President of Clinical Development. As a reminder, the audio and slides from this call will also be available on the Zymeworks website linked today. I will now turn the call over to Leonie.

Leone Patterson (EVP and Chief Business and Financial Officer)

Thank you, Shrinal, and thank you all for joining us today. I'm pleased to walk you through our corporate and operational highlights for the first quarter of 2025. I'd like to begin by emphasizing that our performance this quarter reflects the discipline, focus, and resilience of our business model. In the dynamic environment for innovative biotech companies, we continue to execute against our long-term strategy and deliver meaningful progress across our portfolio. Our programs are moving towards clear, measurable clinical milestones, with near-term opportunities to validate our technology platforms and meaningful patient populations globally. Throughout this period of continued progress, we have demonstrated our ability to operate at a high standard and provide value to shareholders while prudently managing our cash burn. We are also able to manage our cash burn going forward through active review and evaluation of our portfolio and development priorities.

With this in mind, and as previously highlighted by our management team, we are committed to an evidence-based approach to pipeline management, where decisions on investment and clinical development are tied to clear clinical and scientific validation. On the research and development front, we are honored to have our wholly owned pipeline represented at AACR annual meeting, with six posters on preclinical data presented across our antibody-drug conjugate and T-cell engager pipeline. Paul will be taking us through key highlights from these posters later on today's call. We are also looking forward to presenting more preclinical data on our wholly owned pipeline at several upcoming medical conferences in the second quarter, including the American Thoracic Society annual meeting, where an abstract has been accepted for ZW1528, our novel IL4 IL13 bispecific molecule.

We will also be attending ASCO and ESMO Gynecological Cancer Annual Meetings, where we will be presenting trial and progress posters on ZW171 and ZW191, respectively. Similarly, our partner, Jazz, is also planning to present on these accepted abstracts on three accepted abstracts at ASCO on zanidatamab, including a four-year follow-up of the Phase II of zanidatamab in metastatic GEA, which will provide further understanding of the long-term outcomes and overall survival for zanidatamab plus chemotherapy in HER2-positive advanced patients with metastatic GEA. This progress is further reflected in our announcement from Jazz in April 2024 that the EMEA Committee for Medicinal Products for Human Use, or CHMP, has adopted a positive opinion recommending the approval of zanidatamab for treatment of advanced HER2-positive biliary tract cancer patients. A final decision is expected in the coming months, importantly, if approved.

This could also represent an opportunity for an increase in royalty revenue for Zymeworks in the near future. We are also looking forward to the upcoming presentation by J&J at ASCO, highlighting their phase one data for a bispecific T-cell engager engineered utilizing our Azymetric platform targeting a novel target, KLK2, in metastatic castration-resistant prostate cancer. Some of you may have seen the preliminary data at AACR last week, and we're encouraged by the early clinical activity and safety profile observed to date. It's rewarding to see this program move forward, especially in such a difficult-to-treat patient population in need of novel targets. As a reminder, under the terms of the agreement in place with J&J for this product, the company remains eligible to receive development milestones of up to $86 million, commercial milestone payments of up to $373 million, and mid-single-digit royalties on commercial sales.

Turning to our financial position this afternoon, Zymeworks reported financial results for the first quarter of 2025. Zymeworks' net loss for the three months ended March 31, 2025, was $22.6 million, compared to a net loss of $31.7 million for the same period in 2024. The decrease in net loss was primarily due to an increase in revenue, which was partially offset by an increase in operating expenses, an increase in income tax expense, and a decrease in interest income. As reported, our revenue for the three months ended March 31, 2025, was $27.1 million, compared to $10 million for the same period in 2024.

Revenue for the three months ended March 31, 2025, included $14 million of milestone revenue from GSK in relation to a clinical milestone under our 2016 platform technology transfer and license agreement, $3.1 million of milestone revenue from Daiichi Sankyo following the first patient dose in the clinical trial related to our 2018 license agreement, $9.6 million for the development support and drug supply revenue, in addition to the $0.2 million of royalty income from Jazz and $0.2 million of drug supply revenue from BeiGene. These achievements underscore the strength of our foundational partnerships and the relevance of our platform across multiple products moving into clinical development by our partners. We are also hopeful that continued development by our collaboration partners will provide a future source of revenues for us.

These revenues also reflect growing momentum for Ziihera and demonstrate the value of our partnership strategy in expanding patient reach while helping us improve our financial efficiency. Overall, operating expenses were $52.7 million for the three months ended March 31, 2025, compared to $47.3 million for the same period in 2024, representing an increase of 10%. Research and development expense was $35.7 million for the three months ended March 31, 2025, compared to $32 million for the same period in 2024, primarily driven by an increase in ZW251 and other preclinical research expenses, partially offset by reductions in costs on zanidatamab, zanidatamab zovodotin, and ZW191 and ZW220. General and administrative expenses were $17 million for the three months ended March 31, 2025, compared to $15.8 million for the same period in 2024, primarily due to an increase in stock-based compensation expense.

As of March 31, 2025, we had $321.6 million of cash resources, consisting of cash, cash equivalents, and marketable securities, as compared to $324.2 million as of December 31, 2024. We remain well-capitalized, and based on our current operating plans, we expect our existing cash resources as of March 31, 2025, when combined with the assumed receipt of certain anticipated royalty milestones, will enable us to fund planned operations into the second half of 2027, which should take us through multiple catalysts in our pipeline. For additional details on our quarterly results, I encourage you to review our earnings release and other SEC filings as available on our website at www.zymeworks.com. With that, I'd like to hand over to our Chief Scientific Officer, Dr. Paul Moore.

Paul Moore (Chief Scientific Officer)

Thanks, Leone, and good afternoon, everyone. As previously mentioned, we are pleased to have attended yet another productive AACR for Zymeworks this year, with six posters presented by our team. The breadth of preclinical data presented across both our innovative multi-specific antibodies and ADC programs highlights not just scientific progress, but the thoughtful diversification of our R&D strategy. Among the highlights, we're especially encouraged by the preclinical data presented on ZW209, our most recent IND-nominated oncology candidate, with a planned IND submission in the first half of 2026. ZW209 is a trispecific T-cell engager targeting DLL3, a protein expressed on the cell surface of small cell lung cancer and other aggressive neuroendocrine tumors. This trispecific T-cell engager incorporates CD28 co-stimulation and has shown potent antitumor activity in preclinical models, including small cell lung cancer.

These cancers are notoriously hard to treat, and while there's been some success with the approval of tarlatamab in small cell lung cancer, ensuring the benefit of a bispecific approach for solid tumors, there is a clear need for next-generation molecules that can improve the standard of care with broader and more durable responses. That's where we believe ZW209 stands out. We've designed 209 using our tri-TCE CoSTIM platform, combined with our proprietary asymmetric and effect technologies to activate T-cells in a more controlled and effective way. A key feature of our design is the obligate nature of CD28 engagement. CD28 binding by 209 occurs only in the presence of simultaneous CD3 binding. This is shown clearly in the top left panel where control molecules with either CD3 or CD28 binding knocked out demonstrate that CD28's contribution is conditional on CD3 engagement.

This obligate co-stimulation limits potential for unwanted T-cell cross-linking, or Fraticide, an important safety and specificity advantage of our tri-TCE platform. Furthermore, the obligate nature of tumor engagement via DLL3 ensures that 209's activity is precisely focused where it's needed. Additional data in our poster further supports this specificity. What's particularly encouraging is the strength and durability of the response we're seeing in preclinical models. As shown in the middle top panel, the addition of CD28 enhances T-cell fitness and robustness in the presence of DLL3-positive tumor cells. Compared to control molecules lacking CD28 engagement and versus the clinical benchmark AMG757 or tarlatamab, 209 provides more sustained tumor cytotoxicity across repeated rounds of stimulation, which is accompanied by expansion of T-cells with memory phenotype.

Under the more stringent condition of low effector-to-target ratios, the biological impact of 209's mediated T-cell activation and co-stimulation is reflected in the enhanced tumor cytotoxicity across a range of DLL3-expressing model cell lines, as shown in the bottom left-hand panel. Here, 209 outperformed benchmark controls, including tarlatamab, BIS T-cell bispecific, [audio distortion] DLL3 CD3 CD137 trispecific. Efficacy studies in xenograft models of DLL3-positive tumors engrafted either with human PBMCs or admixed with naive human T-cells, 209 exhibits antitumor activity with evidence of enhanced antitumor activity relative to tarlatamab. Beyond the data shown here, our AACR poster further characterizes the safety profile of 209, incorporating results from a dedicated mouse model of cytokine release syndrome, complementary in vitro cytokine release assays, and studies conducted in non-human primates.

In the non-human primate studies, repeat dosing at 10 mg/kg was well tolerated, and 209 demonstrated an antibody-like pharmacokinetic profile, characteristics that can be associated with more predictable behavior in clinical settings. Taken together, these data reinforce the significance of the CD28 arm in driving deeper and more durable T-cell responses while maintaining stringent control and safety through obligate engagement of both T-cells and DLL3-expressing tumor cells. We're excited about the trajectory of 209 as we work towards IND submission in the first half of 2026. In our earlier R&D programs, we continue to focus on novel targets and customized modalities that we believe offer meaningful opportunities for therapeutic innovation. Two of these ADC programs revealed at the AACR focused on LY6E and PTK7, both tumor-associated antigens with limited expression in normal tissues and broad relevance across difficult-to-treat solid tumors.

While we haven't provided guidance on IND timelines for these programs, we continue to explore opportunities on how and when to advance these programs, either internally or through thoughtful collaborations. For those of you less familiar, Ly6E is overexpressed in multiple indications of high unmet need, including non-small cell lung cancer, triple-negative breast cancer, head and neck cancer, and GI cancers. Notably, Ly6E is expressed in the majority of patient samples across these indications, suggesting a potential for broad applicability while maintaining target specificity. Clinical validation of Ly6E as an ADC target has been reported by clinical stage benchmark DLYE5953A and MMAEE DAR4 based ADC from Genentech in breast cancer and non-small cell lung cancer. 327, which targets Ly6E, utilizes Zymeworks' novel 6519 payload with a drug-antibody ratio of 8, which enables strong cytotoxicity across a range of solid tumor indications.

Consistent with our general approach to ADC design and care also in selection of the antibody targeting arm, 327 utilizes a novel humanized IgG1 antibody, which exhibits markedly superior Ly6E binding, internalization, and steroid penetration relative to the Ly6E antibody incorporated in the prior clinical stage program. As shown on the right, 327 has demonstrated consistent in vitro target specific cytotoxicity across multiple cancer types. This activity is observed in these broad range of indications and is consistently superior to the benchmark, with a likewise improvement also observed in xenograft models in vivo. These findings underscore the potential of 327 to deliver more consistent and deeper response in Ly6E expressing cancers, regardless of baseline expression levels, an important consideration given the heterogeneity often seen in tumors. On the safety side, 327 was well tolerated in a non-GLP tox study in non-human primates.

Exposure levels exceeded those projected to be efficacious, and the maximum tolerated dose was established at or above 60 mg/kg. Observed clinical effects were limited to transient reductions in body weight and food intake post-dosing, with no serious adverse events. Altogether, these data built a compelling case for 327 as a differentiated therapeutic candidate targeting Ly6E and a first-in-class opportunity for Zymeworks. Moving on to slide 12, PTK7 is a transmembrane protein that is overexpressed in a range of solid tumors, including non-small cell lung, triple-negative breast, ovarian, esophageal, colorectal, head and neck, and cervical cancers. Previous clinical data with PTK7 targeting ADCs have demonstrated evidence of antitumor activity, albeit limited, in several of these indications, reinforcing PTK7 as a validated ADC target.

Structurally, PTK7 offers a large multi-domain extracellular region that enables the development of antibodies against distinct non-overlapping epitopes and the opportunity to develop biparatopic ADCs as a solution to enhance payload delivery. Depending on the target antigen, monoparatopic ADCs may not deliver as much payload into cancer cells as biparatopic ADCs, and this may have contributed to the modest activity seen with previous PTK7 targeting ADCs, thus opening the door to biparatopic formats and other modular-based approaches, including next-generation ADCs targeting PTK7. Biparatopic antibodies offer several advantages over traditional monoparatopic designs. By binding two distinct sites in the same antigen, they can enhance receptor clustering, increase cell surface retention, and improve internalization, factors that are particularly important in ADC design. These properties can translate to more efficient payload delivery, increased cytotoxicity, and increased cytotoxicity in tumor cells.

Importantly, we bring deep experience in designing, developing, and advancing biparatopic antibodies through our work with zanidatamab. Zanidatamab, a biparatopic HER2 target antibody, has demonstrated meaningful clinical activity and validated the potential of biparatopic approaches, as well as providing clinical validation for our proprietary Azymetric platform, not just from a biological standpoint, but also in the terms of manufacturability. This gives us confidence that our biparatopic PTK7 ADC program can benefit from both proven mechanistic advantages and our deep experience in utilizing our established scalable platform. In preclinical studies, we've observed improved antibody binding and higher internalization in PTK7 expressing cell lines compared to conventional formats. This enhanced uptake has resulted in greater payload delivery and corresponding cytotoxicity activity, supporting the value of biparatopic targeting in this context. From a pharmacokinetic and tolerability standpoint, the data are also compelling.

In non-human primates, our PTK7 biparatopic ADC was well tolerated at doses up to 60 mg/kg. No mortality or adverse clinical signs were observed, and any change in hepatology or chemistry were minor in transit. Timing effects were consistent with expected class effects and not considered dose-limiting. These findings suggest that our biparatopic ADC may offer a differentiated profile, particularly in tumors where PTK7 is broadly expressed or where internalization has historically been a limiting factor. We look forward to continued optimization work in evaluating this approach across relevant preclinical models. Lastly, moving on to our poster presentation on ZW171, a mesothelin-targeting T-cell engager demonstrating enhanced safety antitumor activity in a range of mesothelin-expressing cancers.

As you know, we have reported the first patient dosed in October 2024 for our first-in-human phase one trial, which is continuing to recruit across sites in the U.S., U.K., and South Korea, and I'll touch on the ongoing trial in a couple of slides. 171 is engineered with a lower affinity CD3 binding arm, which is designed to reduce the likelihood of indiscriminate T-cell activation and cytokine release, especially in the absence of high mesothelin expression. Many T-cell engagers with high CD3 affinity, like earlier generation one plus one formats, have triggered systemic CRS because they activate T-cells even when target engagement is weak or off tumor. In head-to-head preclinical comparisons, 171 has demonstrated superior cytotoxicity versus other next generation mesothelin targeting bispecifics. Importantly, this enhanced tumor cell killing comes with improved cell activity.

We've observed reduced non-specific T-cell binding relative to other programs in this space, a feature that may contribute to a more favorable safety profile. In the middle column, you can see that 171 exhibits selective and high affinity binding to tumor cells expressing high levels of mesothelin while showing minimal binding to cells with low mesothelin expression. Importantly, 171 maintains low affinity for CD3, which is a deliberate design choice to reduce off-target T-cell activation and improve safety. This profile underscores its ability to preferentially target tumors while sparing normal tissues with minimal mesothelin expression. Moving to the cytotoxicity data on the right, 171 continues to demonstrate potent and selective tumor cell killing in mesothelin high settings, but not in low mesothelin expressing cells, compared to benchmark molecules including AMG305, CT95, and the GNG bispecific comparator.

ZW171 consistently shows equal or superior cytotoxicity across a panel of tumor cell lines with varying levels of mesothelin expression, particularly at low effector-to-target ratios, which more closely reflects conditions in the tumor microenvironment. As you can see on the left-hand side of this slide, in a large panel of tumor cell lines, including those that shed soluble mesothelin, 171 maintains strong antitumor potency. Notably, no correlation was observed between the amount of shed mesothelin and 171's efficacy, underscoring the robustness of its mechanism of action. These findings support our hypothesis that our two plus one design sustains activity in the presence of shed mesothelin through avidity-dependent mesothelin binding on high mid-expressing tumor cells.

What also stands out, as depicted in the graphs on the right-hand side of this slide, is that 171 also demonstrated cytotoxicity, T-cell activation, and cytokine release in more complex translationally relevant patient derived xenograft models containing endogenous tumor infiltrating lymphocytes, as well as in vivo xenograft models. These data support further the potential of 171 to drive meaningful responses in mesothelin-expressing tumors, particularly in challenging tumor microenvironments. Together, these data reinforce our confidence in 171's potential to deliver meaningful therapeutic benefit while demonstrating a favorable tolerability profile. With our phase one clinical trials in mind, both studies for 171 and 191 remain on track and are recruiting well across sites. This slide highlights the breakdown of currently activated clinical sites by geographic region. Our global clinical trial footprint is a key component of our strategy to move efficiently through early development.

By engaging sites across multiple geographies within and outside the U.S., we're able to maintain momentum in enrollment while optimizing the use of clinical supply and supporting streamlined operational execution. Looking ahead, we do plan to present trial and progress posters for both 171 and 191 at upcoming peer-reviewed medical conferences in the second quarter, as Leone mentioned earlier. With that, I will hand over to Ken to conclude today's call and open up the call for Q&A.

Ken Galbraith (Chair and CEO)

Thank you, Paul, and good afternoon, everyone. We hope that from the remarks made on today's call, it's very clear that our R&D organization continues to deliver on its core mandate, advancing a pipeline rooted in translational science and focused on meaningful clinical outcomes while providing multiple near-term catalysts for potential shareholder value creation.

The six poster presentations at AACR this year reflect the depth of that work, spanning early and mid-stage candidates across multiple modalities. This includes our multi-specific NADC platforms, which are enabling us to target a diverse set of tumor antigens with increasingly refined approaches. We remain on track to submit our IND for ZW251 by mid-2025, an important milestone for that program and for our broader strategy of building a portfolio with the potential to address unmet needs across oncology and immunology. Our focus on execution also extends to leadership. In April, we welcomed Dr. Sabeen Mekan as our Senior Vice President of Clinical Development. Her experience across hematology and oncology in both academic and industry settings, with Gilead, Daiichi Sankyo, and Bristol Myers Squibb, will support our clinical stage candidates and help shape our global development and regulatory strategy. Dr.

Jeff Smith, who joined Zymeworks in 2023, will continue to serve as Executive Vice President and Chief Medical Officer, where he leads our emerging R&D portfolio in autoimmune and inflammatory diseases, as well as our global clinical development operations. In addition, Barbara Shafler, who joined Zymeworks in 2024, has been promoted to Senior Vice President of Clinical Development Operations. Together, they will play a pivotal role in shaping the clinical development strategy for our portfolio to support our advancing pipeline. Financially, we remain well capitalized, with $321.6 million in cash and equivalents at the end of the first quarter and projected runway into the second half of 2027, when our existing cash resources are combined with assumed receipt of certain anticipated regulatory milestones. Our lower cash operating burn for the first quarter was aided by clinical progress made by our partners.

These platform partnerships are a core part of our strategy to broaden patient impact while maintaining capital efficiency, and we're encouraged by the momentum our partners are generating. Overall, we've executed steadily on our long-term strategy, advancing a diverse pipeline of ADCs and T-cell engagers, staying disciplined financially, and positioning the organization for meaningful progress in the years ahead. On this slide, we've highlighted multiple near-term catalyst events in 2025, most notably with the phase three top line data readout presented in the datamath in the Horizon GA01 study. As you know, an eventual approval and authentication would trigger a significant cash milestone payment for Zymeworks, as well as contribution to an increase in ongoing royalty revenue, which has tiered up to 20% of net sales from Jazz. Before we conclude, I want to leave you with a few final thoughts.

In today's environment, where the biotech industry is undergoing a healthy reset, we believe that companies that will create long-term value for shareholders are those that deliver real clinical progress on meaningfully new medicines, make disciplined capital decisions, and maintain a focus on operational execution. That is the approach we've taken since 2022 when I took over as Chair and CEO and implemented fundamental strategic changes at Zymeworks. During the remainder of 2025 and into 2026, we look forward to seeing the results of our chosen strategic direction and updating you on our progress along the way. We are advancing multiple differentiated programs based on strong biology and meaningful patient needs, and we have clear near-term milestones that we believe will continue to validate both our scientific platforms and our operating strategy.

Based on our current operating plans, we remain funded through key catalysts on our wholly owned pipeline, as well as partnerships with leading pharmaceutical organizations, and we are prioritizing investments towards programs that have the highest potential to drive value creation and impact patients' lives. Governance and operational discipline remain central to everything we do. Our board brings diverse independent perspectives with deep expertise in drug development and biotech value creation. Together, we hold ourselves accountable to delivering against clear data-driven goals and to making difficult decisions when necessary. As we move forward, our focus is on execution, efficiency, and clinical validation, and we look forward to sharing continued progress in the quarters ahead. Thank you, and I'd now like to turn the call over to the operator to begin the Q&A session. Operator.

Operator (participant)

We'll now begin the Q&A session.

To join the queue, you may now press star then one one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star one one again. We will pause for a moment as callers join the queue. Our first question comes from the line of Charles Zhu of LifeSci Capital. Your line is now open.

Charles Zhu (Senior Research Analyst)

Hello, everyone. Thanks for the call, the updates, and for the questions. Great to hear the emphasis, the continued emphasis on cash burn discipline.

Maybe my first question here, as you look towards prioritizing assets and indications for development across your broad preclinical and early clinical pipeline, perhaps what are some of your base case assumptions with respect to back-end milestone and royalty revenues that you may receive from assets with, let's call it, a possible wide range of outcomes like Zymeworks across some of these indications over at your partners? And how do they factor into your prioritizations in terms of scenario analysis? Thank you.

Ken Galbraith (Chair and CEO)

Yeah, thank you for the question, Charles. I guess, as I said in my closing remarks, I think capital allocation is an important biotech skill to have going along with clinical execution and great science. We will practice appropriate capital allocation with our board as we put ourselves in position to receive additional capital in, whether it's milestones or from any other source.

Obviously, Sabeen Mekan, we're quite excited about the progress being made by Jazz Pharmaceuticals. We're as anxious and excited to see the Horizon GA01 data results later this year, as well as continuing to see the progress on the additional clinical studies that Jazz Pharmaceuticals have underway. There will be an important financial piece for us in that progress. I think we'll have to act with capital allocation properly along the way with our board, as I said. In addition to that, we're now seeing some of the technology partnerships that we started many years ago starting to push forward really interesting clinical stage assets. Obviously, we're really looking forward to the ASCO presentation by Johnson & Johnson of their KLK2 CD3 T-cell engager in prostate cancer, which, again, was made in collaboration with us with our Azymetric platform.

Therefore, we have a financial interest in the ultimate success of that product, as well as helping it make a big leap forward for patients. I think as we continue to think about that funding that may come in at a later stage, we'll make the appropriate decisions to allocate capital to continue to build our R&D portfolio where it deserves it. Clinical data usually sorts that out, as well as make the right decisions as we did last year about returning capital to shareholders, where we found ourselves in a position to do that and believe that that would boost total shareholder return. I think we're well situated right now with the board that I have and the internal discipline inside the company to make those appropriate capital allocation decisions as they're necessary.

I think we've already shown the ability to do that with our capital allocation last year back to shareholders, as well as some of the changes we've made in R&D priorities even last quarter. I feel very comfortable we'll make those appropriate decisions for shareholders as they're necessary.

Charles Zhu (Senior Research Analyst)

Got it. Great to hear. Thanks for that. My second question is much, much narrower in scope. Paul, thank you very much for walking us through each of those preclinical assets. Maybe very quickly on ZW209, the DLL3 T-cell engager that you guys have, especially as assets like tarlatamab continue to move into earlier and earlier lines of small cell lung cancer. We all know the profile of tarlatamab.

Could you also remind us about some of the cytokine induction data that you've, I guess, produced with your DLL3, and what are some of the implications there with things like cytokine release syndrome? Thank you.

Ken Galbraith (Chair and CEO)

Yeah, thanks, Charles. Yeah, so what we've done, just as a reminder, is we've designed a molecule that can engage CD3 and CD28 and DLL3. The engagement of CD28 only happens when you've engaged CD3. We think that profile is a very favorable profile compared to other approaches where you would combine a CD28 bispecific with a CD3 bispecific, where you may have to be more broad in your CD28 activation, hit more T-cells, which can actually then trigger a more broad cytokine profile, across a broader number of T-cells. What we are doing is really only engaging the CD28 when you've engaged CD3.

A more limited T-cell will be activated when you've engaged DLL3. We think that generates a cytokine response that will incorporate co-stimulation, which will be in addition to what you get with just simply CD3 activation. That will be a more localized activation of T-cells. We think the benefit of the therapeutic benefit will actually really play out well in increasing the therapeutic index that we see with the balanced limited localized impact on T-cells. That is going to reflect then in our non-human primate studies, where we've done various studies, and we've also done studies in fully humanized mice that are used as models for CD28 activation. We really see a limited off-target profile there. That is kind of an important thing to bear in mind when you think about our molecule. It's quite different than, say, other approaches others have used.

We definitely are thinking about limiting that cytokine release to where it's needed. Yeah.

Charles Zhu (Senior Research Analyst)

Great. Thanks for taking the questions, and congrats again on all the progress.

Ken Galbraith (Chair and CEO)

Thanks.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from a line of Brian Cheng of J.P. Morgan. Your line is now open.

Brian Cheng (Biotech Analyst)

Hey, guys. Thanks for taking our questions this afternoon. Maybe first, just quickly on zanidatamab. As we glean from the subset analysis of KEYNOTE-811 that focused on Asian versus non-Asian efficacy, we're just curious what your thoughts are on how ex-U.S. patients in the phase three Horizon GA could impact the powering and the outcome on PFS and OS. Do you think the trial is derisked on both endpoints? I have a quick follow-up. Thank you.

Ken Galbraith (Chair and CEO)

Yeah, thanks, Brian.

I think one of our KOLs addressed this even at our R&D day in December. We've continued to explore this with KOLs from the time that we started that study. I think, in general, what they've seen across multiple studies is, in the main, not really a significant difference in efficacy across ethnicities of patients overall. I know as we're starting to see additional sub-analysis from the KEYNOTE-811 study, now that they do have to produce some of that data for various pricing and reimbursement purposes, there is a slight difference in that study between Asian and non-Asian subjects. If you look at it, I think on the Asian subject components of the ICP, which is about 200 patients, we saw Asian subjects on that study do better on both arms of the study than non-Asian subjects.

I'm not sure we know what to make of that, whether that's the smaller size of that subpopulation at 200 or other anomalies. I'm not sure. It is a little unusual to see that. I think if you look at all the other studies and look at them on a combined basis, our KOLs discussed it. There shouldn't really be much difference in the end in efficacy across a wide set of patients. Obviously, Horizon GA11 has well more than 300 clinical trial sites, very diverse globally, very diverse from an ethnicity standpoint. Although prevalence of GAs is much higher in Asian markets, we will have inclusion in those markets as well. I'm not sure what to make of the subpopulation with KEYNOTE-811.

We didn't execute that study, and we don't have enough details to really understand why Asian subjects did better on both arms of that study compared to non-Asian subjects. We will have to let the KOL publish that study, explain maybe some of that data at a later date.

Brian Cheng (Biotech Analyst)

Got it. Maybe just one quick follow-up. Just going back to the J&J assets, the KLK2 bispecific with CD3, what's expectation on the prostate update at ASCO? I recall that there is a plan to move forward into a later stage study. Can you maybe remind us how the partnership works from a dollar perspective? Thank you.

Ken Galbraith (Chair and CEO)

Yeah. I mean, our technology partnership with J&J, I think, is outlined publicly. Again, it wasn't our target, but they brought that to our Azymetric platform because they didn't have a way to build a bispecific against KLK2.

We did that using Azymetric, which is obviously the same platform we used to design Zymeworks and some of our other T-cell engagers. That, from what I saw as a teaser at AACR, looks quite interesting, and we're looking forward to that data. Our further financial interest in this program is we are entitled to other milestones based on progression of development stage. We're interested to see what happens beyond the phase one data they'll publish at ASCO and what their intentions are, and we'll listen to that. In addition, we have a mid-single-digit royalty on sales of KLK2 CD3. I think with positive data, they seem very encouraged from the public comments I've seen from J&J that this could be a very significant product for them and a significant improvement in standard of care for patients.

We'll follow that very closely. Obviously, the value of the remaining royalties and milestones would be very interesting for us as this program progresses beyond the Phase I stage.

Brian Cheng (Biotech Analyst)

Great. Thank you again.

Ken Galbraith (Chair and CEO)

Yeah.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from a line of Stephen Wiley of Stifel. Your line is now open.

Steve Wiley (VP of Treasury Solutions)

Yeah, good afternoon. Thanks for taking the questions. I know you've been a little bit hesitant to give guidance around when we might see 171 and 191 data. I know it's not included in the list of catalysts that you guys have itemized on the slide. I understand that you guys have kind of pointed to a desire to present more fulsome data at peer-reviewed settings.

Just curious if you're intending to provide some level of communication with respect to reaching certain dose escalation or dose expansion milestones. I guess I ask the question because there's a lot of interest around the progress being made on 191, just given the same novel linker payload is being leveraged across a variety of different whole-agent programs.

Ken Galbraith (Chair and CEO)

Yeah, thank you. It's not that we're hesitant to provide guidance. We just don't think it's appropriate at this stage. Obviously, these programs are still early. We're very encouraged so far by the speed of our phase one studies. We had this idea of building a larger globally diversified footprint of clinical sites so that we could find quality patients quickly in the dose escalation stage. So far, that's working as well as we could have ever hoped to do. I think we're encouraged by the early data.

We've seen it's early. So far, we've had no surprises in translation from our preclinical hypothesis and clinical studies. That being said, it's still early in that process. I think we do want to make sure that as we prepare for some data to be presented at a peer-reviewed forum, that it's the appropriate time and we can make some conclusions that are important to share. I think the guidance we gave before is still what holds. I think as soon as we think that's appropriate, we'll file for an abstract to be presented at a meeting. Once that abstract has been made public, that will be the guidance. I'm sorry, we won't give more than that, but I think that's just the appropriate thing to do. We don't want to do that at an IR event or a corporate event.

We think the peer-reviewed section is the way to do that. Again, do not let that think that we are not really encouraged by our progress today. Excited that it is going apace. Again, as there are changes to be made on clintrials.gov and those first guys, you will be able to see those as they are made in clintrials. The guidance we have given is just to look forward to an abstract title with the appropriate timeframe when it is accepted. We are happy to talk about it at that point. Until then, we just do not, inside the company, think it is appropriate to get too far ahead of yourself in early phase one studies. You will just have to wait for any type of guidance or timing for that.

Steve Wiley (VP of Treasury Solutions)

Okay. That is fair.

I know you've talked about having a finite amount of clinical development capacity in house for the wholly-owned programs. That kind of forces you to make certain capital allocation and strategic decisions with respect to each of these programs. Is the clinical development infrastructure or capacity something that you're willing to flex outwards depending upon the success of Zani and the triggering of specific milestones from Jazz? Is there a situation where you're enamored with your wholly-owned portfolio beyond the capacity that you have and some of those additional funds can trigger an expansion of that infrastructure to accommodate the growing pipeline? Thanks.

Ken Galbraith (Chair and CEO)

Yeah. No, good question. I mean, right now, we're really happy with what we rebuilt at Zymeworks to execute these Phase I programs. So far, they're going as quickly as they possibly could.

Really encouraged with the way that we decided to do this. We built out, as you saw in our slide deck, a pretty large number of clinical sites in a significant number of countries for a dose escalation. That is just to allow us then to move quickly and follow data to the next step. I think for 171, 191, those programs are moving very quickly. We want to make sure that we have resources available to move quickly to follow data where it tells us to go. I think we are well situated to do that. We are obviously putting 251 into the clinic coming up here pretty shortly. I feel comfortable with our ability to execute that program in the same fast way with good quality investigators in a large footprint the way we have with 171 and 191.

So far, that's not an issue. I think our execution has been really good operationally. That clinical execution is an important skill a biotech has to have. I think we have that right now. I do not want to mess too much with that in terms of diluting talent or changing the way that we're doing that. I think as we have other agents which are able to move into the clinic, I do not think it'll be a limiting factor right now the way that we've designed it. I feel really comfortable with the capital we're putting against it, the resources we have against it, the speed we have, the clarity, and our ability to move quickly to the next stage in clinical development for those programs when the data suggests to us that it's time to do that.

So far, I do not need more capital to do that. If we needed that, then we will make the appropriate capital allocation decision around the investment criteria we have inside the company about where to allocate that. So far, I feel really happy about where we are in our execution. We will continue to be able to do that without putting additional capital at risk to build a bigger infrastructure.

Steve Wiley (VP of Treasury Solutions)

Okay. Thanks for taking the question.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from a line of Jonathan Miller of Evercore ISI. Your line is now open.

Jonathan Miller (Equity Research of Biotech and Pharmaceuticals)

Great. Thanks so much for taking the question, guys. Congrats on the progress. Maybe just building on that previous question a little bit, obviously, you have got a large internal pipeline.

As we heard more about at AACR and again today, a lot of potential programs that you could add to either development collaborations or your internal pipeline if and when the time comes. How many you know we've discussed this obliquely in the past but how many programs can you support early development for internally? What is the gating factor on external collaborations? I know those take work for Zymeworks as well. How many molecules could you have across the portfolio, whether they're internal and external? Trying to get a sense for when those things we heard about at AACR could become more relevant to the story.

Ken Galbraith (Chair and CEO)

Yeah. No, great question. I think in building out our clinical infrastructure, we've built it in a way that we believe we could handle with the existing build-out we have now, probably around five internal programs ourselves through Phase I.

We're kind of within that bandwidth now with the currently declared candidates. I think on a preclinical basis, if you look at us translating molecules to the clinic, we could probably handle about 10 at any one time, including the clinical candidates. We've got a pretty reasonable bandwidth to handle the portfolio. We obviously have a substantial amount of substrate in our preclinical programs of really interesting molecules that we think are all different. We make the choices, which we hope improves the quality of the clinical portfolio that we have. To date, we've been doing this all on our own and keeping all of those assets unencumbered. We do evaluate partnerships on a regular basis and look at where collaborations might allow us to go more quickly, provide some funding, provide some clinical resources, which means we do not have to utilize the original resources.

We will keep making those decisions. I think for some of those newer disclosures you could make, we're evaluating whether we could do that internally. We're evaluating whether a collaborative approach might allow us to do that. So far, we've not had a cushion in our portfolio that we paused ZW220 at IND just to make sure we were not taking on too much. I think right now, feel comfortable with the pace of our clinical development nominations to be something that we can execute on in a proper way. We're doing that now for 171, 191. Expect 251 to go as quickly when it transitions to the clinic.

We will evaluate some collaborative opportunities that might put us in a position to be able to advance some of those other programs without requiring capital investment for ourselves and without requiring taking up some of the time of our internal resources to move things forward either to IND or in early clinical studies. That is the thing we evaluate on a regular basis. As we make decisions about collaborations that became public, then I think we will be able to discuss more about that. Hope that answered your question.

Jonathan Miller (Equity Research of Biotech and Pharmaceuticals)

Yeah, sure. Absolutely. Thanks so much.

Ken Galbraith (Chair and CEO)

Yeah. No, thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from a line of Andrew Berens of Leerink Partners. Your line is now open.

Amanda Acosta-Ruiz (participant)

Hi everyone. This is Amanda on for Andy Berens. Thanks for taking our question. Maybe just one from us.

At AACR, you had a poster on a relatively new ADC target, the Ly6E. It looks like at least one other ADC with this target has had initial Phase I data publicly disclosed. I just wanted to get a little bit more color on what gives you confidence in this target and in your asset over the others out there. Thanks.

Ken Galbraith (Chair and CEO)

Yeah. No, thanks for asking that question. Yeah. You're absolutely right. There had been a prior program against that target. That clinical data had been reported against Ly6E. There, the payload was different. The antibody was very different. One of the things that we realized or our team realized with that target was the opportunity to really optimize both the antibody and the payload. What we're deploying on the payload side is a different payload. It's a topo payload.

In the field, that has kind of gained a lot of momentum. We think that is a for this target and the expression profile of that target, we think there is room there for a topo payload module. Of course, we have our payload that we have got that has been sort of selected for optimal properties that we believe are needed. Equally important for this target, the antibody selectivity and getting an antibody. We spent a lot of time where our team kind of was focused on getting an antibody that is really a lot significantly better at payload delivery and internalization. That was kind of described in the poster. That is benchmarked against that prior molecule. We think that will give us an advantage on its performance. What was encouraging, though, from the original preclinical data was that there was evidence of clinical responses.

They weren't optimal. Also, the target seemed to be a relatively safe target for an ADC. With our enhanced antibody and with our preferred payload, when we've modeled that in the cynomolgus monkeys, we also see a very favorable tolerability profile. That, together with the efficacy that's significantly better and the tolerability, we just think is a nice recipe for a real game-changer, best-in-class molecule against this target.

Amanda Acosta-Ruiz (participant)

Got it. Thanks so much.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from a line of Akash Tewari of Jefferies. Your line is now open.

Phoebe Tan (Senior Biotechnology Equity Research Associate)

Hi. This is Phoebe on for Akash. In your preclinical models with your topo ADCs, you're able to get to max doses, which are meaningfully higher than what we've seen within HER2. Is there any concern that your toxins could potentially not be potent enough?

Additionally, if you could provide any color on what your go-forward doses are for ZW191 and ZW251, that'd be great.

Ken Galbraith (Chair and CEO)

No, sure. Yeah. No, good question. We've actually done a lot of benchmarking of our payload with the HER2 payload or the ROXA-TCAN. We see actually in preclinical models very comparable efficacy profile, both along a lot of in vitro data and then also in in vivo xenograft models. I think we're very confident based on the preclinical models that we have, the necessary efficacy that's in the same range as the ROXA-TCAN-based payloads. What was the second question?

Phoebe Tan (Senior Biotechnology Equity Research Associate)

Any color on go forward doses for ZW191 and ZW251?

Ken Galbraith (Chair and CEO)

Yeah. No, we can't really specify those.

As you alluded to, the fact that we have this very high tolerability dose in non-human primates enables us to guide or start with a higher starting dose in patients. That would be the typical approach anyone developing an ADC would do. We are going to assume that we would be consistent with that.

Phoebe Tan (Senior Biotechnology Equity Research Associate)

Got it. Thank you.

Ken Galbraith (Chair and CEO)

Thanks.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from a line of Yigal Nochomovits of Citigroup. Your line is now open.

Yigal Nochomovitz (Director and SMid Cap Biotech Analyst)

Yeah. Hi. Thank you. Paul, I see you did the comp analysis versus the Amgen molecule for your DLL3. Did you also look at how 209 performs against some of the DLL3 ADCs out there, of which there are a few?

Paul Moore (Chief Scientific Officer)

Yeah. We have not done that. I mean, the models are a little bit different for that.

In this case, for that, we tend to compare against similar modalities. We certainly are aware of the attraction of ADC approaches also for tumors. That is why we are doing ADCs. There, we are aware of what the competitive space is there. In this case, for small cell lung cancer, we felt on the backs of the data from Amgen and the ability to get these more durable responses, that really was an attraction here for us focusing on the T-cell engager approach. We certainly keep ourselves aware of the ADC approaches there too. Doing the head-to-head comparisons, it is not so easy to do those in the same models. It is different kind of models.

Yigal Nochomovitz (Director and SMid Cap Biotech Analyst)

Oh, okay. What is your sort of more general view, though, in terms of the strategy of the T-cell engager versus the ADC for this particular target?

Paul Moore (Chief Scientific Officer)

Yeah.

I think here in this particular target, we really like this as a target to evaluate with our co-stim platform. We have the tarlatamab sort of proof-of-concept for T-cell engager. That was partly why we went there with a T-cell approach. We certainly have we could have done ADC. In this case, we felt this type of tumor type and this target, the weighted data made more sense to go with a T-cell approach. Of course, we tried we did our preclinical studies. The data that we've seen with the preclinical data studies just really encourages us to continue on that path towards the clinic. That was a driver there. Certainly, when we think about a therapeutic indication, we will evaluate both an ADC and a T-cell engager. We do see benefit perhaps sometimes in having both approaches available.

We think in this case for DLL3, this was a very obvious target to do with a T-cell engager with the CD28 co-stimulation.

Yigal Nochomovitz (Director and SMid Cap Biotech Analyst)

Okay. Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from a line of Derek Archila of Wells Fargo. Your line is now open.

Eva Fortea-Verdejo (Biotech Equity Research Analyst)

Hi. This is Eva on for Derek. Thanks for taking our question. A quick one from us. Are there any learnings from 171 or 191 development that could be applied to optimize or expedite the development of your other ADC or T-cell engager candidates? Thanks.

Ken Galbraith (Chair and CEO)

Yeah. Go ahead, Paul.

Paul Moore (Chief Scientific Officer)

Yeah. No, definitely for sure. I mean, I think we put a lot of learnings into the clinical design. We are able to leverage learnings from other ADCs and other T-cell engagers.

Certainly, as we move forward, other ADCs and T-cell engagers will learn from what we've done ourselves. We're always layering in that kind of knowledge base there. We'll start revealing more in the trials and progress posters this year that are already scheduled to be presented. You'll see there, we can give you a little bit more color on that. You can then maybe see from that how we might also continue these types of strategies in other programs. I can't really say much more than that just now.

Eva Fortea-Verdejo (Biotech Equity Research Analyst)

Good. Thanks.

Operator (participant)

Thank you. One moment for our next question. Again, as a reminder to ask that question, you'll need to press star 11 on your telephone keypad. Our next question comes from the line of Robert Burns of H.C. Wainwright. Your line is now open.

Robert Burns (Managing Director of Equity Research)

Hey, guys.

Thanks for taking my questions. And congrats on the data that you presented at AACR. Just two from me, if I may. Given the repeat challenge assay data for 209, as well as the in vivo data, and factoring in IM Delta's move into the frontline setting for SCLC in combination with AstraZeneca's and IMFINZI, I was curious to get your thoughts as to how you see the impact of earlier utilization of IMDELLTRA on the efficacy of 209 in the later phase scenario.

Paul Moore (Chief Scientific Officer)

Yeah. No, I think definitely when we've been thinking about the design of our molecules, obviously, we need to stage our clinical testing. We do see the ability of a T-cell engager strategy to really move the needle in small cell lung cancer. We think that the Amgen data, the tarlatamab data bodes well.

I think then in the design of your molecule, if you can enhance the efficacy, enhance the durability of response, potentially broaden the response rate, that's what you're trying to do with this next-generation molecule that we've developed. I think that as well as the efficacy, we are very careful on tolerability. You've seen that in our ADC approach. I think you've seen that in our 171 approach. That's also reflected in 209, where we really think about tolerability so that we can ultimately combine it with potentially standard of care once you've established monotherapy data. Heading towards that, getting the best benefit for patients is kind of wired into our thinking on the design of all our molecules.

Robert Burns (Managing Director of Equity Research)

Awesome. Thank you for that. One more question. The PTK7 targeted agent, obviously, we saw the comparator in vivo data that you presented.

Was one of those compounds, one of the comparator preclinical compounds, one of the ones that Whitehawk Therapeutics is advancing? If not, how do you view that competitor agent relative to your PTK7 targeted ADC? Thank you.

Paul Moore (Chief Scientific Officer)

Yeah. We used cofetuzumab as the comparator. That was the prior clinical benchmark. There, what we were really trying to demonstrate was the improvement you could get with a biparatopic. We also had our own lead monoclonal antibody or monoparatopic antibody we also benchmarked. Whatever we've seen for this particular target, we really think biparatopic can push things. For other targets, it's not always the case. In this case, whatever monoparatopic antibody we've looked at, either we've developed or the sort of benchmark clinical that we had available, we outperformed. That to us bodes well.

We think we're really doing something different with the biparatopic that can't be achieved. We will continue to monitor that as other competitor molecules come across. Our real drive here was really to see what we could do with the biparatopic. We can leverage that capability. Obviously, we did it for Zani, and it really moved the needle there. In this case, we're applying it to see what we can do on PTK7, a target that seems applicable for this type of approach. We will continue to monitor that as we're doing our preclinical work and consider benchmarks as appropriate.

Robert Burns (Managing Director of Equity Research)

Awesome. Thank you, guys.

Ken Galbraith (Chair and CEO)

Thank you, Robert.

Operator (participant)

Thank you. I'm showing no further questions at this time. I'll now turn it back to Ken Galbraith for closing remarks.

Ken Galbraith (Chair and CEO)

Yeah. Thank you, Operator. Thank you, everyone, for your time listening to us.

We're always available for questions afterwards if you didn't get a chance to ask additional questions or something else. In the meantime, please stay tuned for further developments. We thank our shareholders for their continued support. Thank you.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.