Good day! And thank you for standing by. Welcome to the Zymeworks First Quarter 2023 Results Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jack Spinks, Director of Investor Relations. Please go ahead.

Good afternoon, and welcome everyone. My name is Jack Spinks, Head of Investor Relations here at Zymeworks. Today we will discuss our first quarter financial results, as well as provide an update to our ongoing business. Before we begin, I'd like to remind you that we will be making a number of forward-looking statements during this call, including without limitation those forward-looking statements identified in our presentation 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 a discussion of these risks and uncertainties, we refer you to our latest SEC filings as found on our website and as filed with the SEC. Later in this call, Chris Astle, our Senior Vice President and Chief Financial Officer will be discussing our financial results, including certain non-GAAP measures. A description of our GAAP measures and a reconciliation to the most directly comparable financial measures, as determined in accordance with GAAP are described in detail in our press release, which is available on our website at www.zymeworks.com under the Investor Relations tab. As a reminder, the audio and slides from this call will also be available on the Zymeworks website later today. Now I will turn the call over to Chris, our Senior Vice President and CFO. Chris?

Thanks, Jack and thank you everyone for joining us today for our first quarter 2023 earnings call. As a reminder, I'd like to note that while I'll be presenting the prepared remarks and participating in Q&A today, Kenneth Galbraith, our Chair and CEO; Neil Klompas, our President and COO; and Paul Moore, our CSO, will also be available for Q&A following this portion of the call. With that, I'd like to begin today's call with an overview of our financial results, followed by a few recent developments and noteworthy updates across our business, before we open the lines for Q&A. This afternoon Zymeworks’ reported financial results for the first quarter ended March 31, 2023. Zymeworks’ net loss for the quarter ended March 31, 2023 was $24.4 million or $0.37 per diluted share, compared to a net loss of $72.6 million for quarter ended March 31, 2022. This decrease in net loss of approximately 66% year-over-year was driven largely by revenue from the reimbursable amounts received due to our collaboration agreement with Jazz and a decrease in R&D expenses. As reported, our revenue for the first quarter of 2023 was $35.6 million, compared to $1.9 million for the same period in 2022. The increase in revenues were largely due to reimbursable amounts received for zanidatamab clinical development and manufacturing, pursuant to our collaboration and licensing agreement with Jazz, and research support and other payments from partners. Research and development expense for the quarter ended March 31, 2023 decreased by $16.6 million to $45.9 million, as compared to $62.5 million for the quarter ended March 31, 2022. This decrease of 27% from the prior year related primarily to lower CRO and manufacturing expenses related to zanidatamab development and lower headcount related expenses due to a decrease in headcount as compared to the…

[Operator Instructions]. And our first question is from Stephen Willey with Stifel. Your line is open.

Yes, good afternoon. Thanks for taking the question. So, I guess just so I fully understand the Jazz amendment, I guess if I look at revenue this quarter, I think about, I don't know, about $34 million of that was either research support payments or drug supply payments from Jazz, and I think about 80% of R&D was any related clinical development costs. So, should we just assume then that once the amendment closes at some point in 2Q, that those two things will no longer offset each other in the P&L?

Yes, I'll let Chris answer that. Go ahead, Chris.

Yes, thanks for the question. That's right. Post the closure of this transaction with Jazz, the revenues from Jazz from the expense reimbursement will go away, and also the direct expenses were incurring and then being reimbursed from Jazz will also go away. It's just worth noting there will be a partial quarter in Q2 from the beginning of the quarter through to close. So there will still be some revenue and expenses relating to that, but that will go away. And it's just worth noting that revenue is recognized within the quarter, but then the expenses on the P&L, but then we keep that as an account receivable on the balance sheet until it's reimbursed the following quarter.

Okay, I get it. And then I know you've talked before about being able to potentially monetize some of the agreements from the portfolio that you have of legacy licensing agreements. And I guess, how do you structurally go about this? I guess, do you propose some kind of flat repurchasing cost to the original licensing party or do you try to price this like an option and sell it to some third party? I would just be curious as to how you go about potentially realizing that strategy.

Yeah, sure. Good question. And again, we did look at a proposal last year to monetize a portion of the future milestones and royalties from all those legacy deals as a basket. So not entirely, but as a portion. And we did that to have an additional potential financing vehicle to the extent that we were later closing a partnership and collaboration on zani than we were. We didn't need to do that. So we didn't execute that proposal. It was obviously at a higher cost of capital than we were able to get from the Jazz collaboration, so there was no need to do it. I think this year in 2023, we expect and hope that a number of those programs will progress. And once they do, we think that will throw off some additional milestone cash inflows to us, as well as progressing a number of those programs to make the future milestones and royalties more viable because they'll be closer in time. So it's something that after this year, if we can progress that pipeline, we may look at a similar structure or something that's a little bit different, but it is an ability for us to tap into a financing source should we choose to. We just weigh the amount of capital we could get, the cost of capital, and what we would use those funds for right now. Obviously, with a cash runway that's at least until 2026 and likely beyond, we don't see the need to draw on additional cost of capital right now, but it is always available to us.

Okay, that's helpful. Thanks for taking the questions.

You're welcome. Thank you, Stephen.

One moment for our next question. Our next question comes from Charles Zhu from Guggenheim Partners. Your line is open.

Hey! Good afternoon, everyone. Thanks for taking the questions and congrats on the progress. My first one regarding zani zo, so a clinical update in second half, any additional color around how we should be setting our expectations around that data set, particularly around distribution of histologies? Will we, for example, have additional line of sight for single agent data in your priority Phase 2 indication, such as non-small cell lung cancer or post-inherited breast cancer? And on a similarly related note, it sounds like the data will be from weekly dose cohorts. How much read-through will these data have to your other schedules that you may be evaluating with zani zo? Thank you.

Yeah, thanks for the question. I mean, obviously, we have a tremendous amount of additional data that we've been able to accumulate since the cutoff for ESMO that was presented last year. In addition to following patients longer, we've got the QE dosing cohort finished, and we've also enrolled additional patients on monotherapy at the 2.5 mg per kg, including more patients than non-small cell lung cancer and more patients who are post-inherited in breast cancer. We're still writing the abstract right now Charles, so I can't say exactly what will be in it. But we're looking forward to provide as much context as we can for zani zo. And in addition, we'll be closing that monotherapy arm and focusing on the combo studies that were the other cohorts in non-small cell lung cancer and breast that we're looking forward to going ahead with. And we're continuing to do some preclinical work around combinations, not with just PD-1, but TKIs and other checkpoint inhibitor combinations beyond PD-1. Because I think there is some interest in looking at what might be possible by looking at CTLA-4 and even LIG-3 [ph] and others. So there still is a tremendous preclinical work going on this year. I'm just not sure what will be in the abstract that we submit at first, but I don't expect it to be our last disclosure on zani zo.

Got it. Sounds great and thanks for that color. Maybe one follow-up regarding some of those combinations, especially with respect to combining zani zo with the PD-1, maybe something a bit more forward-looking. How are you thinking about enrollment criteria by PD-01 and/or HER-2 status? Would patients need to be positive I presume for both and do you also intend on stratifying by level of positivity? Thanks.

I mean, those are great questions. You'll see once the protocols are on clinical trials, you’ll probably get some more information around that. Obviously there's still a tremendous interest as you can see from recent deal making and other options in the HER-2 ADC space beyond T-DXd and T-DM1. And we've been pretty clear, our strategy with zani zo has been to try to be the HER-2 ADC of choice post-T-DXd and try to give physicians a different mechanism on the antibody, because it is the biparatopic zani backbone. We've tried to give KOLs a different payload, which is something that they've been requesting, and we'd like to give them the optionality of using zani zo in combination with other agents as standard of care in indications where it's applicable, and that's how we arrived at right now the post-T-DXd space as defined in breast cancer and non-small cell lung cancer, and that's why we've led ourselves to look at studying at least two cohorts in non-small cell lung cancer, at least two cohorts in breast cancer to get some clinical data to support what we think KOLs are asking for as another agent of choice in the HER-2 ADC space. And so, I think once you see the protocols on controls.gov, then you'll have a lot more information about the end nature and the structure of those studies.

Great. Thanks for taking the questions.

You're welcome. Thank you.

One moment for our next question. Our next question comes from Derek Archila with Wells Fargo. Your line is open.

Hey, guys. Thanks for taking the questions and congrats on the progress. Just one question. Just want to see if you have any thoughts or see any key learnings from mirvetuximab’s recent MIROSOL data. How that might inform ZW191's feature development either in ovarian or other potential tumor types. Thanks.

No, great question. And I guess from our perspective, being in the biotech community, we always celebrate advances through innovation and obviously mirv is a step forward for our patient population, who definitely needs a better standard of care. So we're really excited for our patients with the data we thought of MIRASOL and we're excited for the folks at ImmunoGen who really stuck with this for probably five or more difficult years in trying to bring this therapy to market. So we're – we feel happy for them. They've been vindicated with their desire to continue to move this forward when a number of years ago it may not have been a thing to look at doing. So that's great from that perspective. But also in the biotech community, we also then try and do better than our peers and that's what our goal is right now. So I think from our perspective, there's a lot to learn from at least the initial patient population that's treatable with mirv. I think looking at the low-grade [inaudible] toxicities and how that's been perceived by regulators and also KOLs is kind of interesting for us, at least from a zani zo perspective. I think going beyond that and looking at our own forward receptor alpha program, we obviously have a very different strategy than mirv or the backup to mirv which is being developed or some of the other agents and that we're hoping to pursue the Folate Receptor Alpha as a target, regardless of tumor type and regardless of expression levels in patients, which we think is really the next step beyond where mirv has taken us. So we're looking at a pretty broad patient population and seeing if we can find a particular type of ADC that we designed specifically with a broad patient population in mind, regardless of tumor type and regardless of expression levels, looking to see if we can find efficacy with it. That was the nature of our engineering for our ADC and we're looking forward to putting that in the clinic next year and seeing if we can prove that out with clinical studies and prove out what we hope we design from a protein engineering standpoint. So I think we want to go well beyond mirv and others in the Folate Receptor Alpha targeted therapy space.

Excellent. Thanks.

You're welcome. And just to add to that sorry, just – and from our perspective, we keep hearing from KOLs is that [Technical Difficulty] significant interest at least in the ovarian cancer space and somewhat beyond. So we're really excited about our proprietary payload that we're testing on that ADC, as well as the rest of the population that we might be able to provide a benefit for.

One moment for our next question. Our next question comes from Brian Cheng with JP Morgan. Your line is open.

Hey Ken! Good to hear from you. So maybe just one quick question on BTC. Any updates on where you are in terms of the preparation for filing for BTC, and to the extent that you can, can you just give us some guidance on what could be the next update from our side that we could hear about the next potential steps in your BTC filing?

No, great question. And obviously, we've been working very carefully with both Jazz and BeiGene since our top line data was announced in December last year, because it was quite exciting data and really what we think might be transformative to the HER2 targeted therapy space in BTC. So we've been working obviously with Jazz and BeiGene and discussing with regulators the pathway, both in the U.S. and in potential markets outside the U.S. where we may be able to get an approval with this data set. We haven't given guidance yet on timing of first filings, but we will leave that to Jazz and BeiGene to discuss their filing strategies and timelines in their own jurisdictions. Obviously, we've been working on supporting their potential regulatory filings, especially on the CMC module. So our work in CMC is complete and we will ensure that that's not a rate limiting factor to filing and we'll ensure that we're pre-approval inspection ready, both in the U.S. and in foreign markets when necessary. So I think we're ahead of the curve in that perspective, which is our main role right now with both Jazz and BeiGene. And obviously, what's coming up is at ASCO we have an oral presentation with Dr. Paul, which we're really looking forward to sharing the full data sets beyond the top line data on zanidatamab use, as monotherapy in this patient population. We think it's potentially a clinically meaningful improvement for this patient population, which does not currently have an approved therapy and we're looking forward to sharing that information with KOLs and have been and will continue to share that information with regulators. And so I think we'll leave the guidance on specific filing dates, but we're pretty excited. We also continue to enroll our Phase 2 BTC study with first-line patients using zanidatamab in combination with GemCis and that continues to recruit, and we're hoping that will inform the potential for zanidatamab in combination with GemCis in an earlier patient population. And I think as we've seen data come along from the use of PD-1 in GemCis in this patient population, there's certainly a thought that a HER2 target therapy for a patient with HER2 amplification is really the way to address the poor prognosis that goes along with that actionable biomarker, so that continues to go on. We haven't given guidance about when that might be fully recruited or what we might do beyond that and we'll let BeiGene and Jazz provide that guidance as well.

Thanks, Dan.

Thank you for the question.

One moment for our next question. Our next question comes from Yigal Nochomovitz with Citi. Your line is open.

Hi team! This is Carly on for Yigal. Thanks for taking our question. I'm just following-up on a prior question related to the Phase 2 strategy for zani zo. I guess for lung you've disclosed the PD-1 combo, but for breast, can you just talk about what combination partners you're considering? If you also plan to look at monotherapy in post and HER2 patients and just any feedback you've gotten from KOLs on that. And then if you can also just clarify if you expect the Phase 2’s to be randomized studies or single arms, that would be great as well. Thank you.

Yeah, thanks. The second piece of that, you'll have to wait until you see the clinical protocols up on ClinTrials.gov. But obviously we've been in discussions with KOLs on the breast cancer cohorts. We're really interested in studying patients in a post- T-DXd environment. And so after progression, and we're also interested in studying patients in breast cancer who have lower levels of HER2 expression. And we've been discussing with KOLs whether that should be done in a monotherapy setting to understand the benefit of zani zo or whether there are combination studies that we can look at. And obviously, we won't confirm that until you see the clinical protocols. I think in non-small cell lung cancer, it was easier with the prevalence of pembro being used as a standard of care. It was easier in the overexpressing population and in the HER2 amplified population to look at that as a natural combination to evaluate. Beyond that, in both those settings, there are other combinations, which I don't think we'll be able to study within the current confines of our capital allocations for the Phase 2s. But we've looked at, and we will continue to look at pre-clinically, combination with TKIs, which might be of interest, and also additional checkpoint inhibitor mechanisms beyond PD-1, which we think is something that might be interesting as well. I just don't think our capital allocation in Phase 2 allows us to do that initially. But it is something that we'll study pre-clinically, and eventually with a partnership might allow us to study some additional combinations beyond the ones that we're currently going to study in Phase 2.

Okay, got it. That's very helpful. Thanks for taking the question.

No, thanks for the question.

One moment, please for our next question. And we have our last question from Akash Tewari with Jefferies. Your line is open.

Hi, this is Phoebe Tan on for Akash. Just regarding the ZW49, can you comment on what ballpark you plan to spend in the program this year? And what do you think of the competitive landscape for HER2 ADCs outside of an HER2? Thank you.

Yeah, on the first question, we won't talk about that ahead of time. But obviously, on a quarterly basis when we file our financial statements, including Q1 which you'll see. You'll see how spending is allocated between zani zo and zani and the early stage pipeline. So I think as we go through the year on a quarterly basis, you'll be able to see how the actual spending has been made, so you'll answer that in a retrospective manner. I think in the HER2 ADC space, I think we've seen some additional business development interest and other folks moving ahead on investment. And I think that's because they're probably hearing the same message that we are from KOLs, is that they're looking for additional options as ADC formats in their HER2 targeted therapy space, and I think that's pushing a lot of folks to look at how they would compete strategically in that segment. We've been very clear about our strategy of trying to find a way to fit into the post T-DXd space. We think it's very attractive from an economic perspective, and we think it's an area that we can with zani zo, provide some optionality for physicians to follow T-DXd with an antibody that's not TRAS, with a payload that's not DXD with a mechanism that's quite different because of the biparatopic nature of binding with zani zo. And also the optionality of using it in combination with other standards of care, because the tolerability profile is from what we've seen clinically, the best of any HER2 ADC that's been studied clinically to date and released data. And so we've been very clear about where we would like to compete in that space, and we've been clear about the Phase 2 studies that we've designed that we expect to initiate this year. We'll provide data to show that we can compete in that space, and then we hope that data is overwhelming enough to allow us to invest further and to find a partner on an ex-U.S. basis who wants to join us in that, to find a regulatory pathway for zani zo to be the next choice ADC in a T-DXd environment. So, I think we're quite excited that there's room in that space to compete, provide physicians with something more than they can currently get from T-DXd and T-DM1, and that zani zo might be well positioned in combination to play a major role in that. And that's why we're strategically allocating some capital, along with a substantial amount of capital in our 5x5 strategy in our early stage portfolio.

Great! Thank you.

You're welcome. Thank you.

And I'm showing no further questions at this time. I would like to turn it back over to Ken Galbraith for any closing remarks.

Great! Thank you, operator. So thank you for attending our Q1 earnings and business update call. As you can hopefully tell, we're pretty excited about 2023 and the progress we expect to make in the entire pipeline. We're excited about where we are with zanidatamab, with our partners Jazz and BeiGene. We think we have a clear path for some additional Phase 2 clinical studies in zani zo. I think our two next agents to go to the clinic are on track in 2024 to be INDs, both the folate receptor alpha and mesothelin 2+1 T-Cell engager. We're thinking now about what's going to be next into the clinic beyond those two and hope to have some updates for you soon on that. In addition, we're hopefully making some progress with some of the legacy licensing platform deals we have, which will provide some cash flows and also some additional value that we can potentially monetize in the future if we have some additional need for some capital. And so we're excited about that. The team's working very hard and we look forward to presenting some additional progress for you next up at ASCO. We hope you have the ability to attend or listen to the oral presentation from Dr. Pant in the full BTC data, as well as the update from BeiGene on looking at the use of Zanidatamab and docetaxel in first-line breast cancer patients, which we think is going to be really encouraging for future indications with zanidatamab. So, thank you very much for your attention, and I look forward to updating you again over the course of the quarter and at the end of Q2 as well.

This concludes today's conference call. Thank you for participating. You may now disconnect.