Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Zymeworks Fourth Quarter and Full Year 2022 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] At this time, I would like to turn the conference over to Mr. Jack Spinks of Investor Relations for Zymeworks. Sir, you may begin

Good afternoon, and welcome, everyone. My name is Jack Spinks, Head of Investor Relations here at Zymeworks. Today, we will discuss our fourth quarter and full year 2022 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 those risks and uncertainties, we refer you to our latest SEC filings is 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 Chief Financial Officer. Chris?

Thanks, Jack, and thank you, everyone, for joining us today for our fourth quarter and full year 2022 earnings call. As a reminder, I'd like to note that while I'll be presenting the prepared remarks today, Kenneth Galbraith, our Chair and CEO; and other members of our executive team will 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 fourth quarter and year ended December 31, 2022. Zymeworks’ net income for the year ended December 31, 2022 was $124.3 million, or $1.90 earnings per diluted share compared to a net loss of $211.8 million for the year ended December 31, 2021. The swing from an annual net loss to net income was primarily related to revenue received from our collaboration agreement with Jazz partially offset by increases in expenses incurred in 2022 relative to 2021. As reported, our revenue for 2022 was $412.5 million, compared to $26.7 million for 2021. Revenues for both the year and most recent three-month period ended December 31, 2022, primarily related to the $375 million in upfront payments received from Jazz as a result of the completion of the zanidatamab licensing agreement, combined with approximately $24 million in reimbursements from Jazz for expenses incurred for zanidatamab between October 19 and December 31, 2022. Research and development expense for the year ended December 31, 2022 was $208.6 million, compared to $199.8 million for the year ended December 31, 2021. This increase of $8.8 million or 4% from the prior year, related primarily to higher manufacturing and clinical trial expenses for Zanidatamab in 2022…

[Operator Instructions] Our first question or comment comes from the line of Yigal Nochomovitz from Citi. Your line is open.

Yeah. Hi. Thanks for taking the question. So on the ZW49 now called Zymezo, you mentioned that you're going to stop the Phase 1, I believe, except for one of the cohorts. So can you just go into a little bit more detail as to the thinking behind that to why you're moving into those two Phase 2s, one in the non-small cell, one in the metastatic breast cancer, great to get a better understanding of the shift in strategy there? Thank you.

Yeah. Sure. And I don't think it's as much a shift in strategy as more form over substance. So I think, it was a clear preference from a regulatory perspective to initiate new cohorts – combination cohort in a Phase 2 format. So again, with ZW49, we're print do a few things here. One is, we're trying to reduce the, per patient clinical development costs because our prior costs were too high. We're trying to improve the speed of patient recruitment, because I think they've been too slow. I think we need to improve the access to quality patients that we can screen for these clinical studies. And there's a number of things we've been doing about that to put ourselves in that position. The number one thing is to try and expand sites globally, because the Phase 1 were done in the US, Canada and Korea, but not beyond. And I think going internationally gets some of those points, I talked about. But clearly, if we're doing filings in new countries, starting fresh with a Phase 2 study as opposed to amending a Phase 1 study is preferable. I think some of the things we did over the early-stage development group, which we reorganized, definitely bring down the internal costs for, or these clinical development costs. And the same people in that group are preparing for 171 and 191 it needs to be filed next year and clinical trials to be commenced. And also, we're reviewing a CRO, which we have for the Phase 1 to decide, if we want to move forward in Phase 2. And I think we could definitely accomplish some of the costs of these objectives by potentially reviewing that contracting starting with this switch. So with all that being said, I think, there's a…

Okay. Got it. Thanks, Ken. And just on HERIZON-GEA-01, how much have you said there in terms of the powering of the trial? And also what is the primary comparison? Is it the doublet versus herceptin chemo or the triplet versus herceptin chemo. If you could just comment there? Thanks.

Yeah. So we did publish the physical design and other features of the study in August of last year, and that's available on our website, if you'd like to take a look at this so we are doing a more obscure publication, so we did put our websites available. So there are more details which are available there. But each of the two arms are independently compared to trial plus chemo. So that's the way it works. We did describe that in the publication side I encourage you to read that. We did also disclose there that at the point where we're going to get a PFS that we'll do an interim OS at the same time and then decide what to do with that data. And we still believe we're on track that the top line data for that study will be available in 2024. And the sense that we can sharpen that guidance, we'll do that in conjunction with both Jazz and BeiGene as we move forward.

Okay. Thank you.

Yeah. And sorry, just to add that we are continuing to follow the patients in the study that BeiGene had presented some initial data on last year on the triplet. So this is a Phase 2 study that BeiGene is running. In first-line GEA patients with zanidatamab, chemo and tislelizumab PD-1. So we did have some data of last year. We've obviously recruited more patients in that study and there's a much more mature -- much longer follow-up, which means the data is much more mature. So obviously, at some point, we hope we'll see an update on that data set, which will hopefully give some further guidance as to how that file might be useful in patient populations, but we'll await guidance from BeiGene on when that data set might be available, and they're also still continuing to enroll -- sorry, continue to follow the study -- Phase 2 study in first-line breast cancer with zanidatamab and docetaxel, which we also talked -- presented last year. And obviously, we have more patients enrolled that fit a longer follow-up. So we'll be looking for patients to guide on when those two data sets might be available, but specifically the triplet in Phase 2 with more mature data, longer follow-up to be better understanding or guidance of where that might be useful in this patient population. So we'll give the guidance of BeiGene.

Okay. Great. Thank you, Ken.

Yeah.

Thank you. Our next question or comment comes from the line of James Shin from Wells Fargo. Mr. Shin, your line is now open.

Hey, guys. A quick question on the HERIZON-GEA study. I'm looking at a comparator KEYNOTE-811, where they -- it looks like they really enriched for PD-L1 high and HER2, 3+ patients. Can you say anything on whether HERIZON-GEA will have a more even mix of PD-1 and HER2-positive patients? And then I got a follow-up.

Yes, again, for PD-L1 status, we're not enriching for PD-L1 status. So it will hopefully be a more recruitment, more of a perspective of real world how these patients show up for gastric acid junction and esophageal patients there in our study. And we'll obviously break that out as a pre-specified subpopulation to understand what the impact is on patient populations of PD-L1 status where the PD-1 is involved. We haven't seen that on the KEYNOTE-811. Eventually, we'll hopefully see that we can -- KOLs, docs can understand the impact of that in that patient population. It does look like it is skewed a little bit away with once that has been IP3+ [ph] [indiscernible]. I'm not sure how that happened or that will be the case when you see the full patient population versus the cohort of patients that was published to support the accelerated approval.

Got it. And then for ZW49's breast indications, what are the potential combo partners that you would explore with 49, or is that still sort of under wraps?

Yes, it's still under wrap. I think, we're -- we set probably all we can about those -- the non-small cell lung cancer and breast cancer indications. We want to get those studies up and running and get more details up on ClinicalTrials.gov as soon as we can. I think once it's up there, then we'll be able to answer additional questions. We're obviously looking to use ZW49 in combination wherever we can. So -- and that will be beyond pembro where we can. So I think we just have to wait until for all to set down. But we think that's the value proposition, how that can ZW49 beat the HER2 ADC of choice to use in combination, potentially after production on TDXD in multiple indications in a clinical meaningful way in a number of those indications. And that's what we're targeting. That's the value proposition. That's our part of product profile. So we define ways to test that hypothesis. And you intend to quickly adjust it as efficiently from a cost perspective we can. And if we see something that's going to be convenient there, then be able to partner quickly and move forward with the registration strategy as quickly as we can.

Got it. Hey, can I ask just one question on the I5 [ph] addition of zanidatamab. It's a really interesting study design where treatments get added and removed based on their efficacy. So -- and it's in new adjuvant. Is this something that's being handled by Jazz and partners, or is that something that you guys were working on prior to handing zanidatamab over?

So this is a separate study group, testing, obviously, multiple different agents. It's a really -- it's a -- we were having some discussions last year about doing that. We, obviously, waited until we completed the Jazz collaboration to allow Jazz to opine on that decision. And it's the first thing -- the first thing they did after the collaboration, so probably tells you a little bit about maybe some interest. But I think, it's a really -- I think we've always hypothesized that zanidatamab's best application was in the earliest treatment cycle that we can find in civic populations. And I think you've seen that in our data we post in last year and the metastatic Gastrointestinal [ph] first-line breast cancer with over 90% for HER. So, pretty interesting. And I think we're interesting to see what comes out of this neoadjuvant study. I think it's this platform that they have in IP5 -- IP2 now. It was a pretty interesting way to test multiple agents in a way that I think can provide some -- it's in data back to a sponsor to decide what to do with that data from a registration state.

Got it. Thank you so much.

You’re welcome.

Our next question or comment comes from the line of Stephen Willey from Stifel. Mr. Willey, your line is now open.

Yes. Thanks for taking the questions. Maybe just another quick one on the projected HERIZON GEA disclosure in 2024. Are you still planning on completing enrollment before the end of 2023? And I think in the European trial register, there is a suggestion that the primary PFS analysis is expected to occur within a month of the last patient being randomized. I guess, is that a description something that you would characterize as still being accurate?

Yes. I think you've seen a change in our guidance since the Jazz partnership finish, which is not unusual. And Jazz does like to guide on availability top line data versus patients enrollment. So our guidance will be the top line that will be available in 2024 and to the extent that we can start up in that guidance with Jazz and BeiGene, then we'll do that to be more specific than the calendar year. But that's the guidance right now. We won't give anything beyond that. I think you will see infant trials in European registry, a number of different other data points around PFS or completion study. And we just won't comment on that further than just sticking to the -- we're on track right now to get top line data in 2024 from that study, and that's really great, and we're working to do that as quick as we can.

Okay. And then maybe just a question for Chris, with respect to just clarity on Zani-related R&D spend in 2023. I know the quarterly numbers here have been fairly lumpy. I guess, if you look at the last three quarters, specifically. Is that lumpiness, something that we should expect to continue into 2023, or have you guys done some of the necessary manufacturing work such that, that should kind of smooth out a little bit as we get into 2023 with respect to just thinking about how the R&D reimbursement flows to the top line.

Yes. Thanks for the question. So yes, we did have some lumpiness through 2022 as we were undertaking some of the manufacturing run. And a lot of that kind of expense is behind us now. As we go into 2023, there will still be some ebbs and flows. We won't be guiding on specific numbers for each individual quarter. But it's worth noting that as we incur expenses within a quarter, the reimbursement from Jazz will actually come back in the following quarter. So there'll be a mismatch between the P&L and the cash flow from quarter-to-quarter as we advance through 2023. So, there will still be some quarter-to-quarter shifting that we can anticipate as we go forward.

Okay. So that Jazz reimbursement comes a quarter in arrears, isn’t it?

That's correct, yes.

Okay. And then maybe just lastly, I guess, does the disclosure of HER2, HER2CLIMB-02 data, which is looking at tucatinib, Kadcyla in, I guess, mostly second-line patients, but I think a lot of the KOL conversations we've had would suggest that, that's maybe a regimen that gets institutionalized post in the HER2 if that data looks good. Does that data set at all kind of change your thoughts around ZW49 in breast cancer?

I'm not sure to it does yet. I mean, we obviously look at all data and evolving data and what impact it might have on commercial opportunities or development pathways or regular pathways for the program through tucatinib and ZW49. And I think you need to pay attention to that and try to react. I think from our perspective, our value proposition and our target product profile ZW49, I don't think is any different, which is we need to show the ability to combine with better care and show meaningfully -- clinical meaningful benefit in more than one indication, some multiple indications, several in this case. And I think in breast cancer, we still need to see what that data looks like. We need to do it looks like in the HER2 low population, and we need to look at what it looks like, specifically in the patients who progress post XP [ph] and hopefully, in the quality of patient that doesn't have 11 or 12 or 13 prior therapies as we did in some of our Phase 1 data. So I still think it's a pretty interesting indication for us. I think breast cancer with some evolving data, I think we've done enough advisory board work with KOLs, but we understand where the bit ZW49 agents. I think we've got enough potential partnering discussions to know what value will be paid for data is generated. So I think for both non-small cell lung cancer and breast cancer. Those are just core cohorts of patients that we think we proved our target product profile with ZW49 we have the opportunity to do that with additional indications inside the envelope of how much investment we want to make in the time frame we have to make that under then we'll do that.

All right. Thanks for taking the questions.

Our next question or comment comes from the line of Brian Cheng from JPMorgan. Mr. Cheng, your line is now open.

Hey, guys. Thanks for taking my question. It seems that you have a couple of presentations coming up at AACR next month. So what should our focus be there from your presentation and your call you can give us some thoughts on this expectation that would be great.

I think everything. That's a positive. I think from our perspective, there's some -- I think we're trying to showcase both the next products come in the clinic next year. So that is really important for us, as well as continuing to show what the platform is capable of doing for products beyond that because we're going to pick our targets and our products that we're going to file in 2021 this year. We want people to understand both the next product set and the product itself. We've got additional new data we've generated since our R&D Day presentation in October. So we'll try and highlight the new and additional data, which has been developed, which I think adds hopefully to both understanding of what we're doing that's differentiated and why we're doing it and why we think we'll be successful with the product formats and the targets that we selected as well as the platform's ability to continue to generate these five new INDs in the next five years, including 171 and 191 next year, that will all be novel diversified on both sides of the RV portfolio, both multi sort of – and by therapeutics and ADCs as well as all be hopefully differentiated and meaningful assets that we can keep unencumbered for ourselves as long as possible. So I think there will be a whole lot of things there between products and the two platforms that we're working right now. There's also one on 49 and there's one that's unrelated to that. And those will be out as abstracts a little over a week. So I think by AACR. So we'll be able to answer more of that question as those abstracts are released. In next week or so and then beyond that, obviously, we'll have more substantive information available on the posters for all of those.

And maybe just one follow-up on the ZymeZo [ph]. You talked about how the importance of partnership to this program. And it seems that you're already in discussion with a couple of potential partners. When do you think that it will be a good time to bringing the partner for NSCLC and is there a bar that you need to hit for the Phase II that you're doing in NSCLC and also metastatic breast that you need to hit for before these partners jumping in? Thanks.

Yes. Good question. I mean, obviously, we do not have clinical data in common exclusive with other standard of care. So that's a big part of the value proposition for ourselves and partners that we'd like to generate that data. Obviously, having early part of the discussion is great because it helps design clinical program. So we like doing that. I think our current investment thesis around 249 is it's a strategic asset, it's not core to the five and five strategy, but we think it's digitally valuable asset that we'd like to invest incrementally in at this Phase II clinical development stage. The goal after that is to get an ex-US partner to work with us. If we get clinical data, it shows that the agents should go forward. We'd like the terms of that deal to be valuable enough to fund the potential for us to retain the US commercial rights and develop that further to market after the partnering deal is not off our balance sheet. So we have the data that supports a partner being able to have a transaction, which is valuable enough to be able to undertake that as well as have clinical data convinces ourselves that it's a reasonable undertaking to retain the US rights for further development and commercialization of ZymeZo ourselves. And so we also have to begin ourselves there is a potential that we could do a global licensing deal with one party that was attractive to us because again, ZymeZo affect the five and five strategy we have for the non-HER2 assets that we're generating behind ZymeZo. I mean to get that, I believe we need some indication, as I mentioned, that ZW49 can be effectively combined with center care in indications that matter and show some interesting signals of efficacy, to show there's a registration pathway for that agent to be a second-line agent or be second choice HER2 ADC behind TDX team, which is very commercially attractive, especially, non-small cell lung cancer and the breast cancer indications as well as some of the other ones that are still -- still evaluating. So I think some of that combination data is going to be necessary to convince a partner on the value that we'd be looking for, but also convince ourselves it's a worthwhile asset to retain the US rights.

Great. Thanks for taking my question.

Thank you. Our next question or comment comes from the line of Charles Zhu from Guggenheim Partners. Mr. Zhu, your line is now open.

Hey guys. Thanks for taking the questions. My first one, perhaps on zanidatamab in front-line gastric cancer. I'm kind of wondering, given that you've had that recent Zani plus chemo data earlier this year as well as what we saw from ASCO of 2022 last year from BeiGene. I guess with the potential update from the single-arm Phase 2 later this year, any color around like how much more confidence we could obtain the potential additive clinical benefit of layering on a PD-1 on top of your regimen? Thanks.

Yes. I mean, the easiest way to answer that question would be the complete the Phase 3 study is going on now, which is fully randomized to 1:1:1 to try chemo, does any chemo doublet and the triplet including making it simpler. So, the best way for us to answer that question is include all the patients finished the study, re-dose PFS, and [Indiscernible]. Look at the subpopulation analysis that exist in the study that's pre-specified to be able to answer that question. That’s what we're working for as expeditiously as we can. Obviously, the data we put in January is pretty encouraging to KOLs and ourselves and guys in BeiGene on the doublet. Hopefully, we'll get a chance for an update on additional data from the triplet that they put out last year and get some more understanding of what that looks like or there's going to be more patient numbers in that. There's a longer-term follow-up. So, there might be something more to read into that. But obviously, the reason we're doing a large multinational, randomized study is to try and provide clarity on the answer to that question that you have.

Got it, great. And maybe one more question on zani zov, perhaps a bit of a follow-up as to something that's already been kind of asked a bit. But during your prepared remarks, I think you had mentioned something about the predetermined benchmarks that could justify further development beyond the Phase 2s and long as well as post and HER2 breast cancer. Any additional color around what those could possibly be, or how -- what was your thinking was in generating some of those benchmarks? Thank you.

Yes. I mean we've obviously like to start with some predetermination of what does clinically meaningful data look like in combination in the indications that were in study. So, we have some data that we've predetermined that we think would be meaningful and would be encouraging attract next to a partner and would be encouraging for us to think about originating the US rights of zani zov to further development with the proceeds from partnership and use that as our first commercial on-trade the US. So, we're pretty that ahead of time, which is a really good process to work through. It's obviously totality of data matters and quality of patients and quality of data matters. But they also all predetermined the same way that others will do. And I think once we generate that data will some ideas of what we think about moving forward or which indications makes the most sense to move forward.

Got it, great. Thanks for taking the questions.

Yes. No. And we feel, we've done a lot of work since I got here a year ago on looking at the indication, the commercial market reserves, the ad boards you've done, we just did one recently in Japan in January, which we weren't able to do earlier because of COVID. So I think they have a pretty good sense from potential or partner discussions and our interactions of where ZW49 would have to generate data to be a fit for moving forward past time.

Thank you. [Operator Instructions] Our next question or comment comes from the line of Andrew Berens from SVB Leerink. Mr. Berens, your line is open.

Hi. Thanks. A couple of questions for me on the ZW49 combination strategy at Checkpoint, can you share any preclinical data that you have to support combination strategy? Do you have any concerns that keratitis could be exacerbated by immunotherapy as ocular toxic is known side effect with Checkpoint inhibitors? And then what do you think the regulatory strategy will eventually be demonstrate that ZW Board now will be added to the background efficacy you would see a Checkpoint inhibitor alone?

Yeah. Good question. I don't think we've disclosed any of the preclinical data we would have on the combination. We don't believe there will be any – as you said, any further impact on the keratitis. But it's one of the reasons you run combination studies in cohorts and study them partly. So we'll do that to be able to confirm that. Obviously, one of the benefits of ZW49 is HER2 ADC is the tolerability issues that we have to deal with are limited to grade 1 and grade 2 keratitis, which don't cause a significant discontinuation of patients on our clinical studies and don't provide a substantial amount of dose reduction. Beyond that, we don't have neutropenia is neuropathy drug pneumonitis trial we have any signals of that. So obviously, we think the tolerability profile means that you can provide an effective combination without overlapping toxicities. And we think there maybe some synergies between P1 and ZW49 worked on payload and that might be from a mechanism standpoint. We will have one abstract at AACR around some initial thoughts around the mechanism of ZW49 that might provide some additional information to that. Obviously, moving forward in non-small cell lung cancer, I mean, PD-1 is use there with – in a variety of different indications, including another known alpha mutations. So there's some good data already on existing around the use of those at that indication. We, obviously, have to show that adding ZW49 to that the PD1 specifically in population provides a benefit for permanent. So that's a part of what we're doing in the design of the cohort that we have in both the HER2 expressing, HER2 amplified, HER2 mutant population in non-small cell lung cancer. In addition, on the breast cancer side, PD1 has been very effective in it’s use -- indication studies in breast cancer, but don't see if there is a PD1 and if we want to be more useful in indication because of this synergistic effect that might occur with the oral and PD1. So we'd like to explore that clinically and look at that data to see if that's accurate or not.

Okay. Thank you.

Thank you. Our next question or comment comes from the line of David Martin from Bloom Burton. Mr. Martin, your line is now open.

Thanks for taking my questions. First question, regarding the Phase 2 indications for ZW49. When you presented Phase 1 data at ESMO last year, I think there was one lung cancer patient there were relatively few in HER2 failures and a few HER2 low patients. Post that presentation, did you then focus your recruitment on patients that fit the Phase 2 characteristics and will we see larger cohort or larger groups of those patients in the updated data later this year?

Yeah, Steve, that's accurate. So, obviously, after the cutoff for ESMO we continue to recruit the Phase 1 study in monotherapy, both to test the weekly dosing, which we were doing, which we will report out on, but also to continue to recruit additional patients on monotherapy at the recommended Phase 2 dose of 2.5 mgs per kg every three weeks. And we focused on enrolling patients that were closer to our strategy going forward in combination. So hopefully, of that data set, which will put out, we haven't even guided yet for this year, but we'll do that as we we're able to be specific, you should see additional monotherapy data and activity was going to be 49% in some of those patient populations where it would have been nice to see more before the ESMO cut off. And obviously, that leaves a little bit of our thinking going forward into looking at the combination of strategy of just making sure we've got reasonable contribution single activity and the highest quality patients we can attract.

Great. And will the Phase IIs be randomized? Like, I assume, there'll be a dose escalation single arm initially, but then will they each turn into randomized trials?

Yes. We haven't given any specific yet about the core design. We will do that in all its up on control. Obviously, we're trying to just go quickly, recruit the right patients in the right cohort to answer the question as to whether we have a value proposition year with Zenith or not. And if we do, then be able to move really quickly into a registration pathway. And so, there's a lot of factors we're considering how we're designing and executing these studies. So I think once it on control start, we're happy to answer those questions about why we designed it the way we did.

Okay. Thanks. That's it for me.

Thanks you.

Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.

That's great. Well, thank you for your attention today and for your questions. We have made a lot of progress last year in Zymeworks. And I think 2023, we've got really good momentum across the business. We're really looking forward to having a great AACR coming up in April and those abstracts will be available publicly soon. We're very encouraged to have 11 different abstracts accepted for this meeting. Last year, we had zero. So we're really looking forward to having a fulsome disclosure of the products and platforms in the early R&D group in the 5x5 strategy that we have and talking more about that, and we look forward to doing that very quickly. So thank you for your time and attention. Look forward to reporting more progress as we move forward through the year.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.