Andy Berens, senior biotech analyst at Leerink Partners. Thanks for joining us on day one of our healthcare conference. We're very happy to have with us Zymeworks, Sabeen and Adam. Thank you for joining us.
Absolutely.
You guys have had a big year so far. Congratulations.
Thanks. Appreciate it.
Had a very positive trial, which we'll talk about, run by you guys with Jazz. why don't we start with an overview of the company, for those that may not be completely familiar with you?
Sure. Zymeworks has been around for, you know, quite a bit of time at this point, really experts in ADCs, T-cell engagers, and kind of fundamentally protein engineering. Zani was one of the first drugs that we developed and took all the way into the beginning of phase III programs. As you probably know, about three or four years ago, it was licensed to Jazz and they completed the phase III clinical trial and obviously the gastric data read out positive at ASCO GI this past year. Lots of great progress and lots of great success on that front.
You know Zani has fundamentally given us a pretty substantial foundation in terms of the milestones and the royalties that we have from Jazz that we can employ into future investment into the portfolio and into the pipeline.
As you may have seen from the announcements that we had, you know, towards the end of last year and then early this year, really evolving to this kind of an organization that is focused on R&D and partnerships, not that we'd never say never, but the focus is not to take drugs in the future into commercialization or into pivotal phase III programs, really doubling down on our R&D expertise and thinking about how do we redo Zani again, or how do we redo Pasritinib, which is the KLK2 T-cell engager that we licensed to J&J, and really leverage our own expertise and think about the deployment of capital to continue to develop more partnerships and more opportunities. Happy to expand on all that stuff.
Yeah. Well-
... that'll get us going.
Okay. Why don't we start broad and then we'll.
Yeah
... into some of the individual programs. What I know you guys, recently, you shifted gears a little bit, so can you give us an overview on how the company's strategy will look going forward?
Yeah. I think of it more as an evolution versus a revolution, right? This is not a dramatic change in the direction of who we are or where we wanna go. It was just again, the recognition that, you know, Zani's pretty amazing and grounded in our biology and our protein engineering. Same with Pasritinib and KLK2. What we've decided to do is to think really carefully about how we deploy that capital that we now have access to as a result of, you know, high teen digit royalties with Jazz and over $440 million in near term milestones.
We've raised quite a bit of capital, or we have access to quite a bit of capital, so then the obvious question comes down to how do we most effectively deploy that, and where do we put it? There really are three different buckets that we think about deploying capital into. The first is into the pipeline itself, right? That's, and Sabeen can talk about that, and we can get into, you know, the folate receptor alpha program and GPC3 and the other internal pieces. The other component, and you probably were alluding to, is that we are building an asset aggregation business within Zymeworks.
By that I mean we are in the creative deal-making business where we are looking to leverage our own internal expertise, and our own internal R&D capabilities to diligence companies, to diligence products, to acquire products, to bring them in-house, to further develop them for the future, for the purpose of future partnerships. That's not necessarily different than, like, how we think of our own internal pipeline. Essentially, it's an externally sourced pipeline leveraging business development as a result of, or because of the capital that we now have access to, thanks to Zani. You have these two different sources. The other piece I guess that's also important to appreciate that you've seen is that we've been pretty aggressive in buying back stock.
Okay.
We've authorized $120 million in stock buyback in the last year. We've implemented about 62 or half of that, $62 million or half of that. That's on the heels of another $80 or so million that we bought back last year. Really kind of fundamentally thinking about how do we deploy this capital, all the royalties, all the milestones from Zani, from both from BeiGene and from Jazz most effectively to provide the best shareholder return and the best return on the investment. We look across those three buckets, the internal pipeline, the R&D pipeline, and then the share buybacks as, you know, means of determining which makes the most sense at a given time.
Okay. I think one thing that's worth mentioning that maybe a lot of investors that haven't worked in the pharma industry or in BD, a big part of that success in that area is your R&D team, right? I mean, that's part of the diligence process is to have a good BD team that helps you make the right decisions on the deals and how to structure the deals and the costs and everything and the opportunities.
Yeah. I mean, we kind of fundamentally think, like, our right to win in the areas that we can compete in are where we can leverage our own internal expertise to what you're saying, right? Like, this is, this is where having our own internal R&D group not only can look at programs to diligence, but when they bring them in, can own them and help develop them further to give them the best chance of success. It, it really is a differentiating aspect as you think about your more traditional royalty shops that are just buying a royalty, you know, for a financial transaction. We're actually looking to take, not only in addition to the royalties, looking to bring some of those key programs or pieces in-house and then develop them further.
When you think about the kinds of deals that we would love to do or the places that are really, you know, in our, in our sweet spot, it comes down to the companies that have perhaps royalties or access to royalties. Is it not working? Okay. Perhaps royalties or internal R&D assets that are interesting, in addition to, of course, like R&D tax credits and capital. Like, we can assign value to lots of different components in a deal that a more traditional royalty company would really only assign value to one or two components of. I assume we're allowed to take questions, right?
Yep.
That's what this is all about.
[audio distortion], given what you just said, you're finding assets, bringing them in for royalties, can you just talk about then why you did a deal then with Royalty Pharma recently?
Yeah
giving up your royalties, if you like, for an asset
Great
in capital approach?
Great question. It was debt, it was debt financing, to clarify, right? It was $250 million in debt financing, and the way that the terms of that deal works is that we retain 70% of the royalties and Royalty Pharma gets 30% until the total of $250 million is paid back, and it's capped, essentially, you know, at a timeframe. It allows us access to capital at a very low cost of capital that we can then deploy that we think we can provide a higher return on the investment. It really is. Then once the debt is repaid at the 1.6x or 1.9x value, essentially then it comes all back to us 100%.
It's a vehicle for accessing capital using debt financing. We didn't give up all of the royalty. Great, great question. It's something that often gets lost in the mix.
Yes, I would add that when we do the diligence for or asset or companies that we wanna bring in for royalties or to bring the assets in, we are very clear about what do we want, what kind of potential they may have. We utilize our internal teams and our capabilities in oncology and autoimmune to be able to do that. Particularly when we're talking about assets we're thinking of bringing in, we really wanna be clear about what we believe the asset may be able to attain, and what do we wanna do in terms of development, in terms of cost, in terms of timeline, and what do we want to de-risk in order to further partner it out for future royalties.
Why don't we talk about good questions about, you know, the decision to out-license. I It was kind of the direction I was headed in terms of what the sweet spot is. Like, what, you know, obviously, it may change for different programs, but where do you see Zymeworks' sweet spot? How far do you think you'll be developing drugs before looking to monetize them in a similar fashion?
Yeah, I wish I could give you an answer that, like, we're gonna do everything at this point. It really is fit for purpose. You know, fundamentally, we look at it as the. We know what the Zani royalty is worth, so any investment that we make with that capital has to be better than that, right? Like, it really does give us a very strong backstop or a basis for, like, okay, if you're gonna do something, it's gotta be better than what that bar is.
To your question, Andy, like, we'll look at it from what is the return on the investment or what is the inflection point that's created by taking this drug into the clinic or taking this drug through dose escalation or taking this through dose optimization or at whatever point we decide, then we'll just have to make some trade-off decisions internally in terms of where is the best return on the invested capital as we think about deploying it.
Yes, that would vary from one asset to the other because depending upon the mechanism of action in term, you know, of the asset, how well-validated it is, and where we are. I can give you certain examples from our current portfolio. For example, we have our folate receptor alpha ADC, which we believe is best in class. We've taken it through dose escalation, shown some clinical data. We are now taking it into dose optimization, where we really wanna show to ourselves and to potential partners that we are really best in class before we want to take it further.
That's an example where we've taken something towards the end of phase I, that we have our GPC3 molecule, which is a more novel target for an ADC and an indication where we don't have any antibody drug conjugates or cytotoxics. That's an area where we want to show that that is, that this agent is safe and effective in that population. Beyond that, we will work from our capital allocation perspective in terms of... and return on investment perspective to see how far we want to take it in-house versus partner it out. Beyond that, we have a number of preclinical molecules where which we're gonna decide how far we're gonna take it into various stages of development.
As an example, our, the KLK molecule that we, T-cell engager that we licensed out to J&J was done very early at the discovery stage, but it was developed on our own Azymetric platform, so it did validate our platform, and it gave us pretty substantial future royalties at a very low cost of capital. Whereas zanidatamab, we took it all the way to phase III before we partnered it out with Jazz. All our options, and they really depend upon each asset, the competition, the competitive landscape, the interest in where we think we can get the best return on capital for that asset and for our portfolio as a whole.
Okay. Why don't we shift gears a little bit and talk about Zani? It's definitely a success story, clinically. You had big read-out in gastric cancer. What, you know, what did you guys show... You know, I know, I guess when we started doing diligence on it, the thing that stood out to me, which was interesting because I was at the ASCO in 2005 where, Herceptin got the standing ovation, and I just have always thought that was one of the biotech success stories. The doctors, even before the data came out, just seemed very ready to replace Herceptin in gastric cancer. I don't think it's had the same success maybe, or perceived success as it has in breast cancer. What, what did you guys...
Can you just walk us through the data set that you presented or that you and Jazz presented at MB1? Can we do it?
Yeah.
You wanna do it?
I can keep going. I'm here. We were very excited about the data that was presented at ASCO GI for zanidatamab. I mean, as I can walk you through the clinical trial design, we had this is in a first line, all-comer population in GEA, which is gastroesophageal cancer. One of the things that distinguishes that we did include patients with esophageal cancer. A lot of the trials in GE included only patients with gastric and GE junction tumors only. This trial included patients with all levels of PD-L1 expression. It had three arms. The first arm was comparing zanidatamab with a checkpoint inhibitor, Tisle, with chemotherapy. The second arm was Zani plus chemo, which was both of these arms were compared against the standard of care, which is tras and chemo.
We, as we expected, the trial results were widely positive, showing really good benefit of zanidatamab in this patient population. We saw positive PFS for both the triplet and the doublet, showing a PFS of around 12 months in that population, which is much higher than what we've seen with prior therapies. We also saw positive overall survival data for the triplet regimen, which was very unexpected at this first interim analysis, 'cause we were expecting that the survival data was gonna be relatively immature at this point. We did see very good trending survival data for the doublet arm, which we hope that we're gonna continue to follow at the next interim analysis, which is scheduled for later this year.
With that, I would say that we're excited with the prospect of Zani. The safety data looked very good. Zani seemed very tolerable. So some of the key safety events that people were concerned about were such as diarrhea, for example, had pretty low rates of discontinuation. So we're expecting that I'm speaking to the KOLs. It's expected that this is transformative data that is gonna change the standard of care in this patient population. We expect Jazz. Jazz has already indicated that they have filed for this in the U.S. using Real-Time Oncology Review. We're expecting this to be approved in the latter half of 2026 in the U.S.
Just to clarify, the different buckets that you mentioned, you know, PD-L1 positive and negative, do you think that Zani is positioned, 'cause obviously KEYNOTE-811 with Keytruda is the standard of care right now? Do you feel like it's gonna replace KEYNOTE-811?
We believe that zanidatamab results are quite transformative, and it will replace trastuzumab in that population. Where I think it remains to be seen the benefit, what which patient population is the benefit for the checkpoint inhibitor. I do think that there are a certain number of patients who will benefit from the addition of checkpoint inhibitor based upon the results that we've seen with previous data from Pembrolizumab and also from what we've seen with our data. We saw positive OS, we saw longer survival data, which is driven by improved duration of responses in that population. We certainly believe that a large percentage of patients do benefit from the checkpoint inhibitor as well.
Right. Okay. Yeah, I mean, the feedback, we did a lot of physician calls through MEDACorp. The feedback we got, you know, pretty universally was, you know, that Zani is very clearly superior, especially on durability versus Herceptin. They're gonna replace it across the board, and then they'll decide which patients will benefit from a checkpoint inhibitor. It was interesting that they weren't. Some docs were willing to replace tislelizumab, the B one checkpoint that's in your trial with Keytruda. It didn't sound like most would. They would exchange the checkpoint inhibitor to, you know, with the documented benefit from Zani.
It was really Zani, the efficacy over Herceptin that seems to be driving the demand, will drive the commercial demand across the whole spectrum. Which was interesting, 'cause we weren't sure, you know, how that would be perceived, 'cause obviously Keytruda is standard of care right now and the docs seem to be willing to change that, to give patients Zani instead. It was very, very interesting to get that feedback. Okay. In terms of, you know, the other aspect obviously is you have some breast cancer trials ongoing. How do you look at the potential? I think Herceptin, more successful probably in breast cancer, and then there's obviously ADCs have been very successful and transformed HER2 positive disease.
how do you think about those trials based on what we saw in gastric? Do you think it's gonna be the same results?
Absolutely. I mean, we see the benefit of zanidatamab in GEA, and we see its benefit over tras pretty clearly. I would say that gastric is a more difficult population for a HER2 inhibitor because of the heterogeneity of HER2 expression in gastric cancer. Breast cancer has always been a little more homogeneous. I do believe also based upon the strength of the data that Jazz has presented for Zani and chemo combinations in breast cancer in phase II trials, that breast cancer data evaluation that they're doing in phase III is likely gonna be successful.
Okay.
I mean, we can already see from the interest in those trials, Jazz has communicated that those trials are enrolling faster than expected. They are expecting the trial to complete enrollment by the end of this year.
You're positioning this as an option for patients that have failed Enhertu. There really is not that indication from any other agent that I'm aware of so far. Maybe others are trying to do the same thing now, but it could be the first agent to get approved or have a successful trial, I guess, that piggybacks off of Enhertu.
Absolutely. I think because of the success of Enhertu, for a lot of agents, it's been hard to balance where, for the last few years, like how to plan their trials in that setting. I think with zanidatamab, Jazz has gone to a good setting, just going post-Enhertu in the second and third line setting. In that way, as Enhertu moves forward, they can continue to move forward behind it.
Okay. The thing I liked about the Royalty Pharma deal that you signed was you didn't give away everything. You kept 70% for yourself. You also capped off the upside. I mean, I guess Royalty Pharma, if the launch goes well and expands into breast cancer, you know, they get paid off faster, so they still get their, what was it, $1.6? Is that what the-
Yep.
They benefit too, although you benefit more because you get, they get the full royalty back. Is that right? Is that how it's structured?
Yes, right. As I said, we get 70% from the get go. They get 30% until they're paid off. Then if it's by the end of 2030, it's 1.6x, and if it's beyond that, it's 1.9x that they get paid, until the $250 million plus X is paid, in which case we keep the full royalty moving forward.
Okay. If Zani is as successful in breast cancer, you know, as in gastric, what does that do to the Jazz relationship, and what does it do to the Royalty Pharma deal to monetize that?
I mean, I think if like with our projections, we think it should be paid the $250 million debt will be paid off by 2030, right? Based upon the projections, which is maybe what you're getting at. In terms of what does it do for Jazz, I mean, I think everybody will be happy that the drug continues to perform well and help patients and grow the market share and compete in the class.
Okay. Why don't we shift gears now to beyond Zani? What comes next? I mean, obviously, we talked about you're gonna continue to in-license or look for opportunities to in-license, what about the internal pipeline? What are you guys, you know. Let's talk about your ADC strategy, your TC strategy.
Regarding our ADCs, we have two ADC assets in the clinic, I can talk a little bit about our ADC strategy, which is quite distinct from a lot of our competitors. We've utilized on our Azymetric platform regarding for antibody design. We are very careful in choosing the design for the antibodies, for the ADCs we choose. Like, for example, for folate receptor, we have our own antibody that internalizes very well and utilizes a unique epitope of, for folate receptor. We also have our own internal topoisomerase payload, ZD06519, which has similar potency to deruxtecan, but it's not exactly the same. We've been very careful in utilizing our linker payload system.
We think about it as a balance of using very distinct high internalizing antibodies which get into the tumor and having a moderately toxic payload with the right size linker, which is not super tight and not super loose, so that we can have the bystander effect. This minimizes the toxicity for the Antibody-Drug Conjugates and helps us to dose higher. That's what we've employed in our ADCs that are in the clinic, and we saw that with some of the early data from our folate receptor alpha ADC that was presented last year at the Triple Meeting.
A few things that to note there is that we've shown that we've got a very wide therapeutic window because of our ADC construct and design, and that can be helpful in a number of settings because we can adjust our dose for the highest potency, where we wanna see the highest efficacy, or use a moderate dose for combinations as we go into earlier lines of treatment. We still maintain that we have potential best-in-class for folate receptor alpha ADC. We are continuing very well with dose optimization with that asset, and we'll be showing some data from this trial later this year at a peer-reviewed medical conference for full dose escalation and following that for optimization as well.
Moving to, we are working with, for the potential partner with, along with our strategy to move that into further studies into registration. Moving to our GPC3 antibody-drug conjugate. It's moving very well in phase I dose escalation. We have, for both of these ADCs, we have global phase I trials. We're enrolling patients in North America, Europe, and Asia Pacific region. We are hoping that as we have, mature data and we have good proof of concept, we would convey data publicly as well. We're excited about GPC3 because this is an area of very high unmet need where previously antibody-drug conjugates and cytotoxics have not been very successful because of lack of a therapeutic window. Safety is very paramount important in this patient population.
Given what we've seen with the therapeutic window from our platform and from the data that we've seen validated with our folate receptor alpha ADC, we feel confident that we should be able to overcome that. Beyond that, we have molecules that are preclinical. We have our T-cell engager platform. We've moved forward with a tri-specific T-cell engager, which is building upon the ability of previous T-cell engagers. This is our first one that is gonna be ready to go into the clinic later this year is our DLL3-targeted T-cell engager. DLL3 is a very well-validated target in small cell lung cancer. What makes us unique is we're our tri-specific format is CD3, CD28, and then engages DLL3. That's very uncommon because most other formats are bispecific or different CD tri-specific formats.
We think that this format is gonna help us increase our efficacy profile because the CD28 engagement is gonna upregulate immune activation and also improve upon the safety. With that, our next I think the Our molecule or our asset is our first autoimmune asset, which is IL-4/IL-33 combination. This builds on the our Azymetric platform for bispecific antibody development, this is gonna be active in COPD and asthma, and is planned to go into the clinic towards the end of 2026. Beyond that, we have a number of molecules, both ADCs as well as T-cell engagers that are earlier in development. We have a RAS ADC that is preclinical. We are very excited about that. That's a new payload format that we will be showing some preclinical data later this year.
Okay. What about, last but not least, you mentioned the J&J relationship.
Yes
briefly, why don't we talk about that relationship? You just had some data at ASCO GU. Can you just run through that?
Adam, you wanna take it?
Yeah, sure. KLK2 is a T-cell engager. It's a KLK2 CD3 T-cell engager that we developed and licensed to Janssen for J&J. They put out some data about a year ago initially, and then updated data at ASCO GU two weeks ago in combination with docetaxel. They've announced three registration trials with that compound, which is super exciting. You know, some of the world's leaders in prostate cancer. The details of 2 of them have been disclosed. Though two of the three, they're both in mCRPC, so advanced prostate cancer. One is monotherapy, kinda later lines post-everything, and the other 1 is in combination with docetaxel, earlier line, like front line mCRPC, kinda post-ARPI in the earlier setting.
Yeah, super excited about Janssen's enthusiasm or J&J's enthusiasm for the molecule, obviously grounded in the data, and excited to see where those registration trials go and what else they do with that compound.
Great. Let me see if anybody in the audience has questions before we wrap it up. Thanks, Sabeen. Thank, Adam.
Thank you.
Thank you.
Congratulations on all the progress.
Thank you.