Zymeworks Inc

NASDAQ:ZYME

Earnings Call Analysis

Zymeworks Reports Key Achievements and Strong Financial Position

Zymeworks reported significant advancements in its clinical programs during Q2 2024. The company received FDA priority review for zanidatamab's Biologics License Application for biliary tract cancers, aiming for approval by November 2024. European and Chinese regulatory reviews are also progressing. Financially, Zymeworks reported $29.3 million in revenue for H1 2024 and a decrease in operating expenses by 11% year-over-year. The company had $395.9 million in cash as of June 30, 2024, anticipating this to support operations into H2 2027. Zymeworks plans to initiate Phase I trials for ZW171 and ZW191 later this year.

Zymeworks Q2 2024 Highlights: A Critical Regulatory Milestone

Zymeworks achieved significant progress in the second quarter of 2024, particularly with their key asset, zanidatamab. The U.S. Food and Drug Administration (FDA) granted priority review for the Biologics License Application (BLA) of zanidatamab as a second-line treatment for biliary tract cancers (BTC), targeting a decision date of November 29, 2024. This is coupled with validation from the European Medicines Agency for its marketing authorization application, indicating a robust international regulatory strategy.

Partnership Progress and Revenue Streams

As part of its partnership with BeiGene, Zymeworks received an $8 million milestone payment for the BLA acceptance in China, reflecting the collaborative strength and financial future of the company. Overall, the revenue for the first six months of 2024 amounted to $29.3 million, which marks a decline from the $61 million reported in the same period of 2023. This drop can be attributed to a prior $20.1 million credit to Jazz for contractual amendments, but it also signifies the company's transition phase as it focuses on developing its pipeline.

Operational Efficiency: A Look at Cost Management

Zymeworks demonstrated operational discipline by reducing its overall operating expenses to $110 million in the first half of 2024, a decrease of 11% year-over-year. This reduction is primarily driven by lower research and development costs tied to the zanidatamab program, now managed by Jazz. The company's strategy to streamline expenditures while maintaining a focus on innovation positions it for more sustainable growth.

Upcoming Catalysts: Potential for Future Growth

Investors have much to look forward to, as Zymeworks anticipates top-line data from the HERIZON-GEA-01 trial to be available in Q2 2025. With an eye on expansion, Zymeworks is also set to initiate Phase I studies for their new candidates, ZW191 and ZW171, in the latter half of 2024. The firm plans to submit Indications for New Drug applications (INDs) for ZW220 and ZW251 in 2025 and is expected to nominate a novel T cell engager product candidate soon.

Strategic Shareholder Value: The Buyback Program

Recognizing the potential undervaluation of its stock, Zymeworks announced a $60 million share repurchase program, with $30 million set for immediate repurchases in the second half of 2024. This strategic allocation of capital aims to bolster shareholder value while keeping an adequate liquidity runway extending into the second half of 2027. This decision reflects management's confidence in the company's future and is supported by a careful assessment of financial resources.

Financial Stability: A Strong Cash Position

As of June 30, 2024, Zymeworks reported cash resources of $395.9 million, a decrease from $456.3 million at the end of the previous year. Despite the drop, the available resources, alongside anticipated regulatory milestone payments, position the company strongly for ongoing operational and research endeavors. This stability offers reassurance that the company is equipped to pursue its innovative development pipeline effectively.

Shift in Strategy: Discontinuation of ZW49

In a notable strategic shift, Zymeworks decided to discontinue the clinical development of zanidatamab zovodotin (ZW49) due to inadequate viability in the current pipeline strategy, leading to a non-cash impairment charge of $17.3 million. This move allows for a clearer allocation of resources toward more promising candidates, strengthening the overall strategy of advancing only high-potential therapies.

Key Partnerships and Future Outlook

Zymeworks continues to develop its operational partnerships, particularly with Jazz and BeiGene, focusing on complementary strengths in drug development. The anticipated market entries and ongoing trials illustrate a commitment to establishing its therapies as standard care options in oncology. Furthermore, as the company advances toward critical milestones, continued investor engagement will be crucial to maximizing value and growth.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to Zymeworks Second Quarter 2024 Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Shrinal Inamdar, Director of Investor Relations. Shrinal, please go ahead.

[Shrinal Inamdar, executive]

Thank you, operator. Good afternoon, and thank you for joining our second quarter 2024 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 on 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.

In a moment, I will hand over to Bijal Desai, our VP of Finance and Strategy, who will be discussing recent corporate updates, along with our financial results for the second quarter 2024. Following this, Dr. Paul Moore, our Chief Scientific Officer, will talk about key highlights for our second quarter, including the investigation of new drug application clearances for ZW171 and ZW191 by the FDA. At the end of the call, Bijal, Paul, and Ken Galbraith, our Chair and CEO, will be available for Q&A as well as Pranshul Chauhan, Associate Medical Director for Early-Stage Development for ZW171. As a reminder, the audio and slides from this call will also be available on the Zymeworks website later today.

I will now turn the call over to Bijal.

[Bijal Desai, executive]

Thanks, Shrinal, and thank you, everyone, for joining us today for our second quarter 2024 earnings call. I will begin today's call with an overview of key achievements from our development programs as well as our financial results. In the second quarter, we achieved key milestones regarding the global regulatory review of our late-stage asset, zanidatamab, including being granted priority review of the Biologics License Application or BLA for zanidatamab as second-line treatment for biliary tract cancers or BTC in the United States with a target action date of November 29, 2024. Similarly, the European Medicines Agency has validated the Marketing Authorization Application for zanidatamab in second-line BTC and regulatory reviews for zanidatamab in BTC remain underway in China. We are pleased to have received a milestone payment of USD 8 million in July under the terms of Zymeworks Asia Pacific license and collaboration agreement with BeiGene in conjunction with zanidatamab's BLA acceptance in China.

Our partner, Jazz, has confirmed that the pivotal HERIZON-GEA-01 trial evaluating zanidatamab in first-line gastroesophageal adenocarcinoma or GEA is ongoing and enrollment remains on track. Based on a blinded assessment of progression events, Jazz estimates top line progression-free survival or PFS data will be available in second quarter 2025. Jazz continues to track events in the trial relative to the initial protocol assumptions. Near term, we look forward to a potential approval for zanidatamab in second-line BTC in the United States and based on the expected time line and subject to approval, Jazz is aiming to launch zanidatamab in the United States for second-line BTC in the fourth quarter of 2024. Together with our partners, we look forward to opportunities where we can continue presenting promising data that support deep and durable responses, further highlighting zanidatamab's potential to provide meaningful benefits for patients. This includes the first ever overall survival findings from the Phase IIb HERIZON-BTC-01 clinical trial for zanidatamab presented at the American Society of Clinical Oncology Annual Meeting by our partner, Jazz.

Results from this long-term analysis of the trial indicate that zanidatamab as monotherapy demonstrated sustained and durable antitumor responses in previously treated patients with HER2-positive BTC and support the clinically meaningful benefit of continued treatment with zanidatamab. The safety profile in all enrolled patients remained manageable with favorable tolerability compared with the initial analysis. In addition, we are pleased to report significant progress for our wholly-owned pipeline, which transitions 2 of Zymeworks early-stage programs into clinical candidates. We have successfully cleared IND applications by the FDA for ZW191 and ZW171 with first-in-human studies planned to initiate in the second half of 2024 in the United States, and we are actively progressing applications seeking regulatory permission to commence clinical studies for ZW191 and ZW171 in other non-U.S. jurisdictions in the second half of 2024.

We -- with these advancements in mind, following a strategic review of our emerging wholly-owned pipeline, we made the decision to formally discontinue the clinical development program of our HER2-targeted antibody-drug conjugate, zanidatamab zovodotin, also known as ZW49 or zani zo. This decision aligns with our commitment to focus on the development of our early-stage programs, which we believe have the potential to be best-in-class and/or first-in-class therapeutics. By reallocating our resources, we can focus on accelerating the progression of ZW171 and ZW191 into the dose escalation stage of the respective Phase I clinical trials as well as the planned IND filings for ZW220 and ZW251 in 2025.

We believe zani zo remains a promising Phase II-ready asset, and we continue to explore partnering discussions where zani zo may provide complementary coverage to a pipeline for non-small cell lung cancer, breast cancer and other indications. Our team extends heartfelt gratitude to the patients, families and health care professionals involved in the zani zo development program. We remain committed to the highest degree of scientific rigor in our development processes with the goal of focusing on candidates with the potential to deliver the greatest benefit to patients. Our broader oncology development program continues to be a priority with 2 Phase I trial anticipated to commence in 2024, including enrollment of patients with non-small cell lung cancer.

Turning to our financial position. This afternoon, Zymeworks reported financial results for the second quarter of year 2024. Zymeworks' net loss for the 6 months ended June 30, 2024, was $69.3 million or $0.91 loss per diluted share compared to a net loss of $75.5 million for the same period in 2023. The decrease in net loss was primarily due to lower research and development and general and administrative expenses, which was partially offset by a decrease in revenue and an impairment charge recognized in 2024 related to zanidatamab zovodotin. As reported, our revenue for the 6 months ended June 30, 2024, was $29.3 million compared to $42.6 million for the same period in 2023. Revenue for the 6 months ended June 30, 2024, included $20.7 million for development support and drug supply revenue from Jazz, $8 million of milestone revenue from BeiGene in relation to the acceptance by the CDE of the NMPA in China of the BLA for zanidatamab for second-line treatment of HER2-positive BTC, $0.4 million from BeiGene for research support payments and $0.2 million from our partners for research support and other payments.

Revenue for the same period in 2023 included $61 million for development support and drug supply revenue from Jazz, which was partially offset by a $20.1 million credit issued to Jazz for contractual amendments to our partnership arrangement and $1.7 million from our partners for research support and other payments. Overall, operating expenses were $110 million for the 6 months ended June 30, 2024, compared to $124 million for the same period in 2023, representing a decrease of 11% year-over-year. The decrease in overall operating expenses resulted from a decrease in both research and development expense as well as a decrease in general and administrative expense. The decrease in research and development expense was primarily due to a decrease in expenses for zanidatamab as a result of transfer of responsibility for this program to Jazz. This decrease compared to the same period in 2023 was partially offset by an increase in expenses of other development programs, primarily with respect to product candidates, ZW171 and ZW251, costs incurred for manufacturing activities to support the IND for ZW220 and other preclinical and research programs.

Salaries and benefits expenses decreased compared to the same period in 2023 due to nonrecurring severance expenses in 2023, which was partially offset by an increase in stock-based compensation expense in 2024. The decrease in general and administrative expense was primarily due to a decrease in external consulting expenses for information technology, legal fees and other expenses for advisory services, a reduction in insurance costs and a decrease in depreciation and amortization expenses compared to the same period in 2023. This was partially offset by costs due to the termination of our long-term facility lease in Seattle in 2024. During the 6 months ended June 30, 2024, we recorded a noncash impairment charge of $17.3 million as a result of the company's decision to discontinue the zanidatamab zovodotin clinical development program, which utilize the technology represented by acquired in-process research and development assets.

As of July 31, 2024, we had approximately 71 million shares of common stock outstanding and approximately 5.1 million shares of common stock issuable under prefunded warrants. As of June 30, 2024, we had $395.9 million of cash resources, consisting of cash, cash equivalents and marketable securities as compared to $456.3 million as of December 31, 2023. For additional details on our quarterly and year-end results, I encourage you to review our earnings release and other SEC filings as available on our website at www.zymeworks.com. Our strategy of refocusing the business and building a diverse clinical stage product pipeline of antibody-drug conjugates or ADCs, and multispecific antibody therapeutics continues to provide a solid foundation, which we believe will help to achieve our long-term goal of identifying additional product candidates and seeking valuable partnership options where appropriate to assist in global development and commercialization.

Based on current operating plans, our strong financial position of $395.9 million in cash resources as of June 30, 2024, together with certain anticipated regulatory milestone payments gives us an expected runway into the second half of 2027. We may also be able to extend this runway or fund an expanded R&D scope through potential regulatory approval milestone payments in connection with our existing partnerships with Jazz and BeiGene or new partnerships and collaborations, which we may choose to form. In addition, pending regulatory approval, we are eligible to receive commercial milestone payments based on annual sales of zanidatamab and tiered royalties between 10% and 20% on Jazz's annual net sales and between 10% and 19.5% on BeiGene's net sales.

With that, I'd like to hand over to our Chief Scientific Officer, Dr. Paul Moore, who will provide more details regarding our wholly-owned pipeline and specifically on ZW191 and ZW171 moving into the clinic. Over to you, Paul.

[Paul Moore, executive]

Thank you, Bijal. So today, I'm delighted to be talking about our growing oncology pipeline, which is currently built on 2 fundamental pillars: modality focus and therapeutic area focus. To date, we have targeted 3 areas of high unmet medical need, gynecological cancers, lung cancer and cancers of the digestive system, while balancing ADC and T cell engagers across these various therapeutic areas. We believe this approach ensures both the broad and comprehensive coverage of these challenging diseases.

Moving forward, as we continue to progress with the development of our early-stage assets, we believe that expanding on both our modality and therapeutic areas of focus will be key in driving the growth of our pipeline in the coming months and years. This includes leveraging our deep technical expertise to combine and adapt various modalities with the aim to improve patient outcome. You will hear more about that on our plans for growth and expansion later in the year, including the nomination of our fifth product candidate, a trispecific T cell engager or TriTCE. Our strategic balance of wholly-owned ADCs and T cell engagers targeting clinically validated antigens like folate receptor alpha, NaPi2b and mesothelin underscores our commitment to deliver innovative treatments that meet the highest standards of care, not only as monotherapy but also in combination with agents that have already shown previous activity and benefit.

ZW171 and ZW191 are both designed to optimize efficacy, starting with the selection of targets with the highest level of expression. As you can see here, across ovarian cancer, mesothelin, folate receptor and NaPi2b are expressed at relatively higher levels compared to other targets such as cadherin-6, providing a broad and comprehensive coverage of ovarian cancer, something which also holds in non-small cell lung cancer. We believe that the relatively high tumor expression levels are crucial for maximizing the efficacy of our therapeutic agents, helping the ADCs and T cell engagers to effectively bind to and eliminate cancer cells regardless of modality.

By leveraging T cell killing through an [ enhanced ] 2+1 format in unique geometry, our ZW171 candidate offers a potentially robust and precise immune response against mesothelin-expressing tumors and helps to enhance our position in the competitive landscape. Similarly, leveraging a unique antibody payload linker for ZW191 offers a potential robust and effective therapy against folate receptor alpha-expressing tumors. This quarter, we have achieved significant milestones in progressing our pipeline by advancing both ZW171 and ZW191 into clinical stage development.

With the FDA clearance of these INDs, we are one step closer to our goal of providing patients with potentially best-in-class therapeutics that could improve the standard of care for these treatment landscapes. T cell engagers offer great opportunity for more effective therapies, and in particular, ZW171 has the potential to keep patients with the right range of tumors with moderate to strong mesothelin expression observed in ovarian cancer, pancreatic cancer, non-small cell lung cancer and endometrial cancer. However, the opportunity for developing T cell engager targeting mesothelin-expressing cancers doesn't come without its challenges.

For ZW171, we have taken a thoughtful approach to what a target profile would look like for this patient population. And we believe in our design approach, which uses an avidity-dependent mesothelin binding of 2 mesothelin paratopes to enable selective cystic tumor cells with high mesothelin expression relative to normal tissues and reduces the impact of soluble mesothelin and potency, potentially minimizing -- potentially minimizes off tumor on target toxicity.

On Slide 13, the preclinical data shown here demonstrates ZW171's ability to exhibit mesothelin-dependent cytotoxicity across various cancer cell lines, including lung, ovarian, colorectal and mesothelioma. In cancer cell lines with relatively high or moderate mesothelin expression, including representative lung and ovarian cancer, CRC and mesothelial lung cancer cell lines, ZW171 demonstrates potent cytotoxic effects, significantly reducing tumor cell survival at low concentrations. Importantly, in cell lines with relatively low mesothelin expression relative -- reflective of mesothelin expression on normal healthy tissue, ZW171 showed minimal cytotoxic effects similar to the negative control. We believe that this selective activity helps to ensure that ZW171 specifically targets mesothelin-expressing tumor cells, minimizing potential off-target effects and improving safety profiles.

The demonstrated efficacy across high and moderate mesothelin-expressing tumors suggests a broad therapeutic potential for ZW171, including various cancers as shown in the previous slide. Based on these promising preclinical results, we are preparing to further validate these findings in a clinical setting. We expect to dose first patient this year in our Phase I open-label multicenter study of ZW171 in participants with advanced or metastatic ovarian cancer, non-small cell lung cancer and other mesothelin-expressing cancers. The Phase I study design is now available on clinicaltrials.gov website under the NCT number, 06523803. The global study is expected to enroll 160 participants across North America, Europe and Asia Pacific regions.

Part 1 of the study will evaluate the safety and tolerability of ZW171 and Part 2 of the study will evaluate the antitumor activity of ZW171 according to the RECIST evaluation criteria, while continuing to evaluate the safety and tolerability. Inclusion criteria includes pathologically confirmed diagnosis of cancers with evidence of locally advanced unresectable and/or metastatic disease, cancers that are refractory to all available standard of care treatment, cancers for which no standard of care treatment is available while the participant cannot tolerate or refuses standard of care therapy. We look forward to reporting first patient dose in the near future and discussing progress in the coming earning calls.

Now moving to ZW191, which highlights our continued focus on targeting antigens with high levels of expression as I described earlier. As illustrated in the attached slide, folate receptor alpha is frequently overexpressed in a substantial portion of non-small cell lung cancer, ovarian cancer and endometrial cancer. In non-small cell lung cancer -- non-small cell lung cancer, adenocarcinoma, for example, over 70% of patients have been reported to exhibit folate receptor alpha positivity with significant portions demonstrating high expression levels as defined by TPS over 50% and IHC score of greater than or equal to 2 plus. Similarly, in ovarian cancer, around 80% of platinum-resistant ovarian cancer tumors express some level of folate receptor alpha with 35% scoring is folate receptor alpha high.

Endometrial cancer also represent -- presents a notable opportunity with 33% of tumor scoring that's folate receptor alpha positive and 15% that's folate receptor alpha high. By focusing on antigens such as folate receptor alpha, which are commonly expressed in these cancers, we aim to develop treatments that not only demonstrate strong therapeutic efficacy but also minimize off-target effects, potentially improving patient outcomes. We are pleased to report that the FDA has cleared IND submission for ZW191. We're working -- we're looking forward to seeing how our unique design and novel payload for this ADC translates in a clinical setting.

As we have discussed previously on these calls, our efforts on developing a novel topoisomerase 1 inhibitor or TOPO1i payload known as ZD06519 has focused on selecting properties that we expect would drive strong efficacy while maximizing tolerability, specifically moderate potency with high bystander activity. ZD06519 was designed and selected to potentially allow high antibody dose in humans compared to ADCs with more potent TOPO1 inhibitor payloads, as evidenced by the DXd ADCs. In non-human primate studies, we observed superior tolerability of the [ ZD06519 ] ADCs as exemplified at the 120 mg per kg dose of ADCs with a drug antibody ratio of 4. We then implemented well-established and clinically validated linker and antibody attachment chemistry with a balanced approach of designed instability. As you can see here in the bottom section of the table, ADCs with higher stability show an unexpected or higher toxicity compared to the DXd platform.

On Slide 17, as we highlighted in our AACR poster presentations earlier this year, we demonstrate the relative internalization by ZW191's folate receptor alpha monoclonal antibody compared to folate receptor alpha targeting antibodies [ encompassing 4 ] other ADC programs. As you can see, ZW191's monoclonal antibody in dark blue demonstrated higher levels of internalization compared to the monoclonal antibodies from [indiscernible], MORAb-202, STRO-002, and PRO1184. This observation is consistent with our decision to select the ZW191 monoclonal antibody from a larger pool of antibodies for its ability to deliver payload through enhanced internalization and our care in factoring in all components of the ADC when designing our candidates.

This type of spheroid model is more predictive of antitumor activity in in vivo models than traditional [ 2 T cell line ] models and also aids in the dissection of ADC mechanism of action, which gives us confidence in being able to replicate these results in humans. Further, for ZW191, we are pleased to have achieved the highest non-severely toxic dose in non-human primates of 60 mg per kg, presenting a compelling profile for potential efficacious dosing in our Phase I clinical trial expected to initiate later this year.

I will now hand over to Ken, our CEO and Chair, for closing remarks before we begin the Q&A portion of the call.

[Kenneth Galbraith, executive]

That's great. Thank you, Paul. We're excited to see how our data-driven approach for designing and developing both ZW171 and ZW191 translates into our respective Phase I studies, and we remain dedicated to advancing transformative therapies with IND submissions for ZW220 and ZW251 in 2025, as well as nominating our TriTCE product candidate later this year. On another business update, we're pleased to announce the appointment of Leone Patterson as Executive Vice President, Chief Business Officer and Chief Financial Officer, effective September 1st. Ms. Patterson brings more than 20 years of public company biotech experience with a proven track record of guiding strategy, finance, operations and government through multiple phases of growth.

Leone's expertise in planning and executing successful financial strategies will be key as we continue to plan for the next period of growth and expansion for the company. We're pleased to announce that our partner, Jazz, has initiated the Phase III EmpowHER trial, which is designed to evaluate zanidatamab in combination with chemotherapy after progression on an HER2, where there's an opportunity for zanidatamab to be the first HER2-targeted therapy to demonstrate efficacy and safety in breast cancer patients after an HER2 treatment. Together with our partners, Jazz and BeiGene, we look forward to sharing more data on zanidatamab's efficacy this year during peer-reviewed medical meetings where we can further validate zanidatamab's potential to improve the standard of care for these patients.

We're also looking forward to the pivotal Phase III readout -- top line data readout in our first-line GEA study by our partner Jazz, who estimate top line PFS data will be available in the second quarter of 2025. In the near term, we also look forward to an important catalyst, our upcoming PDUFA date of November 29, 2024, for our zanidatamab filing in second-line BTC in the United States.

Before we turn the call over to Q&A, I'd like to talk about the share repurchase program, which was announced via a press release concurrent with our second quarter 2024 financial report. As disclosed in the press release, our Board has authorized a $60 million share repurchase program with $30 million of the program repurchases expected to begin promptly and continue during the second half of 2024. This decision reflects our confidence in the future outlook for our business, the potential of our product candidate portfolio, and the long-term value of our preclinical and clinical development pipeline. We believe our strong capital position bolstered by our strategic partnerships enables us to execute on the share repurchase program while maintaining ample cash resources to continue advancing our product candidates portfolio and providing optionality around strategic capital allocation.

The share purchase program is further supported by our decision to deprioritize the development of zani zo, which allows us to reallocate that associated R&D spending. We also expect to maintain our projected cash runway in the second half 2027, assuming completion of the full $60 million share purchase program based on existing cash resources and assuming the receipt of certain anticipated regulatory milestone payments. We believe our stock is currently undervalued and see this buyback as a strategic way to invest in ourselves through thoughtful capital allocation ahead of upcoming expected catalysts in 2024 and 2025. Our plan to execute the share repurchase in 2 phases gives us the flexibility to manage repurchases over time, allowing us to adapt to market conditions and pursue additional growth opportunities as they may arise.

By reserving the remaining $30 million for future repurchases, we maintain flexibility that can enable us to capitalize on strategic opportunities without compromising our cash resources. This balanced approach and thoughtful capital allocation enables us to make prudent decisions that we believe will benefit our shareholders both now and in the future.

With that, I'd like to thank everyone for listening. And I'll turn the call over to the operator to begin the question-and-answer session. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Stephen Willey at Stifel.

[Stephen Willey, analyst]

Yes. Thanks for getting ZW171, ZW191 on the clinic. I was just wondering if you can speak to the levels of mesothelin and folate receptor alpha expression that you're requiring at baseline for the Phase I? What are the IHC cutoff values that you're requiring for both? And then is there anything that you might be able to say about the starting ZW171 dose, the cadence of any step up dosing you'll be using, and any requirements for inpatient administration?

[Kenneth Galbraith, executive]

Sure. Thank you, Stephen. Maybe I'll ask Pranshul, who is the Global Clinical Lead for ZW171. He wants to answer some, but maybe not all of those questions, Stephen?

[Pranshul Chauhan, executive]

Stephen, thank you for your question. I can share with you what's publicly available on clinicaltrials.gov. To start off, I think you asked about the expression levels of mesothelin and folate receptor alpha in our studies. Initially, in our dose escalation phases, we'll be analyzing expression levels retrospectively. So there's no cutoff as such, as some of these are yet to be validated for mesothelin, for example. Your second question regarding dosing strategy, this is something that we haven't made available publicly yet. However, we do intend to explore various dosing formats of ZW171 in clinic. And your -- what was your next and last piece of the question, Stephen? Sorry.

[Stephen Willey, analyst]

Just a question of any starting dose, step up dosing, and then any inpatient administration requirements.

[Pranshul Chauhan, executive]

Yes. The starting dose is something we haven't shared publicly yet. There will be requirement for inpatient in a small subset of patients during the dose escalation phase, as this is mandated by regulatory requirements in our discussion with the regulatory bodies. However, we do intend to work at different strategies for dosing where we will explore dosing with hospitalization requirements later on in the study.

[Stephen Willey, analyst]

Okay. Can I just ask a clarification question? So just -- so that I'm clear, on the mesothelin side and I guess maybe even on the folate receptor alpha side, you will be enrolling tumor types that you know to be enriched for expression of each of these target antigens and then you'll be retrospectively looking at expression levels via IHC or is that...

[Pranshul Chauhan, executive]

Exactly.

[Stephen Willey, analyst]

Okay. Okay.

[Operator]

Our next question comes from Yigal Nochomovitz from Citi.

[Amin Makarem, analyst]

This is Amin on for Yigal. We had a couple. First on the ZW220. Given the prior failures in NaPi2b ADCs, what do you think differentiates ZW220 from the previously investigated molecules by Mersana and Genentech? And then the second one on the general ADC strategy, do you see any risk in using the same payload for your 3 ADC programs? What gives you confidence about this payload?

[Kenneth Galbraith, executive]

No, 2 great questions. Paul, would you like to answer both of those questions?

[Paul Moore, executive]

Sure. Sure. So first of all, on our confidence level in ZW220 being successful or others ADCs against NaPi have failed, I think that really comes down to the design of our ADC from the antibody selected to the payload. So your second question regards to payload, but as you may be aware, we spent a lot of time really carefully picking what we believe was the right balance of potency, bystander activity for the total payload. So we feel comfortable in what we've selected from a larger options of payloads to select from there. And that -- that we feel is very important, that level of potency overall across all our ADCs. And particularly for NaPi, there we think again the safety profile and the efficacy profile and the use of a TOPO payload, which is not what others have tried before, differentiates our program from previous efforts to target through an ADC approach.

And then regarding your question about using that across 3 different targets. We feel all of those 3 targets could benefit within our disease indication from ADCs with this type of payload, and so our preclinical data supports that. When we benchmark that against competitor programs or prior programs, both the efficacy profile and the breadth of patients that we can tackle with this payload balance with the antibody really looks very favorable. So that supports our moving forward in the clinic with all 3 programs.

[Operator]

Our next question comes from the line of Akash Tewari from Jefferies.

[Unknown Analyst]

This is [ Divy ] on for Akash. Jazz announced yesterday that data from HERIZON-GEA-01 was pushed back from late 2024 to Q2 '25. Does that mean that enrollment is progressing slower than originally anticipated or is it just related to not enough PFS events getting accumulated as prespecified by the interim analysis protocol? And have you disclosed any of the number of events for PFS to be accumulated for the preplanned interim analysis?

[Kenneth Galbraith, executive]

Yes. And as to your first question, I think Jazz was very clear on their guidance after their earnings call because I did listen to it, and they were very clear that enrollment is on track and the delay in unblinded study was related to getting the required number of events to unblinded study, which is currently targeted now in our estimates being Q2 2025. And the answer to your second question, no, there's no disclosure of the actual number of events.

[Operator]

Our next question comes from the line of Brian Cheng at JPMorgan.

[Unknown Analyst]

This is [ Sean ] on for Brian. So first thing on ZW171. We saw that the Phase I was posted on clinicaltrials.gov. How should we think of the side effect profile based on the target you selected? Just curious if there's any additional preclinical insights that you can share? And how many doses are you evaluating? And I have a quick follow-up.

[Kenneth Galbraith, executive]

Paul, do you want to take the first question about preclinical characterization, the tolerability of mesothelin, what we might have seen?

[Paul Moore, executive]

Yes, that's a good question, because although -- it is a target that, although it's very highly expressed on cancer types, there is some level of normal expression of mesothelin. And so you have to think carefully about how you differentially target the tumor with avoiding the normal. And so that's why we spent so much time preclinically trying different formats to get a format that give us that better window, where we wouldn't have activity on low-expressing models that represent normal tissue levels of mesothelin, but has very potent and doesn't compromise the antitumor activity on the mesothelin-positive tumors, the high-expressing. And that we've seen in our preclinical profile. We've taken the molecules into non-human primates. We've done a lot of other evaluation of the molecules regarding safety, and there, we haven't seen evidence of toxicity.

Of course, we have to -- going into the clinic, we'll have to monitor that, pay attention there. That's part of the dosing strategies that Pranshul alluded to that we'll be evaluating. But so far, really we -- we really tried to come up with a design of the modes to address exactly what you're asking.

[Kenneth Galbraith, executive]

And I'll let Pranshul on for the second question about the number of dose levels planned for the Phase I study.

[Pranshul Chauhan, executive]

Yes. So we plan to evaluate 6 different dose levels. This may increase or decrease based on the safety and tolerability profile. DLT evaluation period is 21 days for the study, and -- but we will continue to gather safety and tolerability data as long as the participant remains on trial, and they're to remain on trial if there is toxicity or progression. I hope that answers your question.

[Kenneth Galbraith, executive]

And I think you had another question?

[Unknown Analyst]

Yes. Thank you for the [ clarification ]. I just have a quick modeling question. So we saw that the cash runway hasn't changed, but with zani zo now discontinued, is there any near-term impact that we should model for the R&D expenses?

[Kenneth Galbraith, executive]

Yes. There'll obviously be a subsequent decline in some of the expenses that would have been related to continued spending on zani zo to complete the planned Phase II study and prepare for a registration study. So that will -- that will decline over the next period of time. And again, that's approximately $30 million that was allocated, which coincidentally matches the initial repurchase program from our share repurchase program. So we would expect that, that will be released from future R&D expense, and we'll be using that capital to reallocate to the share repurchase program over time.

[Operator]

Our next question comes from the line of Jon Miller at Evercore.

[Jonathan Miller, analyst]

Yes. I'll start on the mesothelin program. I know you mentioned you'll be looking at mesothelin expression retrospectively in some of these patients. I guess, what are your expectations for those mesothelin-negative patients? Presumably there would be an absence of expected activity there. But does the absence of sufficient antigen -- I know you don't see tox from a cytotoxicity perspective in normal-expressing tissues, but can you drive CRS or T cell exhaustion by circulating T cells if you don't have a good antigen sink to sop up the bispecific to the tumor itself? And sort of separately, maybe relatedly, you note in the slides that you have potency even in the presence of soluble mesothelin, and I'd love to get a little bit more color on that. Is that driven by the binding mode? Do you not bind soluble mesothelin? Or is there something else going on that's helping you maintain activity?

[Kenneth Galbraith, executive]

No, thanks, Jon. Paul, do you want to address both of those questions for mesothelin?

[Paul Moore, executive]

Yes. Sure. So maybe on the first question about patients that you wouldn't have a mesothelin target or it would be limited. That is possible. I mean, most of the tumor types that we're going into have some level of mesothelin. So we would probably not think it's possible -- unlikely. But you're right, it theoretically could happen. And I think then -- but your question about then that then leading to potential deleterious effects through T cell exhaustion or having a negative effect. Part of the design consistent with other T cell engagers as well. But we also made sure on ZW171, you don't get T cell activation. The interaction that we've got with the CD3 is very low affinity, and it's not -- it requires first that you co-engage 2 binding sites on mesothelin to really set the molecule down on a mesothelin target population. And then you engage the CD3 and then that gives you the activation. And that's pretty comprehensively looked at.

So I'm not so worried about that being a negative effect. The other part about the soluble mesothelin there, we tested that in vitro, and you basically just combined with mesothelin and there's a very limited impact on the killing and you can still get to maximum levels of killing. And I think again that there is partly this avidity-driven effect that we have and the fact that to get any impact on activity, you really need to be launched or binding to a cellular surface as opposed to a soluble protein. So that -- happy to share more detail on that with you and discuss it further, Jon, but the data speaks to that and supports that mechanism of action.

[Jonathan Miller, analyst]

Makes sense. Makes sense. I would love to talk more about the detail there, but maybe not on the Q&A session here. I guess, can I ask a follow-up on the folate receptor alpha program? One of the things you said in the prepared remarks was that you were specifically looking for a payload that would support a higher antibody dose. And I guess I'm curious why that's intrinsically valuable, given that blocking FR alpha isn't in itself effective. So what's the benefit to giving a higher dose versus a lower dose if aggregate payload toxicity is similar?

[Paul Moore, executive]

Yes. Yes, that's a good question. I think there's partly the thinking is that the higher the dose that you can get into a patient, the more chance you've actually got of getting the drug to target. So you may be aware that lower doses, you've got just the penetrance through into the tumor only 1% to 2% of the antibody actually gets to site. So the higher dose you've got in a patient, the more chance you've got of getting a threshold level of antibody ADC into that tumor. And that also gives me the opportunity to also promote as well.

That's why it's so important on the front end of the antibody as well. That's why we bring up at this point about us having better internalization, because you also want what does get to the tumor to also internalize very efficiently. So that's where our thinking on the design there is. And by having a more moderate payload or potency similar to DXd, that allows you to get that higher dose into a patient so that you've got that better amount of drug that can then get to tumor.

[Jonathan Miller, analyst]

Makes sense. And then I guess one final one on the share repo. I guess I'm just curious about this is a use of capital, given expectations for 5 plus programs in the clinic, and a very -- obviously, a very active drug discovery effort. Is there really excess capital at this point to return cash to shareholders versus driving value through clinical development?

[Kenneth Galbraith, executive]

No, good question. I think if you look at our current operations now, obviously, ZW171, ZW191 are going very fast and are well funded. ZW220 and ZW251 are on schedule to go into the clinic next year. They're well funded. Beyond that, the fifth indication and what's in Paul's portfolio behind that, which we call [ Advanced ] right now, is well funded and moving forward. So we think we're adequately funding all the opportunities we have in front of ourselves and are quite happy with the level of R&D investments.

Strategically, we've made the decision to claw back the capital allocation we had for zani zo to complete the Phase II and prepare for a registration study for the reasons we outlined, and that happens to provide about $30 million of cash, which doesn't need to be allocated to the remaining portfolio, 5x5 or Paul's Advanced portfolio. We've looked for a little while about opportunities that might be outside to use for that capital. But I think right now, the most thoughtful capital allocation we can make with our current valuation, the catalyst in front of us, the strength of our cash runway, the optimism we have about the outlook being positive going forward is to again invest in ourselves, which we think will boost total shareholder return.

And we're certainly convinced that a thoughtful capital allocation process as with periodic buybacks and a smart R&D strategy can coexist in a biotech company. And hopefully, that's the way to optimize total shareholder return over the long-term and that's what we're committed to. And we've seen the opportunity now uniquely to do it in front of some catalysts in 2024 and 2025 with some cash that we surely think is excess for now. And, therefore, we're going to utilize that in a shareholder program to invest in ourselves. And we think that's of a benefit to all of our shareholders, and so that's what we've chosen to do.

[Operator]

[Operator Instructions] Our next question comes from the line of Robert Burns at H.C. Wainwright.

[Robert Burns, analyst]

Congrats [indiscernible]. [ 3 ] from me, if I may. With regard to ZW171, from a go/no-go signal perspective in the dose escalation, what are you looking to achieve in particular with regards to ovarian cancer and NSCLC? And would gavo-cel demonstrated in ovarian cancer be a good reference point for us?

[Kenneth Galbraith, executive]

Good question. I'll let Pranshul decide how he wants to answer that question what we're looking for. So...

[Pranshul Chauhan, executive]

Yes. Very good question. I think initially, we want to assess the safety and tolerability of our assets. Paul's group has spent a lot of time in -- a lot of time and thought into the design of the structure. We feel we have a strong candidate that we're bringing to clinic. So the focus would be on a mesothelin-targeting agent that shows safety and tolerability. So that's the core of the Phase I study. We will gather data on efficacy in these tumor types, and these will be measured using RECIST criteria to measure our objective response rate. We'll be gathering other data, such as PFS data and OS data. But the fundamental of the Phase I study is to focus on safety and tolerability.

[Operator]

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn it back to Shrinal for closing remarks.

[Shrinal Inamdar, executive]

Apologies. That's being handed over to Ken for closing remarks.

[Kenneth Galbraith, executive]

Yes, that's great. Well, thank you very much for your time and attention today and listening to questions. And we very much look forward to reporting on progress against our milestones for the remainder of 2024. And please stay tuned, and we'll provide some updates on progress throughout the course of the year. Thank you very much.

[Operator]

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