Zymeworks Inc. - Special Call
Nov 13, 2017 AM EST
ZYME.N - Zymeworks Inc
Zymeworks Inc. - Special Call
Nov 13, 2017 / 01:30PM GMT
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Corporate Participants
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* Ali Tehrani
Zymeworks Inc. - Co-Founder, CEO, President and Director
* David Poon
Zymeworks Inc. - Executive Director of External R&D & Alliances & Senior Mngr of External R&D & Business Development
* Neil Klompas
Zymeworks Inc. - CFO
* Ryan Dercho
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Conference Call Participants
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* David Novak
Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research
* Xiaobin Gao
Barclays PLC, Research Division - Research Analyst
* Yanan Zhu
Wells Fargo Securities, LLC, Research Division - Associate Analyst
* Yigal Dov Nochomovitz
Citigroup Inc, Research Division - Director
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Presentation
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Operator [1]
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Thank you for standing by. This is the conference operator. Welcome to the Zymeworks Webcast and Conference Call relating to the recently announced Johnson & Johnson partnership. (Operator Instructions) And the conference is being recorded. (Operator Instructions)
I would now like to turn the conference over to Dr. Ryan Dercho. Please go ahead, sir.
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Ryan Dercho, [2]
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Good morning, and welcome. As the operator mentioned, my name is Ryan, and I'm Zymeworks' Associate Director of External R&D and Alliances. This morning, we will be discussing our partnership with Johnson & Johnson Innovation and Janssen Biotech, which we announced earlier today. Providing an overview of the agreement will be Dr. Ali Tehrani, Zymeworks' President and Chief Executive Officer; Mr. Neil Klompas, Zymeworks' Chief Financial Officer; and David Poon, Zymeworks' Executive Director for External R&D and Alliances.
Before we begin, I would like to remind you that we will be making forward-looking statements during this call, including statements related to the potential strategic and financial benefits associated with the Janssen partnership, our financial runway with consideration to the upfront payment associated with the Janssen partnership and our plans and expectations for the next few months.
Forward-looking statements can be identified by words such as will, may, except, intend, believe, outlook and similar words. 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 detailed overview of the risks associated with forward-looking statements, I encourage you to read the cautionary note regarding forward-looking statements in our second quarter MD&A, which described some of these uncertainties. That cautionary note also applies to the forward-looking statements made during this call.
As a reminder, this webcast of today's event will be available on the Zymeworks' website later today.
I'll now turn the call over to Dr. Tehrani for a summary of the partnership.
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [3]
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Thank you, Ryan, and again, welcome, everyone. I'm delighted to announce the partnership between Zymeworks and Johnson & Johnson Innovation and Janssen Biotech to develop and commercialize next-generation bispecific antibody therapeutics.
For those of you new to Zymeworks and our extensive line of corporate collaboration, Janssen is our sixth global pharmaceutical partner in a notable group that also includes Merck, Lilly, Celgene, GSK and Daiichi Sankyo.
In addition to nondiluted capital, these partnerships have provided important validation of our Azymetric technology platform establishing it as a best-in-class solution for the development of next-generation bispecific antibodies.
As a testament to the quality and productivity of the Azymetric platform, all of our partnerships are active and are delivering drug candidates nearing clinical evaluation. What is unique about today's partnership, which is centered around our flagship Azymetric platform is that over the last year, Azymetric has been proving itself in the clinic as the backbone technology in Zymeworks' biparatopic HER2 asset, ZW25.
So why did we do this deal? First, it provides us the opportunity to work with the stellar group at Janssen and J&J, a team with a long history of successful biologics research and development across many indications and specifically in the development of bispecific antibodies. We view this as a great opportunity to further showcase the unique benefits of the Azymetric platform in the hands of drug development experts, who have experienced working with other bispecific antibody platforms.
Second, as David will elaborate next, the terms of the deal were attractive to both companies. Janssen gains access to the Azymetric platform, a technology with existing clinical validation, including safety, stability and manufacturability. Janssen also gains access to our EFECT platform, which enables up or down regulation of antibody-mediated immune cell interactions. Together, these platforms provide the team at Janssen with a broad set of tools allowing them to worry less about the technology they're using and focus on the biology and mechanisms of actions necessary to develop first and best-in-class biologics.
Importantly for Zymeworks, we retain the flexibility to broadly apply our Azymetric and EFECT technology platforms to high-value targets going forward as well as control our wholly-owned therapeutic pipeline including our lead clinical asset ZW25 and of course, our advancing preclinical candidates.
Lastly, as our CFO, Neil Klompas will elaborate on, this deal was attractive because the upfront payment meaningfully extends our runway well beyond ASCO 2018, the next major inflection point for ZW25.
Overall, we maintain our long-standing vision of generating clinical validation and commercial success for our drug development engine through external partnerships, such as this one with Janssen as well as by advancing our wholly-owned therapeutic programs.
I would like to now ask David to provide details on the terms of the agreement.
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David Poon, Zymeworks Inc. - Executive Director of External R&D & Alliances & Senior Mngr of External R&D & Business Development [4]
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Thank you, Ali, and good morning, everyone. As Ali mentioned, Janssen represents the sixth partner to gain worldwide licenses to our clinically validated Azymetric platform for the development of bispecific antibody therapeutics. In addition, Janssen will gain access to our EFECT platform for the complete removal of antibody Fc effector interactions. Janssen may develop up to 6 programs under this collaboration. Zymeworks will receive an upfront payment of USD 50 million. Zymeworks is also eligible to receive product development milestones of up to $282 million as well as commercial milestones of up to $1.12 billion plus tiered royalties on product sales.
Assuming success for 6 programs, the total potential deal is worth nearly USD 1.5 billion, our largest to date. Additionally, Janssen may increase the number of programs from 6 to 8 with an additional option payment plus the associated respective milestones and royalties.
Under the terms of the agreement, Janssen will be responsible for all research, development and commercialization activities for the bispecific programs. This supports our belief that the Azymetric and EFECT platforms are truly turnkey technologies and can be easily utilized for rapid and uncompromising development of drug candidates with minimal support.
What continues to differentiate our out-licensing deals is that we did not grant any target exclusivity to Janssen with respect to the Azymetric and EFECT platforms. This ensures that Zymeworks maintains opportunity to leverage the Azymetric and EFECT platforms to expand our wholly-owned pipeline of drug candidates.
Since this partnership has substantial near-term cash component, I would now like to turn the call over to Neil for an update on our financials.
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Neil Klompas, Zymeworks Inc. - CFO [5]
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Thanks, David. From a financial perspective, the USD 50 million upfront payment will significantly strengthen our balance sheet with nondiluted capital. Under our current plan, we believe the new cash balance will extend Zymeworks' runway into late Q4 2018.
While we are not providing additional guidance at this time, we continue to believe that this further increases our cash balance and may be achieved through anticipated milestone payments under our current collaborations as well as from future potential collaborations and other sources of capital.
I'll now turn the call back over to Ali for a short discussion of Zymeworks' financial plans for the remainder of 2017 and some perspective on 2018.
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [6]
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Thanks, Neil. We've had a great year so far. That said, we're not done yet. Over the next few months, we anticipate providing an update on ZW25 at the San Antonio Breast Cancer Symposium in December as well as giving an update on the progress of ZW33.
Continuing into 2018, we look forward to announcing an R&D Day where we plan to review our non-HER2 preclinical programs providing further updates on our existing partnerships and potentially announcing future strategic collaborations in line with our business strategy.
Operator, we're now happy to take any questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Our first question comes from Yigal Nochomovitz of Citigroup.
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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [2]
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I think it'll be helpful if you could just sort of characterize the goals across the 6 -- the pharma partnerships you have, how are they similar and how do they differ? And perhaps a little more detail on how the targets work if they are all mutually exclusive and if any of the targets that the pharma partners are pursuing are ones that you could pursue internally or not?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [3]
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Thank you, Yigal, let's take the last part of the question first. As David mentioned, they are -- there are no target exclusivities that even applies to us where there is freedom across the board for different pharma partners to be able to work on the same target so long as there is a starting ownership of the antibody that is brought to the table. With regards to all of our active partnerships what we've learned is that when folks come to us and want to use our platforms they usually have broad objectives. These objectives are not limited to 1 indication or 1 type. Typically, they see the power of the Azymetric platform being something that enables them to look at multiple different indications, be it in oncology and be it outside of oncology. So we're very proud of that. And we believe that speaks volumes about the Azymetric platform. Secondly, when it comes to, again, how these deals differ from each other, again, this comes back to that all of our pharma partners come to the table with their unique antibodies, with their unique starting points, which enables them to build a unique bispecific asset. So there may be a number of pharma partners that are going after the same target class. But because they come to the table with unique binders and unique locations on a target that their antibody binds to, it makes it different. And as we all know, binding to different epitopes or 2 different locations on a target makes a difference. So there are similarities in these deals, the beauty of it is that in no shape or form does it restrict our hands to do future deals or to work in the same universe.
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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [4]
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Okay, great. And then just a follow-up, I thought it was interesting that all 6 of the partners have licensed the Azymetric platform, all but 2 had licensed EFECT. I'm just curious for AlbuCORE and your Cytotoxin linker program, are those just earlier stage, so that they wouldn't be amenable to licensing at this point if you could just expand on that a bit?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [5]
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You're absolutely correct, Yigal, that AlbuCORE and our Zymelink technology are earlier stage, however, we believe that they are progressing really well and our -- in our upcoming R&D days we intend to provide additional data and additional support for their utility and usability in deals such as this and of course, we will be talking about how we are using them for our own internal pipeline.
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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [6]
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Right. And just one quick one on your own internal pipeline. I think you mentioned we'd get an update on the ZW33, is the plan still to put that one into the clinic by the end of the year?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [7]
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Our plans have not changed, and we intend to provide an update by the end of the year.
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Operator [8]
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Our next question comes from Gena Wang from Barclays.
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Xiaobin Gao, Barclays PLC, Research Division - Research Analyst [9]
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This is Xiaobin on for Gena. And congratulations on the deal. So just a couple of quick questions. First of all, the upfront payment, it seems that it compares very favorable to previous deals. So can you give us more color about the discussion process? And also, second thing is regarding the range of royalty rate can you give us a little bit more color like how does the more -- like higher upfront payment come into play regarding royalty rate?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [10]
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Great. So the discussions around this deal started a while ago and we've been trying to find a deal that made sense for both companies. We're very proud of the deal that we've signed as I mentioned, we believe there is significant value to both companies. The upfront payment is reflective of the clinical validation that has been achieved through ZW25. A lot of these deals do get done, however, these more substantial dollar amounts for a discovery stage deal such as this one only come into play when a platform such as the Azymetric has been meaningfully derisked not from a preclinical standpoint, but more importantly from a clinical standpoint. So the data that we presented at ASCO this year and subsequently at ESMO this year, where we did discuss that 22 patients have been treated with ZW25 with antitumor activity and also safety we believe contributed to our discussions here. Now, of course, future deals that we do, do need to follow the base that we set here that one could assume that any future potential deal will only go higher from this point.
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Xiaobin Gao, Barclays PLC, Research Division - Research Analyst [11]
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I got it. And just regarding your royalty rates?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [12]
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The royalty rates were not fully disclosed, but what we can say is that they are in line with our previous deals.
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Operator [13]
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Our next question comes from David Novak of Cormark Securities.
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David Novak, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [14]
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Congrats on another fantastic deal. Just a few quick questions from me. The first on J&J's option to develop 2 additional programs. Is there a specific date by which this option has to be executed on by?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [15]
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We have not disclosed that, David. However, we have had those conversations and those discussions. So those thoughts have crossed our minds, and we believe there is a very favorable time and plan for both companies in place.
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David Novak, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [16]
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Got you, great. And on the royalty, just kind of following up on a previous question. Does J&J have an option to buy down the royalty, we've seen that in some previous deals that you've done where there's a nominal payment to buy down the royalty by 1% for example?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [17]
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Again, while we have not fully disclosed it, such clause and such mechanisms are things that we are very amenable to. And what we have is in line with our previous deals.
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David Novak, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [18]
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Got it, great. And then just lastly, is there any insight you might be able to provide into J&J's therapeutic focus with your technology. I mean, broadly speaking, are they looking at oncology? Are they looking at other therapeutics areas outside of oncology?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [19]
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I would say both, David, and, again, I know it sounds cryptic but when I say that our partners come to us with a very broad mindset. It speaks to the power of the Azymetric versus some of our peers and some of our competitors where the value could only be in oncology or could be in a specific indication. All of our peers and competitors have really good technology platforms. But we believe we have the broadest one that enables drug developers to truly dream outside of the box. So whether I say this is only oncology, or whether I say this only this or that, I don't think it does justice to the platform as, truly, they came to us with a broad mindset and we believe they want to use the Azymetric technology to its fullest potential.
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Operator [20]
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(Operator Instructions) Our next question comes from Jim Birchenough of Wells Fargo Securities.
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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [21]
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This is Yanan dialing in for Jim. Congratulations on the deal. Just -- I think, Johnson & Johnson actually has existing bispecific antibody collaborations with another competitor of yours. And I'm just wondering could you give some insight as to what drew Johnson & Johnson to the -- to this collaboration that would be very helpful?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [22]
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It is -- I don't think it is my place to comment on behalf of J&J and Janssen about sort of the comparable points between our technology and some of our other friends and competitors. What I do honestly believe, Yanan, is that there are a lot of good technologies out there. It all depends on what you're trying to accomplish and we believe we have the most versatile, the most modular -- the platform that can be applied to the most. Sometimes you purchase an equipment or a vehicle for a specific task, and sometimes you get one that could be -- put you in a position to do a lot more. So subjectively, I believe that this deal with us and J&J was based on the fact that Azymetric and EFECT can be utilized for more than some limited number of applications and could be broadly applicable and I think that's what drew them to us. And not to mention, again, that I think our clinical validation supporting manufacturability, supporting safety, supporting antitumor activity is stellar. And as we all know, clinical data is what matters the most. So en route to the clinic, we had shown a number of properties that one could speak up only on paper or hope for but we proved that point over the course of the last year as our asset, ZW25, which is based on Azymetric platform has been performing really well in the clinic.
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Yanan Zhu, Wells Fargo Securities, LLC, Research Division - Associate Analyst [23]
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Great. And then a very quick last question. Do you have any guidance on what might be the next update from the partnered programs?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [24]
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What we would like to say is that all of our partnerships are active. And I do believe that could put us in a unique club, a lot of our friends and a lot of our peers have signed several deals as well. But these deals do end or they do not successfully achieve their endpoints. All of our deals are active and are progressing and we hope to be able to provide more progress like we did earlier this year involving our progress with Eli Lilly and our progress with Daiichi Sankyo and our progress with Merck as we progress into 2018 and throughout 2018.
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Operator [25]
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Our next question comes from Yigal Nochomovitz of Citigroup.
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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [26]
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Ali, I'm not sure if you mentioned this already, but for the upfront is that all getting recognized in the current quarter? Or is there any amortization schedule for that payment?
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [27]
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Yigal, I'll turn that over to our CFO, Neil, to provide the answer.
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Neil Klompas, Zymeworks Inc. - CFO [28]
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Thanks, Ali. Yigal as you know the upcoming implementation of ASC 606 puts us in a position where we're analyzing the revenue recognition of this deal under both the current and the upcoming standards. At this time we're not providing guidance on revenue recognition. However, historically, our deals have been structured in such a way that we've been able to recognize the upfront revenue as received. So stay tuned for the upcoming financials.
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Operator [29]
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There appears to be no further questions. I'd like to turn the conference back over to Dr. Ali Tehrani for any closing remarks.
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Ali Tehrani, Zymeworks Inc. - Co-Founder, CEO, President and Director [30]
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Thank you for joining us today. At Zymeworks, we are excited by the breadth of our technology assets, our growing network of outstanding corporate partners and our expanding dataset for ZW25. We believe Zymeworks is well positioned to deliver on our vision of creating the next generation of multifunctional therapeutics and we look forward to continuing to share our progress with you.
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Operator [31]
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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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