Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report and our audited consolidated financial statements and related notes included in our final prospectus for our IPO filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”) on September 13, 2024 (the “IPO Prospectus”). In addition to the historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” in Part II, Item 1A of this Quarterly Report. You should carefully read the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” to gain an understanding of the important factors that could cause actual results to differ materially from our forward- looking statements.
Overview
We are a clinical-stage global biopharmaceutical company committed to being a leader in the development and commercialization of transformative immunology-based therapies for patients in need. With the evolving understanding of the pathogenesis of autoimmune diseases, along with the expansion of promising immunology-based pharmacologic targets, we are building an I&I focused biopharmaceutical company. Our core business strategy combines disciplined product candidate acquisition with strategic deployment of internal expertise and effective use of external resources. We leverage our experienced executive management team and our established networks throughout the biopharmaceutical industry to identify, acquire and develop product candidates that we believe can provide superior clinical benefits to patients living with autoimmune diseases.
Our lead I&I product candidate, obexelimab, is a bifunctional monoclonal antibody designed to bind both CD19 and FcγRIIb, which are broadly present across B cell lineage, in order to inhibit the activity of cells that are implicated in many autoimmune diseases without depleting them. Based on existing clinical data generated to date, we believe that targeting B cell lineage via CD19 and FcγRIIb can inhibit B cells and has been shown to be well-tolerated.
We are developing obexelimab as a potential I&I franchise for patients in several autoimmune diseases, representing substantial commercial opportunities individually and in the aggregate. The first four indications we are pursuing include IgG4-RD through an ongoing registration-directed Phase 3 trial, MS and SLE through Phase 2, double-blind, randomized, placebo-controlled trials, each of which we initiated in the third quarter of 2024, and wAIHA through an ongoing Phase 2/3 trial, currently in the Phase 2 open label portion.
Beyond our lead product candidate, obexelimab, we are advancing a pipeline of clinical programs for the potential treatment of other I&I indications that we may continue to develop and ultimately commercialize with partners. Our pipeline includes two global programs, ZB002 (an anti-TNFα monoclonal antibody) and ZB004 (a CTLA-4-Ig fusion), and one regional program, ZB001 (also known as VRDN-001, an IGF-1R monoclonal antibody), and related programs, to which we hold the development and commercialization rights for in greater China. Based on the ongoing clinical studies and clinical data generated to date, we intend to determine future potential indications in which to pursue further clinical development of these programs, and ultimately, if approved, commercialization with one or more partners.
On September 16, 2024, we completed our IPO in which we issued and sold an aggregate of 15,220,588 shares of our common stock, including 1,985,294 shares of common stock sold pursuant to the full exercise of the underwriter’s option to purchase additional shares, at a public offering price of $17.00 per share, for aggregate gross proceeds of $258.7 million. We received approximately $234.4 million in net proceeds after deducting underwriting discounts and estimated offering expenses payable. In connection with the IPO, all outstanding shares of convertible preferred stock (“Preferred Stock”) converted into an aggregate of 24,978,715 shares of common stock.
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On October 21, 2024, we entered into a Novation Agreement (the “Novation Agreement”) with Tenacia Biotechnology (Hong Kong) Co., Limited (“Tenacia”), under which we transferred our rights and obligations under our agreements with Dianthus to Tenacia. As partial consideration for the Novation Agreement, we will receive a non-creditable, non-refundable upfront fee of $5.0 million from Tenacia. In addition, we are eligible to receive up to $86.0 million upon the achievement of certain future regulatory and commercial milestones.
Since inception, our operations have focused on research and development activities with respect to our product candidates as described above, as well as raising capital, business planning, organizing and staffing our company, establishing our intellectual property portfolio, establishing arrangements with third parties for the manufacture of our product candidates and related raw materials, and providing general and administrative support for these operations. Through September 30, 2024, we have financed our operations primarily with the proceeds from the issuance of Preferred Stock, our convertible notes, payments received from Bristol-Myers Squibb (“BMS”) under our strategic license and collaboration agreement (the “BMS Agreement”) and from the sale of common stock in our IPO completed in September 2024.
To date, we have no product candidates approved for commercial sale in any country and have not generated any revenue from product sales.
We have incurred significant operating losses and negative cash flows since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Our net losses for the three and nine months ended September 30, 2024 were $38.6 million and $104.4 million, respectively, and we recorded net income of $35.6 million and a net loss of $12.5 million, for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $334.8 million. We expect to continue to incur significant and increasing losses for the foreseeable future. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
● continue clinical development of obexelimab and our other programs;
● advance our obexelimab program and our other product candidates through preclinical development and clinical trials;
● identify additional product candidates and acquire rights from third parties to those product candidates through licenses or acquisitions and conduct development activities, including preclinical studies and clinical trials;
● make royalty, milestone or other payments under current, and any future, license or collaboration agreements;
● procure the manufacturing of preclinical, clinical and commercial supply of our current or any future product candidates;
● seek marketing regulatory approvals for our current or any future product candidates that successfully complete clinical trials;
● commercialize our current or any future product candidates, if approved;
● take steps toward our goal of being an integrated biopharma company capable of supporting commercial activities, including establishing sales, marketing and distribution infrastructure;
● continue to develop, maintain and defend our intellectual property portfolio, including against third-party interference, infringement and other intellectual property claims, if any;
● seek to attract, hire and retain qualified clinical, scientific, operations and management personnel;
● add and maintain operational, financial and information management systems;
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● attempt to address any competing therapies and market developments;
● experience delays in our preclinical studies, clinical trials or regulatory approval for our current or any future product candidates, including with respect to failed studies, inconclusive results, safety issues or other regulatory challenges;
● establish agreements with contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”); and
● incur additional costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with an exchange listing and the SEC requirements, director and officer insurance premiums and investor relations costs.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate, and we cannot assure you that we will ever generate significant revenue or profits. In addition, if we obtain regulatory approval for a product candidate and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical studies and expenditures related to our research and development activities.
Furthermore, we expect to incur additional costs associated with operating as a public company, including significant audit, legal, regulatory and tax-related expenses, as well as director and officer insurance premiums and investor relations costs that we did not incur as a private company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy as a public company. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity financings, debt financings or other capital sources, which could include collaborations with other companies, or other strategic transactions and licensing agreements. We may be unable to obtain financing on acceptable terms, or at all, and we may be unable to enter into collaborations or other arrangements. Our failure to raise capital or enter into such agreements as, and when, needed, could have a material adverse effect on our business, prospects, results of operations, and financial condition, including requiring us to have to delay, reduce or eliminate product development or future commercialization efforts, or grant rights to develop and market potential future product candidates that we would otherwise prefer to develop and market ourselves.
As there are numerous risks and uncertainties associated with development of I&I therapeutics, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. We will need to generate significant revenue to achieve profitability, and we may never do so. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of September 30, 2024, we had $386.8 million in cash, cash equivalents and investments. We believe that our cash, cash equivalents and investments as of September 30, 2024 will be sufficient to fund our operations and capital expenditure requirements into the fourth quarter of 2026. We have based this estimate on our current assumptions, which may prove to be wrong, and we may exhaust our available capital resources sooner than we expect. See section titled “—Liquidity and Capital Resources.”
Components of Our Results of Operations
Revenue
To date, we have no product candidates approved for commercial sale in any country, and we have not generated any revenues from the sale of products. Our revenue has been derived from collaboration arrangements and license fees.
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Collaboration Revenue
Collaboration revenue is generated exclusively from our collaboration arrangement with BMS. Pursuant to the BMS Agreement, we sublicensed the rights to develop and commercialize obexelimab in Japan, South Korea, Taiwan, Singapore, Hong Kong and Australia (the “BMS Territory”). We retain exclusive rights to commercialize the licensed products containing obexelimab outside of the BMS Territory. The revenue recognized to date pursuant to this arrangement relates to the license of obexelimab and the related technology transfer, which was recognized upon delivery of the license. This arrangement includes the participation by BMS in certain joint global studies of obexelimab in accordance with the terms of the BMS Agreement, in which BMS will reimburse us for its share of the related study costs. Such reimbursements will be classified as a reduction to research and development expense in the period such costs are incurred. We will recognize development and regulatory milestones defined in the BMS Agreement when the achievement of the underlying milestone events is deemed probable, which is expected to be upon achievement. Sales milestones and royalties on future sales will be recognized in the period the related sales occur.
For a more detailed description of this agreement, see Note 8 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
Operating Expenses
Our operating expenses consists of (i) research and development expenses, (ii) general and administrative expenses and (iii) acquired in-process research and development expenses.
Research and Development Expenses
Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal costs incurred in connection with the preclinical and clinical development of obexelimab, ZB002, ZB004, ZB001 and ZB005, and include:
Direct Costs:
● external research and development expenses incurred under agreements with CROs and consultants that conduct our clinical studies and other scientific development services;
● costs incurred under agreements with CMOs for manufacturing material for our preclinical studies and clinical trials;
● costs to obtain and maintain licenses to intellectual property, and related future payments should milestones described in those agreements be achieved; and
● costs related to compliance with regulatory requirements.
Indirect Costs:
● employee-related expenses including salaries, bonuses, benefits, stock-based compensation and other related costs for those employees involved in research and development activities; and
● costs of outside consultants, including their fees, stock-based compensation and related travel expenses.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors or our estimate of the level of service that has been performed at each reporting date. Payments for these external development activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financial statements as prepaid expenses or accrued expenses. Nonrefundable advance payments
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for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
A significant portion of our research and development costs have been external costs, which we track on an individual product candidate basis after a clinical product candidate has been identified. We utilize third party contractors for our research and development activities and CMOs for our manufacturing activities and we do not have our own laboratory or manufacturing facilities. Therefore, we have no material facilities expenses attributed to research and development. Our internal research and development costs are primarily personnel-related costs and other indirect costs. We do not track internal costs on a program specific or stage of program basis because these costs are deployed across multiple programs and, as such, are not separately classified.
Where we share costs with our collaboration partners, such as in our BMS Agreement, research and development expenses may include cost sharing reimbursements from our partner.
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we advance clinical trials for our product candidates, pursue additional indications, continue to develop additional product candidates, expand our headcount and maintain, expand and enforce our intellectual property portfolio. We also expect our manufacturing costs to increase with our CMOs as we scale up our processes for commercial manufacturing. Product candidates in later stages of clinical development will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and additional manufacturing activities. There are numerous factors associated with the successful development and commercialization of any product candidates we may develop, including the safety and efficacy of our product candidates, investment in our clinical programs, manufacturing capability and competition with other products, and future commercial and regulatory factors beyond our control that will impact our clinical development program and plans.
The successful development of our current product candidates, or any product candidates we may develop in the future is highly uncertain. Therefore, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development and commercialization of our product candidates, if approved, and any other product candidates that we may develop. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of any current or future product candidate, if approved. This is due to the numerous risks and uncertainties associated with product development, including the uncertainty of:
● the scope, timing and progress of our ongoing obexelimab clinical studies and other research and development activities associated with the development of our other and future product candidates;
● the number and scope of preclinical and clinical programs we decide to pursue;
● our ability to maintain our current research and development programs and to establish new programs;
● the timing of and successful patient enrollment in, and the initiation and completion of, clinical trials;
● the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration (“FDA”), or any comparable foreign regulatory authority;
● the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
● our ability to establish new licensing or collaboration arrangements;
● the performance of our future collaborators, if any;
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● our ability to establish arrangements with third-party manufacturers for the commercial supply of products that receive marketing approval, if any;
● development and timely delivery of commercial-grade drug formulations that can be used in our planned clinical trials and for commercialization;
● obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
● our ability to hire additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, chemistry, manufacturing and controls (“CMC”), quality and commercial personnel;
● commercializing product candidates, if approved, whether alone or in collaboration with others;
● the costs and timing of establishing or securing sales and marketing capabilities for our product candidates if approved;
● our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; and
● maintaining a continued acceptable safety profile of the product candidates following approval.
Any changes in the outcome of any of these variables with respect to the development of our current product candidates or any future product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently anticipate would be required for the completion of clinical development, or if we experience significant delays in enrollment in any clinical trials following the FDA’s acceptance and clearance of an Investigational New Drug Application (“IND”), we could be required to expend significant additional financial resources and time to complete clinical development than we currently expect. We may never obtain regulatory approval for any product candidates that we develop.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related expenses, including salaries, bonuses, benefits, and stock-based compensation expenses for personnel in executive, finance, accounting, human resources and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees paid for accounting, auditing, tax and consulting and other professional services, and expenses for rent, insurance and other operating costs not otherwise classified as research and development expenses.
We anticipate that our general and administrative expenses will increase in the next few years as we increase our headcount to support our continued research and development activities of our product candidates. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with the rules and regulations of the SEC, listing standards applicable to companies listed on a national securities exchange, director and officer insurance costs, and investor and public relations costs. In addition, if we obtain regulatory approval for our current product candidates or any product candidates we may develop in the future and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.
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Acquired In-Process Research and Development Expenses
We expense acquisition costs for assets purchased for use in research and development activities that have no alternative future use as in-process research and development (“IPR&D”) expense as of the acquisition date. When we become obligated to make contingent milestone payments under the terms of the agreements by which we acquired the IPR&D assets, we will recognize additional IPR&D expense. We measure and recognize contingent consideration in the period in which the related milestone is achieved and becomes payable.
Total Other Income (Expense), Net
Other Income (Expense), Net
Other income (expense), net primarily consists of interest income generated from cash equivalents and investments, and realized and unrealized gains and losses on foreign currency transactions.
Change in Fair Value of Convertible Notes
In August 2023, we issued a convertible note to BMS (the “BMS Note”) in connection with the BMS Agreement as described above. We elected to record the BMS Note at fair value upon issuance and to subsequently remeasure the note at fair value at the end of each reporting period with the change in fair value being recorded as a component of other expense in our condensed consolidated statement of operations and comprehensive loss. In May 2024, in connection with our Series C convertible preferred stock (“Series C Preferred Stock”) financing, the BMS Note plus accrued interest was automatically converted into 12,284,686 shares of Series C Preferred Stock. We reassessed the estimated fair value of the BMS Note immediately prior to the conversion utilizing the fair value of the shares of Series C Preferred Stock for which the note subsequently converted into and recorded the change in fair value as a component of other income (expense), net in our condensed consolidated statement of operations and comprehensive loss during the nine months ended September 30, 2024.
Income Taxes
Since our inception, we have not recorded income tax benefits for any of our deferred tax assets, including the net operating losses (“NOLs”) incurred or the research and development tax credits generated in each year, as we have concluded that it is more likely than not that these deferred tax assets will not be realized. We did not record an income tax provision for the nine months ended September 30, 2024.
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Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table summarizes our results of operations for each of the periods presented (in thousands):
Three Months Ended September 30,
2024
2023
Change
Revenue:
Collaboration revenue
$
—
$
50,000
$
(50,000)
Total revenue
—
50,000
(50,000)
Operating expenses:
Research and development
33,530
9,352
24,178
General and administrative
7,454
5,024
2,430
Total operating expenses
40,984
14,376
26,608
(Loss) Income from operations
(40,984)
35,624
(76,608)
Other income (expense), net:
Other income (expense), net
2,378
(16)
2,394
Total other income (expense), net
2,378
(16)
2,394
Net (loss) income
$
(38,606)
$
35,608
$
(74,214)
Revenue
There was no collaboration revenue for the three months ended September 30, 2024. Collaboration revenue was $50.0 million for the three months ended September 30, 2023, and was derived from our BMS Agreement.
Research and Development Expenses
The following table summarizes our research and development expenses for each of the periods presented (in thousands):
Three Months Ended September 30,
2024
2023
Change
Direct research and development expenses by program:
Obexelimab
$
21,326
$
1,346
$
19,980
Global programs (ZB002 & ZB004)
384
743
(359)
Regional programs (ZB001 & ZB005)
2,344
1,696
648
Unallocated research and development expenses:
Personnel expenses (including stock-based compensation)
9,049
5,279
3,770
Other expenses
427
288
139
Total research and development expenses
$
33,530
$
9,352
$
24,178
Research and development expenses were $33.5 million for the three months ended September 30, 2024, compared to $9.4 million for the three months ended September 30, 2023. The increase of $24.2 million was primarily attributable to the following:
● a $20.0 million increase in costs related to the development of obexelimab, our lead product candidate, driven by a $12.0 million increase in clinical trial costs and a $7.6 million increase in manufacturing costs for clinical trial materials;
● a $0.4 million decrease in costs related to our global programs, including a $0.1 million increase related to ZB002 and a $0.4 million decrease related to ZB004;
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● a $0.6 million increase in costs related to our regional problems, including a $0.7 million decrease related to ZB001 as the ongoing clinical studies wound down and a $1.3 million increase related to ZB005, largely driven by an increase in clinical activities; and
● a $3.8 million increase in personnel costs, including a $2.5 million increase in salary and benefit related expense, primarily due to an increase in headcount, a $0.7 million increase in stock-based compensation expense, and a $0.5 million increase in external contractor expense and other personnel costs.
General and Administrative Expense
The following table summarizes our general and administrative expenses for each of the periods presented (in thousands):
Three Months Ended September 30,
2024
2023
Change
Personnel related expenses (including stock-based compensation)
$
4,866
$
2,643
$
2,223
Legal and professional fees
1,512
1,833
(321)
Facilities and supplies
507
401
106
Other expenses
569
147
422
Total general and administrative expenses
$
7,454
$
5,024
$
2,430
General and administrative expenses were $7.5 million for the three months ended September 30, 2024, compared to $5.0 million for the three months ended September 30, 2023. The increase of $2.4 million was primarily attributable to the following:
•
a $2.2 million increase in personnel costs, including a $1.1 million increase in stock-based compensation expense, and a $1.1 million increase in salary and benefit related expense, primarily due to an increase in headcount;
•
a $0.3 million decrease in professional fees, including legal, audit and tax expenses, primarily due to higher costs in 2023 associated with preparation for the IPO; and
•
a $0.4 million increase in other expenses, including insurance and other variable costs related to operating as a public company.
Total Other Income (Expense), Net
Total other income (expense), net was $2.4 million for the three months ended September 30, 2024, and was made up of interest income of $2.3 million, partially offset by realized and unrealized gains and losses on foreign currency transactions of $0.1 million. Total other expense, net was less than $0.1 million for the three months ended September 30, 2023, and was made up primarily of immaterial realized and unrealized gains and losses on foreign currency transactions.
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Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table summarizes our results of operations for each of the periods presented (in thousands):
Nine Months Ended September 30,
2024
2023
Change
Revenue:
Collaboration revenue
$
—
$
50,000
$
(50,000)
Total revenue
—
50,000
(50,000)
Operating expenses:
Research and development
$
89,982
$
39,615
$
50,367
General and administrative
18,283
12,753
5,530
Acquired in-process research and development
—
10,000
(10,000)
Total operating expenses
108,265
62,368
45,897
Loss from operations
(108,265)
(12,368)
(95,897)
Other income (expense), net:
Fair value adjustments to convertible notes
(846)
—
(846)
Other income (expense), net
4,727
(169)
4,896
Total other income (expense), net
3,881
(169)
4,050
Net loss
$
(104,384)
$
(12,537)
$
(91,847)
Revenue
There was no collaboration revenue for the nine months ended September 31, 2024. Collaboration revenue was $50.0 million for the nine months ended September 30, 2023, and was derived from our BMS Agreement.
Research and Development Expenses
The following table summarizes our research and development expenses for each of the periods presented (in thousands):
Nine Months Ended September 30,
2024
2023
Change
Direct research and development expenses by program:
Obexelimab
$
56,408
$
14,282
$
42,126
Global programs (ZB002 & ZB004)
1,850
3,938
(2,088)
Regional programs (ZB001 & ZB005)
6,367
5,551
816
Unallocated research and development expenses:
Personnel expenses (including stock-based compensation)
24,210
15,052
9,158
Other expenses
1,147
792
355
Total research and development expenses
$
89,982
$
39,615
$
50,367
Research and development expenses were $90.0 million for the nine months ended September 30, 2024, compared to $39.6 million for the nine months ended September 30, 2023. The increase of $50.4 million was primarily attributable to the following:
● a $42.1 million increase in costs related to the development of obexelimab, our lead product candidate, driven by a $22.9 million increase in costs related to our ongoing lead trial in IgG4-RD and the initiation of additional clinical trials, and a $19.2 million increase in manufacturing costs for clinical trial materials;
● a $2.1 million decrease in costs related to our global programs, including a $1.1 million decrease related to ZB002 and a $0.9 million decrease related to ZB004, largely driven by a decrease in clinical and non-clinical activities as these programs were deprioritized;
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● a $0.8 million increase in costs related to our regional programs, including a $1.4 million decrease related to ZB001 as the ongoing clinical studies winded down and a $2.0 million increase related to ZB005, largely driven by an increase in clinical and non-clinical activities; and
● a $9.2 million increase in personnel costs, including a $6.3 million increase in salary and benefit related expense, primarily due to an increase in headcount, a $1.3 million increase in stock-based compensation expense, and a $1.5 million increase in external contractor expense and other personnel costs.
General and Administrative Expense
The following table summarizes our general and administrative expenses for each of the periods presented (in thousands):
Nine Months Ended September 30,
2024
2023
Change
Personnel related expenses (including stock-based compensation)
$
10,961
$
7,363
$
3,598
Legal and professional fees
4,332
3,561
771
Facilities and supplies
1,557
1,370
187
Other expenses
1,433
459
974
Total general and administrative expenses
$
18,283
$
12,753
$
5,530
General and administrative expenses were $18.3 million for the nine months ended September 30, 2024, compared to $12.8 million for the nine months ended September 30, 2023. The increase of $5.5 million was primarily attributable to the following:
● a $3.6 million increase in personnel costs, including a $1.6 million increase in stock-based compensation expense, and a $2.1 million increase in salary and benefit related expense, primarily due to an increase in headcount, partially offset by a $0.1 million decrease in external contractor expenses;
● a $0.8 million increase in professional fees, including legal, audit and tax expenses, primarily attributable to operating as a public company; and
● a $1.0 million increase in other expenses, including insurance and other variable costs related to operating as a public company.
Acquired In-Process Research and Development Expenses
There was no acquired IPR&D expense recorded for the nine months ended September 30, 2024. Acquired IPR&D was $10.0 million for the nine months ended September 30, 2023, and was made up of a $10.0 million development milestone payment related to obexelimab.
Total Other Income (Expense), Net
Total other income (expense), net was $3.9 million for the nine months ended September 30, 2024, and consisted of interest income of $4.7 million, partially offset by the change in fair value of the BMS Note of $0.8 million upon remeasurement immediately prior to conversion. Total other expense, net was $0.2 million for the nine months ended September 30, 2023, and was made up primarily of immaterial realized and unrealized gains and losses on foreign currency transactions.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred significant operating losses since inception. We have not yet commercialized any product candidates, and we do not expect to generate revenue from sales of any product candidates or from other sources for several years, if
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at all. As of September 30, 2024, we had $386.8 million in cash, cash equivalents, and investments and we had an accumulated deficit of $334.8 million. Through September 30, 2024, we have funded our operations primarily with gross proceeds of $358.0 million through the sale and issuance of our Preferred Stock, our convertible notes, as well as $50.0 million through our BMS Agreement, and most recently, from the sale of common stock in our IPO.
Cash Flows
The following table provides information regarding our cash flows for each of the periods presented (in thousands):
Nine Months Ended
September 30,
2024
2023
Net cash used in operating activities
$
(81,120)
$
(15,129)
Net cash used in investing activities
(26,817)
—
Net cash provided by financing activities
411,105
20,066
Effect of exchange rate changes on cash and restricted cash
16
165
Net increase in cash, cash equivalents and restricted cash
$
303,184
$
5,102
Net Cash Used in Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2024 was $81.2 million, and was primarily due to our net loss of $104.4 million, partially offset by a $6.3 million increase in accounts payable, a $10.2 million increase in accrued expenses, a $0.5 million increase in prepaid expenses and other assets, a $0.8 million increase in the fair value of our BMS Note liability and $5.3 million of stock-based compensation expense. The increase in accrued expenses and accounts payable was primarily attributable to an increase in research and development expenses, while the increase in prepaid expenses and other assets was primarily due to the timing of vendor payments.
Net cash used in operating activities for the nine months ended September 30, 2023 was $15.1 million, and was primarily due to our net loss of $12.5 million, a $6.8 million decrease in accrued expenses, a $4.7 million decrease in prepaid expenses and other assets, and a $3.5 million decrease in accounts payable, partially offset by a $10.0 million acquisition of in-process research and development and $2.4 million of stock-based compensation expense. The decrease in accrued expenses and accounts payable was primarily attributable to a decrease in research and development expenses, while the decrease in prepaid expenses and other assets was primarily due to the timing of vendor payments.
Net Cash Used in Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2024 was $26.8 million and consisted of purchases of investments of $26.8 million and purchases of property and equipment of $0.1 million. There was no cash used in or provided by investing activities for the nine months ended September 30, 2023.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024 was $411.1 million, resulting from $178.4 million in net proceeds received from the issuance and sale of shares of our Series C Preferred Stock, net proceeds from our IPO of $234.4 million, and $0.2 million of proceeds received from the exercise of stock options, partially offset by a $1.9 million payment of offering costs.
Net cash provided by financing activities for the nine months ended September 30, 2023 was $20.1 million, resulting from $20.0 million in proceeds received from the sale of the BMS Note and $0.1 million in proceeds received from the exercise of stock options
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Future Funding Requirements
As of September 30, 2024, we had $386.8 million in cash, cash equivalents and investments. Based on our current operating plan, we believe that our existing cash will be sufficient to fund our operations and capital expenditure requirements for at least twelve months from the date that our financial statements are issued. We estimate that our existing cash, cash equivalents, and investments will be sufficient to fund our projected operations and capital expenditure requirements into the fourth quarter of 2026. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect.
We expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through clinical development, seek regulatory approval, and pursue commercialization of any approved drug candidates. We expect that our research and development and general and administrative costs will increase in connection with our planned research and clinical activities. In addition, we expect to incur additional costs associated with operating as a public company, including significant audit, legal, regulatory and tax-related expenses, as well as director and officer insurance premiums, investor relations costs, and other expenses that we did not incur as a private company. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses, and prepaid expenses. If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to drug manufacturing, sales, marketing and distribution, depending on where we choose to commercialize. We may also require additional capital to pursue in-licenses or acquisitions of other product candidates. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.
Because of the numerous risks and uncertainties associated with research, development, and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:
● the scope, timing, progress results and costs of our ongoing obexelimab clinical studies and other research and development activities associated with the development of our other and future product candidates;
● the costs, timing and outcome of regulatory review of product candidates;
● the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any product candidates for which we receive marketing approval;
● the costs of establishing and maintaining arrangements with third-party manufacturers for the commercial supply of products that receive marketing approval, if any;
● the costs and timing of manufacturing for obexelimab and other product candidates, including commercial manufacturing at sufficient scale, if any product candidate is approved, including as a result of inflation, any supply chain issues or component shortages;
● the revenue, if any, received from commercial sale of our products, should any product candidates receive marketing approval;
● the cash requirements of any future acquisitions or discovery of product candidates;
● the cost and timing of attracting, hiring and retaining skilled personnel to support our operations and continued growth;
● the cost of implementing operational, financial and management systems;
● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
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● our ability to establish and maintain collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties on favorable terms, if at all;
● our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
● the timing, receipt and amount of sales of, or milestone payments related to or royalties on, current or future product candidates, if any; and
● the costs associated with operating as a public company, including legal, accounting or other expenses in operating our business.
A change in the outcome of any of these or other variables with respect to the development of obexelimab or any other product candidate could significantly change the costs and timing associated with our operating plans. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, which could include collaborations, strategic alliances, or licensing arrangements. We currently have no credit facility or committed sources of capital. Adequate additional funds may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of such stockholders. Debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business.
If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research program or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Material Cash Requirements for Known Contractual and Other Obligations
During the three months ended September 30, 2024, there were no material changes to our contractual obligations and commitments from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our IPO Prospectus.
Critical Accounting Policies and Significant Judgments and Estimates
This management’s discussion and analysis is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reported periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experiences. Actual results may differ from these estimates under different assumptions or conditions. The effects of material revisions in estimates, if any, will be reflected in the condensed consolidated financial statements prospectively from the date of change in estimates.
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During the three months ended September 30, 2024, there were no material changes to our critical accounting policies from those described in the IPO Prospectus.
Recent Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 in our audited consolidated financial statements included in our the IPO Prospectus.
Implications of Being an Emerging Growth Company and Smaller Reporting Company
We qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non binding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
We may take advantage of these exemptions until December 31, 2029 or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.235 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non affiliates (and we have been a public company for at least twelve months and have filed one Annual Report on Form 10-K) or we issue more than $1.0 billion of non convertible debt securities over a three year period. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. We may choose to take advantage of some, but not all, of the available exemptions.
In addition, the JOBS Act provides that, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies.
We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates following the IPO is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. We may continue to be a smaller reporting company until the fiscal year following the determination that we no longer meet the requirements necessary to be considered a smaller reporting company.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.