SEC Filing | Zentalis Pharmaceuticals

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zntl-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 001-39263

Zentalis Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)


Delaware			82-3607803
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

530 Seventh Avenue,
Suite 2201
New York,
New York			10018
(Address of principal executive offices)			(Zip Code)

(212) 433-3791

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	ZNTL	The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated Filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 11, 2020, the registrant had 40,002,821 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Cash Flows	7
	Condensed Consolidated Statements of Ch anges in Convert ible Preferred Units and Members ’/Stockholders ’ Equity/(Deficit )	8
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41
PART II.	OTHER INFORMATION	43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	104
Item 3.	Defaults Upon Senior Securities	105
Item 4.	Mine Safety Disclosures	105
Item 5.	Other Information	105
Item 6.	Exhibits	105
	Signatures	107

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our future results of operations and financial position, the anticipated impact of the novel coronavirus (“COVID-19”) pandemic on our business, business strategy, prospective products and product candidates, clinical trial timelines and expected timing for the release of data, research and development costs, future revenue, timing and likelihood of success, potential collaboration opportunities, and plans and objectives of management are forward-looking statements.

The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, assumptions and other important factors, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

BASIS OF PRESENTATION

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Zentalis” and similar references refer: (1) following the consummation of our statutory conversion to a Delaware corporation on April 2, 2020 in connection with our initial public offering, to Zentalis Pharmaceuticals, Inc., and (2) prior to the completion of such conversion, to Zentalis Pharmaceuticals, LLC. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations”—“Corporate Conversion” in this Quarterly Report on Form 10-Q for further information.

iii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Zentalis Pharmaceuticals, Inc. (Successor to Zentalis Pharmaceuticals, LLC)

FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except unit and share amounts)


	June 30,		December 31,
	2020		2019
ASSETS
Current assets
Cash and cash equivalents	$	96,016	$	67,246
Marketable securities, available-for-sale	137,175		—
Accounts receivable from government grants, net	73		140
Prepaid expenses and other current assets	5,217		1,505
Total current assets	238,481		68,891
Property and equipment, net	481		501
Operating lease right-of-use assets	2,090		2,335
Prepaid expenses and other assets	3,218		2,134
Deferred financing costs	—		841
Goodwill	3,736		3,736
In-process research and development	8,800		8,800
Restricted cash	411		243
Total assets	$	257,217	$	87,481
LIABILITIES, CONVERTIBLE PREFERRED UNITS AND EQUITY/(DEFICIT)
Current liabilities
Accounts payable	$	4,217	$	4,289
Accrued expenses	11,350		10,608
Total current liabilities	15,567		14,897
Deferred tax liability	2,463		2,463
Other long-term liabilities	1,262		1,700
Total liabilities	19,292		19,060
Commitments and contingencies
Convertible preferred units; Redemption value of $146,944,000 at December 31, 2019	—		141,706
EQUITY (DEFICIT)
Class A common units; 20,000,000 units authorized; 5,601,478 units issued and outstanding at December 31, 2019	—		709
Class B common units, 3,458,522 units authorized; 2,670,668 units issued and outstanding at December 31, 2019	—		2,178
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2020	—		—
Common stock, $0.001 par value; 250,000,000 shares authorized; 35,878,108 shares issued and outstanding at June 30, 2020	36		—
Additional paid-in capital	339,160		—
Accumulated other comprehensive income	4		—
Accumulated deficit	(125,976)		(82,993)
Total stockholders’ equity/members’ (deficit)	213,224		(80,106)
Noncontrolling interests	24,701		6,821
Total equity (deficit)	237,925		(73,285)
Total liabilities, convertible preferred units and equity (deficit)	$	257,217	$	87,481

See notes to condensed consolidated financial statements.

Zentalis Pharmaceuticals, Inc. (Successor to Zentalis Pharmaceuticals, LLC)

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per unit and per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Operating Expenses
Research and development	$	17,452	$	8,689	$	30,710	$	15,778
General and administrative	9,924		1,946		13,065		3,579
Total operating expenses	27,376		10,635		43,775		19,357
Operating loss	(27,376)		(10,635)		(43,775)		(19,357)
Other Income (Expense)
Investment and other income, net	84		49		248		111

Net loss before income taxes	(27,292)		(10,586)		(43,527)		(19,246)
Income tax expense	—		11		—		14
Net loss	(27,292)		(10,597)		(43,527)		(19,260)
Net loss attributable to noncontrolling interests	(435)		(127)		(544)		(447)
Net loss attributable to Zentalis	$	(26,857)	$	(10,470)	$	(42,983)	$	(18,813)
Net loss per common share outstanding, basic and diluted	$	(0.78)	$	—	$	(2.53)	$	—
Net loss per Class A common unit outstanding, basic and diluted	$	—	$	(1.87)	$	—	$	(3.36)
Common shares/units used in computing net loss per share/Class A common unit, basic and diluted	34,353		5,601		16,978		5,601

See notes to condensed consolidated financial statements.

Zentalis Pharmaceuticals, Inc. (Successor to Zentalis Pharmaceuticals, LLC)

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net loss	(27,292)		(10,597)		(43,527)		(19,260)
Other comprehensive income:
Unrealized gain on marketable securities	4		—		4		—
Total comprehensive loss	$	(27,288)	$	(10,597)	$	(43,523)	$	(19,260)
Comprehensive loss attributable to noncontrolling interests	(435)		(127)		(544)		(447)
Comprehensive loss attributable to Zentalis	$	(26,853)	$	(10,470)	$	(42,979)	$	(18,813)

See notes to condensed consolidated financial statements.

Zentalis Pharmaceuticals, Inc. (Successor to Zentalis Pharmaceuticals, LLC)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Six Months Ended June 30,
	2020		2019
Operating Activities:
Consolidated net loss	$	(43,527)	$	(19,260)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	76		45
Share-based compensation	8,010		250
Amortization of premiums on marketable securities, net	65		—
Changes in operating assets and liabilities:
Accounts receivable	67		597
Prepaid expenses and other assets	(4,796)		(384)
Accounts payable and accrued liabilities	1,212		2,701
Operating lease right-of-use assets and liabilities, net	(11)		87
Net cash used in operating activities	(38,904)		(15,964)
Investing activities:
Purchases of marketable securities	(137,236)		—

Purchases of property and equipment	(56)		(209)
Net cash used in investing activities	(137,292)		(209)
Financing Activities:
Proceeds from issuance of common stock in initial public offering, net	172,482		—
Contributions from noncontrolling interest owners, net	18,424		—
Proceeds from the issuance of Series C convertible preferred units, net	14,228		—

Net cash provided by financing activities	205,134		—
Net increase/(decrease) in cash, cash equivalents and restricted cash	28,938		(16,173)
Cash, cash equivalents and restricted cash at beginning of period	67,489		25,154
Cash, cash equivalents and restricted cash at end of period	$	96,427	$	8,981
Supplemental disclosure of non-cash investing and financing activities:

Right-of-use assets obtained in exchange for operating lease liabilities	$	—	$	2,675
Costs incurred in connection with initial public offering included in accounts payable and accrued expenses	$	70	$	—

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Statements of Cash Flows for the periods presented:


	June 30,
	2020		2019
Cash and cash equivalents	$	96,016	$	8,738
Restricted cash, non-current	411		243
Total cash, cash equivalents and restricted cash reported in the Consolidated Statement of Cash Flows	$	96,427	$	8,981

See notes to condensed consolidated financial statements.

Zentalis Pharmaceuticals, Inc. (Successor to Zentalis Pharmaceuticals, LLC)

Condensed Consolidated Statements of Changes in Convertible Preferred Units and Members’/Stockholders’ Equity/(Deficit)

(In thousands)


	Three Months Ended June 30, 2020
				Zentalis Members/Stockholders
	Convertible Preferred Units				Convertible Preferred Units					Class A Common Units				Class B Common Units						Common						Additional Paid-In Capital	Accumulated Other Comprehensive Income	Accumulated Deficit	Noncontrolling Interests	Total Equity (Deficit)
	Units	Amount		Units	Amount		Units	Amount		Units	Amount		Shares	Amount
Balance at March 31, 2020	10,817	$	155,934	—	$	—	5,601	$	709	2,607	$	2,507	—	$	—	$	—	$	—	$	(99,119)	$	6,712	$	(89,191)


Issuance of common stock in connection with an equity offering, net of underwriting discounts, commissions and offering costs	—	—		—	—		—	—		—	—		10,589	11		172,354		—		—		—		172,365
Contributions from noncontrolling interest owners	—	—		—	—		—	—		—	—		—	—		—		—		—		18,424		18,424
Share-based compensation expense	—	—		—	—		—	—		—	—		—	—		7,681		—		—		—		7,681
Conversion of convertible preferred units to common stock	(10,817)	(155,934)		—	—		—	—		—	—		15,011	15		155,919		—		—		—		155,934
Conversion of common and incentive units to common and restricted stock	—	—		—	—		(5,601)	(709)		(2,607)	(2,507)		10,278	10		3,206		—		—		—		—
Other comprehensive income	—	—		—	—		—	—		—	—		—	—		—		4		—		—		4
Net loss attributable to non-controlling interest	—	—		—	—		—	—		—	—		—	—		—		—		—		(435)		(435)
Net loss attributable to Zentalis	—	—		—	—		—	—		—	—		—	—		—		—		(26,857)		—		(26,857)
Balance at June 30, 2020	—	$	—	—	$	—	—	$	—	—	$	—	35,878	$	36	$	339,160	$	4	$	(125,976)	$	24,701	$	237,925


	Six Months Ended June 30, 2020
				Zentalis Members/Stockholders
	Convertible Preferred Units				Convertible Preferred Units					Class A Common Units					Class B Common Units						Common						Additional Paid-In Capital	Accumulated Other Comprehensive Income	Accumulated Deficit	Noncontrolling Interests	Total Equity (Deficit)
	Units	Amount		Units	Amount		Units	Amount		Units		Amount		Shares	Amount
Balance at December 31, 2019	9,950	$	141,706	—	$	—	5,601	$	709	2,671		$	2,178	—	$	—	$	—	$	—	$	(82,993)	$	6,821	$	(73,285)
Issuance of Series C convertible preferred units at $17.50 per unit net of issuance costs	867	14,228		—	—		—	—		—		—		—	—		—		—		—		—		—
Cancellation of profit interest awards, net	—	—		—	—		—	—		(64)		—		—	—		—		—		—		—		—
Issuance of common stock in connection with an equity offering, net of underwriting discounts, commissions and offering costs	—	—		—	—		—	—		—		—		10,589	11		172,354		—		—		—		172,365
Contributions from noncontrolling interest owners	—	—		—	—		—	—		—		—		—	—		—		—		—		18,424		18,424
Share-based compensation expense	—	—		—	—		—	—		—		329		—	—		7,681		—		—		—		8,010
Conversion of convertible preferred units to common stock	(10,817)	(155,934)		—	—		—	—		—		—		15,011	15		155,919		—		—		—		155,934
Conversion of common and incentive units to common and restricted stock	—	—		—	—		(5,601)	(709)		(2,607)		(2,507)		10,278	10		3,206		—		—		—		—
Other comprehensive income	—	—		—	—		—	—		—		—		—	—		—		4		—		—		4
Net loss attributable to non-controlling interest	—	—		—	—		—	—		—		—		—	—		—		—		—		(544)		(544)
Net loss attributable to Zentalis	—	—		—	—		—	—		—		—		—	—		—		—		(42,983)		—		(42,983)
Balance at June 30, 2020	—	$	—	—	$	—	—	$	—	—	$	$	—	35,878	$	36	$	339,160	$	4	$	(125,976)	$	24,701	$