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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 March 31, 2021
or
    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)
Delaware82-3607803
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
$0.001 par value per share
ZNTLThe 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 May 7, 2021, the registrant had 41,314,839 shares of common stock, $0.001 par value per share, outstanding.


Table of Contents
Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
i


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 COVID-19 pandemic on our business, the sufficiency of our cash and cash equivalents to fund our operations, 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, activities under our existing collaborations and 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 “Summary Risk Factors” below and in 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.

SUMMARY RISK FACTORS
Our business is subject to numerous risk and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risk and uncertainties when investing in our common stock. These principal risks and uncertainties affecting our business include the following:
•We have a limited operating history, have not completed any clinical trials and have no products approved for commercial sale, which may make it difficult for you to evaluate our current business and predict our future success and viability.
•We have incurred significant net losses since inception and we expect to continue to incur significant net losses for the foreseeable future.
•We will require substantial additional capital to finance our operations. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce or eliminate one or more of our research and drug development programs or future commercialization efforts.
ii


•We are substantially dependent on the success of our lead product candidates, ZN-c5 and ZN-c3, which are currently in clinical trials. If we are unable to complete development of, obtain approval for and commercialize ZN-c5 and/or ZN-c3 in a timely manner, our business will be harmed.
•The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical trials may not satisfy the requirements of the FDA, EMA or other comparable foreign regulatory authorities.
•We may face additional risks associated with the development of ZN-c5, ZN-c3, ZN-d5, ZN-e4 and potentially other product candidates in combination with other therapies.
•The clinical trial and regulatory approval processes are lengthy, time-consuming and inherently unpredictable, and we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
•The competition for qualified personnel is particularly intense in our industry. If we are unable to retain or hire key personnel, then we may not be able to sustain or grow our business.
•We face significant competition and, if our competitors develop and market technologies or products more rapidly than we do or that are more effective, safer or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted.
•Our success depends on our ability to protect our intellectual property and our proprietary platform. If we are unable to adequately protect our intellectual property and our proprietary platform, or to obtain and maintain issued patents which are sufficient to protect our product candidates, then others could compete against us more directly, which would negatively impact our business.
•Our existing collaborations are important to our business and future licenses may also be important to us and, if we are unable to maintain any of these collaborations, or if these arrangements are not successful, our business could be adversely affected.
•We rely, and expect to continue to rely, on third parties, including independent clinical investigators and CROs, to conduct certain aspects of our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
•Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Claims by third parties that we infringe their proprietary rights may result in liability for damages or prevent or delay our developmental and commercialization efforts.
•The COVID-19 pandemic has adversely impacted, and we expect will continue to adversely impact, our business, including our preclinical studies and clinical trials.
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.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts and par value)
March 31,December 31,
 20212020
ASSETS
Current assets
Cash and cash equivalents$28,996 $54,951 
Marketable securities, available for sale269,385 283,554 
Accounts receivable from government grants, net248 417 
Prepaid expenses and other current assets7,725 6,182 
Total current assets306,354 345,104 
Property and equipment, net1,508 1,099 
Operating lease right-of-use assets1,901 2,520 
Prepaid expenses and other assets2,790 2,976 
Goodwill3,736 3,736 
In-process research and development8,800 8,800 
Restricted cash3,264 1,320 
Total assets$328,353 $365,555 
LIABILITIES, CONVERTIBLE PREFERRED UNITS AND EQUITY
Current Liabilities
Accounts payable$8,337 $8,661 
Accrued expenses24,460 19,940 
Total current liabilities32,797 28,601 
Deferred tax liability2,480 2,480 
Other long-term liabilities438 1,097 
Total liabilities35,715 32,178 
Commitments and contingencies
EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued and outstanding at March 31, 2021 and December 31, 2020
  
Common stock, $0.001 par value; 250,000,000 shares authorized; 41,040,286 shares issued and outstanding at March 31, 2021 and December 31, 2020
41 41 
Additional paid-in capital519,030 509,339 
Accumulated other comprehensive income50 36 
Accumulated deficit(250,735)(200,834)
Total stockholders' equity268,386 308,582 
Noncontrolling interests24,252 24,795 
Total equity292,638 333,377 
Total liabilities and equity$328,353 $365,555 
See notes to condensed consolidated financial statements
3


Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share and per unit amounts)

 Three Months Ended
March 31,
 2021 2020
Operating Expenses 
Research and development$38,394 $13,258 
General and administrative11,953 3,141 
Total operating expenses50,347 16,399 
Operating loss(50,347)(16,399)
Other Income (Expense)
Interest income143 164 
Other expense(44) 
Net loss before income taxes(50,248)(16,235)
Income tax expense196  
Net loss(50,444)(16,235)
Net loss attributable to noncontrolling interests(543)(109)
Net loss attributable to Zentalis$(49,901)$(16,126)
Net loss per common share outstanding, basic and diluted$(1.24) 
Net loss per Class A common unit outstanding, basic and diluted $(2.88)
Common shares/units used in computing net loss per share/Class A common unit, basic and diluted40,359 5,601 

See notes to condensed consolidated financial statements

4


Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(In thousands)
 Three Months Ended
March 31,
 2021 2020
Net loss$(50,444)$(16,235)
Other comprehensive income:
Unrealized gain on marketable securities, net14  
Total comprehensive loss(50,430)(16,235)
Comprehensive loss attributable to noncontrolling interests(543)(109)
Comprehensive loss attributable to Zentalis$(49,887)$(16,126)
See notes to condensed consolidated financial statements
5


Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Members’/Stockholders’ Equity(Deficit) and Changes in Redeemable Convertible Preferred Units
(In thousands)
Three Months Ended March 31, 2021
Zentalis Stockholders
 CommonAdditional Paid-In CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit
Noncontrolling
Interests
Total
Equity
 SharesAmount
Balance at December 31, 202041,040 $41 $509,339 $36 $(200,834)$24,795 $333,377 
Share-based compensation expense
— — 9,691 — — — 9,691 
Other comprehensive income— — — 14 — — 14 
Net loss attributable to non-controlling interest
— — — — — (543)(543)
Net loss attributable to Zentalis Pharmaceuticals, Inc.— — — — (49,901)— (49,901)
Balance at March 31, 202141,040 $41 $519,030 $50 $(250,735)$24,252 $292,638 

Three Months Ended March 31, 2020
Zentalis Stockholders
 Convertible
Preferred Units
Convertible
Preferred Units
Class A
Common Units
Class B
Common Units
 Accumulated
Deficit
Noncontrolling
Interests
Total
Deficit
 UnitsAmountUnitsAmountUnitsAmountUnitsAmount
Balance at December 31, 20199,950 $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 profits interest awards, net— — — — — — (64)— — — — 
Share-based compensation expense
— — — — — — — 329 — — 329 
Net loss attributable to non-controlling interest
— — — — — — — — — (109)(109)
Net loss attributable to Zentalis Pharmaceuticals, LLC
— — — — — — — — (16,126)— (16,126)
Balance at March 31, 202010,817 $155,934 — $— 5,601 $709 2,607 $2,507 $(99,119)$6,712 $(89,191)
See notes to condensed consolidated financial statements
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Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 Three Months Ended
March 31,
 20212020
Operating Activities: 
Consolidated net loss$(50,444)$(16,235)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization79 38 
Share-based compensation9,691 329 
Amortization of premiums on marketable securities, net289  
Loss on disposal of equipment15 
Changes in operating assets and liabilities:
Accounts receivable169 1 
Prepaid expenses and other assets(1,357)(1,050)
Accounts payable and accrued liabilities3,307 53 
Operating lease right-of-use assets and liabilities, net782 (7)
Net cash used in operating activities(37,469)(16,871)
Investing activities:
Purchases of marketable securities(54,434) 
Proceeds from maturities of marketable securities68,328  
Purchases of property and equipment(436)(31)
Net cash provided by/used in investing activities13,458 (31)
Financing Activities:
Proceeds from the issuance of Series C convertible preferred units, net 14,228 
Deferred financing costs (754)
Net cash provided by financing activities 13,474 
Decrease in cash, cash equivalents and restricted cash(24,011)(3,428)
Cash, cash equivalents and restricted cash at beginning of year56,271 67,489 
Cash, cash equivalents and restricted cash at end of year$32,260 $64,061 
Supplemental disclosure of non-cash investing and financing activities:
Amounts accrued for purchases of property and equipment$67 $25 
Costs incurred in connection with initial public offering included in accounts payable and accrued expenses
$ $1,930 

See notes to condensed consolidated financial statements
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows for the periods presented:
March 31,
20212020
Cash and cash equivalents$28,996 $63,650 
Restricted cash, non-current3,264 411 
Total cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statement of Cash Flows$32,260 $64,061 

See notes to condensed consolidated financial statements
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Zentalis Pharmaceuticals, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
Organization
Zentalis Pharmaceuticals, Inc. (“Zentalis”, “We” or the “Company”) is a clinical-stage pharmaceutical company focused on discovering and developing clinically differentiated, novel small molecule therapeutics targeting fundamental biological pathways of cancer. The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. All of the Company’s material tangible assets are held in the United States.
The Company was formed and incorporated in the state of Delaware as Zeno Pharmaceuticals, Inc. on December 23, 2014. Effective November 21, 2017, Zeno Pharma, LLC was formed by the shareholders of Zeno Pharmaceuticals, Inc. On December 21, 2017, Zeno Pharmaceuticals, Inc. became a wholly owned subsidiary of Zeno Pharma, LLC. In connection with this restructuring, the rights and preferences of the Preferred Stock of Zeno Pharmaceuticals, Inc. were exchanged for preferred units with similar rights and preferences of Zeno Pharma, LLC. As part of the restructuring, the employees, consultants and board members of Zeno Pharmaceuticals, Inc. exchanged their equity grants in Zeno Pharmaceuticals, Inc. stock for Class B common units in Zeno Pharma, LLC. Additionally, existing common stockholders of Zeno Pharmaceuticals, Inc. exchanged their common stock for Class A common units in Zeno Pharma, LLC. All exchanges were made on a one-for-one basis. The restructuring was accounted for as a common control transaction. In December 2019, the Company was renamed to Zentalis Pharmaceuticals, LLC.
Immediately prior to the effectiveness of the registration statement pertaining to the Company’s initial public offering (“IPO”) on April 2, 2020, the Company converted from a Delaware limited liability company into a Delaware corporation, and changed its name to Zentalis Pharmaceuticals, Inc. Pursuant to the statutory corporate conversion, all of the outstanding units of Zentalis Pharmaceuticals, LLC converted into shares of common stock of Zentalis Pharmaceuticals, Inc. based upon the value of Zentalis Pharmaceuticals, Inc. at the time of the IPO with a value implied by the price of the shares of common stock sold in the IPO. Based on the IPO price of $18.00 per share, the outstanding converted units converted into 25,288,854 shares of common stock (including 1,160,277 shares of restricted common stock).
On April 7, 2020, the Company completed the IPO in which the Company issued and sold 10,557,000 shares of common stock (including 1,377,000 shares of common stock in connection with the full exercise of the underwriters’ option to purchase additional shares) at a public offering price of $18.00 per share. The Company’s aggregate gross proceeds from the sale of shares in the IPO, including the sale of shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, was $190.0 million before fees and expenses of $17.6 million.

Liquidity
Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The Company determined that there are no conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date that the interim unaudited condensed consolidated financial statements for the quarter ended March 31, 2021 are issued.
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2. Interim Unaudited Financial Statements
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. The year-end condensed consolidated balance sheet data was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. These condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto included in our Annual Report on From 10-K for the year ended December 31, 2020, filed with the SEC on March 25, 2021. The unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operation for the periods presented, with such adjustments consisting only of normal recurring adjustments.
The condensed consolidated financial statements include the accounts of our wholly owned subsidiaries, majority-owned or controlled companies, and variable interest entity (“VIE”), Kalyra Pharmaceuticals, Inc. (“Kalyra”), for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.
Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to inform our critical accounting estimates.
Comprehensive Loss
Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss includes unrealized gains or losses on the Company’s marketable securities.
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Adoption and Pending Adoption of Recent Accounting Pronouncements
The following table provides a brief description of recently issued accounting standards, those adopted in the current period and those not yet adopted:
Standard  Description  Effective Date  Effect on the Financial
Statements or Other
Significant Matters
In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321)This standard clarifies the interaction between accounting standards related to equity securities (ASC 321), equity method investments (ASC 323), and certain derivatives (ASC 815). January 1, 2021We currently do not hold equity securities, have equity method investments or derivatives. This adoption did not have a material impact on our consolidated financial position or results of operations.
3. Business Combinations
Kalyra Pharmaceuticals, Inc.
On December 21, 2017, we acquired $4.5 million of Kalyra’s Series B Preferred Stock representing a 25% equity interest in Kalyra for purposes of entering the analgesics therapeutic research space. The acquisition price was paid entirely in cash.
In accordance with the authoritative guidance, we concluded that Kalyra is a business consisting of inputs, employees, intellectual property and processes capable of producing outputs. Additionally, we have concluded that Kalyra is a variable interest entity, we are the primary beneficiary and have the power to direct the activities that most significantly affect Kalyra’s economic performance through common management and our board representation. Prior to the change of control, Zeno and Kalyra transacted for the delivery of research and development services and support. The financial position and results of operations of Kalyra have been included in our consolidated financial statements from the date of the initial investment.
Pursuant with authoritative guidance, we have recorded the identifiable assets, liabilities and noncontrolling interests in the VIE at their fair value upon initial consolidation. The identified goodwill is comprised of the workforce and expected synergies from combining the entities. Total assets and liabilities of Kalyra as of March 31, 2021 and December 31, 2020 are as follows (in thousands):
March 31,December 31,
 20212020
Cash and cash equivalents$399 $417 
Other current assets206 82 
In-process research and development8,800 8,800 
Goodwill3,736 3,736 
Other long-term assets  
Accounts payable and accrued expenses96 83 
Deferred tax liability2,463 2,463 
Noncontrolling interests$6,791 $6,705 
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The liabilities recognized as a result of consolidating Kalyra do not represent additional claims on our general assets. Pursuant to the authoritative guidance, the equity interest in Kalyra not owned by Zeno is reported as a noncontrolling interest on our condensed consolidated balance sheets.
The following is a reconciliation of equity (net assets) attributable to the noncontrolling interest (in thousands):
March 31,March 31,
 20212020
Noncontrolling interest at beginning of period$6,705 $6,821 
Net income/(loss) attributable to noncontrolling interest86 (109)
Noncontrolling interest at end of period$6,791 $6,712 
4. Fair Value Measurement
Available-for-sale marketable securities consisted of the following (in thousands):
March 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Commercial paper$153,038 $15 $(4)$153,049 
Corporate debt securities
19,119  (6)19,113 
US government agencies
66,211 30  66,241 
US Treasury securities30,967 15  30,982 
$269,335 $60 $(10)$269,385 

December 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Commercial paper$147,382 $14 $(8)$147,388 
Corporate debt securities23,576 1 (6)23,571 
US government agencies81,455 32 (1)81,486 
US Treasury securities31,105 4  31,109 
$283,518 $51 $(15)$283,554 
As of March 31, 2021, 16 of our available-for-sale debt securities with a fair market value of $81.6 million were in a gross unrealized loss position of ten thousand dollars. When evaluating an investment for impairment, we review factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, our intent to sell or the likelihood that we would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. Based on our review of these marketable securities, we believe none of the unrealized loss is as a result of a credit loss as of March 31,
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2021, because we do not intend to sell these securities and it is not more-likely-than-not that we will be required to sell these securities before the recovery of their amortized cost basis.
Contractual maturities of available-for-sale debt securities are as follows (in thousands):
March 31, 2021
December 31, 2020
Estimated Fair Value
Due within one year$269,385 $247,455 
After one but within five years 36,099 
$269,385 $283,554 
The following table summarizes, by major security type, our cash equivalents and available-for-sale marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):
March 31, 2021
December 31, 2020
Level 1Level 2Total estimated fair valueLevel 1Level 2Total estimated fair value
Cash equivalents:
Money market funds
$8,404 $ $8,404 $24,016 $ $24,016 
Corporate debt securities
    4,999 4,999 
Total cash equivalents:
8,404  8,404 24,016 4,999 29,015 
Available-for-sale marketable securities:
Commercial paper
153,049 153,049  147,388 147,388 
Corporate debt securities
19,113 19,113  23,571 23,571 
US government agencies
 66,241 66,241  81,486 81,486 
US Treasury securities
30,982  30,982 31,109  31,109 
Total available-for-sale marketable securities:
30,982 238,403 269,385 31,109 252,445 283,554 
Total assets measured at fair value
$39,386 $238,403 $277,789 $55,125 $257,444 $312,569 
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2021. We had no instruments that were classified within Level 3 as of March 31, 2021 or December 31, 2020.

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5. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consisted of the following (in thousands):
March 31,December 31,
 20212020
Prepaid insurance$385 $1,021 
Prepaid software licenses and maintenance421 563 
Foreign R&D credit refund1,058 692 
Prepaid research and development expenses7,401 5,963 
Interest receivable357 478 
Other prepaid expenses893 441 
Total prepaid expenses and other assets10,515 9,158 
Less long-term portion2,790 2,976 
Total prepaid expenses and other assets, current$7,725 $6,182 
6. Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
March 31,December 31,
 20212020
Computer and Office Equipment$545 $529 
Lab Equipment1,049 424 
Leasehold Improvements49 49 
Construction in Progress192 347 
Subtotal1,835 1,349 
Accumulated depreciation and amortization(327)(250)
Property and equipment, net$1,508 $1,099 
Depreciation and amortization expense for the three months ended March 31, 2021 and 2020 was approximately seventy-nine thousand and thirty-eight thousand respectively.
7. Accrued Expenses
Accrued expenses consist of the following (in thousands):
March 31,December 31,
20212020
Accrued research and development expenses$17,351 $11,947 
Accrued employee expenses4,163 5,649 
Accrued legal expenses917 589 
Accrued general and administrative expenses324 443 
Lease liability1,099 902 
Taxes payable606 410 
Total accrued expenses$24,460 $19,940 
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8. Convertible Preferred Units
Series A Convertible Preferred Units
In September 2015, Zeno Pharmaceuticals, Inc. entered into a Series A Preferred Stock Purchase Agreement (the “Series A Preferred Agreement”). Under the terms of the Series A Preferred Agreement, Zeno Pharmaceuticals, Inc. issued 1,293,104 shares of Series A convertible preferred stock at $11.60 per share for gross proceeds of $15.0 million. The net proceeds of this financing were $14.9 million after issuance costs of $0.1 million. In February and March 2016, Zeno Pharmaceuticals, Inc. issued an aggregate of 286,205 additional shares of Series A convertible preferred stock at $11.60 per share for additional gross proceeds of $3.3 million. The issuance costs of this additional financing were approximately thirty-nine thousand dollars. All Series A convertible preferred stock issued and outstanding by Zeno Pharmaceuticals, Inc. was converted into Series A convertible preferred units of Zentalis Pharmaceuticals, LLC in conjunction with the corporate restructuring and merger.
Series B Convertible Preferred Units
In December 2017, Zentalis Pharmaceuticals, LLC entered into a Series B Preferred Unit Purchase Agreement (the “Series B Preferred Agreement”). Under the terms of the Series B Preferred Agreement, Zentalis Pharmaceuticals, LLC issued 2,735,320 Series B preferred units at $12.43 per unit for gross proceeds of $34.0 million. The net proceeds of this financing were $32.1 million after issuance costs of $1.9 million. In January and August 2018, Zentalis Pharmaceuticals, LLC issued an aggregate of 788,419 additional shares of Series B preferred units at $12.43 per unit for additional gross proceeds of $9.8 million. The net proceeds of this additional financing were $9.5 million after issuance costs of $0.3 million.
Series C Preferred Unit Issuance
In September 2019, Zentalis Pharmaceuticals, LLC entered into a Series C Preferred Unit Purchase Agreement (the “Series C Preferred Agreement”). Under the terms of the Series C Preferred Agreement, Zentalis Pharmaceuticals, LLC issued 4,847,106 units of Series C convertible preferred units at $17.50 per unit for gross proceeds of $84.8 million. The net proceeds of this financing were $81.9 million after issuance costs of $2.9 million. In February 2020, Zentalis Pharmaceuticals, LLC issued 867,194 additional units of Series C preferred units under the Series C Preferred Agreement. The units were issued for $17.50 per unit for gross proceeds of $15.2 million. The net proceeds of this financing were $14.2 million after issuance costs of $1.0 million.
The were no authorized, issued, or outstanding shares of convertible preferred units at March 31, 2021 and December 31, 2020.
During 2020, we reclassified the convertible preferred units from members’ equity to temporary equity because, in conjunction with the Series C convertible preferred units issuance, all units were now deemed to contain contingent liquidation features that are not solely within our control. During the year ended December 31, 2020 and three months ended March 31, 2021, we did not adjust the carrying values of the convertible preferred units to the deemed redemption values of such units since a liquidation event was not probable.
Dividends
Dividends are payable if and when declared by the Board of Directors. No dividends have been declared through March 31, 2021.
Conversion
Each Series A preferred unit, Series B preferred unit and Series C preferred unit was convertible at the option of the holder thereof, at any time after the issuance of such unit, into Class A common units at a conversion price equal to the original purchase price (subject to anti-dilution adjustments, discussed below) which was $11.60, $12.43 and $17.50 per unit, respectively. The convertible preferred units automatically converted at the then applicable
15


conversion rate upon the closing of a firm commitment underwritten public offering of shares of a successor corporations’ common stock, at a public offering price per share of equal to or greater than the Series C original purchase price (as adjusted for any stock splits, stock dividends, combinations or other similar recapitalization) resulting in aggregate gross cash proceeds of at least $75.0 million (a “Qualified IPO”). Additionally, the convertible preferred unit would have automatically converted into common stock, at the then applicable conversion rate, upon written consent of a majority of the then outstanding Series A, Series B and Series C convertible preferred units (voting as a separate class on an as converted to Common Unit basis). In conjunction with our IPO on April 2, 2020, which constituted a Qualified IPO, all convertible preferred units were converted to common stock.
Anti-dilution protection
The holders of the convertible preferred units had proportional anti-dilution protection for unit splits, unit dividends and similar recapitalizations. Subject to certain exclusions, anti-dilution price protection for additional sales of securities by us for consideration per unit less than the applicable conversion price per unit of any series of convertible preferred stock, was on a broad-based weighted average basis.
Protective rights
The holders of the convertible preferred units had certain protective rights, including, without limitation, regarding the authorization, alteration, redemption, or sale of Class B common units; commencement of a liquidation or deemed liquidation event; entrance into a joint venture or partnership; any incurrence of indebtedness; certain transactions that exceed a certain dollar threshold; changes to our governing documents; or the declaration of any dividends. Such actions were required to be approved by a majority of the then outstanding Series A, Series B and Series C convertible preferred unit holders (voting as a single class and on an as-converted basis), as specified in the amended and restated LLC agreement. An increase or decrease in the authorized number of Directors constituting the Board or the creation of a membership interest or equity security senior to or pari passu with Series C convertible preferred units was required to be approved by a majority of the then outstanding Series C convertible preferred Units (voting as a separate class on an as converted basis).
Redemption
The Series A, Series B and Series C convertible preferred units were not redeemable except in the event of certain effected deemed liquidation events. As of immediately prior to our IPO on April 2, 2020, we had classified convertible preferred units as temporary equity in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of our control, including liquidation, sale or transfer of control of the Company. We did not adjust the carrying value of the convertible preferred units to the deemed redemption values of such units since a liquidation event was not probable.
Liquidation preference
In the event of the dissolution, liquidation, merger or winding up of the Company, the holders of Series C convertible preferred units were entitled to receive, on a pro rata basis in respect of each such Series C convertible preferred unit, a preference amount of $17.50 per Series C convertible unit (as adjusted for any unit splits, dividends, combinations, recapitalizations or the like).
Subsequent to the payment of the Series C convertible preferred unit preferences, Series A and Series B convertible preferred units were entitled to receive, on a pro rata basis in respect of each convertible preferred unit in proportion to the relative preference amount of each preferred unit, a preference amount of $11.60 and $12.43 per unit of Series A and Series B convertible preferred units (as adjusted for any units splits, dividend, combinations, recapitalizations of the like), respectively.
Subsequent to the payment of the Series C, Series A and Series B convertible preferred unit preferences, Series A, Series B and Series C convertible preferred units are entitled to receive, on an as converted to common unit pro
16


rata basis, an amount equal to distributions made to Class A common units prior to all unit classes sharing in distributions on a pro rata basis. Thereafter, Series A, Series B and Series C convertible preferred units and Series A and Series B common units were entitled to receive the remaining assets of the Company available for distribution to its unit holders pro rata based on the number of common units held by each holder, treating for these purposes as if all units had been converted to common.
Voting Rights
The holders of all units other than Class B common units that were unvested were to vote together as a single class. Each holder of Series A, Series B and Series C convertible preferred units were entitled to the number of votes calculated on an as converted to Class A common unit basis.
9. Members’ Equity
In November 2017, Zentalis Pharmaceuticals, LLC was formed in the state of Delaware. In conjunction with a corporate restructuring, Zeno Pharmaceuticals, Inc., a Delaware corporation formed in 2014, was acquired by the Company pursuant to a merger agreement and became a wholly owned subsidiary of the Company. Per the terms of the merger agreement, each share of Zeno Pharmaceuticals, Inc. common stock issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive one Class A common unit and each share of Zeno Pharmaceuticals, Inc. Series A preferred stock issued and outstanding immediately prior to the effective date of the merger converted into the right to receive one Series A preferred unit. As of the effective time of the merger agreement, all outstanding options to purchase shares of Zeno Pharmaceuticals, Inc. common stock were cancelled and replaced with profits interest awards in the LLC.
In connection with the December 2017 corporate restructuring, we amended and restated the LLC agreement, and as amended, the capital units of the Company consisted of 1,638,000 authorized Series A preferred units, 3,621,000 authorized Series B preferred units, 15,000,000 authorized Class A common units and 872,620 authorized Class B common units.
Class A Common Units
In conjunction with the corporate restructuring in December 2017, 5,187,554 shares of common stock issued and outstanding and 406,831 shares of common stock subject to future vesting provisions of Zeno Pharmaceuticals, Inc. were converted into an equal number of Class A common units of Zentalis Pharmaceuticals, LLC. During the three months ended March 31, 2021 and 2020, we did not issue any Class A common units. As of March 31, 2020, 9,572 shares of Class A common units were subject to future vesting conditions. In September 2019, the number of authorized Class A common units was increased to 20,000,000.
Class B Common Units
In conjunction with the corporate restructuring in December 2017, 703,000 options exercisable into Zeno Pharmaceuticals, Inc. common stock were converted into an equal number of Class B Common Units of Zentalis Pharmaceuticals, LLC. In September 2019, the number of authorized Class B common units was increased to 3,458,522.
IPO and Follow-on Offering
On April 2, 2020 and immediately prior to the effectiveness of the Company’s IPO, Zentalis Pharmaceuticals, LLC converted from a Delaware limited liability company into a Delaware corporation pursuant to a statutory conversion, and changed its name to Zentalis Pharmaceuticals, Inc. In order to consummate the corporate conversion, a certificate of conversion was filed with the Secretary of State of the State of Delaware. All of the outstanding units of Zentalis Pharmaceuticals, LLC converted into shares of common stock of Zentalis Pharmaceuticals, Inc. based upon the value of Zentalis Pharmaceuticals, Inc. at the time of the IPO with a value implied by the price of the shares of common stock sold in the IPO. No cash or fractional shares of common stock
17


were issued in connection with the corporate conversion. Based on the IPO price of $18.00 per share of common stock, all of the outstanding units converted into an aggregate of 25,288,854 shares of common stock (including 1,160,277 shares of restricted common stock).
In connection with the completion of the IPO, the board and stockholders approved the certificate of incorporation to provide for 250,000,000 authorized shares of common stock with a par value of $0.001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.001 per share.
On April 7, 2020, the Company completed an IPO in which the Company issued and sold 10,557,000 shares of common stock (including 1,377,000 shares of common stock in connection with the full exercise of the underwriters’ option to purchase additional shares) at a price of $18.00 per share. The Company’s aggregate gross proceeds from the sale of shares in the IPO, including the sale of shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, was $190.0 million before fees and expenses of $17.6 million.
On August 3, 2020, the Company completed a follow-on offering in which the Company issued and sold 4,743,750 shares of common stock (including 618,750 shares of common stock in connection with the full exercise of the underwriters’ option to purchase additional shares) at a public offering price of $35.00 per share. The Company’s aggregate gross proceeds from the sale of shares in the follow-on offering, including the sale of shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, was $166.0 million before fees and expenses of $10.8 million.
Share-based Compensation
In the Company’s 2017 Profits Interest Plan ("the Plan") as approved and adopted by the Board of Directors on December 21, 2017, the Company was authorized to issue up to 3,458,522 shares of Class B common units ("profits interest award units"), subject to restrictions as described in the Plan.
In April 2020, the Plan was terminated and the Company’s board of directors adopted, and the Company’s stockholders approved the 2020 Incentive Award Plan ("the 2020 Plan"), which became effective upon the corporate conversion and allows for grants to selected employees, consultants and non-employee members of the Board of Directors. We currently grant stock options and restricted stock units under the 2020 Plan. The number of common shares available for issuance under the 2020 Plan is the sum of (1) 5,600,000 shares of common stock; plus (2) any shares forfeited from the unvested restricted shares of our common stock issued upon conversion of unvested Class B common units (up to 1,250,000 shares); plus (3) an annual increase on the first day of each fiscal year beginning with the fiscal year ending December 31, 2021 and continuing to, and including, the fiscal year ending December 31, 2030, equal to the lesser of (a) 5% of the shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by our board of directors. At March 31, 2021, 4,553,685 shares were subject to outstanding awards and 2,680,311 shares were available for future grants of share-based awards.
Total share-based compensation expense related to share based awards was comprised of the following (in thousands):
 Three Months Ended
March 31,
20212020
Research and development expense$3,126 $136 
General and administrative expense6,565 193 
Total share-based compensation expense$9,691 $329 
Total share-based compensation expense includes $69 thousand of share-based compensation expense for Zentera employees, consultants and directors for the three months ended March 31, 2021, compared to $0 for the same period in 2020.
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Share-based compensation expense by type of share-based award (in thousands):
 Three Months Ended
March 31,
20212020
Profits interest award units$ $329 
Stock options3,851  
RSAs and RSUs5,840  
$9,691 $329 
The fair value of the profits interest awards is estimated using an option pricing model with the following assumptions:
Three Months Ended
March 31,
2020
Members’ equity value (in thousands)$271,207 
Threshold amounts (in thousands)$309,824 
Risk-free interest rate1.5 %
Volatility75.0 %
Time to liquidity (in years)1.1
Lack of marketability discount26.5 %
Grant date fair value$3.06 
The Black Scholes option pricing model is used to estimate the fair value of each profits interest award on the date of grant. The members’ equity value was based on a recent enterprise valuation analysis performed. The threshold amounts are based on the discretion of the Board of Directors at the time of grant. The expected life of the Class B Common Unit awards granted during the period presented was determined based on an expected liquidation event under the plan. We apply the risk-free interest rate based on the U.S. Treasury yield in effect at the time of the grant consistent with the life of the award. The expected volatility is based on a peer group in the industry in which the Company does business consistent with the expected time to liquidity. The dividend yield was set at zero as the underlying security does not and is not expected to pay a dividend. The Finnerty model and the Asian Protective Put Model methods were used to estimate the discount for lack of marketability inherent to the awards.
The Class B common units issued have been classified as equity awards and share-based compensation expense is based on the grant date fair value of the award. During the three months ended March 31, 2021 and March 31, 2020, we issued 0 and 70,000 Class B common units, respectively. As of March 31, 2021 and December 31, 2020, there were no Class B common units outstanding.
The exercise price of stock options granted is equal to the closing price of the common stock on the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company estimates expected volatility based on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. The Company uses the “simplified method” for estimating the expected term of employee options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years). The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has not issued any dividends and does not expect to
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issue dividends over the life of the options. As a result, the Company has estimated the dividend yield to be zero. The fair value of the stock options granted during the three months ended March 31, 2021 was determined with the following assumptions:
Three Months Ended
March 31,
2021
Expected volatility
76.0% - 76.6%
Average expected term (in years)
5.3 - 6.1
Risk-free interest rate
0.5% - 0.9%
Expected dividend yield%
Total unrecognized estimated compensation cost by type of award and the weighted average requisite service period over which such expense is expected to be recognized (in thousands, unless otherwise noted):
 
March 31, 2021
Unrecognized ExpenseRemaining
Weighted-Average Period (years)
Stock options$58,704 3.4
RSAs1,950 2.3
RSUs13,773 2.0
During the three months ended March 31, 2021, we did not issue any shares of common stock in connection with the exercises of stock options. For the three months ended March 31, 2021, 117,993 shares of common stock issued in conjunction with certain restrcited stock awards that vested during such period. Stock options, unvested restricted stock awards, and unvested restricted stock units totaling approximately 3.8 million shares, 0.6 million shares, and 0.8 million shares of our common stock, respectively, were outstanding as of March 31, 2021.

10. Commitments and Contingencies
Legal Contingencies
From time to time, we may be involved in various disputes, including lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. Any of these claims could subject us to costly legal expenses. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements. While we do generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage, or our policy limits may be inadequate to fully satisfy any damage awards or settlement. If this were to happen, the payment of any such awards could have a material adverse effect on our consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. We are currently not a party to any legal proceedings.
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Leases
Our commitments include payments related to operating leases. Approximate annual future minimum operating lease payments as of March 31, 2021 are as follows (in thousands):
YearOperating Leases
2021$1,007 
2022637 
Total minimum lease payments:1,644 
Less: imputed interest(106)
Total operating lease liabilities1,538 
The weighted-average remaining lease term of our operating leases is approximately 1.0 year. As of March 31, 2021, we have entered into two additional leases for real estate that have not yet commenced with total minimum lease payments of approximately $105.9 million. These leases are expected to commence in the fourth quarter of 2021 and have lease terms of 10 years and 11 years, respectively.
11. Net Loss Per Common Share/Class A Common Unit
Basic and diluted net loss per common share/Class A common unit were calculated as follows (in thousands except per unit amounts):
Three Months Ended
March 31,
20212020
Numerator:
Net loss attributable to Zentalis$(49,901)$(16,126)
Denominator:
Weighted average number of common shares/Class A common units outstanding, basic and diluted40,359 5,601 
Net loss per common share/Class A common unit$(1.24)$(2.88)
Our potential and dilutive securities, which include outstanding stock options, unvested RSAs, unvested RSUs and preferred units, have been excluded from the computation of diluted net loss per common share/Class A common unit as the effect would be anti-dilutive. We considered the impact of presenting a separate earnings per unit calculation for Class B common units. However, as earnings and losses are only allocable to Class B common units after the applicable threshold has been met, and such thresholds have not been met for earnings per unit purposes, no losses were allocated to Class B common units.
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The following common stock/Class A common unit equivalents have been excluded from the calculations of diluted net loss per common share/Class A common unit because their inclusion would be antidilutive (in thousands).
 Three Months Ended
March 31,
 20212020
Preferred units, as if converted to Class A common units 10,817 
Incentive units—Class B common units 2,607 
Outstanding stock options3,757  
Unvested RSAs624  
Unvested RSUs797  
5,178 13,424 
12. Related Party Disclosures
Kalyra Pharmaceuticals, Inc.
On December 21, 2017, we acquired 17,307,692 shares of Series B preferred stock of Kalyra Pharmaceuticals, Inc. for a per share price of twenty-six cents ($0.26) or approximately $4.5 million. The management team and stockholders of Kalyra are also stockholders of the Company.
Prior to the investment, we entered into a license agreement and a master services agreement with Kalyra. The license agreement was signed and commenced on December 31, 2014 for the exclusive rights to develop and commercialize products derived from Kalyra’s technology in the initial area of oncology. The license agreement and all rights were subsequently sold from Kalyra to Recurium IP Holdings, LLC (“Recurium IP”), an entity with common ownership to Kalyra prior to the Zentalis investment. Under the agreement, we have agreed to make payments to Recurium IP based on specific milestones. In addition, the Company shall pay mid- to high- single digit percentage royalties on net product sales to Recurium IP and sublicense fees on any consideration paid to us by a sublicensor. All payments are based on Recurium Equity, LLC’s, an affiliated company of Recurium IP, equity ownership stake in us as of December 2020. The license agreement will terminate upon the later of the last expiration of the patent rights or 15 years from the date of commencement.
The Master Services Agreement (“MSA”) was entered into in January 2015 and states that Kalyra may provide research and development services to us and that we shall reimburse such expenses on a time and materials basis based on the initial statements of work. For the three months ended March 31, 2021 we did not incur any expense with Kalyra. For the three months ended and March 31, 2020, we incurred approximately seventeen thousand dollars of expense with Kalyra that was eliminated in consolidation for research and development services provided, respectively. As of March 31, 2021, there was no balance due to Kalyra. As of March 31, 2020, approximately seventeen thousand dollars was due to Kalyra and eliminated in consolidation.
We entered into an Intercompany Services Agreement (“ISA”) with Kalyra in January 2018 which states that we may provide research and development services to Kalyra and that Kalyra shall reimburse such expenses on a time and materials basis. For the three months ended March 31, 2021 and 2020, we provided thirty-one thousand dollars and eighty-two thousand dollars of research and development services to Kalyra that was eliminated in consolidation, respectively. As of March 31, 2021 and 2020, thirty-one thousand dollars and eighty-two thousand dollars was due from Kalyra and eliminated in consolidation, respectively.

Tempus
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Kimberly Blackwell, M.D., is a member of the Company's board of directors and is also the Chief Medical Officer of Tempus Labs, Inc. ("Tempus"). The Company entered into a Master Services Agreement with Tempus in December 2020 to provide data licensing and research services. There were $1.0 million and zero fees incurred for services performed by Tempus for the three months ended March 31, 2021 and 2020, respectively.
13. Subsequent Events
Lease Termination
On April 1, 2021, Zeno Management, Inc. (“Zeno”), a wholly-owned subsidiary of the Company, entered into an Agreement for Termination of Lease with G&S Realty 1, LLC (“Landlord”) for certain premises located at 530 Seventh Avenue, Suite 2201, New York, NY (the “Lease Termination Agreement”). The Lease Termination Agreement provides that the Lease Agreement, dated as of April 12, 2019, by and between Zeno and Landlord (as the same may have been amended, the “Lease”), will terminate effective December 31, 2021.
As consideration for Landlord’s agreement to enter into the Lease Termination Agreement and accelerate the expiration date of the term of the Lease to December 31, 2021, Zeno paid to Landlord a fee of approximately $0.2 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and operating results should be read together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. As a result of many important factors, such as those set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below.
Overview
We are a clinical-stage biopharmaceutical company focused on discovering and developing small molecule therapeutics targeting fundamental biological pathways of cancers. We use our highly efficient drug discovery engine, which we refer to as our “Integrated Discovery Engine”, to identify targets and develop small molecule new chemical entities, or NCEs, with properties that we believe could result in potentially differentiated product profiles. Our discovery engine combines our extensive experience and capabilities across cancer biology and medicinal chemistry. We believe our product candidates are differentiated from current programs targeting similar pathways and, if approved, have the potential to significantly impact clinical outcomes of patients with cancer.
We are developing a broad pipeline of product candidates, with an initial focus on validated oncology targets with the potential to address large patient populations. We currently have two (2) lead product candidates - ZN-c5 and ZN-c3. ZN-c5 is an oral selective estrogen receptor degrader, or SERD, currently in a Phase 1/2 clinical trial for the treatment of advanced estrogen receptor-positive, human epidermal growth factor receptor 2-negative, or ER+/HER2-, advanced or metastatic breast cancer. We have designed ZN-c5 to have high potency and selectivity, as well as favorable tolerability and pharmacokinetic, or PK, properties. We intend to report interim results from the monotherapy and palbociclib combination portions of this Phase 1/2 trial, along with the Window of Opportunity study in the first half of 2021. ZN-c3, an inhibitor of WEE1, a protein tyrosine kinase, is currently being evaluated in a Phase 1/2 clinical trial for the treatment of advanced solid tumors as a monotherapy and in a Phase 1b clinical trial in combination with chemotherapy in patients with advanced ovarian cancer. In 2021, we intend to initiate a Phase 2 monotherapy trial for uterine serous carcinoma, or USC, and two (2) additional Phase 1 clinical trials evaluating ZN-c3 in combination with chemotherapy and PARP inhibitor in ovarian cancer and other targeted indications.
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Our other clinical product candidates include ZN-d5, a selective inhibitor of B-cell lymphoma 2, currently in a Phase 1 clinical trial for the treatment of non-Hodgkin’s lymphoma and acute myelogenous leukemia, and ZN-e4, an irreversible inhibitor of mutant epidermal growth factor receptor, currently in a Phase 1/2 clinical trial for the treatment of advanced non-small cell lung cancer, or NSCLC.
Initial Data from Phase 1/2 Clinical Trial of ZN-c3
On April 10, 2021, we presented initial data from the Phase 1 portion of the Phase 1/2 monotherapy trial of ZN-c3 in patients with advanced solid tumors. As of a February 12, 2021 database cutoff, 55 patients with advanced or metastatic solid tumors were evaluated for safety, the primary endpoint of the Phase 1 portion of the trial, at doses of 25 mg to 450 mg, once daily.
As of a February 12, 2021 database cutoff, ZN-c3 was observed to be generally well-tolerated. The most common treatment related adverse events at such date were Grade 1 or Grade 2, including nausea (49% of patients), diarrhea (32.7% of patients), fatigue (29% of patients) and vomiting (29% of patients) across all dose levels. Significant hematological adverse events were limited to treatment related white blood cell count decrease / neutropenia (7.2% all Grades, 3.6% Grade > 3), anemia (7.2% all Grades, 5.4% Grade > 3) and thrombocytopenia (7.2% all Grade, 3.6% Grade > 3).
As of a March 1, 2021 database cutoff evaluating initial efficacy data, three patients had met the definition of a confirmed partial response, or PR, and met the definition of Exceptional Responses as defined by the National Cancer Institute. One such patient with stage IV ovarian cancer had received 18 prior lines of therapy, including 11 prior lines in the advanced metastatic setting. This patient was on study for 186 days as of the database cutoff and remains on study. The patient had a RECIST-confirmed PR with a 65% reduction in overall target lesions, the first response observed in over two years of treatment. The patient also experienced a large rapid drop in CA-125, an ovarian cancer tumor marker, from 610 kU/L at baseline to 125 kU/L within four weeks on treatment, with CA-125 levels normalizing three weeks later. In addition, a stage IV colorectal cancer patient, who had received five prior lines of therapy in the advanced metastatic setting, had a RECIST-confirmed PR with a 51% reduction in overall target lesions, as well as a rapid decrease in carcinoembryonic antigen tumor marker from 327 ng/mL at baseline to <50 ng/mL after three weeks on treatment. Such patient remained on study for 169 days until clinical disease progression. The third confirmed PR, a stage IV NSCLC patient, had received three prior lines of therapy in the advanced metastatic setting and was on study for 145 days as of the March 1, 2021 database cutoff. The patient had a RECIST-confirmed PR with a 50% reduction in overall target lesions and remains on study. A Unique Predictive Biomarker was identified for the Exceptional Responders, and we plan to further investigate the biomarker in this patient population.
In addition, as of a March 1, 2021 database cutoff, two USC patients showed unconfirmed PR. At the March 1, 2021 database cutoff, one such patient, who had received one line of prior therapy in the advanced metastatic setting, had been on study for 60 days and had an unconfirmed PR with a 49% reduction in overall target lesions. The second USC patient with an unconfirmed PR had received four lines of prior therapy in the advanced metastatic setting, had been on study for 31 days and had an unconfirmed PR with a 43% reduction in overall target lesions. Both patients remain on study.
We believe results from this study indicate that an oral dose of 300 mg, once daily, with continuous dosing, is the recommended Phase 2 dose of ZN-c3 as monotherapy. The 300 mg, once daily, dose demonstrated high plasma exposure levels, and limited the prevalence of adverse events. In addition, the pharmacodynamics market of pCDK1 levels in skin punch biopsies demonstrated active target engagement at relevant pharmacological doses, 300 mg once daily or higher. We initiated the Phase 1 monotherapy dose expansion portion of the Phase 1/2 trial in the first quarter of 2021 and also plan to coordinate with Zentera Therapeutics, our majority-owned joint venture, to initiate a Phase 1b trial investigating ZN-c3 as a monotherapy in China.

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Other Preclinical Programs - We are also currently advancing multiple small molecule programs in preclinical development for other cancer indications, including select solid tumors and hematological malignancies. We are now in lead optimization for our fifth product candidate and plan to submit an IND to the FDA in 2021.

Since our inception, our operations have been limited to organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and performing research and development of our product pipeline. We do not have any products approved for commercial sale and have not generated any revenues from product sales. In April 2020, we completed our IPO and issued and sold approximately 10.6 million shares of our common stock at a public offering price of $18.00 per share, including approximately 1.4 million shares in connection with the full exercise of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $172.4 million, after deducting underwriting discounts and commissions and offering expenses. In August 2020, we completed a follow-on offering of our common stock and issued and sold approximately 4.7 million shares of our common stock at a public offering price of $35.00 per share, including approximately 0.6 million shares in connection with the full exercise of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $155.2 million, after deducting underwriting discounts and commissions and offering expenses.


We had cash, cash equivalents and marketable securities of $298.4 million as of March 31, 2021. We believe that our existing cash and cash equivalents as of March 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements into 2023. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.
Since inception, we have incurred significant operating losses. Our net losses were $118.5 million for the year ended December 31, 2020, and $50.4 million and $16.2 million for the three months ended March 31, 2021 and March 31, 2020, respectively. We had an accumulated deficit of $250.7 million as of March 31, 2021. We expect to continue to incur significant expenses and operating losses for the foreseeable future.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capabilities to support product sales, marketing and distribution activities, either alone or in collaboration with others. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.
As a result, we will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.
Corporate Conversion
In connection with our IPO, we converted from a Delaware limited liability company into a Delaware corporation pursuant to a statutory conversion, and changed our name from Zentalis Pharmaceuticals, LLC to Zentalis Pharmaceuticals, Inc. We refer to all transactions related to our conversion to a corporation as the Corporate Conversion. As a result of the Corporate Conversion, all holders of units of Zentalis Pharmaceuticals, LLC became holders of shares of common stock of Zentalis Pharmaceuticals, Inc.
In connection with the Corporate Conversion, our outstanding Series A convertible preferred units, Series B convertible preferred units, Series C convertible preferred units, Class A common units and Class B common units,
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or Units, converted into an aggregate of 25,288,854 shares of our common stock (including 1,160,277 shares of restricted common stock) based on the IPO price of $18.00 per share of common stock.
Impact of COVID-19 Pandemic
We continue to monitor how the COVID-19 pandemic is affecting our employees, business, preclinical studies and clinical trials. In response to the spread of COVID-19, we have closed our executive offices with our administrative employees continuing their work outside of our offices and limited the number of staff in any given research and development laboratory by operating on rotational schedules. Disruptions caused by the COVID-19 pandemic have resulted in difficulties including delays in initiating new trial sites and certain supply chain activities, suspension of enrollment at some of our existing trial sites, and the incurrence of additional costs as a result of preclinical study and clinical trial delays and adjustments. Limited operations at our laboratory facilities have also resulted in delays in our research-stage programs. As a result, we expect that the COVID-19 pandemic will continue to impact our business, results of operations, clinical development timelines and financial condition. At this time, there is significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses. The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the continued impact on financial markets and the global economy, the effectiveness of vaccines and vaccine distribution efforts, and the effectiveness of the global response to contain and treat the disease. See “Risk Factors— The COVID-19 pandemic has adversely impacted and we expect will continue to adversely impact our business, including our preclinical studies and clinical trials.” in Part II, Item 1A. of this Quarterly Report on Form 10-Q.
License Agreements and Strategic Collaborations Agreements
Recurium IP Holdings, LLC
In December 2014, and as amended and restated effective as of December 2017 and September 2019 and as amended in May 2020, we entered into a license agreement, or the Recurium Agreement, with Recurium IP Holdings, LLC, or Recurium IP, under which we were granted an exclusive worldwide license to certain intellectual property rights owned or controlled by Recurium IP to develop and commercialize pharmaceutical products for the treatment or prevention of disease, other than for pain. In connection with the May 2020 amendment, we clarified certain aspects of the sublicensing payment provisions. We have the right to sublicense our rights under the Recurium Agreement, subject to certain conditions. We are required to use commercially reasonable efforts to develop and commercialize at least one product that comprises or contains a licensed compound and to execute certain development activities.

Under the terms of the Recurium Agreement, we are obligated to make development and regulatory milestone payments, pay royalties for net sales and make sublicensing payments with respect to certain licensed products directed to one of ten specific biological targets, including ZN-c5, ZN-c3 and ZN-e4. We are obligated to make development and regulatory milestone payments for such licensed products of up to $44.5 million. In addition, we are obligated to make milestone payments up to $150,000 for certain licensed products used in animals. We are also obligated to pay royalties on sales of such licensed products at a mid- to high-single digit percentage. In addition, if we choose to sublicense or assign to any third parties our rights under the Recurium Agreement with respect to such licensed products, we must pay to Recurium IP 20% of sublicensing income received in connection with such transaction.
Mayo Foundation for Medical Education and Research
In February 2016, and as amended in April 2017 and December 2017, we entered into an option agreement, or the Mayo Agreement, with Mayo Foundation for Medical Education and Research under which we were granted an exclusive option to obtain a nonexclusive worldwide license to know-how and an exclusive worldwide license to related patent rights created by Mayo under the Mayo Agreement. The Mayo Agreement provided that it will expire
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on the date of the last to expire of the Mayo patent rights or, if no Mayo patent rights arise, on February 11, 2021. No Mayo patent rights were created under the Mayo Agreement and therefore the agreement expired on February 11, 2021. In consideration for the grant of know-how we provided grants of common stock on the first anniversary and Class A common units on the second and third anniversaries following entry into the Mayo Agreement. As of March 31, 2021, we have granted equity securities which amount to 15,435 shares of common stock under the Mayo Agreement.
SciClone Pharmaceuticals International (Cayman) Development Ltd.
In December 2014, and as amended in December 2016 and December 2017, we entered into a collaboration and license agreement, or the SciClone Agreement, with SciClone Pharmaceuticals International (Cayman) Development Ltd., or SciClone, under which we granted an exclusive license certain intellectual property rights in the People’s Republic of China (including the territories of Macao and Hong Kong), South Korea, Taiwan and Vietnam, or the SciClone Territory, for SciClone to develop and commercialize a licensed product for the treatment or prevention of oncologic diseases and an exclusive option to obtain a similar license for up to two (2) additional licensed products. Under the SciClone Agreement, SciClone is responsible for clinical development activities required in order to obtain regulatory approval in the SciClone Territory. SciClone paid to us a one-time upfront payment of $1.0 million upon entering into the SciClone Agreement, and $4.0 million in aggregate milestone payments. No additional development or commercial milestones or reimbursement for research and development expenses are payable under the SciClone Agreement, as amended. We are entitled to receive a mid-single digit royalty on net sales of licensed products in the SciClone Territory, which royalty is subject to certain reductions in the event that SciClone is unable to achieve certain gross margins or if generic products are sold or if technology covering a licensed product is licensed from a third party. We have also agreed to pay SciClone tiered royalties pursuant to the terms of the SciClone Agreement, the applicable rate of which are determined based on whether a compound is developed to a successful dual IND submission and the costs incurred by SciClone for the development of such product candidate. Following the December 2016 amendment to the SciClone Agreement, SciClone retains the exclusive license to develop and commercialize our EGFR inhibitor product candidate, ZN-e4, in the SciClone Territory, and the exclusive option to obtain an exclusive license to develop up to two (2) specified compounds under the SciClone Agreement for which we submit an IND by providing notice and paying $5 million to us. SciClone’s and our royalty obligations will expire on a licensed product-by-licensed product and country-by-country basis on the later of fifteen years from the date of first commercial sale or when there is no longer a valid patent claim covering such licensed product in such country.
Pfizer Clinical Trial Collaboration and Supply Agreement
In May 2018, we entered into a clinical trial collaboration and supply agreement with Pfizer, Inc. to evaluate the safety, tolerability and efficacy of ZN-c5 in combination with their CDK4/6 inhibitor, palbociclib, in our ongoing Phase 1/2 clinical trial of ZN-c5. Pursuant to this agreement, we will be responsible for the conduct and cost of the relevant studies, under the supervision of a joint development committee made up of our representatives and representatives of Pfizer that meets quarterly. Pfizer will supply palbociclib for use in the trial, at no cost to us.
Eli Lilly and Company Clinical Trial Collaboration and Supply Agreement
In July 2020, we entered into a clinical trial collaboration and supply agreement with Eli Lilly and Company, or Lilly, to evaluate the safety, tolerability and efficacy of ZN-c5 in combination with their CDK4/6 inhibitor, abemaciclib, in a Phase 1b open label multi-center clinical trial that we initiated in November 2020. Pursuant to this agreement, we will be responsible for the conduct and cost of the relevant studies. Lilly is obligated to supply abemaciclib for use in the trial, at no cost to us. We are required to provide to Lilly clinical data and other reports at major decision points during the trial and no later than 60 days following completion of the planned Phase 1b clinical trial.
This agreement does not grant any right of first negotiation to participate in future clinical trials, and each of the parties retains all rights and ability to evaluate their respective compounds in any clinical studies, either as monotherapy or in combination with any other product or compound, in any therapeutic area.
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The agreement with Lilly will expire upon completion of all obligations of the parties thereunder or upon termination by either party. We and Lilly each have the right to terminate the agreement for material breach by the other party. In addition, the agreement may be terminated by either party due to safety considerations or if either party decides to discontinue development of its own compound for medical, scientific, legal or other reasons or if a regulatory authority takes any action preventing that party from supplying its compound for the study. Lilly also has the right to terminate this agreement if it notifies us in writing that it reasonably and in good faith believes that abemaciclib is being used in an unsafe manner, and we fail to incorporate changes to address such issue, and the issue is unable to be resolved following elevation to appropriate parties.
GlaxoSmithKline Clinical Trial Collaboration and Supply Agreement
In April 2021, we entered into a clinical trial collaboration and supply agreement with GlaxoSmithKline plc, or GSK, in which we will evaluate the combination of ZN-c3, our oral WEE1 inhibitor product candidate, and niraparib, GSK’s poly (ADP-ribose) polymerase (PARP) inhibitor, in patients with advanced epithelial ovarian cancer. We are currently conducting clinical studies with ZN-c3 both as a monotherapy and in combination with certain standard of care therapies.
Pursuant to this agreement, we will be responsible for the conduct and cost of the relevant studies, under the supervision of a joint development committee made up of our representatives and representatives of GSK that meets quarterly. GSK will supply niraparib for use in the collaboration, at no cost to us. We are required to provide to GSK clinical data and other reports upon completion of the study.
This agreement does not grant any right of first negotiation to participate in future clinical trials, and each of the parties retains all rights and ability to evaluate their respective compounds in any clinical studies, either as monotherapy or in combination with any other product or compound, in any therapeutic area.
The agreement with GSK will expire upon completion of all obligations of the parties thereunder or upon termination by either party. We and GSK each have the right to terminate the agreement for material breach by the other party. In addition, the agreement may be terminated by either party due to safety considerations or if either party decides to discontinue development of its own compound for medical, scientific, legal or other reasons or if a regulatory authority takes any action preventing that party from supplying its compound for the study or in the event the other party is subject to specified bankruptcy, insolvency or similar circumstances. GSK also has the right to terminate this agreement if it notifies us in writing that it reasonably and in good faith believes that niraparib is being used in an unsafe manner, and we fail to incorporate changes to address such issue, and the issue is unable to be resolved following elevation to appropriate parties.
Zentera Therapeutics
In May 2020, each of our subsidiaries Zeno Alpha, Inc., K-Group Alpha, Inc. and K-Group Beta, Inc. entered into a collaboration and license agreement with our majority-owned joint venture, Zentera, which we refer to as the Zentera Sublicenses, pursuant to which we collaborate with Zentera on the development and commercialization of ZN-c5, ZN-d5 and ZN-c3, respectively, whether alone or in a licensed product, or the Collaboration Products, in each case for the treatment or prevention of disease, other than for pain, which is referred to as the Zentera Field, in the People’s Republic of China, Macau, Hong Kong and Taiwan, which is referred to as the Zentera Collaboration Territory. Under each Zentera Sublicense, Zentera will lead development, and upon regulatory approval, the commercialization, of the Collaboration Products in the Zentera Collaboration Territory. On May 19, 2020, Zentera issued an aggregate of 60.2% of its issued shares of common stock to Zeno Alpha, Inc., K-Group Alpha, Inc., K-Group Beta, Inc., Zeno Management, Inc. and Zeno Beta, Inc. Anthony Y. Sun, M.D., our President and Chief Executive Officer, serves as Chief Executive Officer and a member of the board of directors of Zentera, and Kevin D. Bunker, Ph.D., our Chief Operating Officer, serves as a member of the board of directors of Zentera.
Under each Zentera Sublicense, we granted Zentera an exclusive, royalty-bearing license under certain of our technology, including technology licensed from Recurium under the Recurium Agreement, to develop and commercialize the Collaboration Products in the Zentera Field and in the Zentera Collaboration Territory, subject to certain rights that we retain, and upon a successful manufacturing transfer, a non-exclusive license under certain of
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our manufacturing technology to manufacture Collaboration Products in the Zentera Field and in the Zentera Collaboration Territory. Zentera has the right to sublicense its rights under the Zentera Sublicenses subject to certain conditions.
Under the terms of the Zentera Sublicenses, Zentera is responsible for the costs of developing the Collaboration Products in the Zentera Collaboration Territory, and we are responsible for the costs of developing the Collaboration Products outside the Zentera Collaboration Territory, provided that Zentera will reimburse us for a portion of its costs for global data management, pharmacovigilance, safety database management, and chemistry, manufacturing and controls activities with respect to each Collaboration Product. Under the Zentera Sublicenses, we will be eligible to receive future development and regulatory milestones of up to $4.45 million per Collaboration Product. Zentera will pay us royalties on net sales of Collaboration Products in the Zentera Collaboration Territory at a mid- to high-single digit percentage, subject to certain reductions. In addition, if Zentera or its affiliate chooses to sublicense or assign to any third parties its rights under the Zentera Sublicenses with respect to any Collaboration Product, Zentera must pay to us 20% of sublicensing income received by Zentera or its affiliates in connection with such transaction.
Zentera’s royalty obligations will expire on a Collaboration Product-by-Collaboration Product and region-by-region basis upon the later of the date on which such product is no longer covered by a valid claim of a licensed patent and the 15th anniversary of the first commercial sale of such product in such region.
Zentera filed four Clinical Trial Applications, or CTAs (China equivalent of IND), and three have been approved in China to date for ZN-c5, ZN-c3, and ZN-c3 in combination. A fourth CTA was submitted in May 2021 for ZN-d5.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue, and we do not expect to generate any revenue in the foreseeable future from product sales. We have generated, and may in the future generate, revenue from payments received under our collaboration agreements, which includes payments of upfront fees, license fees, milestone-based payments and reimbursements for research and development efforts.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, and include:
salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
expenses incurred under agreements with third parties, including contract research organizations, or CROs, and other third parties that conduct research, preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture drug material for use in our preclinical studies and clinical trials;
costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
license payments made for intellectual property used in research and development activities; and
allocated expenses for rent and maintenance of facilities and other operating costs.
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We expense research and development costs as incurred. Reimbursed research and development costs under government grant arrangements are recorded as a reduction to research and development expenses and are recognized in the period in which the related costs are incurred.
We track external development costs by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates. These costs are included in unallocated research and development expenses in the table below.
The following table summarizes our research and development expenses by product candidate or development program:
 Three Months Ended March 31,
 20212020
 (in thousands)
ZN-c5$7,180 $4,693 
ZN-c3 7,804  1,641 
ZN-d5 4,172  1,267 
ZN-e4 317  753 
Unallocated research and development expenses 18,921  4,904 
Total research and development expenses$38,394 $13,258 
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have a higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we complete our ongoing clinical trials, initiate new clinical trials, continue to discover and develop additional product candidates and prepare regulatory filings for any product candidates that successfully complete clinical development.
The successful development of our product candidates is highly uncertain. At this time, we cannot determine with certainty the duration and costs of our existing and future clinical trials of our product candidates or any other product candidate we may develop or if, when, or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our product candidates and any other product candidate we may develop in the future will depend on a variety of factors, including:
per patient trial costs;
the number of patients who enroll in each trial;
the number of trials required for approval;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the drop-out or discontinuation rates of patients;
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any delays in clinical trials as a result of the COVID-19 pandemic;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and follow-up;
the phase of development of the product candidate;
the efficacy and safety profile of the product candidate.
uncertainties in clinical trial design and patient enrollment rates;
the actual probability of success for our product candidates, including the safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability;
significant and changing government regulation and regulatory guidance;
the timing and receipt of any marketing approvals; and
the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support increased research and development activities relating to ZN-c3, ZN-c5, ZN-d5, ZN-e4, and any other product candidate we may develop. We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.
Interest Income
Interest income consists of interest earned on cash and cash equivalents. We expect our interest income to increase due to the net proceeds from our IPO and August 2020 follow-on offering.
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Income Taxes
Since our inception, we and our corporate subsidiaries have generated cumulative federal, state and foreign net operating loss for which we have not recorded any net tax benefit due to uncertainty around utilizing these tax attributes within their respective carryforward periods.

Results of Operations
Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020
The following table summarizes our results of operations for the periods indicated, together with the changes in those items in dollars:
 Three Months Ended March 31, Increase
(Decrease)
 2021 2020
 (in thousands)
Operating expenses
Research and development $38,394 $13,258 25,136 
General and administrative 11,953 3,141 8,812 
Total operating expenses 50,347 16,399 33,948 
Loss from operations (50,347)(16,399)(33,948)
Interest income 143 164 (21)
Other expense (44)— (44)
Net loss before income taxes (50,248)(16,235)(34,013)
Income tax expense 196 — 196 
Net loss (50,444)(16,235)(34,209)
Net loss attributable to noncontrolling interest (543)(109)(434)
Net loss attributable to Zentalis$