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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 June 30, 2023
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.)
1359 Broadway, Suite 801
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
ZNTL
The Nasdaq Stock Market LLC (The Nasdaq Global Market)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☒  No ☐   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
  Accelerated filer
Non-accelerated Filer  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
As of August 7, 2023, the registrant had 70,609,407 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, or Quarterly Report, 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,” “design,” “aim,” “support” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

our competitive position and our industry;
our expectations, projections and estimates regarding our capital requirements, need for additional capital, financing our future cash needs, costs, expenses, revenues, capital resources, cash flows, financial performance, profitability, tax obligations, liquidity, growth, contractual obligations, the period of time our cash resources will fund our current operating plan, our internal control over financial reporting and disclosure controls and procedures;
the ability of our clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results;
the global macroeconomic environment and increased inflation and interest rates;
the timing and focus of our ongoing and future preclinical studies and clinical trials, including the reporting of data from those studies and trials and the timing thereof and the timing of initiation of enrollment in our clinical trials;
our estimates of the number of patients that we will enroll in our clinical trials;
the beneficial characteristics, safety, efficacy and therapeutic effects of our product candidates;
our and our collaborators' strategy, plans and expectations with respect to the development, manufacturing, supply, approval and commercialization of our product candidates and the timing thereof;
the designs of our studies and the type of information and data expected from our studies and the expected benefits thereof;
our ability to obtain and maintain any marketing authorizations and our ability to complete post-marketing requirements with respect thereto;
the timing and amounts of payments from or to our collaborators and licensees, and the anticipated arrangements and benefits under our collaboration and license agreements, including with respect to milestones and royalties;
our pipeline, including its potential, and our related research and development activities;
our plans relating to our biomarker enrichment strategies targeting tumors of high genomic instability, such as Cyclin E1 positive tumors and homologous recombination deficient tumors;
our plans relating to the further development of our product candidates, including program timelines, potential paths to registration, and additional indications we may pursue;
our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms and processes on a timely basis, or at all, with third-party payors for our product candidates, if approved;
our plans, including the costs thereof, of development of any diagnostic tools;
our plans to evaluate additional strategic opportunities to maximize the value of our pipeline;
our plans to advance our ongoing research on protein degrader programs;
our plans to advance IND-enabling studies for our product candidates, including our BCL-xL protein degrader product candidate;
our plans to develop our product candidates in combination with other therapies;
our existing collaborations and our ability to obtain, and negotiate favorable terms of, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize our product candidates;
our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;
timing and likelihood of success of our research, development and commercialization efforts;
timing of expected milestones and the announcement thereof;
the size of the market opportunity for our product candidates;
our expectations regarding the approval and use of our product candidates as first, second or subsequent lines of therapy or in combination with other drugs;
ii


the timing or likelihood of regulatory filings and approvals, including our expectation to seek an accelerated approval pathway and special designations for our product candidates for various diseases;
our ability to obtain and maintain regulatory approval of our product candidates;
existing regulations and regulatory developments in the United States, the European Union and other jurisdictions;
our intellectual property position, including obtaining and maintaining patents, and the timing, outcome and impact of administrative, regulatory, legal and other proceedings relating to our patents and other proprietary and intellectual property rights, and the timing and resolution thereof;
our facilities, lease commitments, and future availability of facilities;
accounting standards and estimates, their impact, and their expected timing of completion;
cybersecurity and information security;
expected ongoing reliance on third parties, including with respect to the development, manufacturing, supply and commercialization of our product candidates;
insurance coverage;
estimated periods of performance of key contracts;
the need to hire additional personnel and our ability to attract and retain personnel, and our ability to provide competitive compensation and benefits; and
the impact of COVID-19 on our business.
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, they may turn out to be inaccurate and 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, financial condition, performance or achievements 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.

ZENTALIS® and its associated logo are trademarks of Zentalis. All other trademarks, trade names and service marks appearing in this Quarterly Report are the property of their respective owners. All website addresses given in this Quarterly Report are for information only and are not intended to be an active link or to incorporate any website information into this document.


iii


SUMMARY RISK FACTORS

Our business is subject to numerous risks 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 risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

We have a limited operating history 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 and/or eliminate one or more of our research and drug development programs or future commercialization efforts.
We are substantially dependent on the success of our lead product candidates, azenosertib (ZN-c3) and/or ZN-d5, which are currently in clinical trials. If we are unable to complete development of, obtain approval for and commercialize these product candidates in a timely manner, our business will be harmed.
The clinical trials of our product candidates may not demonstrate safety and efficacy to the satisfaction of the U.S. Food and Drug Administration, or FDA, or other comparable ex-U.S. regulatory authorities or otherwise produce positive results.
If we are unable to successfully develop diagnostic tools for biomarkers that enable patient selection, or experience significant delays in doing so, we may not realize the full commercial potential of our product candidates.
We are developing our product candidates in combination with other therapies, which exposes us to additional risks.
The regulatory approval processes of the FDA and other comparable ex-U.S. regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, we will be unable to generate product revenue and our business will be substantially harmed.
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 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.
Unfavorable U.S., global, political or economic conditions could adversely affect our business, financial condition or results of operations.
Business interruptions could adversely affect our operations.
iv


PART I—FINANCIAL INFORMATION
3


Item 1. Financial Statements.
Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts and par value)
June 30,December 31,
 20232022
ASSETS
Current assets
Cash and cash equivalents$266,558 $43,069 
Marketable securities, available-for-sale286,428 394,302 
Prepaid expenses and other current assets10,943 14,562 
Total current assets563,929 451,933 
Property and equipment, net6,650 7,705 
Operating lease right-of-use assets36,584 42,373 
Prepaid expenses and other assets7,918 9,723 
Goodwill3,736 3,736 
Investment in Zentera Therapeutics 21,213 
Restricted cash2,627 2,627 
Total assets$621,444 $539,310 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$12,305 $11,247 
Accrued expenses39,454 45,400 
Total current liabilities51,759 56,647 
Deferred tax liability 853 
Long-term lease liability44,027 45,166 
Other long-term liabilities2,376 2,620 
Total liabilities98,162 105,286 
Commitments and contingencies
EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2023 and December 31, 2022
  
Common stock, $0.001 par value; 250,000,000 shares authorized; 70,603,663 and 59,280,247 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively
70 59 
Additional paid-in capital
1,295,520 1,031,462 
Accumulated other comprehensive loss(338)(1,353)
Accumulated deficit(772,111)(596,365)
Total stockholders’ equity523,141 433,803 
Noncontrolling interests141 221 
Total equity523,282 434,024 
Total liabilities and stockholders’ equity$621,444 $539,310 

See notes to condensed consolidated financial statements.


4


Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023 202220232022
Operating Expenses 
Research and development$42,684 $43,825 $91,268 $89,937 
Zentera in-process research and development45,568  45,568  
General and administrative15,664 19,636 32,033 31,403 
Total operating expenses103,916 63,461 168,869 121,340 
Operating loss(103,916)(63,461)(168,869)(121,340)
Other Income (Expense)
Investment and other income, net4,451 424 8,560 850 
Net loss before income taxes(99,465)(63,037)(160,309)(120,490)
Income tax (benefit) expense(605)17 (497)50 
Loss on equity method investment13,704 5,338 16,014 7,089 
Net loss(112,564)(68,392)(175,826)(127,629)
Net loss attributable to noncontrolling interests(37)(35)(80)(195)
Net loss attributable to Zentalis $(112,527)$(68,357)$(175,746)$(127,434)
Net loss per common share outstanding, basic and diluted$(1.85)$(1.34)$(2.93)$(2.64)
Common shares used in computing net loss per share, basic and diluted60,790 51,117 60,038 48,197 

See notes to condensed consolidated financial statements.
5


Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(In thousands)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net loss$(112,564)$(68,392)$(175,826)$(127,629)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities218 (670)1,015 (1,654)
Total comprehensive loss(112,346)(69,062)(174,811)(129,283)
Comprehensive loss attributable to noncontrolling interests(37)(35)(80)(195)
Comprehensive loss attributable to Zentalis$(112,309)$(69,027)$(174,731)$(129,088)

See notes to condensed consolidated financial statements.
6


Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 Six Months Ended
June 30,
 20232022
Operating Activities: 
Consolidated net loss$(175,826)$(127,629)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization704 692 
Operating lease right-of-use asset and fixed asset impairment 4,953  
Noncash consideration portion of Zentera in-process research and development15,045  
Loss on equity method investment16,014 7,089 
Share-based compensation27,075 26,911 
(Loss)/gain on disposal of equipment(4)57 
(Accretion of discounts)/amortization of premiums on marketable securities, net(6,483)17 
Deferred income taxes(853) 
Changes in operating assets and liabilities:
Prepaid expenses and other assets(3,922)(6,663)
Accounts payable and accrued liabilities(5,805)4,025 
Operating lease right-of-use assets and liabilities, net544 2,278 
Net cash used in operating activities(128,558)(93,223)
Investing Activities:
Purchases of marketable securities(189,085)(277,576)
Proceeds from maturities of marketable securities304,457 156,000 
Purchases of property and equipment(319)(728)
Net cash provided by (used in) investing activities115,053 (122,304)
Financing Activities:
Proceeds from issuance of common stock, net235,680 209,297 
Proceeds from issuance of common stock under equity incentive plans1,314 1,416 
Net cash provided by financing activities236,994 210,713 
Net increase (decrease) in cash, cash equivalents and restricted cash223,489 (4,814)
Cash, cash equivalents and restricted cash at beginning of period45,696 62,584 
Cash, cash equivalents and restricted cash at end of period$269,185 $57,770 
Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures$ $91 

7


The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Statements of Cash Flows for the periods presented:
June 30,
20232022
Cash and cash equivalents$266,558 $55,143 
Restricted cash2,627 2,627 
Total cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statement of Cash Flows$269,185 $57,770 
See notes to condensed consolidated financial statements.
8




Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)

Three Months Ended June 30, 2023
CommonAdditional
Paid-In
Capital
Accumulated Other Comprehensive IncomeAccumulated
Deficit
Noncontrolling
Interests
Total
Equity
SharesAmount
Balance at March 31, 202359,442 $59 $1,045,568 $(556)$(659,584)$178 $385,665 
Share-based compensation expense— — 13,342 — — — 13,342 
Other comprehensive loss— — — 218 — — 218 
Issuance of common stock in connection with an equity offering, net of underwriting discounts, commissions and offering costs11,033 11 235,669 — — — 235,680 
Issuance of common stock in connection with restricted stock unit vesting79 — — — — — — 
Issuance of common stock upon exercise of options, net51 — 941 — — — 941 
Cancellation of restricted stock awards(1)— — — — — — 
Net loss attributable to non-controlling interest— — — — — (37)(37)
Net loss attributable to Zentalis — — — — (112,527)— (112,527)
Balance at June 30, 202370,604 $70 $1,295,520 $(338)$(772,111)$141 $523,282 
Six Months Ended June 30, 2023
CommonAdditional
Paid-In
Capital
Accumulated Other Comprehensive IncomeAccumulated
Deficit
Noncontrolling
Interests
Total
Equity
SharesAmount
Balance at December 31, 202259,280 $59 1,031,462 $(1,353)$(596,365)$221 $434,024 
Share-based compensation expense— — 27,075 — — — 27,075 
Other comprehensive loss— — — 1,015 — — 1,015 
Issuance of common stock in connection with an equity offering, net of underwriting discounts, commissions and offering costs11,033 11 235,669 — — — 235,680 
Issuance of common stock in connection with restricted stock unit vesting218 — — — — — — 
Issuance of common stock upon exercise of options, net51 — 941 — — — 941 
Shares issued under employee stock purchase plan25 — 373 — — — 373 
Cancellation of restricted stock awards(3)— — — — — — 
Net loss attributable to non-controlling interest— — — — — (80)(80)
Net loss attributable to Zentalis — — — — (175,746)— (175,746)
Balance at June 30, 202370,604 $70 1,295,520 $(338)$(772,111)$141 $523,282 
9


Three Months Ended June 30, 2022
 CommonAdditional
Paid-In
Capital
Accumulated Other Comprehensive IncomeAccumulated
Deficit
Noncontrolling
Interests
Total
Equity
 SharesAmount
Balance at March 31, 202245,584 $46 $734,997 $(1,109)$(418,636)$368 $315,666 
Share-based compensation expense— — 16,764 — — — 16,764 
Other comprehensive loss— — — (670)— — (670)
Issuance of common stock in connection with an equity offering, net of underwriting discounts, commissions and offering costs11,284 11 209,286 — — — 209,297 
Issuance of common stock in connection with restricted stock unit vesting104 — — — — — — 
Issuance of common stock upon exercise of options, net9 — 158 — — — 158 
Cancellation of restricted stock awards(14)— — — — — — 
Net loss attributable to non-controlling interest— — — — — (35)(35)
Net loss attributable to Zentalis— — — — (68,357)— (68,357)
Balance at June 30, 202256,967 $57 $961,205 $(1,779)$(486,993)$333 $472,823 

Six Months Ended June 30, 2022
 CommonAdditional
Paid-In
Capital
Accumulated Other Comprehensive IncomeAccumulated
Deficit
Noncontrolling
Interests
Total
Equity
 SharesAmount
Balance at December 31, 202145,491 45723,593 (125)(359,559)528 364,482 
Share-based compensation expense— — 26,911 — — — 26,911 
Other comprehensive loss— — — (1,654)— — (1,654)
Issuance of common stock in connection with an equity offering, net of underwriting discounts, commissions and offering costs11,284 11 209,286 — — — 209,297 
Issuance of common stock in connection with restricted stock unit vesting149 1 — — — — 1 
Issuance of common stock upon exercise of options, net42 — 803 — — — 803 
Shares issued under employee stock purchase plan16 — 612 — — — 612 
Cancellation of restricted stock awards(15)— — — — — — 
Net loss attributable to non-controlling interest— — — — — (195)(195)
Net loss attributable to Zentalis— — — — (127,434)— (127,434)
Balance at June 30, 202256,967 57961,205 (1,779)(486,993)333 472,823 


See notes to condensed consolidated financial statements.
10



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
Organization
Zentalis Pharmaceuticals, Inc. (“Zentalis,” “We” or the “Company”) is a clinical-stage biopharmaceutical company discovering and developing small molecule therapeutics targeting fundamental biological pathways of cancers. Utilizing its Integrated Discovery Engine, the Company is developing a focused pipeline of potentially best-in-class oncology candidates, which include azenosertib (ZN-c3), a WEE1 inhibitor for advanced solid tumors, ZN-d5, a BCL-2 inhibitor for hematologic malignancies and related disorders, and a heterobifunctional degrader of BCL-xL for solid and hematological malignancies. The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. All of the Company’s tangible assets are held in the United States.
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 June 30, 2023 are issued.
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 do not include all disclosures required by U.S. GAAP. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023. 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. Certain reclassifications have been made to the prior period condensed consolidated balance sheet to conform to the current period presentation.
The accompanying interim unaudited condensed consolidated financial statements include our wholly-owned subsidiaries and a variable interest entity (“VIE”), for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
We evaluate our ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, we apply a qualitative approach that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE.
11


We will continuously assess whether we are the primary beneficiary of a VIE, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of such VIE. During the periods presented, we have not provided any other material financial or other support to our VIE that we were not contractually required to provide.
The equity method is used to account for investments in which we have the ability to exercise significant influence, but not control, over the investee. Such investments are recorded on the balance sheet, and the share of net income or losses of equity investments is recognized on a one quarter lag in investment and other income (expense), net.
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.
Significant Accounting Policies
During the six months ended June 30, 2023, we adopted the following significant accounting policies not previously reported in the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Acquisitions and Contingent Consideration
The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business.
If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquired entity and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquired entity based on the fair value estimates as of the date of acquisition. In accordance with Accounting Standards Codification (ASC) 805, Business Combinations, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.
The consideration for the Company’s business acquisitions may include future payments that are contingent upon the occurrence of a particular event or events. The obligations for such contingent consideration payments are recorded at fair value on the acquisition date. The contingent consideration obligations are then evaluated each reporting period. Changes in the fair value of contingent consideration, other than changes due to payments, are recognized as a gain or loss and recorded within change in the fair value of deferred and contingent consideration liabilities in the consolidated statements of comprehensive loss. Contingent consideration liabilities expected to be
12


settled within 12 months after the balance sheet date are presented in current liabilities. Contingent consideration liabilities expected to be settled 12 months after the balance sheet date are presented in long-term liabilities.
If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the acquiring entity to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. Consideration transferred that is non-cash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values. If the in-licensed agreement for in-process research and development (“IPR&D”) does not meet the definition of a business and the assets have not reached technological feasibility and therefore have no alternative future use, the Company expenses payments made under such license agreements as acquired IPR&D expense in its consolidated statement of comprehensive loss. Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets.

3. Significant Transactions
Zentera Therapeutics
On June 15, 2023, we announced that we and certain of our wholly owned subsidiaries had entered into an agreement to terminate our Collaboration and License Agreements (the “Termination Agreement”) with Zentera Therapeutics, a Shanghai-based clinical-stage biopharmaceutical company focused on developing cancer therapeutics (“Zentera”), pursuant to which such wholly owned subsidiaries had granted to Zentera certain development and commercialization rights to our product candidates, azenosertib, ZN-d5 and ZN-c5 (the “Zentera Collaboration Products”) in the People’s Republic of China, Macau, Hong Kong and Taiwan (collectively, “Greater China”). As a result of the termination of these agreements, we have regained the rights from Zentera for azenosertib, ZN-d5 and ZN-c5 in Greater China, and now hold worldwide development and commercialization rights to these assets. Concurrent with the agreement to terminate the Collaboration and License Agreements, we executed a share purchase agreement (the “Share Purchase Agreement”) with Zentera to return our 40.3% equity stake in Zentera for de minimis consideration.
We assessed the Termination Agreement and Share Purchase Agreement together and determined that the transaction to reacquire the licensed intellectual property without an acquired workforce, inputs or any substantive processes capable of contributing to the ability to produce outputs, represents asset acquisitions for accounting purposes.
The total consideration transferred of $45.6 million was comprised of the following components: Fixed consideration of $30 million, representing an up-front payment. Fixed consideration of forgiveness of $9.4 million of outstanding receivables under the Collaboration and License Agreements. Fixed consideration of the return of our 40.3% equity stake in Zentera for de minimis cash consideration. Using the adjusted balance sheet method under the cost approach, the difference between the carrying value of the equity method investment at the time of the transaction and the fair value of the equity method investment after the return of the intellectual property was $13.7 million, which was recognized as a loss on the equity method investment line item in the statement of operations during the second quarter of 2023. Variable consideration of a change in control milestone payment as contingent consideration can be either zero or $15.0 million. The value of the contingent consideration of approximately $0.5 million was calculated using estimates of future discounted cash flows, and other significant estimates including estimates for probability of milestone achievement and discount rates. The value of the
13


contingent consideration for this milestone will be remeasured at fair value at each reporting period with gains and losses reported in the statement of operations. We also incurred $0.5 million of acquisition-related costs that were included in the total consideration for the acquired assets. Additional consideration to be paid to Zentera includes a low single digit royalty on net sales of azenosertib, ZN-d5 and ZN-c5 in the Greater China region. These additional payments are payable only after regulatory approval and commercials sales in the Greater China region and are excluded from the transaction price.
The fair value of in-process research and development assets acquired was based on the market approach, which includes significant estimates. These estimates included calibration adjustments for comparable companies, cost estimates, control and marketability discounts, as well as estimates for the probability of success and applicable discount rates. The excess of the fair value of the consideration given in exchange for the Zentera in-process research and development received was accounted for as a contract termination cost. The Company determined to recognize the full amount of $45.6 million in the condensed consolidated statement of operations and comprehensive loss during the three months ended June 30, 2023.
4. Business Combinations
Kalyra Pharmaceuticals, Inc.
On December 21, 2017, we acquired $4.5 million of Kalyra Pharmaceuticals, Inc.’s (“Kalyra”) 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 VIE, 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 December 21, 2017, the Company 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 June 30, 2023 and December 31, 2022 are immaterial. 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 Zentalis 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):
June 30,December 31,
 20232022
Noncontrolling interest at beginning of period$221 $528 
Net loss attributable to noncontrolling interest(80)(307)
Noncontrolling interest at end of period$141 $221 
5. Fair Value Measurement
Available-for-sale marketable securities consisted of the following (in thousands):
14


June 30, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Commercial paper $171,816 $12 $(200)$171,628 
Corporate Debt Securities    
US Government Agencies85,248 28 (112)85,164 
US Treasury29,702  (66)29,636 
$286,766 $40 $(378)$286,428 
December 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Commercial paper $296,309 $71 $(587)$295,793 
Corporate Debt securities7,472  (26)7,446 
US Government Agencies23,970  (182)23,788 
US Treasury securities67,904  (629)67,275 
$395,655 $71 $(1,424)$394,302 
As of June 30, 2023, forty-two of our available-for-sale debt securities with a fair market value of $193.7 million were in a gross unrealized loss position of $0.4 million. Of those, thirty-eight have been in a gross unrealized loss position of $0.4 million for less than one year and four have been in a gross unrealized loss position of $25.9 thousand for more than one year. 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 June 30, 2023, 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):
June 30, 2023December 31, 2022
Estimated Fair Value
Due within one year$264,470 $394,302 
After one but within five years21,958  
$286,428 $394,302 
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The Company had $0.5 million in contingent consideration liabilities as of June 30, 2023 related to the agreement to terminate its Collaboration and License Agreements with Zentera. The contingent consideration balance is limited to one potential milestone payment measured at fair value (See Note 3 - Significant Transactions for additional information). The fair value of the contingent consideration is estimated based on the monetary value of the milestone discounted for the probability of achieving the milestone and a present value factor based on the timing of when the milestone is expected to be achieved. The value for the contingent consideration balance is based on significant inputs not observable in the market which represents Level 3 measurement within the fair value hierarchy. This liability did not exist as of December 31, 2022.

16


The following table summarizes the financial assets and liabilities that are measured on a recurring basis at fair value as of June 30, 2023 and December 31, 2022 (in thousands):
June 30, 2023
Level 1Level 2Level 3Total estimated fair value
Financial assets:
Cash equivalents:
   Money market funds$261,994 $ $ $261,994 
Commercial paper    
Total cash equivalents:261,994   261,994 
Available-for-sale marketable securities:
Commercial paper 171,628  171,628 
Corporate Debt Securities    
US Government Agencies 85,164  85,164 
US Treasury securities29,636   29,636 
Total available-for-sale marketable securities:29,636 256,792  286,428 
Total assets measured at fair value
$291,630 $256,792 $ $548,422 
Financial Liabilities:
Contingent consideration$ $ $500 $500 
Total financial liabilities$ $ $500 $500 
17


December 31, 2022
Level 1Level 2Level 3Total estimated fair value
Financial assets:
Cash equivalents:
   Money market funds$26,811 $ $ $26,811 
Commercial paper1,998   1,998 
Total cash equivalents:28,809   28,809 
Available-for-sale marketable securities:
Commercial paper 295,793  295,793 
Corporate Debt Securities 7,446  7,446 
US Government Agencies 23,788  23,788 
US Treasury securities67,275   67,275 
Total available-for-sale marketable securities:67,275 327,027  394,302 
Total assets measured at fair value
$96,084 $327,027 $ $423,111 
Financial Liabilities:
Contingent consideration$ $ $ $ 
Total financial liabilities$ $ $ $ 
The following significant unobservable inputs were used in the valuation of the contingent consideration payable to Zentera pursuant to the Termination Agreement at June 30, 2023.
Contingent Consideration Liability
Fair Value
as of
June 30, 2023
Valuation TechniqueUnobservable InputRange
(in thousands)
Milestone payment$500 Discounted cash flowLikelihood of occurrence
1.0% - 2.4%
Discount rate40%
Expected termPerpetuity
The following table reflects the activity for the Company’s contingent consideration, measured at fair value using Level 3 inputs (in thousands):
Contingent consideration at December 31, 2022
$ 
Issuance of contingent consideration to Zentera500
Changes in the fair value of contingent consideration 
Contingent consideration at June 30, 2023
$500 

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There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2023. We had one instrument that was classified within Level 3 as of June 30, 2023. No instruments were classified as Level 3 as of December 31, 2022. As of June 30, 2023 and December 31, 2022, no material fair value adjustments were required for non-financial assets and liabilities.
6. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consisted of the following (in thousands):
June 30,December 31,
 20232022
Prepaid insurance$1,322 $1,018 
Prepaid software licenses and maintenance574 958 
Foreign R&D credit refund911 659 
Prepaid research and development expenses13,872 15,002 
Interest receivable 878 508 
Sublease assets932  
Zentera receivable 5,874 
Other prepaid expenses372 266 
Total prepaid expenses and other assets18,861 24,285 
Less long-term portion7,918 9,723 
Total prepaid expenses and other assets, current$10,943 $14,562 
7. Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
June 30,December 31,
 20232022
Lab equipment$2,754 $2,622 
Leasehold improvements4,432 4,891 
Office equipment and furniture1,854 2,065 
Computer equipment150 150 
Construction in progress224 37 
Subtotal9,414 9,765 
Accumulated depreciation and amortization(2,764)(2,060)
Property and equipment, net$6,650 $7,705 
Depreciation and amortization expense for the three months ended June 30, 2023 and 2022 was approximately $344 thousand and $348 thousand, respectively. Depreciation and amortization expense for the six months ended June 30, 2023 and 2022 was $704 thousand and $692 thousand, respectively.
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8. Accrued Expenses
Accrued expenses consist of the following (in thousands):
June 30,December 31,
20232022
Accrued research and development expenses$28,783 $32,310 
Accrued employee expenses7,992 11,246 
Accrued legal expenses602 1,256 
Accrued general and administrative expenses996 662 
Lease liability2,335 2,162 
Contingent consideration500  
Taxes payable622 384 
       Total accrued expenses41,830 48,020 
Less long-term portion2,376 2,620 
Total accrued expenses$39,454 $45,400 
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9. Stockholders’ Equity
Follow-on Offering of Common Stock
On June 15, 2023, we completed a follow-on offering in which we issued and sold 11,032,656 shares of common stock at a public offering price of $22.66 per share. The total gross proceeds for the offering were approximately $250.0 million, before deducting offering expenses of $14.3 million payable by us.
Share-based Compensation
Effective April 2020, the Company’s Board of Directors adopted, and the Company’s stockholders approved, the 2020 Incentive Award Plan (the “2020 Plan”), as amended in January 2021, which 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 (“RSUs”), under the 2020 Plan. Awards may be made under the 2020 Plan covering up to 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 June 30, 2023, 10,223,133 shares were subject to outstanding awards under the 2020 Plan and 973,778 shares were available for future grants of share-based awards under the 2020 Plan.
In July 2022, the Company’s Board of Directors approved the Zentalis Pharmaceuticals, Inc. 2022 Employment Inducement Incentive Award Plan (the “2022 Inducement Plan”), which is used exclusively for the grant of equity awards to new employees as an inducement material to the employees’ entering into employment with the Company. The Board of Directors has initially reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to awards granted under the 2022 Inducement Plan.
At June 30, 2023, 1,360,975 shares were subject to outstanding awards under the 2022 Inducement Plan and 139,025 shares were available for future grants of share-based awards under the 2022 Inducement Plan.
Total share-based compensation expense related to share based awards was comprised of the following (in thousands):
 Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Research and development expense$5,985 $5,155 $11,858 $10,197 
General and administrative expense7,357 11,609 15,217 16,714 
Total share-based compensation expense$13,342 $16,764 $27,075 $26,911 
Share-based compensation expense by type of share-based award (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Stock Options$10,205 $12,524 $20,814 $20,302 
Employee Stock Purchase Plan111 110 216 212 
RSAs and RSUs3,026 4,130 6,045 6,397 
$13,342 $16,764 $27,075 $26,911 
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Stock Options and Restricted Stock Units
The exercise price of stock options granted is equal to the closing price of the Company’s 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 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 six months ended June 30, 2023 and June 30, 2022 was determined with the following assumptions:
June 30, 2023June 30, 2022
Expected volatility
77.5% - 80.8%
73.6% - 80.5%
Average expected term (in years)
5.5 - 6.1
6.0 - 6.5
Risk-free interest rate
3.4% - 4.2%
1.5% - 3.2%
Expected dividend yield % %
Employee Stock Purchase Plan
Effective April 2020, the Company’s Board of Directors adopted, and the Company’s stockholders approved the Zentalis Pharmaceuticals, Inc. 2020 Employee Stock Purchase Plan (the “ESPP”), which was subsequently amended and restated effective March 15, 2021. The maximum aggregate number of shares of the Company’s common stock available for issuance under the ESPP at June 30, 2023 was 1,929,891. Under the terms of the ESPP, the Company’s employees may elect to have up to 20% of their compensation, up to a maximum value of $25,000 per calendar year, withheld to purchase shares of the Company’s common stock for a purchase price equal to 85% of the lower of the fair market value per share (at closing) of the Company’s common stock on (i) the first trading day of a six-month offering period, or (ii) the applicable purchase date, defined as the last trading day of the six-month offering period. The weighted average assumptions used to estimate the fair value of stock purchase rights under the ESPP during the period ended are as follows:
Ended June 30, 2023
ESPP
Volatility94.2 %
Expected term (years)0.5
Risk free rate4.9 %
Expected dividend yield 
Compensation Expense Summary
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):

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June 30, 2023
Unrecognized
Expense
Remaining
Weighted-Average Recognition Period
(years)
Stock options$113,266 3.02
RSAs101 0.28
RSUs31,227 2.88
ESPP$110 0.25

During the six months ended June 30, 2023, we issued 51.5 thousand shares of common stock in connection with the exercises of stock options. For the six months ended June 30, 2023, 73.5 thousand shares of common stock issued in conjunction with certain restricted stock awards (“RSAs”), vested. Outstanding stock options, unvested RSAs, and unvested RSUs totaling approximately 10.1 million shares, 47.7 thousand shares and 1.5 million shares of our common stock, respectively, were outstanding as of June 30, 2023.
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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 that require a loss liability to be recorded.

Leases
Our commitments include payments related to operating leases. Approximate annual future minimum operating lease payments as of June 30, 2023 are as follows (in thousands):
YearOperating Leases
2023 (remaining)$3,257 
2024
6,486 
2025
6,799 
2026
7,278 
2027
7,451 
Thereafter
38,778 
Total minimum lease payments:70,049 
       Less: imputed interest
(23,687)
Total operating lease liabilities
46,362 
       Less: current portion
(2,335)
Lease liability, net of current portion
$44,027 
The weighted-average remaining lease term of our operating leases is approximately 9.3 years.
On March 6, 2023, we entered into a sublease agreement pursuant to which we sublet the office space located at 1359 Broadway, Suites 1710 and 1800 in New York, New York to a subtenant. As a result of certain triggering events, we performed an interim impairment test by comparing the carrying value of the long-lived asset group to its estimated fair value, which was determined based on the income approach using a discounted cash flow model. Estimates and assumptions used in the model included projected cash flows and a discount rate. As a result, we recorded an impairment expense of $5.0 million within our operating expenses against our operating lease right-of-use asset and fixed assets associated with our New York lease during the six months ended June 30, 2023. For the six months ended June 30, 2023, we recorded lease income of $0.2 million relating to this sublease.
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11. Net Loss Per Common Share
Basic and diluted net loss per common share were calculated as follows (in thousands except per share amounts):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Numerator:
Net loss attributable to Zentalis$(112,527)$(68,357)$(175,746)$(127,434)
Denominator:
Weighted average number of common shares outstanding, basic and diluted60,790 51,117 60,038 48,197 
Net loss per common share$(1.85)$(1.34)$(2.93)$(2.64)
Our potential and dilutive securities, which include outstanding stock options, unvested RSAs and unvested RSUs have been excluded from the computation of diluted net loss per common share as the effect would be anti-dilutive.
The following common stock equivalents have been excluded from the calculations of diluted net loss per common share because their inclusion would be antidilutive (in thousands).
 June 30,
 20232022
Outstanding stock options10,085 7,828 
Unvested RSAs42 222 
Unvested RSUs 1,499 472 
11,626 8,522 
12. Related Party Disclosures
Tempus
Kimberly Blackwell, M.D., our Chief Executive Officer and a member of our Board of Directors, was previously employed by Tempus Labs, Inc. ("Tempus") and served as an advisor of Tempus until June 2023. The Company entered into a Master Services Agreement with Tempus in December 2020 to provide data licensing and research services. There were $0.5 million and immaterial fees incurred for services performed by Tempus for the six months ended June 30, 2023 and 2022, respectively.

Zentera

Kevin D. Bunker, Ph.D., our Chief Scientific Officer, served as a member of the Board of Directors of Zentera until June 2023, when Dr. Bunker resigned in connection with the termination of our Collaboration and License Agreements with Zentera and the sale of our 40.3% equity stake in Zentera back to Zentera. For additional information, please see Note 3. Accordingly, the Company identified Zentera as a related party.
In May 2020, each of our wholly owned subsidiaries, Zeno Alpha, Inc., K-Group Alpha, Inc. and K-Group Beta, Inc., entered into Collaboration and License Agreements, pursuant to which we collaborated with Zentera on
25


the development and commercialization of the Zentera Collaboration Products, in Greater China. Under the terms of the Collaboration and License Agreements with Zentera, Zentera was responsible for the costs of developing the Zentera Collaboration Products in Greater China, and we were responsible for the costs of developing the Zentera Collaboration Products outside Greater China, provided that Zentera was obligated to 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 Zentera Collaboration Product. For the six months ended June 30, 2023 and 2022, the amounts incurred under this arrangement totaled $3.5 million and $5.1 million, respectively, and are presented as contra-research and development expense in the consolidated statement of operations. As disclosed above, these Collaboration and License Agreements were terminated in June 2023.
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 interim unaudited condensed 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, 2022. 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 significant 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 are developing a focused pipeline of potentially best-in-class oncology candidates, including the following:

Azenosertib (ZN-c3), a potentially first-in-class WEE1 inhibitor for advanced solid tumors and hematological malignancies;

ZN-d5, a B-cell lymphoma 2, or BCL-2, inhibitor for hematological malignancies and related disorders; and

A heterobifunctional degrader of BCL-xL, a member of the anti-apoptotic BCL-2 proteins, for solid tumors and hematological malignancies.
We are currently evaluating azenosertib and ZN-d5 in multiple ongoing clinical trials and conducting studies to enable an Investigational New Drug, or IND, application for our BCL-xL product candidate. We also continue to use our extensive drug discovery experience and capabilities across cancer biology and medicinal chemistry, which we refer to as our Integrated Discovery Engine, to advance our ongoing research on protein degraders of undisclosed targets. 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.

Our Pipeline

We are developing a focused pipeline of oncology product candidates with the potential to address significant unmet medical need for cancer patients. Two of our product candidates are currently in multiple ongoing clinical trials: azenosertib, an inhibitor of WEE1, a protein tyrosine kinase, and ZN-d5, a selective inhibitor of BCL-2. To date, azenosertib has been well tolerated and has demonstrated monotherapy anti-tumor activity across multiple tumor types in clinical trials. In addition, ZN-d5 has been well tolerated in clinical trials to date. We have also declared a development candidate for our BCL-xL degrader program, for which we are conducting IND-enabling studies.

We currently exclusively in-license or solely own worldwide development and commercialization rights to azenosertib, ZN-d5, and our BCL-xL product candidate.

The following table summarizes our product candidate pipeline:
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https://cdn.kscope.io/f4873c4bf67523894315907bb63414bc-Corp slide deck 6.2023 pg.2.jpg

Our Development Programs

Azenosertib (WEE1 Inhibitor)
Azenosertib is a potentially best-in-class and first-in-class oral, small molecule WEE1 inhibitor. The inhibition of WEE1, a DNA damage response kinase, drives cancer cells into mitosis without being able to repair damaged DNA, resulting in cell death and thereby preventing tumor growth and potentially causing tumor regression. Currently, there are no WEE1 inhibitors approved by the U.S. Food and Drug Administration, or FDA. We have designed azenosertib to have advantages over other investigational therapies targeting WEE1, including superior selectivity and pharmacokinetic, or PK, properties. Azenosertib is currently being evaluated in the clinic for advanced solid tumors and hematological malignancies:
as a monotherapy,
in combination with traditional chemotherapy and DNA damaging agents, and
in combination with molecularly targeted agents.
Two key components of our azenosertib clinical development strategy are our dose optimization activities and our exploration of biomarker enrichment strategies targeting tumors of high genomic instability, such as Cyclin E1 positive tumors and homologous recombination deficient tumors. On June 6, 2023, we announced that, based on the data generated from our dose optimization work, we identified the following monotherapy recommended Phase 2 dose, or RP2D, for azenosertib: 400 mg daily on a five days on, two days off weekly administration schedule, or 400 mg QD 5:2.

Azenosertib is being evaluated in multiple current or planned clinical trials, including the following:

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Monotherapy - Phase 2 Clinical Trial in Cyclin E1 Driven High-Grade Serous Ovarian Cancer, Fallopian Tube, or Primary Peritoneal Cancer (HGSOC) (ZN-c3-005). We are evaluating azenosertib as a monotherapy in a Phase 2 clinical trial in patients with Cyclin E1 positive platinum-resistant HGSOC, or PROC. Our Cyclin E1 positive enrichment strategy is supported by preclinical data that showed that high Cyclin E1 protein expression sensitized cancer cells to the anti-tumor effects of azenosertib as well as preliminary retrospective clinical data that Cyclin E1 protein levels may be associated with clinical benefit from WEE1 inhibition. In addition, in April 2023, we announced preclinical data at the 2023 American Association for Cancer Research, or AACR, Annual Meeting that demonstrated that azenosertib drove cancer cell death in Cyclin E1-high tumor cells in vitro and substantially inhibited growth of Cyclin E1-high, patient derived, in vivo tumor models.

Monotherapy - Phase 2 Clinical Trial in Recurrent or Persistent Uterine Serous Carcinoma (USC) (ZN-c3-004). Azenosertib is currently being evaluated as a monotherapy in a Phase 2 clinical trial in adult women with USC. As of a September 14, 2022 data cutoff, a total of 43 patients were enrolled and dosed. Azenosertib was well tolerated. The most common treatment related adverse events, or AEs, were nausea (60.5% all grades/9.3% grade 3 or higher), fatigue (46.5% all grades/9.3% grade 3 or higher), diarrhea (37.2% all grades/7.0% grade 3 or higher) and vomiting (32.6% all grades/7.0% grade 3 or higher). The FDA granted Fast Track designation in November 2021 to azenosertib in patients with advanced or metastatic USC who have received at least one prior platinum-based chemotherapy regimen for management of advanced or metastatic disease. We believe that the study design in this patient population has the potential to support registration in the United States.

Combination - Phase 1/2 Clinical Trial of Azenosertib and PARP Inhibitor (PARPi) in PROC (ZN-c3-006). We are evaluating azenosertib in combination with GSK's PARP inhibitor, niraparib (ZEJULA®), in a Phase 1/2 clinical trial in PROC patients who have failed PARPi, treatment as part of a clinical collaboration with GSK. This study is currently evaluating three cohorts: one with concurrent dosing of the two drugs, one with alternating dosing of the two drugs, and a third with monotherapy azenosertib at the monotherapy RP2D announced on June 6, 2023. This clinical study is supported by preclinical data that showed that combining azenosertib and niraparib resulted in synergistic cell killing in ovarian cancer in vivo models.

Combination - Phase 1b Clinical Trial of Azenosertib and Chemotherapy in PROC (ZN-c3-002). Azenosertib is currently being evaluated in combination with each of paclitaxel, carboplatin, PLD, and gemcitabine in four separate cohorts in a Phase 1b clinical trial in patients with PROC. On May 25, 2023, we announced positive data from this Phase 1b clinical trial. Azenosertib was well tolerated in combination with multiple types of chemotherapy and demonstrated encouraging clinical activity, with noteworthy objective response rates, or ORRs, and median progression free survival, or mPFS, in all patients, but especially in those patients with Cyclin E1 positive tumors, a subgroup recognized to have a poor prognosis and to show relatively poor outcomes following treatment with chemotherapy. A total of 115 patients were enrolled in the study across all chemotherapy combination groups. At April 10, 2023, 94 were response evaluable. Across all dosing schedules, azenosertib plus paclitaxel demonstrated the highest ORR of 50.0% (mPFS of 7.4m; mDOR of 5.6m), followed by an ORR of 38.5% (mPFS of 8.3m; mDOR of 6.2m) for azenosertib plus gemcitabine. Azenosertib plus carboplatin demonstrated an ORR of 35.7% (mPFS of 10.4m; mDOR of 11.4m), and azenosertib plus PLD demonstrated an ORR of 19.4% (mPFS of 6.3m; mDOR of 8.3m). Of patients who had available tissue for immunohistochemistry, or IHC, 87% were Cyclin E1+ (H-score >50). Cyclin E1+ status was associated with a superior ORR and a longer mPFS across the response-evaluable patient population with IHC data (ORR of 40.0% vs 8.3%; mPFS of 9.86 vs 3.25 months; HR = 0.37; P = 0.0078), showcasing the potential synergy of WEE1 inhibition with chemotherapy in this patient population. Frequent Grade ≥3 treatment-related adverse events (%) across all azenosertib intermittent dosing groups were thrombocytopenia (27.5%), neutropenia (25.5%), anemia (15.7%), and fatigue (9.8%). Based on these results, the Company is planning to initiate a Phase 3 study comparing
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azenosertib dosed intermittently in combination with either carboplatin or paclitaxel in patients with Cyclin E1 positive platinum-sensitive ovarian cancer.

Monotherapy - Phase 1 Dose Finding Clinical Trial in Solid Tumors (ZN-c3-001). We are currently evaluating azenosertib as a monotherapy in a Phase 1 dose finding clinical trial for the treatment of solid tumors. On June 6, 2023, we announced positive data from this clinical trial. We also announced on June 6, 2023 that, based on the encouraging data from this trial, we identified the monotherapy RP2D for azenosertib as 400 mg QD 5:2. As of April 24, 2023, a total of 127 heavily pretreated patients with advanced solid tumors were enrolled and received monotherapy azenosertib at doses ≥ 300 mg on either continuous daily dosing or intermittent weekly administration schedules. Across all tumor types, 74 patients received azenosertib on a continuous dosing schedule and 53 patients received azenosertib on an intermittent dosing schedule. When evaluating continuous versus intermittent at comparable clinically meaningful dose levels, the data are the following: intermittent dosing maintained safety and improved tolerability of azenosertib as compared to continuous dosing. Gastrointestinal, fatigue, and hematologic Grade 3 and 4 treatment-related adverse events, or TRAEs, were comparable or favorable versus continuous dosing. No discontinuations due to TRAEs were observed in the intermittent cohorts. Steady state exposure, as measured by AUC0-24, more than doubled at the new intermittent RP2D, compared to AUC observed at 300 mg QD with continuous administration, and intermittent dosing achieved higher maximal concentration levels as compared to continuous administration. As of June 2, 2023, the confirmed ORR in patients treated with intermittent dosing was 36.8% (7/19), versus 19.2% (5/26) in those who received a continuous dosing. In the response evaluable patients who received intermittent dosing azenosertib, the confirmed ORR was 50% in USC and 30.8% in ovarian cancer. 89% of ovarian cancer and USC patients who received an intermittent dosing schedule had target lesion reductions from their baseline scans. Patients in this subgroup who received an intermittent dosing schedule had a median follow up of 4.4 months, and 63% (12/19) patients remained on therapy as of June 2, 2023.

Combination - Phase 1/2 Clinical Trial of Azenosertib and Chemotherapy in Relapsed or Refractory Osteosarcoma (ZN-c3-003). Azenosertib is currently being evaluated in combination with gemcitabine, in a Phase 1/2 clinical trial in adult and pediatric patients with R/R osteosarcoma. We reported initial results from this trial at the 2022 Connective Tissue Oncology Society, or CTOS, Annual Meeting in November 2022. As of a October 24, 2022 data cutoff, there were 12 patients evaluable for efficacy, with approximately 33% of patients demonstrating event-free survival, or EFS, at 18 weeks (compared to approximately 12% at 18 weeks for this indication historically). As of the October 24, 2022 data cutoff, there were 17 patients evaluable for safety. Azenosertib demonstrated a manageable safety profile with 82.4% experiencing treatment related AEs of which 52.9% were grade 3 or higher. The most common treatment related AEs were platelet count decreased/thrombocytopenia (47.1% all grades/35.3% grade 3 or higher), fatigue (29.4% all grades/5.9% grade 3 or higher), nausea (29.4% all grades/0% grade 3 or higher) and rash (29.4% all grades/5.9% grade 3 or higher). We received orphan drug designation and rare pediatric disease designation from the FDA for azenosertib in osteosarcoma.
Combination - Phase 1/2 Clinical Trial of Azenosertib with Encorafenib and Cetuximab (BEACON Regimen) in BRAF V600E Mutant Metastatic Colorectal Cancer (mCRC) (ZN-c3-016). We are collaborating with Pfizer to evaluate azenosertib in combination with encorafenib and cetuximab, an FDA-approved standard of care known as the BEACON regimen, in patients with BRAF V600E mutant mCRC in a Phase 1/2 clinical trial. In preclinical studies, WEE1 inhibition has shown synergy with many targeted agents in mutationally driven cancers, and the addition of azenosertib to the BEACON regimen enhanced anti-tumor activity in a cell-line-derived xenograft model. We initiated enrollment in this clinical trial in the first quarter of 2023.
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Combination - Phase 1/2 Clinical Trial of Azenosertib and Chemotherapy in Pancreatic Cancer. We have also agreed to support the Dana Farber-sponsored Phase 1/2 clinical trial evaluating azenosertib and chemotherapy, gemcitabine, in platinum-resistant pancreatic cancer patients.

ZN-d5 (BCL-2 Inhibitor)

ZN-d5 is a potentially best-in-class, selective, oral small molecule inhibitor of BCL-2. BCL-2 is a protein that plays a critical role in the regulation of cell death, known as apoptosis. The overexpression of BCL-2 is frequently detected in numerous cancer types, which prevents apoptosis of cancer cells. Utilizing our medicinal chemistry expertise, we have designed ZN-d5 to have best-in-class potency, selectivity and PK properties. ZN-d5 is currently being evaluated in the clinic in patients with hematological malignancies in both the monotherapy and combination settings.
ZN-d5 is being evaluated in the following monotherapy and combination clinical trials:
Monotherapy - Phase 1/2 Clinical Trial in Relapsed or Refractory Light Chain Amyloidosis (R/R AL Amyloidosis) (ZN-d5-003). ZN-d5 is being evaluated as a monotherapy in a Phase 1/2 clinical trial in R/R AL amyloidosis. BCL-2 inhibition has demonstrated clinical activity in R/R AL amyloidosis; however, there are currently no FDA-approved BCL-2 inhibitors for the treatment of R/R AL amyloidosis. This Phase 1/2 study in patients with R/R AL amyloidosis consists of a dose escalation phase to establish the monotherapy dose in this setting, and an expansion phase to further assess the safety and efficacy of ZN-d5 in this population. The study is expected to enroll up to approximately 140 patients.
Monotherapy - Phase 1 Clinical Trial in Non-Hodgkin Lymphoma (NHL) (ZN-d5-001). We are evaluating ZN-d5 as a monotherapy in a Phase 1 dose escalation clinical trial in patients with NHL. As of the database cutoff date of November 3, 2021, 23 patients with NHL were evaluable for safety. At our R&D Day in December 2021, we reported preliminary interim data from the NHL patients in this study. As of the November 3, 2021 database cutoff date, ZN-d5 was well tolerated, with 73.9% of the NHL patients having experienced AEs (30.4% grade 3 or higher), not all of which were related ZN-d5. Anemia (21.7% all grades/8.7% grade 3 or higher), diarrhea (13.0% all grades/4.3% grade 3 or higher), and nausea and vomiting (8.7% each all grades/0% grade 3 or higher) comprise the most commonly experienced AEs. Investigator-reported responses using the Lugano 2014 classification among 11 patients with diffuse large B-cell lymphoma included a complete response, an unconfirmed PR, and two subjects with stable disease, as of the database cutoff date of November 3, 2021.
Combination - Phase 1/2 Clinical Trial of ZN-d5 and Azenosertib in Relapsed or Refractory Acute Myeloid Leukemia (R/R AML) (ZN-d5-004C). ZN-d5 is being evaluated in combination with azenosertib in a Phase 1/2 dose escalation clinical trial in patients with R/R AML. The Phase 1 portion of this trial will escalate the doses of both drugs to identify the dose for the combination, which will be assessed in Phase 2 expansion cohort(s). This study is expected to enroll up to approximately 100 patients. This clinical trial is supported by preclinical models that showed that the combination of ZN-d5 with azenosertib yielded a significant enhancement of activity in several indications, including R/R AML, as compared to activity shown with either of these product candidates as a single agent. Preclinical models also showed that the combination of ZN-d5 with azenosertib was well tolerated in mice. We believe we are the only company to have both a WEE1 inhibitor and a BCL-2 inhibitor in clinical development.
BCL-xL Heterobifunctional Degrader

In November 2022, we announced that we identified a BCL-xL protein degrader candidate and initiated IND-enabling studies. We are developing a BCL-xL heterobifunctional degrader based on non-functional or dysfunctional E3 ubiquitin ligase complex in platelets, allowing for the potential mitigation of dose-limiting thrombocytopenia historically associated with BCL-xL inhibitors.
Liquidity Overview

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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. We will not generate revenue from product sales unless and until we successfully complete clinical development, obtain regulatory approval for and commercialize one or more of our product candidates. We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy.

Since inception, we have incurred significant operating losses. Our net losses were $237.1 million for the year ended December 31, 2022, and $175.8 million and $127.6 million for the six months ended June 30, 2023 and June 30, 2022, respectively. We had an accumulated deficit of $772.1 million as of June 30, 2023. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We had cash, cash equivalents and marketable securities of $553.0 million as of June 30, 2023. We believe that our existing cash, cash equivalents and marketable securities as of June 30, 2023 will be sufficient to fund our operating expenses and capital expenditure requirements into 2026. 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.
License Agreements and Strategic Collaborations
Recurium IP Holdings, LLC License Agreement
In December 2014, our wholly owned subsidiary, Zeno Pharmaceuticals, Inc., entered into the Recurium Agreement with Recurium IP, which was subsequently amended, under which Zeno Pharmaceuticals, Inc. was 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 providing pain relief. Following certain corporate restructuring disclosed elsewhere in this Annual Report on 10-K, our wholly owned subsidiary, ZMI, became the Zentalis contracting party to the Recurium Agreement. The intellectual property rights exclusively licensed by ZMI under the Recurium Agreement include certain intellectual property covering azenosertib, ZN-d5 and our BCL-xL product candidate. ZMI has the right to sublicense its rights under the Recurium Agreement, subject to certain conditions. ZMI is required to use commercially reasonable efforts to develop and commercialize at least one product that comprises or contains a compound modulating one of ten specific biological targets and to execute certain development activities.

Under the terms of the Recurium Agreement, ZMI is obligated to make development and regulatory milestone payments, pay royalties on net sales, and make certain sublicensing payments with respect to products that comprise or contain a compound modulating one of ten specific biological targets, including azenosertib, ZN-d5 and our BCL-xL product candidate. ZMI is obligated to make development and regulatory milestone payments for each such licensed product of up to $44.5 million. In addition, ZMI is obligated to make milestone payments of up to $150,000 for certain licensed products used in animals. ZMI is also obligated to pay royalties on sales of such licensed products at a mid- to high-single digit percentage. In addition, if ZMI chooses to sublicense or assign to any third parties its rights under certain patents exclusively in-licensed under the Recurium Agreement, ZMI must pay to Recurium IP 20% of certain sublicensing income received in connection with such transaction.

The Recurium Agreement will expire on the later of December 21, 2032 and, on a country-by-country basis, on the date of expiration of the last-to-expire royalty term for all licensed products in such country, unless earlier terminated by either party for cause or a bankruptcy event.

Pfizer Development Agreement
In April 2022, we entered into a development agreement with Pfizer to collaborate to advance the clinical development of azenosertib. We did not grant Pfizer any economic ownership or control of azenosertib or the rest of our pipeline. In October 2022, we announced our first clinical development collaboration with Pfizer to initiate a Phase 1/2 dose escalation study of azenosertib, in combination with encorafenib and cetuximab (an FDA-approved standard of care known as the BEACON regimen) in patients with BRAF V600E-mutant mCRC.
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GlaxoSmithKline Clinical Trial Collaboration and Supply Agreement

In April 2021, we entered into a clinical trial collaboration and supply agreement with GSK under which we are evaluating the combination of azenosertib and niraparib, GSK’s poly (ADP-ribose) polymerase (PARP) inhibitor, in patients with platinum-resistant ovarian cancer. Pursuant to this agreement, we are 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 is supplying 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 neither party granted the other any additional right or ability to evaluate their respective compounds in any other 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
On June 15, 2023, we announced that we and certain of our wholly owned subsidiaries had entered into an agreement to terminate our Collaboration and License Agreements with Zentera Therapeutics, or Zentera, pursuant to which such wholly owned subsidiaries had granted to Zentera certain development and commercialization rights to its product candidates, azenosertib, ZN-d5 and ZN-c5 in the People’s Republic of China, Macau, Hong Kong and Taiwan, or Greater China. As a result of the termination of these agreements, we have regained the rights from Zentera for azenosertib, ZN-d5 and ZN-c5 in Greater China, and now hold worldwide development and commercialization rights to these assets.
In connection with the foregoing, we agreed to pay Zentera certain consideration, including a $30 million upfront payment, a milestone payment, and a low single digit royalty on net sales of azenosertib, ZN-d5 and ZN-c5 in Greater China. In addition, we sold our 40.3% equity stake in Zentera back to Zentera for de minimis consideration.
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;
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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.
We expense research and development costs as incurred. Reimbursed research and development costs under certain collaborative 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, general 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 June 30,Six Months Ended June 30,
 2023202220232022
Azenosertib$13,883 $11,542 $26,787 $24,147 
ZN-d55,118 3,475 10,498 8,518 
Unallocated research and development expenses 23,683  28,808 53,983 57,272 
Total research and development expenses$42,684 $43,825 $91,268$89,937 
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;
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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;
any delays in clinical trials, including as a result of the global macroeconomic environment;
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;
the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
our ability to attract and retain skilled personnel.
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 research and development activities relating to our clinical stage programs, and any other
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product candidates we may develop. We also expect to incur increased expenses associated with being a public company, particularly now that we are no longer an emerging growth 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, cash equivalents and available-for-sale marketable securities.
Income Taxes
Since our inception, we and our corporate subsidiaries have generated cumulative federal, state and foreign net operating loss in certain jurisdictions 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 June 30, 2023 to Three Months Ended June 30, 2022
The following table summarizes our results of operations for the periods indicated, together with the changes in those items in dollars:
 Three Months Ended June 30, Increase
(Decrease)
 2023 2022
 (in thousands)
Operating expenses
Research and development$42,684 $$43,825 $(1,141)
Zentera in-process research and development45,568 — 45,568 
General and administrative 15,664 19,636 (3,972)
Total operating expenses 103,916 63,461 40,455 
Loss from operations (103,916)(63,461)(40,455)
Other Income (Expense)
Investment and other income, net 4,451 424 4,027 
Net loss before income taxes (99,465)(63,037)(36,428)
Income tax (benefit) expense (605)17 (622)
Loss on equity method investment13,704 5,338 8,366 
Net loss (112,564)(68,392)(44,172)
Net loss attributable to noncontrolling interest (37)(35)(2)
Net loss attributable to Zentalis$