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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, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 001-39263
Zentalis Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 82-3607803
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
530 Seventh Avenue,
Suite 2201
New York,
 New York
10018
(Address of principal executive offices) (Zip Code)
(212) 433-3791
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock,
$0.001 par value per share
ZNTL The Nasdaq Global Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☒  No ☐   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    Accelerated filer
Non-accelerated Filer
   Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of August 6, 2021, the registrant had 45,052,904 shares of common stock, $0.001 par value per share, outstanding.


Table of Contents
Page
PART I.
3
Item 1.
4
4
5
6
7
9
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
i


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

The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, assumptions and other important factors, including those described under “Summary Risk Factors” below and in the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
SUMMARY RISK FACTORS

Our business is subject to numerous risk and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risk and uncertainties when investing in our common stock. These principal risks and uncertainties affecting our business include the following:

•We have a limited operating history, have not completed any clinical trials and have no products approved for commercial sale, which may make it difficult for you to evaluate our current business and predict our future success and viability.

•We have incurred significant net losses since inception and we expect to continue to incur significant net losses for the foreseeable future.

•We will require substantial additional capital to finance our operations. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce or eliminate one or more of our research and drug development programs or future commercialization efforts.

•We are substantially dependent on the success of our lead product candidates, ZN-c3 and ZN-c5, which are currently in clinical trials. If we are unable to complete development of, obtain approval for and commercialize ZN-c3 and/or ZN-c5 in a timely manner, our business will be harmed.

•The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical trials may not satisfy the requirements of the FDA, EMA or other comparable foreign regulatory authorities.

•We may face additional risks associated with the development of ZN-c3, ZN-c5, ZN-d5, ZN-e4 and potentially other product candidates in combination with other therapies.

•The clinical trial and regulatory approval processes are lengthy, time-consuming and inherently unpredictable, and we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

•The competition for qualified personnel is particularly intense in our industry. If we are unable to retain or hire key personnel, then we may not be able to sustain or grow our business.

•We face significant competition and, if our competitors develop and market technologies or products more rapidly than we do or that are more effective, safer or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted.
ii


•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 development and commercialization efforts.

•The COVID-19 pandemic has adversely impacted, and we expect will continue to adversely impact, our business, including our preclinical studies and clinical trials.
iii


BASIS OF PRESENTATION
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Zentalis” and similar references refer: (1) following the consummation of our statutory conversion to a Delaware corporation on April 2, 2020 in connection with our initial public offering, to Zentalis Pharmaceuticals, Inc., and (2) prior to the completion of such conversion, to Zentalis Pharmaceuticals, LLC. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Corporate Conversion” in this Quarterly Report on Form 10-Q for further information.
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,
  2021 2020
ASSETS
Current assets
Cash and cash equivalents $ 49,170  $ 54,951 
Marketable securities, available-for-sale 201,730  283,554 
Accounts receivable from government grants, net 417 
Prepaid expenses and other current assets 8,301  6,182 
Restricted cash 243  — 
Total current assets 259,449  345,104 
Property and equipment, net 2,251  1,099 
Operating lease right-of-use assets 1,195  2,520 
Prepaid expenses and other assets 4,794  2,976 
Deferred financing costs 716  — 
Goodwill 3,736  3,736 
In-process research and development 8,800  8,800 
Restricted cash 3,021  1,320 
Total assets $ 283,962  $ 365,555 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 8,273  $ 8,661 
Accrued expenses 25,304  19,940 
Total current liabilities 33,577  28,601 
Deferred tax liability 2,480  2,480 
Other long-term liabilities 296  1,097 
Total liabilities 36,353  32,178 
Commitments and contingencies
EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2021 and December 31, 2020
—  — 
Common stock, $0.001 par value; 250,000,000 shares authorized; 41,314,864 and 41,040,286 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
41  41 
Additional paid-in capital
529,019  509,339 
Accumulated other comprehensive income 94  36 
Accumulated deficit (305,309) (200,834)
Total stockholders’ equity 223,845  308,582 
Noncontrolling interests 23,764  24,795 
Total equity 247,609  333,377 
Total liabilities and stockholders’ equity $ 283,962  $ 365,555 

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,
  2021   2020 2021 2020
Operating Expenses  
Research and development $ 44,770  $ 17,452  $ 83,164  $ 30,710 
General and administrative 10,362  9,924  22,315  13,065 
Total operating expenses 55,132  27,376  105,479  43,775 
Operating loss (55,132) (27,376) (105,479) (43,775)
Other Income (Expense)
Investment and other income, net 115  84  214  248 
Net loss before income taxes (55,017) (27,292) (105,265) (43,527)
Income tax expense 45  —  241  — 
Net loss (55,062) (27,292) (105,506) (43,527)
Net loss attributable to noncontrolling interests (488) (435) (1,031) (544)
Net loss attributable to Zentalis $ (54,574) $ (26,857) $ (104,475) $ (42,983)
Net loss per common share outstanding, basic and diluted $ (1.34) $ (0.78) $ (2.58) $ (2.53)
Common shares used in computing net loss per share, basic and diluted 40,738  34,353  40,549  16,978 

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,
2021 2020 2021 2020
Net loss (55,062) (27,292) (105,506) (43,527)
Other comprehensive income:
Currency translation effects 45  —  45  — 
Unrealized gain (loss) on marketable securities (1) 13 
Total comprehensive loss $ (55,018) $ (27,288) $ (105,448) $ (43,523)
Comprehensive loss attributable to noncontrolling interests (488) (435) (1,031) (544)
Comprehensive loss attributable to Zentalis $ (54,530) $ (26,853) $ (104,417) $ (42,979)

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,
  2021 2020
Operating Activities:  
Consolidated net loss (105,506) (43,527)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 198  76 
Share-based compensation 19,610  8,010 
Loss on disposal of equipment 15  — 
Amortization of premiums on marketable securities, net 521  65 
Changes in operating assets and liabilities:
Accounts receivable 412  67 
Prepaid expenses and other assets (3,937) (4,796)
Accounts payable and accrued liabilities 4,838  1,212 
Operating lease right-of-use assets and liabilities, net 267  (11)
Net cash used in operating activities (83,582) (38,904)
Investing activities:
Purchases of marketable securities (77,812) (137,236)
Proceeds from maturities of marketable securities 159,128  — 
Purchases of property and equipment (1,255) (56)
Net cash provided by/used in investing activities 80,061  (137,292)
Financing Activities:
Proceeds from issuance of common stock in initial public offering, net —  172,482 
Proceeds from exercise of stock options 70  — 
Contributions from noncontrolling interest owners, net —  18,424 
Proceeds from the issuance of Series C convertible preferred units, net —  14,228 
Deferred financing costs (386) — 
Net cash used in/provided by financing activities (316) 205,134 
Net increase/(decrease) in cash, cash equivalents and restricted cash (3,837) 28,938 
Cash, cash equivalents and restricted cash at beginning of period 56,271  67,489 
Cash, cash equivalents and restricted cash at end of period $ 52,434  $ 96,427 
Supplemental disclosure of non-cash investing and financing activities:
Costs incurred in connection with initial public offering included in accounts payable and accrued expenses
$ —  $ 70 
Accrued deferred financing costs $ 330  $ — 
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:
7


June 30,
2021 2020
Cash and cash equivalents $ 49,170  $ 96,016 
Restricted cash 3,264  411 
Total cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statement of Cash Flows $ 52,434  $ 96,427 
See notes to condensed consolidated financial statements.
8


Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Members’/Stockholders’ Equity(Deficit) and Changes in Redeemable Convertible Preferred Units
(In thousands)

Three Months Ended June 30, 2021
Common Additional
Paid-In
Capital
Accumulated Other Comprehensive Income Accumulated
Deficit
Noncontrolling
Interests
Total
Equity
Shares Amount
Balance at March 31, 2021 41,040  $ 41  $ 519,030  $ 50  $ (250,735) $ 24,252  $ 292,638 
Share-based compensation expense —  —  9,919  —  —  —  9,919 
Other comprehensive income —  —  —  44  —  —  44 
Issuance of common stock in connection with restricted stock unit vesting 272  —  —  —  —  —  — 
Issuance of common stock upon exercise of options, net —  70  —  —  —  70 
Cancellation of restricted stock awards (1) —  —  —  —  —  — 
Net loss attributable to non-controlling interest —  —  —  —  —  (488) (488)
Net loss attributable to Zentalis —  —  —  —  (54,574) —  (54,574)
Balance at June 30, 2021 41,315  $ 41  $ 529,019  $ 94  $ (305,309) $ 23,764  $ 247,609 

Six Months Ended June 30, 2021
  Common Additional
Paid-In
Capital
Accumulated Other Comprehensive Income Accumulated
Deficit
Noncontrolling
Interests
Total
Equity
  Shares Amount
Balance at December 31, 2020 41,040  $ 41  $ 509,339  $ 36  $ (200,834) $ 24,795  $ 333,377 
Share-based compensation expense —  —  19,610  —  —  —  19,610 
Other comprehensive income —  —  —  58  —  —  58 
Issuance of common stock in connection with restricted stock unit vesting 272  —  —  —  —  —  — 
Issuance of common stock upon exercise of options, net —  70  —  —  —  70 
Cancellation of restricted stock awards (1) —  —  —  —  —  — 
Net loss attributable to non-controlling interest —  —  —  —  —  (1,031) (1,031)
Net loss attributable to Zentalis —  —  —  —  (104,475) —  (104,475)
Balance at June 30, 2021 41,315  $ 41  $ 529,019  $ 94  $ (305,309) $ 23,764  $ 247,609 




9










Three Months Ended June 30, 2020
Zentalis Members/Stockholders
Convertible
Preferred Units
Convertible
Preferred Units
Class A
Common Units
 
Class B
Common Units
Common
Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated
Deficit
Noncontrolling
Interests
Total
Equity
(Deficit)
Units Amount Units Amount Units Amount Units Amount Shares Amount
Balance at March 31, 2020 10,817  $ 155,934  —  $ —  5,601  $ 709  2,607  $ 2,507  $ —  $ —  $ —  $ —  $ (99,119) $ 6,712  $ (89,191)
Issuance of common stock in connection with an equity offering, net of underwriting discounts, commissions and offering costs —  —  —  —  —  —  —  —  10,589  11  172,354  —  —  —  172,365 
Contributions from noncontrolling interest owners —  —  —  —  —  —  —  —  —  —  —  —  —  18,424  18,424 
Share-based compensation expense
—  —  —  —  —  —  —  —  —  —  7,681  —  —  —  7,681 
Conversion of convertible preferred units to common stock (10,817) (155,934) —  —  —  —  —  —  15,011  15  155,919  —  —  —  155,934 
Conversion of common and incentive units to common and restricted stock —  —  —  —  (5,601) (709) (2,607) (2,507) 10,278  10  3,206  —  —  —  — 
Other comprehensive income —  —  —  —  —  —  —  —  —  —  —  —  — 
Net loss attributable to non-controlling interest
—  —  —  —  —  —  —  —  —  —  —  —  —  (435) (435)
Net loss attributable to Zentalis
—  —  —  —  —  —  —  —  —  —  —  —  (26,857) —  (26,857)
Balance at June 30, 2020 —  $ —  —  $ —  —  $ —  —  $ —  35,878  $ 36  $ 339,160  $ $ (125,976) $ 24,701  $ 237,925 







10


Six Months Ended June 30, 2020
Zentalis Members/Stockholders
  Convertible
Preferred Units
Convertible
Preferred Units
Class A
Common Units
Class B
Common Units
Common Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated
Deficit
Noncontrolling
Interests
Total
Equity
(Deficit)
  Units Amount Units Amount Units Amount Units Amount Shares Amount
Balance at December 31, 2019 9,950  $ 141,706  —  $ —  5,601  $ 709  2,671  $ 2,178  —  $ —  —  —  $ (82,993) $ 6,821  $ (73,285)
Issuance of Series C convertible preferred units at $17.50 per unit net of issuance costs
867  14,228  —  —  —  —  —  —  —  —  —  —  —  —  — 
Cancellation of profit interest awards, net —  —  —  —  —  —  (64) —  —  —  —  —  —  —  — 
Issuance of common stock in connection with an equity offering, net of underwriting discounts, commissions and offering costs —  —  —  —  —  —  —  —  10,589  11  172,354  —  —  —  172,365 
Contributions from noncontrolling interest owners —  —  —  —  —  —  —  —  —  —  —  —  —  18,424  18,424 
Share-based compensation expense
—  —  —  —  —  —  —  329  —  —  7,681  —  —  —  8,010 
Conversion of convertible preferred units to common stock (10,817) (155,934) —  —  —  —  —  —  15,011  15  155,919  —  —  —  155,934 
Conversion of common and incentive units to common and restricted stock —  —  —  —  (5,601) (709) (2,607) (2,507) 10,278  10  3,206  —  —  —  — 
Other comprehensive income —  —  —  —  —  —  —  —  —  —  —  —  — 
Net loss attributable to non-controlling interest
—  —  —  —  —  —  —  —  —  —  —  —  —  (544) (544)
Net loss attributable to Zentalis
—  —  —  —  —  —  —  —  —  —  —  —  (42,983) —  (42,983)
Balance at June 30, 2020 —  $ —  —  $ —  —  $ —  —  $ —  35,878  $ 36  $ 339,160  $ $ (125,976) $ 24,701  $ 237,925 

See notes to condensed consolidated financial statements.
11



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

Liquidity
Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The Company determined that there are no conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date that the interim unaudited condensed consolidated financial statements for the quarter ended June 30, 2021 are issued.
12


2. Interim Unaudited Financial Statements
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. The year-end condensed consolidated balance sheet data was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. These condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 25, 2021. The unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operation for the periods presented, with such adjustments consisting only of normal recurring adjustments.
The condensed consolidated financial statements include the accounts of our wholly owned subsidiaries, majority-owned or controlled companies, and variable interest entity (“VIE”), Kalyra Pharmaceuticals, Inc. (“Kalyra”), for which we are the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.
Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to inform our critical accounting estimates.

Adoption and Pending Adoption of Recent Accounting Pronouncements
The following table provides a brief description of recently issued accounting standards, those adopted in the current period and those not yet adopted:
Standard    Description    Effective Date    Effect on the Financial
Statements or Other
Significant Matters
In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321) This standard clarifies the interaction between accounting standards related to equity securities (ASC 321), equity method investments (ASC 323), and certain derivatives (ASC 815).  January 1, 2021 We currently do not hold equity securities, have equity method investments or derivatives. This adoption did not have a material impact on our consolidated financial position or results of operations.
13


3. Business Combinations
Kalyra Pharmaceuticals, Inc.
On December 21, 2017, we acquired $4.5 million of Kalyra’s Series B Preferred Stock representing a 25% equity interest in Kalyra for purposes of entering the analgesics therapeutic research space. The acquisition price was paid entirely in cash.
In accordance with the authoritative guidance, we concluded that Kalyra is a business consisting of inputs, employees, intellectual property and processes capable of producing outputs. Additionally, we have concluded that Kalyra is a variable interest entity, we are the primary beneficiary and have the power to direct the activities that most significantly affect Kalyra’s economic performance through common management and our board representation. Prior to the change of control, 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, 2021 and December 31, 2020 are as follows (in thousands):
June 30, December 31,
  2021 2020
Cash and cash equivalents $ 663  $ 417 
Other current assets 82 
In-process research and development 8,800  8,800 
Goodwill 3,736  3,736 
Accounts payable and accrued expenses 91  83 
Deferred tax liability 2,463  2,463 
Noncontrolling interests $ 6,865  $ 6,705 
The liabilities recognized as a result of consolidating Kalyra do not represent additional claims on our general assets. Pursuant to the authoritative guidance, the equity interest in Kalyra not owned by Zeno is reported as a noncontrolling interest on our condensed consolidated balance sheets.
The following is a reconciliation of equity (net assets) attributable to the noncontrolling interest (in thousands):
June 30,
  2021
Noncontrolling interest at beginning of period $ 6,705 
Net income attributable to noncontrolling interest 160 
Noncontrolling interest at end of period $ 6,865 
4. Fair Value Measurement
Available-for-sale marketable securities consisted of the following (in thousands):
14


June 30, 2021
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Commercial paper 106,485  22  —  106,507 
Corporate Debt Securities 11,049  —  (1) 11,048 
US Government Agencies 53,319  15  —  53,334 
US Treasury 30,828  13  —  30,841 
201,681  50  (1) 201,730 
December 31, 2020
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Commercial paper 147,382  14  (8) 147,388 
Corporate Debt Securities 23,576  (6) 23,571 
US Government Agencies 81,455  32  (1) 81,486 
US Treasury 31,105  —  31,109 
283,518  51  (15) 283,554 
The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering 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, 2021, because we do not intend to sell these securities and it is not more-likely-than-not that we will be required to sell these securities before the recovery of their amortized cost basis.

Contractual maturities of available-for-sale debt securities are as follows (in thousands):
June 30, 2021 December 31, 2020
Estimated Fair Value
Due within one year $ 201,730  $ 247,455 
After one but within five years —  36,099 
$ 201,730  $ 283,554 


15


The following table summarizes, by major security type, our cash equivalents and available-for-sale marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):
June 30, 2021 December 31, 2020
Level 1 Level 2 Total estimated fair value Level 1 Level 2 Total estimated fair value
Cash equivalents:
   Money market funds $ 29,346  $ —  $ 29,346  $ 24,016  $ —  $ 24,016 
Corporate Debt Securities —  —  —  —  4,999  4,999 
Total cash equivalents: 29,346  —  29,346  24,016  4,999  29,015 
Available-for-sale marketable securities:
Commercial paper —  106,507  106,507  —  147,388  147,388 
Corporate Debt Securities —  11,048  11,048  —  23,571  23,571 
US Government Agencies —  53,334  53,334  —  81,486  81,486 
US Treasury securities 30,841  —  30,841  31,109  —  31,109 
Total available-for-sale marketable securities: 30,841  170,889  201,730  31,109  252,445  283,554 
Total assets measured at fair value
$ 60,187  $ 170,889  $ 231,076  $ 55,125  $ 257,444  $ 312,569 

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2021. We had no instruments that were classified within Level 3 as of June 30, 2021 or December 31, 2020.
16


5. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consisted of the following (in thousands):
June 30, December 31,
  2021 2020
Prepaid insurance $ 2,338  $ 1,021 
Prepaid software licenses and maintenance 385  563 
Foreign R&D credit refund 1,148  692 
Prepaid research and development expenses 8,100  5,963 
Interest receivable 327  478 
Other prepaid expenses 797  441 
Total prepaid expenses and other assets 13,095  9,158 
Less long-term portion 4,794  2,976 
Total prepaid expenses and other assets, current $ 8,301  $ 6,182 
6. Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
June 30, December 31,
  2021 2020
Computer and Office Equipment $ 554  $ 529 
Lab Equipment 1,714  424 
Leasehold Improvements 49  49 
Construction in Progress 381  347 
Subtotal 2,698  1,349 
Accumulated depreciation and amortization (447) (250)
Property and equipment, net $ 2,251  $ 1,099 
Depreciation and amortization expense for the three months ended June 30, 2021 and 2020 was approximately $119 thousand and $38 thousand, respectively. Depreciation and amortization expense for the six months ended June 30, 2021 and 2020 was approximately $198 thousand and $76 thousand, respectively.
17


7. Accrued Expenses
Accrued expenses consist of the following (in thousands):
June 30, December 31,
2021 2020
Accrued research and development expenses $ 16,640  $ 11,947 
Accrued employee expenses 6,389  5,649 
Accrued legal expenses 785  — 
Accrued general and administrative expenses 126  996 
Lease liability 804  902 
Taxes payable 560  410 
Other $ —  $ 36 
Total accrued expenses $ 25,304  $ 19,940 
8. Convertible Preferred Units
Series A Convertible Preferred Units
In September 2015, Zeno Pharmaceuticals, Inc. entered into a Series A Preferred Stock Purchase Agreement (the “Series A Preferred Agreement”). Under the terms of the Series A Preferred Agreement, Zeno Pharmaceuticals, Inc. issued 1,293,104 shares of Series A convertible preferred stock at $11.60 per share for gross proceeds of $15.0 million. The net proceeds of this financing were $14.9 million after issuance costs of $0.1 million. In February and March 2016, Zeno Pharmaceuticals, Inc. issued an aggregate of 286,205 additional shares of Series A convertible preferred stock at $11.60 per share for additional gross proceeds of $3.3 million. The issuance costs of this additional financing were approximately thirty-nine thousand dollars. All Series A convertible preferred stock issued and outstanding by Zeno Pharmaceuticals, Inc. was converted into Series A convertible preferred units of Zentalis Pharmaceuticals, LLC in conjunction with the corporate restructuring and merger.
Series B Convertible Preferred Units
In December 2017, Zentalis Pharmaceuticals, LLC entered into a Series B Preferred Unit Purchase Agreement (the “Series B Preferred Agreement”). Under the terms of the Series B Preferred Agreement, Zentalis Pharmaceuticals, LLC issued 2,735,320 Series B preferred units at $12.43 per unit for gross proceeds of $34.0 million. The net proceeds of this financing were $32.1 million after issuance costs of $1.9 million. In January and August 2018, Zentalis Pharmaceuticals, LLC issued an aggregate of 788,419 additional shares of Series B preferred units at $12.43 per unit for additional gross proceeds of $9.8 million. The net proceeds of this additional financing were $9.5 million after issuance costs of $0.3 million.
Series C Convertible Preferred Units
In September 2019, Zentalis Pharmaceuticals, LLC entered into a Series C Preferred Unit Purchase Agreement (the “Series C Preferred Agreement”). Under the terms of the Series C Preferred Agreement, Zentalis Pharmaceuticals, LLC issued 4,847,106 units of Series C convertible preferred units at $17.50 per unit for gross proceeds of $84.8 million. The net proceeds of this financing were $81.9 million after issuance costs of $2.9 million. In February 2020, Zentalis Pharmaceuticals, LLC issued 867,194 additional units of Series C preferred units under the Series C Preferred Agreement. The units were issued for $17.50 per unit for gross proceeds of $15.2 million. The net proceeds of this financing were $14.2 million after issuance costs of $1.0 million.
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There were no authorized, issued, or outstanding shares of convertible preferred units at June 30, 2021 and December 31, 2020.
During 2020, we reclassified the convertible preferred units from members’ equity to temporary equity because, in conjunction with the Series C convertible preferred units issuance, all units were now deemed to contain contingent liquidation features that are not solely within our control. During the year ended December 31, 2020, we did not adjust the carrying values of the convertible preferred units to the deemed redemption values of such units since a liquidation event was not probable.

Dividends
Dividends are payable if and when declared by the Board of Directors. No dividends have been declared through June 30, 2021.
Conversion
Each Series A preferred unit, Series B preferred unit and Series C preferred unit was convertible at the option of the holder thereof, at any time after the issuance of such unit, into Class A common units at a conversion price equal to the original purchase price (subject to anti-dilution adjustments, discussed below) which was $11.60, $12.43 and $17.50 per unit, respectively. The convertible preferred units automatically converted at the then applicable conversion rate upon the closing of a firm commitment underwritten public offering of shares of a successor corporations’ common stock, at a public offering price per share of equal to or greater than the Series C original purchase price (as adjusted for any stock splits, stock dividends, combinations or other similar recapitalization) resulting in aggregate gross cash proceeds of at least $75.0 million (a “Qualified IPO”). Additionally, the convertible preferred unit would have automatically converted into common stock, at the then applicable conversion rate, upon written consent of a majority of the then outstanding Series A, Series B and Series C convertible preferred units (voting as a separate class on an as converted to Common Unit basis). In conjunction with our IPO on April 2, 2020, which constituted a Qualified IPO, all convertible preferred units were converted to common stock.
Anti-dilution protection
The holders of the convertible preferred units had proportional anti-dilution protection for unit splits, unit dividends and similar recapitalizations. Subject to certain exclusions, anti-dilution price protection for additional sales of securities by us for consideration per unit less than the applicable conversion price per unit of any series of convertible preferred stock, was on a broad-based weighted average basis.
Protective rights
The holders of the convertible preferred units had certain protective rights, including, without limitation, regarding the authorization, alteration, redemption, or sale of Class B common units; commencement of a liquidation or deemed liquidation event; entrance into a joint venture or partnership; any incurrence of indebtedness; certain transactions that exceed a certain dollar threshold; changes to our governing documents; or the declaration of any dividends. Such actions were required to be approved by a majority of the then outstanding Series A, Series B and Series C convertible preferred unit holders (voting as a single class and on an as-converted basis), as specified in the amended and restated LLC agreement. An increase or decrease in the authorized number of Directors constituting the Board or the creation of a membership interest or equity security senior to or pari passu with Series C convertible preferred units was required to be approved by a majority of the then outstanding Series C convertible preferred Units (voting as a separate class on an as converted basis).
Redemption
The Series A, Series B and Series C convertible preferred units were not redeemable except in the event of certain effected deemed liquidation events. As of immediately prior to our IPO on April 2, 2020, we had classified convertible preferred units as temporary equity in accordance with authoritative guidance for the classification and
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measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of our control, including liquidation, sale or transfer of control of the Company. We did not adjust the carrying value of the convertible preferred units to the deemed redemption values of such units since a liquidation event was not probable.
Liquidation preference
In the event of the dissolution, liquidation, merger or winding up of the Company, the holders of Series C convertible preferred units were entitled to receive, on a pro rata basis in respect of each such Series C convertible preferred unit, a preference amount of $17.50 per Series C convertible unit (as adjusted for any unit splits, dividends, combinations, recapitalizations or the like).
Subsequent to the payment of the Series C convertible preferred unit preferences, Series A and Series B convertible preferred units were entitled to receive, on a pro rata basis in respect of each convertible preferred unit in proportion to the relative preference amount of each preferred unit, a preference amount of $11.60 and $12.43 per unit of Series A and Series B convertible preferred units (as adjusted for any units splits, dividend, combinations, recapitalizations of the like), respectively.
Subsequent to the payment of the Series C, Series A and Series B convertible preferred unit preferences, Series A, Series B and Series C convertible preferred units are entitled to receive, on an as converted to common unit pro rata basis, an amount equal to distributions made to Class A common units prior to all unit classes sharing in distributions on a pro rata basis. Thereafter, Series A, Series B and Series C convertible preferred units and Series A and Series B common units were entitled to receive the remaining assets of the Company available for distribution to its unit holders pro rata based on the number of common units held by each holder, treating for these purposes as if all units had been converted to common.
Voting Rights
The holders of all units other than Class B common units that were unvested were to vote together as a single class. Each holder of Series A, Series B and Series C convertible preferred units were entitled to the number of votes calculated on an as converted to Class A common unit basis.
9. Members’ Equity
In November 2017, Zentalis Pharmaceuticals, LLC was formed in the state of Delaware. In conjunction with a corporate restructuring, Zeno Pharmaceuticals, Inc., a Delaware corporation formed in 2014, was acquired by the Company pursuant to a merger agreement and became a wholly owned subsidiary of the Company. Per the terms of the merger agreement, each share of Zeno Pharmaceuticals, Inc. common stock issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive one Class A common unit and each share of Zeno Pharmaceuticals, Inc. Series A preferred stock issued and outstanding immediately prior to the effective date of the merger converted into the right to receive one Series A preferred unit. As of the effective time of the merger agreement, all outstanding options to purchase shares of Zeno Pharmaceuticals, Inc. common stock were cancelled and replaced with profits interest awards in the LLC.
In connection with the December 2017 corporate restructuring, we amended and restated the LLC agreement, and as amended, the capital units of the Company consisted of 1,638,000 authorized Series A preferred units, 3,621,000 authorized Series B preferred units, 15,000,000 authorized Class A common units and 872,620 authorized Class B common units.
Class A Common Units
In conjunction with the corporate restructuring in December 2017, 5,187,554 shares of common stock issued and outstanding and 406,831 shares of common stock subject to future vesting provisions of Zeno Pharmaceuticals, Inc. were converted into an equal number of Class A common units of Zentalis Pharmaceuticals, LLC. In September
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2019, the number of authorized Class A common units was increased to 20,000,000. During the six months ended June 30, 2021 and 2020, we did not issue any Class A common units. As of June 30, 2021 and 2020, there were no Class A common units subject to future vesting conditions.
Class B Common Units
In conjunction with the corporate restructuring in December 2017, 703,000 options exercisable into Zeno Pharmaceuticals, Inc. common stock were converted into an equal number of Class B Common Units of Zentalis Pharmaceuticals, LLC. In September 2019, the number of authorized Class B common units was increased to 3,458,522.
IPO and Follow-on Offering
On April 2, 2020 and immediately prior to the effectiveness of the Company’s IPO, Zentalis Pharmaceuticals, LLC converted from a Delaware limited liability company into a Delaware corporation pursuant to a statutory conversion, and changed its name to Zentalis Pharmaceuticals, Inc. In order to consummate the corporate conversion, a certificate of conversion was filed with the Secretary of State of the State of Delaware. All of the outstanding units of Zentalis Pharmaceuticals, LLC converted into shares of common stock of Zentalis Pharmaceuticals, Inc. based upon the value of Zentalis Pharmaceuticals, Inc. at the time of the IPO with a value implied by the price of the shares of common stock sold in the IPO. No cash or fractional shares of common stock were issued in connection with the corporate conversion. Based on the IPO price of $18.00 per share of common stock, all of the outstanding units converted into an aggregate of 25,288,854 shares of common stock (including 1,160,277 shares of restricted common stock).
In connection with the completion of the IPO, the board and stockholders approved the certificate of incorporation to provide for 250,000,000 authorized shares of common stock with a par value of $0.001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.001 per share.
On April 7, 2020, the Company completed an IPO in which the Company issued and sold 10,557,000 shares of common stock (including 1,377,000 shares of common stock in connection with the full exercise of the underwriters’ option to purchase additional shares) at a price of $18.00 per share. The Company’s aggregate gross proceeds from the sale of shares in the IPO, including the sale of shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, was $190.0 million before fees and expenses of $17.6 million.
On August 3, 2020, the Company completed a follow-on offering in which the Company issued and sold 4,743,750 shares of common stock (including 618,750 shares of common stock in connection with the full exercise of the underwriters’ option to purchase additional shares) at a public offering price of $35.00 per share. The Company’s aggregate gross proceeds from the sale of shares in the follow-on offering, including the sale of shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, was $166.0 million before fees and expenses of $10.8 million.

On July 1, 2021, the Company completed a follow-on offering of its common stock. See Note 13. Subsequent Events.


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Share-based Compensation
In the Company’s 2017 Profits Interest Plan (“the Plan”) as approved and adopted by the Board of Directors on December 21, 2017, the Company was authorized to issue up to 3,458,522 shares of Class B common units, (“profits interest award units”), subject to restrictions as described in the Plan.
In April 2020, the Plan was terminated and the Company’s board of directors adopted, and the Company’s stockholders approved the 2020 Incentive Award Plan (“the 2020 Plan”), which became effective upon the corporate conversion and allows for grants to selected employees, consultants and non-employee members of the Board of Directors. We currently grant stock options and restricted stock units under the 2020 Plan. The number of common shares available for issuance under the 2020 Plan is the sum of (1) 5,600,000 shares of common stock; plus (2) any shares forfeited from the unvested restricted shares of our common stock issued upon conversion of unvested Class B common units (up to 1,250,000 shares); plus (3) an annual increase on the first day of each fiscal year beginning with the fiscal year ending December 31, 2021 and continuing to, and including, the fiscal year ending December 31, 2030, equal to the lesser of (a) 5% of the shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by our board of directors.

At June 30, 2021, 4,611,181 shares were subject to outstanding awards and 2,348,237 shares were available for future grants of share-based awards.
Total share-based compensation expense related to share based awards was comprised of the following (in thousands):
  Three Months Ended
June 30,
Six Months Ended
June 30,
2021 2020 2021 2020
Research and development expense $ 3,923  $ 2,291  $ 7,049  $ 2,426 
General and administrative expense 5,996  5,390  12,561  5,584 
Total share-based compensation expense $ 9,919  $ 7,681  $ 19,610  $ 8,010 
Total share-based compensation expense includes $138 thousand of share-based compensation expense for employees, consultants and directors of Zentera Therapeutics, Ltd. (“Zentera”), a Shanghai-based clinical-stage biopharmaceutical company focused on developing cancer therapeutics, for the six months ended June 30, 2021, compared to $0 for the same period in 2020.

Share-based compensation expense by type of share-based award (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2021 2020 2021 2020
Profit Interest Award Units $ —  $ —  $ —  $ 329 
Stock Options 4,820  1,602  8,671  1,602 
Employee Stock Purchase Plan 110  —  110  — 
RSAs and RSUs 4,989  6,079  10,829  6,079 
$ 9,919  $ 7,681  $ 19,610  $ 8,010 


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The fair value of the profits interest awards is estimated using an option pricing model with the following assumptions:
Six Months Ended
June 30,
2020
Members’ equity value (in thousands) $ 271,207 
Threshold amounts (in thousands) $ 309,824 
Risk free interest rate 1.5  %
Volatility 75.0  %
Time to liquidity (in years) 1.1
Lack of marketability discount 26.5  %
Grant date fair value $ 3.06 
The Black-Scholes option pricing model is used to estimate the fair value of each profits interest award on the date of grant. The members’ equity value was based on a recent enterprise valuation analysis performed. The threshold amounts are based on the discretion of the Board of Directors at the time of grant. The expected life of the Class B Common Unit awards granted during the period presented was determined based on an expected liquidation event under the plan. We apply the risk-free interest rate based on the U.S. Treasury yield in effect at the time of the grant consistent with the life of the award. The expected volatility is based on a peer group in the industry in which the Company does business consistent with the expected time to liquidity. The dividend yield was set at zero as the underlying security does not and is not expected to pay a dividend. The Finnerty model and the Asian Protective Put Model methods were used to estimate the discount for lack of marketability inherent to the awards.
The Class B common units issued have been classified as equity awards, and share-based compensation expense is based on the grant date fair value of the award. During the six months ended June 30, 2021 and 2020, we issued zero and 70,000 Class B common units, respectively. As of June 30, 2021 and December 31, 2020, there were no Class B common units outstanding.
Stock Options and Restricted Stock Units
The exercise price of stock options granted is equal to the closing price of the common stock on the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company estimates expected volatility based on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. The Company uses the “simplified method” for estimating the expected term of employee options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years). The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has not issued any dividends and does not expect to issue dividends over the life of the options. As a result, the Company has estimated the dividend yield to be zero. The fair value of the stock options granted during the three and six months ended June 30, 2021 and June 30, 2020 was determined with the following assumptions:
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June 30, 2021 June 30, 2020
Expected volatility 76.0  % 77.5  %
Average expected term (in years) 6 6
Risk-free interest rate 0.8  % 0.5  %
Expected dividend yield —  % —  %
Employee Stock Purchase Plan
The weighted average assumptions used to estimate the fair value of stock purchase rights under the employee stock purchase plan (“ESPP”) are as follows:
Three Months Ended June 30,
2021 2020
ESPP
Volatility 64  % — 
Expected term (years) 0.5 — 
Risk free rate —  % — 
Expected dividend yield —  — 
Under the terms of the ESPP, the Company’s employees may elect to have up to 20% of their compensation, up to a maximum of $21,250 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.
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):

June 30, 2021
Unrecognized
Expense
Remaining
Weighted-Average Recognition Period
(years)
Stock options $ 66,109  3.24
RSAs 1,715  2.06
RSUs $ 9,520  2.33
ESPP $ 111  0.30

During the six months ended June 30, 2021, we issued an immaterial amount of shares of common stock in connection with the exercises of stock options. For the six months ended June 30, 2021, 205,424 shares of common stock issued in conjunction with certain restricted stock awards vested. Outstanding stock options, unvested
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restricted stock awards, and unvested restricted stock units totaling approximately 4.1 million shares, 0.5 million shares and 0.5 million shares of our common stock, respectively, were outstanding as of June 30, 2021.
10. Commitments and Contingencies
Legal Contingencies
From time to time, we may be involved in various disputes, including lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. Any of these claims could subject us to costly legal expenses. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements. While we do generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage, or our policy limits may be inadequate to fully satisfy any damage awards or settlement. If this were to happen, the payment of any such awards could have a material adverse effect on our consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. We are currently not a party to any legal proceedings.

Leases
Our commitments include payments related to operating leases. Approximate annual future minimum operating lease payments as of June 30, 2021 are as follows (in thousands):
Year Operating Leases
2021 $ 534 
2022 637 
Total minimum lease payments: 1,171 
Less: imputed interest (72)
Total operating lease liabilities 1,099 
The weighted-average remaining lease term of our operating leases is approximately 1.0 year. As of June 30, 2021, we had entered into two additional leases for real estate that have not yet commenced with total minimum lease payments of approximately $105.9 million. These leases are expected to commence in the fourth quarter of 2021 and have lease terms of 10 years and 11 years, respectively.
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11. Net Loss Per Common Share/Class A Common Unit
Basic and diluted net loss per common share/Class A common unit were calculated as follows (in thousands except per share and per unit amounts):
Three Months Ended
June 30,
Six Months Ended
June 30,
2021 2020 2021 2020
Numerator:
Net loss attributable to Zentalis $ (54,574) $ (26,857) $ (104,475) $ (42,983)
Denominator:
Weighted average number of common shares outstanding, basic and diluted 40,738  34,353  40,549  16,978 
Net loss per common share $ (1.34) $ (0.78) $ (2.58) $ (2.53)
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,
  2021 2020
Outstanding stock options 4,078  1,986 
Unvested RSAs 536  1,063 
Unvested RSUs 534  1,146 
5,148  4,195 
12. Related Party Disclosures
Kalyra Pharmaceuticals, Inc. and Recurium IP Holdings, LLC

On December 21, 2017, we acquired 17,307,692 shares of Series B preferred stock of Kalyra Pharmaceuticals, Inc. for a per share price of twenty-six cents ($0.26) or approximately $4.5 million. The management team and stockholders of Kalyra are also stockholders of the Company.
Prior to the investment, we entered into a license agreement and a master services agreement with Kalyra. The license agreement was signed and commenced on December 31, 2014 for the exclusive rights to develop and commercialize products derived from Kalyra’s technology in the initial area of oncology. The license agreement and all rights were subsequently sold from Kalyra to Recurium IP Holdings, LLC (“Recurium IP”), an entity with common ownership to Kalyra prior to the Zentalis investment. Under the agreement, we have agreed to make payments to Recurium IP based on specific milestones. In addition, the Company shall pay mid to high-single digit percentage royalties on net product sales to Recurium IP and sublicense fees on any consideration paid to us by a sublicensor. All payments are based on Recurium Equity, LLC’s, an affiliate company of Recurium IP, equity ownership stake in us as of December 2020. The license agreement will terminate upon the later of the last expiration of the patent rights or 15 years from the date of commencement. For the six months ended June 30, 2021 and 2020, we paid $5.0 million and zero, respectively, in milestone payments to Recurium IP.
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The Master Services Agreement (“MSA”) was entered into in January 2015 and states that Kalyra may provide research and development services to us and that we shall reimburse such expenses on a time and materials basis based on the initial statements of work. For each of the three months ended June 30, 2021 and 2020, we did not incur any expense with Kalyra. For the six months ended June 30, 2021 and 2020, we incurred approximately zero and seventeen thousand dollars of expense with Kalyra, respectively, that was eliminated in consolidation for research and development services provided. As of June 30, 2021 and 2020, there was no balance due to Kalyra.
We entered into an Intercompany Services Agreement (“ISA”) with Kalyra in January 2018 which states that we may provide research and development services to Kalyra and that Kalyra shall reimburse such expenses on a time and materials basis. For the three months ended June 30, 2021 and 2020, we provided $26,000 of research and development services to Kalyra that we eliminated in consolidation. For the six months ended June 30, 2021 and 2020, we provided immaterial research and development services to Kalyra that were eliminated in consolidation, respectively. As of June 30, 2021 and 2020, an immaterial amount was due from Kalyra and eliminated in consolidation, respectively.
Tempus

Kimberly Blackwell, M.D., is a member of the Company's board of directors and is also the Chief Medical Officer of Tempus Labs, Inc. ("Tempus"). The Company entered into a Master Services Agreement with Tempus in December 2020 to provide data licensing and research services. There were $1.0 million and zero fees incurred for services performed by Tempus for the six months ended June 30, 2021 and 2020, respectively.

13. Subsequent Events
Follow-On Public Offering
On July 1, 2021, pursuant to its registration statement on Form S-3 (Registration No. 333-255737), filed with the SEC on May 4, 2021, the Company completed a follow-on offering of its common stock. The Company issued and sold 3,565,000 shares of its common stock at a public offering price of $48.50 per share, which includes the exercise in full by the underwriters of their option to purchase up to 465,000 additional shares. The total gross proceeds for the offering are approximately $172.9 million, before deducting underwriting discounts and commissions and offering expenses payable by the Company.
Zentera Series B Offering
In July 2021, Zentera entered into a Series B Preference Shares Purchase Agreement (the “Series B Preference Agreement”). Under the terms of the Series B Preference Agreement, Zentera raised approximately $75 million in gross proceeds. Zentalis entities collaborate with Zentera on the development and commercialization of ZN-c3, ZN-c5, and ZN-d5 for the treatment or prevention of disease, other than for pain, in the People’s Republic of China, Macau, Hong Kong and Taiwan. The Company holds approximately 40% equity interest in Zentera following the financing.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and operating results should be read together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. As a result of many important factors, such as those set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below.
Overview
We are a clinical-stage biopharmaceutical company focused on discovering and developing small molecule therapeutics targeting fundamental biological pathways of cancers. We use our highly efficient drug discovery engine, which we refer to as our “Integrated Discovery Engine”, to identify targets and develop small molecule new chemical entities, or NCEs, with properties that we believe could result in potentially differentiated product profiles. Our discovery engine combines our extensive experience and capabilities across cancer biology and medicinal chemistry. We believe our product candidates are differentiated from current programs targeting similar pathways and, if approved, have the potential to significantly impact clinical outcomes of patients with cancer.
We are developing a broad pipeline of product candidates with an initial focus on validated oncology targets with the potential to address large patient populations. We currently have two (2) lead product candidates - ZN-c3 and ZN-c5. ZN-c3, an inhibitor of WEE1, a protein tyrosine kinase, is currently being evaluated in a Phase 2 monotherapy clinical trial for the treatment of uterine serous carcinoma, or USC, in a Phase 1/2 clinical trial for the treatment of advanced solid tumors as a monotherapy and in a Phase 1b clinical trial in combination with chemotherapy in patients with advanced ovarian cancer. In 2021, we intend to initiate a Phase 1/2 monotherapy trial for a tumor agnostic, predictive biomarker, a Phase 1/2 clinical trial evaluating ZN-c3 in combination with chemotherapy in osteosarcoma, and a Phase 1/2 clinical trial evaluating ZN-c3 in combination with GlaxoSmithKline’s PARP inhibitor niraparib (ZEJULA®), as part of a clinical research collaboration in ovarian cancer. ZN-c5 is an oral selective estrogen receptor degrader, or SERD, currently being evaluated in a Phase 1/2 clinical trial for the treatment of estrogen receptor-positive, human epidermal growth factor receptor 2-negative, or ER+/HER2-, advanced or metastatic breast cancer. We have designed ZN-c5 to have high potency and selectivity, as well as favorable tolerability and pharmacokinetic, or PK, properties. We intend to report interim results from the monotherapy and palbociclib combination portions of these Phase 1/2 trials in the first half of 2022.

Our other clinical product candidates include ZN-d5, a selective inhibitor of B-cell lymphoma 2, currently in a Phase 1 clinical trial for the treatment of non-Hodgkin’s lymphoma and acute myelogenous leukemia, and ZN-e4, an irreversible inhibitor of mutant epidermal growth factor receptor, currently in a Phase 1/2 clinical trial for the treatment of advanced non-small cell lung cancer, or NSCLC.

Initial Data from Phase 1/2 Clinical Trial of ZN-c3

ZN-c3 (WEE1 Inhibitor)
On June 28, 2021, we announced clinical and regulatory updates across our pipeline of product candidates, including new interim clinical data from the Phase 1 clinical trial of ZN-c3. Interim data results from the Phase 1 monotherapy trial of ZN-c3 as of a data cut-off date of May 15, 2021 are as follows:

Two unconfirmed Partial Responses, or PRs, previously reported at AACR were confirmed, bringing the total
number of confirmed PRs from the ongoing Phase 1 monotherapy trial from three to five. Since reporting initial clinical data at AACR, an additional unconfirmed PR was reported in a patient with uterine serous carcinoma, or USC, resulting in three out of seven USC patients evaluable having responded to treatment. Overall, the objective response rate, or ORR, increased from 40% to 43% based on RECIST criteria. Clinical results were seen across four different tumor types, signaling potential for broad oncology application.
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Within the exceptional responder population of the ongoing Phase 1 monotherapy trial, in a patient with an
ongoing treatment duration of more than eight months, the Company observed a deepening response of 65% to
69% tumor size decrease based on RECIST criteria. In addition, as of a data cut-off date of May 14, 2021, ZN-c3 was observed to be well-tolerated, with a lower overall rate of severe hematological adverse events relative to that previously reported at AACR with respect to the previous data cut-off date of February 12, 2021. The rate of treatment related white blood cell count decrease / neutropenia decreased to 2.2% as of the May 14, 2021 data cut-off date from 3.6% as of the February 12, 2021 data cut-off date.

Additional regulatory and clinical updates announced with respect to ZN-c3 are as follows:
Following an end-of-Phase 1 meeting, the U.S. Food and Drug Administration, or FDA, concurred in principle with the proposal that ZN-c3 has the potential for an accelerated approval pathway based on the proposed global
study design of ZN-c3-004, a Phase 2 monotherapy trial planned with registrational intent in women with recurrent or persistent USC. The trial has been initiated, with multiple sites open to date.

We intend to launch a biomarker-driven Phase 2 study subject to FDA feedback. This Phase 2 tumor agnostic trial
planned with registrational intent, which we expect to initiate by the end of 2021, would investigate ZN-c3 in patients with solid tumors that express the identified predictive biomarker.

ZN-c3, in combination with chemotherapy, has received orphan drug designation, and rare pediatric disease
designation from the FDA for pediatric osteosarcoma. We intend to initiate a Phase 1/2 clinical trial of ZN-c3 in combination with chemotherapy in pediatric patients with osteosarcoma in the third quarter of 2021. Additionally, if ZN-c3 were to obtain approval for the designated indication, we believe it may be eligible for a rare pediatric disease priority voucher upon approval.

We have agreed to support two planned additional investigator-initiated trials: a trial with the Ivy Brain Center in glioblastoma multiforme that we expect to initiate in 2021, and a trial in combination with immunotherapy with Dana Farber in triple negative breast cancer that we expect to initiate in 2022.

Our China joint venture, Zentera, is advancing corresponding clinical trials in China for ZN-c3.

ZN-c5 (Oral SERD)
Also on June 28, 2021, we announced the following clinical updates with respect to our ongoing clinical trials evaluating ZN-c5 in combination and as a monotherapy.

In the ongoing Phase 1 monotherapy dose escalation and expansion studies evaluating a total of 56 patients with two median prior lines of treatment for safety and efficacy, we observed a clinical benefit rate, or CBR, of 54% and an ORR of 13% at the 300 mg, once daily, or QD, dose as of the May 11, 2021 data cut-off. An oral dose of 50 mg QD (n=16) demonstrated a CBR of 40%, with many patients in this dose cohort remaining on study drug and in the trial. Across all doses from 50 mg to 300 mg QD, the observed CBR was 31% and the ORR was 5%. ZN-c5 generated two PRs at the 150 mg and 300 mg doses. As of the May 11, 2021 data cut-off, treatment emergent adverse events, or AEs, related to ZN-c5 were found in less than 10% of the patients and there were no observed cases of bradycardia, visual disturbances, QTC or dizziness. Of note, treatment related diarrhea adverse event was 3.6%, with only Grade 1 or 2 events observed. The Phase 2 monotherapy trial has been initiated and we may evaluate ZN-c5 at multiple dose levels within the study.

In the ongoing Phase 1/2 clinical trial evaluating ZN-c5 in combination with Pfizer’s CDK4/6 palbociclib, and the
Phase 1b clinical trial evaluating ZN-c5 in combination with Lilly’s CDK4/6 abemaciclib, the safety and tolerability data suggested ZN-c5 has the potential to be a promising candidate for further evaluation in combinations. As of the May 11, 2021 cut-off, individual treatment emergent AEs related to ZN-c5 were found in less than 10% of the patients and no grade 3 or grade 4 AEs related to ZN-c5 were observed. We continue to enroll patients in the two separate combination trials and expect to report initial results in the first half of 2022 from one or more of these trials.
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In the ongoing Window of Opportunity Initial Biomarker study (n=35), estrogen receptor degradation was observed across all doses tested. One patient in the 300 mg dose cohort with Grade 3/4 LFT increases resolved without incident after study end.

ZN-d5 (BCL-2 Inhibitor)
The Phase 1 monotherapy dose escalation trial for ZN-d5, initiated in the fourth quarter of 2020, has enrolled 14 patients in five dose cohorts with relapsed/refractory Non-Hodgkin’s Lymphoma. Additionally, no dose limiting toxicities have been identified. We expect patients with acute myeloid leukemia will begin enrollment in the third quarter of 2021. We intend to report initial results from this Phase 1 trial in the first half of 2022.

ZN-e4 (EGFR Inhibitor)
The ongoing Phase 1/2 dose escalation trial for ZN-e4 in patients with advanced non-small cell lung cancer has enrolled 26 patients to date, both osimertinib-naïve and experienced. ZN-e4 has been well-tolerated at all doses as of the March 25, 2021 data cut-off, and clinical activity was identified at doses greater than 80 mg QD. We intend to report initial results from the Phase 1/2 trial in the fourth quarter of 2021.

Liquidity Overview

Since our inception, our operations have been limited to organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and performing research and development of our product pipeline. We do not have any products approved for commercial sale and have not generated any revenues from product sales. In April 2020, we completed our IPO and issued and sold approximately 10.6 million shares of our common stock at a public offering price of $18.00 per share, including approximately 1.4 million shares in connection with the full exercise of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $172.4 million, after deducting underwriting discounts and commissions and offering expenses. In August 2020, we completed a follow-on offering of our common stock and issued and sold approximately 4.7 million shares of our common stock at a public offering price of $35.00 per share, including approximately 0.6 million shares in connection with the full exercise of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $155.2 million, after deducting underwriting discounts and commissions and offering expenses. In July 2021, we completed an additional follow-on offering of our common stock and issued and sold approximately 3.6 million shares of our common stock at a public offering price of $48.50 per share, including approximately 0.5 million shares in connection with the full exercise of the underwriters’ option to purchase additional shares, resulting in gross proceeds of approximately $172.9 million before deducting underwriting discounts and commissions and offering expenses.

We had cash, cash equivalents and marketable securities of $250.9 million as of June 30, 2021. We believe that our existing cash, cash equivalents and marketable securities as of June 30, 2021, together with the net proceeds from our July 2021 follow-on offering, will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2023. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.
Since inception, we have incurred significant operating losses. Our net losses were $118.5 million for the year ended December 31, 2020, and $105.5 million and $43.5 million for the six months ended June 30, 2021 and June 30, 2020, respectively. Our net losses were $55.1 million and $27.3 million for the three months ended June 30, 2021 and June 30, 2020, respectively. We had an accumulated deficit of $305.3 million as of June 30, 2021. We expect to continue to incur significant expenses and operating losses for the foreseeable future.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capabilities to support product sales, marketing and distribution activities, either alone or in collaboration with others. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.
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As a result, we will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.
Corporate Conversion
In connection with our IPO, we converted from a Delaware limited liability company into a Delaware corporation pursuant to a statutory conversion, and changed our name from Zentalis Pharmaceuticals, LLC to Zentalis Pharmaceuticals, Inc. We refer to all transactions related to our conversion to a corporation as the Corporate Conversion. As a result of the Corporate Conversion, all holders of units of Zentalis Pharmaceuticals, LLC became holders of shares of common stock of Zentalis Pharmaceuticals, Inc.
In connection with the Corporate Conversion, our outstanding Series A convertible preferred units, Series B convertible preferred units, Series C convertible preferred units, Class A common units and Class B common units, or Units, converted into an aggregate of 25,288,854 shares of our common stock (including 1,160,277 shares of restricted common stock) based on the IPO price of $18.00 per share of common stock.
Impact of COVID-19 Pandemic
We continue to monitor how the COVID-19 pandemic is affecting our employees, business, preclinical studies and clinical trials. In response to the spread of COVID-19, we have closed our executive offices with our administrative employees continuing their work outside of our offices and limited the number of staff in any given research and development laboratory by operating on rotational schedules. Disruptions caused by the COVID-19 pandemic have resulted in difficulties including delays in initiating new trial sites and certain supply chain activities, suspension of enrollment at some of our existing trial sites, and the incurrence of additional costs as a result of preclinical study and clinical trial delays and adjustments. Limited operations at our laboratory facilities have also resulted in delays in our research-stage programs. As a result, we expect that the COVID-19 pandemic will continue to impact our business, results of operations, clinical development timelines and financial condition. At this time, there is significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses. The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, the impact of variants, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the continued impact on financial markets and the global economy, the adoption and effectiveness of vaccines and vaccine distribution efforts, and the effectiveness of the global response to contain and treat the disease. See “Risk Factors— The COVID-19 pandemic has adversely impacted and we expect will continue to adversely impact our business, including our preclinical studies and clinical trials.” in Part II, Item 1A. of this Quarterly Report on Form 10-Q.
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License Agreements and Strategic Collaborations Agreements
Recurium IP Holdings, LLC
In December 2014, and as amended and restated effective as of December 2017 and September 2019 and as amended in May 2020, we entered into a license agreement, or the Recurium Agreement, with Recurium IP Holdings, LLC, or Recurium IP, under which we were granted an exclusive worldwide license to certain intellectual property rights owned or controlled by Recurium IP to develop and commercialize pharmaceutical products for the treatment or prevention of disease, other than for pain. In connection with the May 2020 amendment, we clarified certain aspects of the sublicensing payment provisions. We have the right to sublicense our rights under the Recurium Agreement, subject to certain conditions. We are required to use commercially reasonable efforts to develop and commercialize at least one product that comprises or contains a licensed compound and to execute certain development activities.

Under the terms of the Recurium Agreement, we are obligated to make development and regulatory milestone payments, pay royalties for net sales and make sublicensing payments with respect to certain licensed products directed to one of ten specific biological targets, including ZN-c3, ZN-c5 and ZN-e4. We are obligated to make development and regulatory milestone payments for such licensed products of up to $44.5 million. In addition, we are obligated to make milestone payments up to $150,000 for certain licensed products used in animals. We are also obligated to pay royalties on sales of such licensed products at a mid- to high-single digit percentage. In addition, if we choose to sublicense or assign to any third parties our rights under the Recurium Agreement with respect to such licensed products, we must pay to Recurium IP 20% of sublicensing income received in connection with such transaction.
Mayo Foundation for Medical Education and Research
In February 2016, and as amended in April 2017 and December 2017, we entered into an option agreement, or the Mayo Agreement, with Mayo Foundation for Medical Education and Research under which we were granted an exclusive option to obtain a nonexclusive worldwide license to know-how and an exclusive worldwide license to related patent rights created by Mayo under the Mayo Agreement. The Mayo Agreement provided that it will expire on the date of the last to expire of the Mayo patent rights or, if no Mayo patent rights arise, on February 11, 2021. No Mayo patent rights were created under the Mayo Agreement; therefore the agreement expired on February 11, 2021. In consideration for the grant of know-how we provided grants of common stock on the first anniversary and Class A common units on the second and third anniversaries following entry into the Mayo Agreement. As of June 30, 2021, we have granted equity securities which amount to 15,435 shares of common stock under the Mayo Agreement.
SciClone Pharmaceuticals International (Cayman) Development Ltd.
In December 2014, and as amended in December 2016 and December 2017, we entered into a collaboration and license agreement, or the SciClone Agreement, with SciClone Pharmaceuticals International (Cayman) Development Ltd., or SciClone, under which we granted an exclusive license certain intellectual property rights in the People’s Republic of China (including the territories of Macao and Hong Kong), South Korea, Taiwan and Vietnam, or the SciClone Territory, for SciClone to develop and commercialize a licensed product for the treatment or prevention of oncologic diseases and an exclusive option to obtain a similar license for up to two (2) additional licensed products. Under the SciClone Agreement, SciClone is responsible for clinical development activities required in order to obtain regulatory approval in the SciClone Territory. SciClone paid to us a one-time upfront payment of $1.0 million upon entering into the SciClone Agreement, and $4.0 million in aggregate milestone payments. No additional development or commercial milestones or reimbursement for research and development expenses are payable under the SciClone Agreement, as amended. We are entitled to receive a mid-single digit royalty on net sales of licensed products in the SciClone Territory, which royalty is subject to certain reductions in the event that SciClone is unable to achieve certain gross margins or if generic products are sold or if technology covering a licensed product is licensed from a third party. We have also agreed to pay SciClone tiered royalties pursuant to the terms of the SciClone Agreement, the applicable rate of which are determined based on whether a compound is developed to a
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successful dual IND submission and the costs incurred by SciClone for the development of such product candidate. Following the December 2016 amendment to the SciClone Agreement, SciClone retains the exclusive license to develop and commercialize our EGFR inhibitor product candidate, ZN-e4, in the SciClone Territory, and the exclusive option to obtain an exclusive license to develop up to two (2) specified compounds under the SciClone Agreement for which we submit an IND by providing notice and paying $5 million to us. SciClone’s and our royalty obligations will expire on a licensed product-by-licensed product and country-by-country basis on the later of fifteen years from the date of first commercial sale or when there is no longer a valid patent claim covering such licensed product in such country.
Pfizer Clinical Trial Collaboration and Supply Agreement
In May 2018, we entered into a clinical trial collaboration and supply agreement with Pfizer, Inc. to evaluate the safety, tolerability and efficacy of ZN-c5 in combination with their CDK4/6 inhibitor, palbociclib, in our ongoing Phase 1/2 clinical trial of ZN-c5. Pursuant to this agreement, we will be responsible for the conduct and cost of the relevant studies, under the supervision of a joint development committee made up of our representatives and representatives of Pfizer that meets quarterly. Pfizer will supply palbociclib for use in the trial, at no cost to us.
Eli Lilly and Company Clinical Trial Collaboration and Supply Agreement
In July 2020, we entered into a clinical trial collaboration and supply agreement with Eli Lilly and Company, or Lilly, to evaluate the safety, tolerability and efficacy of ZN-c5 in combination with their CDK4/6 inhibitor, abemaciclib, in a Phase 1b open label multi-center clinical trial that we initiated in November 2020. Pursuant to this agreement, we will be responsible for the conduct and cost of the relevant studies. Lilly is obligated to supply abemaciclib for use in the trial, at no cost to us. We are required to provide to Lilly clinical data and other reports at major decision points during the trial and no later than 60 days following completion of the planned Phase 1b clinical trial.

This agreement does not grant any right of first negotiation to participate in future clinical trials, and each of the parties retains all rights and ability to evaluate their respective compounds in any clinical studies, either as monotherapy or in combination with any other product or compound, in any therapeutic area.

The agreement with Lilly will expire upon completion of all obligations of the parties thereunder or upon termination by either party. We and Lilly each have the right to terminate the agreement for material breach by the other party. In addition, the agreement may be terminated by either party due to safety considerations or if either party decides to discontinue development of its own compound for medical, scientific, legal or other reasons or if a regulatory authority takes any action preventing that party from supplying its compound for the study. Lilly also has the right to terminate this agreement if it notifies us in writing that it reasonably and in good faith believes that abemaciclib is being used in an unsafe manner, and we fail to incorporate changes to address such issue, and the issue is unable to be resolved following elevation to appropriate parties.

GlaxoSmithKline Clinical Trial Collaboration and Supply Agreement

In April 2021, we entered into a clinical trial collaboration and supply agreement with GlaxoSmithKline plc, or GSK, in which we will evaluate the combination of ZN-c3, our oral WEE1 inhibitor product candidate, and niraparib, GSK’s poly (ADP-ribose) polymerase (PARP) inhibitor, in patients with advanced epithelial ovarian cancer. We are currently conducting clinical studies with ZN-c3 both as a monotherapy and in combination with certain standard of care therapies.

Pursuant to this agreement, we will be responsible for the conduct and cost of the relevant studies, under the supervision of a joint development committee made up of our representatives and representatives of GSK that meets quarterly. GSK will supply niraparib for use in the collaboration, at no cost to us. We are required to provide to GSK clinical data and other reports upon completion of the study.

This agreement does not grant any right of first negotiation to participate in future clinical trials, and each of the parties retains all rights and ability to evaluate their respective compounds in any clinical studies, either as monotherapy or in combination with any other product or compound, in any therapeutic area.
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The agreement with GSK will expire upon completion of all obligations of the parties thereunder or upon termination by either party. We and GSK each have the right to terminate the agreement for material breach by the other party. In addition, the agreement may be terminated by either party due to safety considerations or if either party decides to discontinue development of its own compound for medical, scientific, legal or other reasons or if a regulatory authority takes any action preventing that party from supplying its compound for the study or in the event the other party is subject to specified bankruptcy, insolvency or similar circumstances. GSK also has the right to terminate this agreement if it notifies us in writing that it reasonably and in good faith believes that niraparib is being used in an unsafe manner, and we fail to incorporate changes to address such issue, and the issue is unable to be resolved following elevation to appropriate parties.

Zentera Therapeutics
In May 2020, each of our subsidiaries Zeno Alpha, Inc., K-Group Alpha, Inc. and K-Group Beta, Inc. entered into a collaboration and license agreement with our joint venture, Zentera, which we refer to as the “Zentera Sublicenses”, pursuant to which we collaborate with Zentera on the development and commercialization of ZN-c3, ZN-c5 and ZN-d5, respectively, whether alone or in a licensed product, or the Collaboration Products, in each case for the treatment or prevention of disease, other than for pain, which is referred to as the Zentera Field, in the People’s Republic of China, Macau, Hong Kong and Taiwan, which is referred to as the “Zentera Collaboration Territory. Under each Zentera Sublicense, Zentera will lead development, and upon regulatory approval, the commercialization, of the Collaboration Products in the Zentera Collaboration Territory. On May 19, 2020, Zentera issued an aggregate of 60.2% of its issued shares of common stock to Zeno Alpha, Inc., K-Group Alpha, Inc., K-Group Beta, Inc., Zeno Management, Inc. and Zeno Beta, Inc. In July 2021, Zentera entered into a Series B Preference Shares Purchase Agreement, pursuant to which it raised approximately $75.0 million in gross proceeds. We hold an approximately 40% equity interest in Zentera following the financing. Anthony Y. Sun, M.D., our President and Chief Executive Officer, serves as Chief Executive Officer and a member of the board of directors of Zentera, and Kevin D. Bunker, Ph.D., our Chief Operating Officer, serves as a member of the board of directors of Zentera.
Under each Zentera Sublicense, we granted Zentera an exclusive, royalty-bearing license under certain of our technology, including technology licensed from Recurium under the Recurium Agreement, to develop and commercialize the Collaboration Products in the Zentera Field and in the Zentera Collaboration Territory, subject to certain rights that we retain, and upon a successful manufacturing transfer, a non-exclusive license under certain of our manufacturing technology to manufacture Collaboration Products in the Zentera Field and in the Zentera Collaboration Territory. Zentera has the right to sublicense its rights under the Zentera Sublicenses subject to certain conditions.
Under the terms of the Zentera Sublicenses, Zentera is responsible for the costs of developing the Collaboration Products in the Zentera Collaboration Territory, and we are responsible for the costs of developing the Collaboration Products outside the Zentera Collaboration Territory, provided that Zentera will reimburse us for a portion of its costs for global data management, pharmacovigilance, safety database management, and chemistry, manufacturing and controls activities with respect to each Collaboration Product. Under the Zentera Sublicenses, we will be eligible to receive future development and regulatory milestones of up to $4.45 million per Collaboration Product. Zentera will pay us royalties on net sales of Collaboration Products in the Zentera Collaboration Territory at a mid- to high-single digit percentage, subject to certain reductions. In addition, if Zentera or its affiliate chooses to sublicense or assign to any third parties its rights under the Zentera Sublicenses with respect to any Collaboration Product, Zentera must pay to us 20% of sublicensing income received by Zentera or its affiliates in connection with such transaction.
Zentera’s royalty obligations will expire on a Collaboration Product-by-Collaboration Product and region-by-region basis upon the later of the date on which such product is no longer covered by a valid claim of a licensed patent and the 15th anniversary of the first commercial sale of such product in such region.
Zentera filed four Clinical Trial Applications, or CTAs (China equivalent of IND), and four have been approved in China to date for ZN-c3, ZN-c5, and ZN-c3 in combination. Zentera has begun enrolling two clinical trials for ZN-c3 and ZN-c5.
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Components of Our Results of Operations
Revenue
To date, we have not generated any revenue, and we do not expect to generate any revenue in the foreseeable future from product sales. We have generated, and may in the future generate, revenue from payments received under our collaboration agreements, which includes payments of upfront fees, license fees, milestone-based payments and reimbursements for research and development efforts.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, and include:
salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
expenses incurred under agreements with third parties, including contract research organizations, or CROs, and other third parties that conduct research, preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture drug material for use in our preclinical studies and clinical trials;
costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
license payments made for intellectual property used in research and development activities; and
allocated expenses for rent and maintenance of facilities and other operating costs.
We expense research and development costs as incurred. Reimbursed research and development costs under government grant arrangements are recorded as a reduction to research and development expenses and are recognized in the period in which the related costs are incurred.
We track external development costs by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates. These costs are included in unallocated research and development expenses in the table below.
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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,
  2021 2020 2021 2020
ZN-c3 $ 8,661    2,520  $ 16,465  $ 4,161 
ZN-c5 10,101  $ 6,180  17,281  10,873 
ZN-d5   3,867    1,412  8,039  2,679 
ZN-e4   394    274  711  1,027 
Unallocated research and development expenses   21,747    7,066  40,668  11,970 
Total research and development expenses $ 44,770 $ 17,452  $ 83,164 $ 30,710 
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have a higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we complete our ongoing clinical trials, initiate new clinical trials, continue to discover and develop additional product candidates and prepare regulatory filings for any product candidates that successfully complete clinical development.
The successful development of our product candidates is highly uncertain. At this time, we cannot determine with certainty the duration and costs of our existing and future clinical trials of our product candidates or any other product candidate we may develop or if, when, or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our product candidates and any other product candidate we may develop in the future will depend on a variety of factors, including:
per patient trial costs;
the number of patients who enroll in each trial;
the number of trials required for approval;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the drop-out or discontinuation rates of patients;
any delays in clinical trials as a result of the COVID-19 pandemic;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and follow-up;
the phase of development of the product candidate;
the efficacy and safety profile of the product candidate.
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uncertainties in clinical trial design and patient enrollment rates;
the actual probability of success for our product candidates, including the safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability;
significant and changing government regulation and regulatory guidance;
the timing and receipt of any marketing approvals; and
the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support increased research and development activities relating to ZN-c3, ZN-c5, ZN-d5, ZN-e4, and any other product candidate we may develop. We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.
Interest Income
Interest income consists of interest earned on cash, 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.
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Results of Operations
Comparison of Three Months Ended June 30, 2021 to Three Months Ended June 30, 2020
The following table summarizes our results of operations for the periods indicated, together with the changes in those items in dollars:
  Three Months Ended June 30,   Increase
(Decrease)
  2021   2020
  (in thousands)
Operating expenses
Research and development $ 44,770  $ 17,452  $ 27,318 
General and administrative   10,362  9,924  438 
Total operating expenses   55,132  27,376  27,756 
Loss from operations   (55,132) (27,376) (27,756)
Investment and other income, net   115  84  31 
Net loss before income taxes   (55,017) (27,292) (27,725)
Income tax expense   45  —  45 
Net loss   (55,062) (27,292) (27,770)
Net loss attributable to noncontrolling interest   (488) (435) (53)
Net loss attributable to Zentalis $ (54,574) $ (26,857) $ (27,717)
Revenue
We did not generate any revenue for the three months ended June 30, 2021 and June 30, 2020.
Research and Development Expenses
Research and development expenses for the three months ended June 30, 2021 were $44.8 million, compared to $17.5 million for the three months ended June 30, 2020. The increase of $27.3 million was primarily due to increases in external research and development expenses related to our lead product candidates, as we advanced our Phase 1/2 clinical trials for ZN-c3 and ZN-c5. In addition, in the three months ended June 30, 2021, we conducted additional preclinical studies, incurred additional manufacturing costs, and incurred increased costs for study and lab materials. Unallocated research and development expenses increased by $14.7 million primarily due to $7.0 million of additional employee related costs associated with increased headcount to support our platform development, $4.6 ,million of outside services, and $1.5 million for licenses, supplies and other collaborative efforts. Facilities and other allocable overhead expenses increased by $1.6 million.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2021 were $10.4 million, compared to $9.9 million during the three months ended June 30, 2020. This increase of $0.5 million was primarily attributable to an increase of $2.0 million in employee-related and supply costs, partially offset by a reduction in allocable overhead facility expenses.
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Investment and Other Income, Net
Investment and other income was $0.1 million for the three months ended June 30, 2021, compared to less than $0.1 million for the three months ended June 30, 2020. The increase was the result of interest earned on higher invested cash and marketable securities balances.
Income Tax Expense
The provision for income taxes was forty-five thousand for the three months ended June 30, 2021. No provision for income taxes was recorded in the comparable period last year. The provision for income taxes for the three months ended June 30, 2021 is entirely attributable to the Company’s Australian subsidiary which had not commenced operations in the comparable period in 2020.
Net Loss
Net loss was $55.1 million for three months ended June 30, 2021 compared to $27.3 million for the three months ended June 30, 2020. The $27.8 million increase in net loss was primarily the result of the increases in research and development and general and administrative expenses discussed above.
Comparison of Six Months Ended June 30, 2021 to Six Months Ended June 30, 2020
The following table summarizes our results of operations for the periods indicated, together with the changes in those items in dollars:
Six Months Ended June 30, Increase (Decrease)
2021 2020
(in thousands)
Operating expenses
Research and development $ 83,164  30,710  $ 52,454 
General and administrative 22,315  13,065  9,250 
Total operating expenses 105,479  43,775  61,704 
Loss from operations (105,479) (43,775) (61,704)
Investment and other income, net 214  248  (34)
Net loss before income taxes (105,265) (43,527) (61,738)
Income tax expense 241  —  241 
Net loss (105,506) (43,527) (61,979)
Net loss attributable to noncontrolling interest (1,031) (544) (487)
Net loss attributable to Zentalis $ (104,475) (42,983) $ (61,492)

Revenue
We did not generate any revenue for the six months ended June 30, 2021 and June 30, 2020.
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Research and Development Expenses
Research and development expenses for the six months ended June 30, 2021 were $83.2 million, compared to $30.7 million for the six months ended June 30, 2020. The increase of $52.5 million was primarily due to increases in external research and development expenses related to our lead product candidates, as we advanced our Phase 1/2 clinical trials for ZN-c3 and ZN-c5. In addition, in the six months ended June 30, 2021, we conducted additional preclinical studies, incurred additional manufacturing costs, and incurred increased costs for study and lab materials. Unallocated research and development expenses increased by $28.7 million primarily due to $13.6 million of additional employee related costs, $6.8 million of outside services, and $1.5 million of supplies, subscriptions and licenses/permits. Facilities and other allocable overhead expenses increased by $3.6 million.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2021 were $22.3 million, compared to $13.1 million during the six months ended June 30, 2020. This increase of $9.2 million was primarily attributable to an increase of $10.1 million in employee-related costs of which $6.5 million was driven by non-cash stock-based compensation from incentive grants issued during the period and increased headcount to support our growth. Supplies and insurance increased by $0.9 million and $0.8 million, respectively. These amounts were partially offset by a decrease in allocable overhead expenses.
Investment and Other Income, Net
Investment and other income was $0.4 million for the six months ended June 30, 2021, compared to $0.2 million for the six months ended June 30, 2020. The increase of $0.2 million was the result of interest earned on higher invested cash and marketable securities balances.
Income Tax Expense
The provision for income taxes was $0.2 million for the six months ended June 30, 2021. No provision for income taxes was recorded in the comparable period last year. The provision for income taxes for the six months ended June 30, 2021 is entirely attributable to the Company’s Australian subsidiary which had not commenced operations in the comparable period in 2020.

Net Loss
Net loss was $105.5 million for the six months ended June 30, 2021, compared to $43.5 million for the six months ended June 30, 2020. The $62.0 million increase in net loss was primarily attributable to increases in research and development and general and administrative expenses discussed above.
Liquidity and Capital Resources
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 and we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our research programs and product candidates. We expect that our research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future research programs and product candidates, contracting with CMOs to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations.
As a result, we will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include
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collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all, particularly in light of the economic downturn and ongoing uncertainty related to the COVID-19 pandemic. The COVID-19 pandemic could adversely affect the economies and financial markets of the global economy, resulting in an economic downturn that could also affect our operations, our ability to conduct our clinical trials, our ability to raise additional funds through public offerings and the volatility of our stock price and trading in our stock. Even after the COVID-19 pandemic has subsided, we expect we will continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with developing and commercializing therapeutics, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
We do not currently have any approved products and have never generated any revenue from product sales. To date, we have financed our operations primarily through the sale of equity securities. From inception through June 30, 2021, we raised a total of $518.1 million in gross proceeds from the sale of our Series A, B and C convertible preferred units and from the sale of shares of our common stock through our IPO in April 2020 and a follow-on public offering of common stock in August 2020. As of June 30, 2021, we had cash, cash equivalents, and marketable securities of $250.9 million, and an accumulated deficit of $305.3 million. We had no indebtedness as of June 30, 2021.
ATM Program
In May 2021, we entered into a sales agreement, or the Sales Agreement, with SVB Leerink LLC, or SVB Leerink, as sales agent, pursuant to which we may, from time to time, issue and sell common stock with an aggregate value of up to $200.0 million in “at-the-market” offerings, or the ATM, under our Registration Statement on Form S-3 (File No. 333-255769) filed with the SEC on May 4, 2021. Sales of common stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a) of the Securities Act, including sales made directly through the Nasdaq Global Market or any other existing trading market for our common stock. No securities have been issued pursuant to the Sales Agreement.
July 2021 Follow-On Offering

In July 2021, we completed a follow-on offering of our common stock and issued and sold approximately 3.6 million shares of our common stock at a public offering price of $48.50 per share, including approximately 0.5 million shares in connection with the full exercise of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $172.9 million, after deducting underwriting discounts and commissions and offering expenses.

Cash Flows
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The following table summarizes our sources and uses of cash for the period presented:
  Six Months Ended June 30,
  2021 2020
  (in thousands)
Net cash used in operating activities $ (83,582) $ (38,904)
Net cash provided by/used in investing activities 80,061  (137,292)
Net cash used in/provided by financing activities (316) 205,134 
Net increase/(decrease) in cash and cash equivalents $ (3,837) $ 28,938 
Operating Activities
We have incurred losses since inception. Net cash used in operating activities for the six months ended June 30, 2021 was $83.6 million, consisting primarily of our net loss of $105.5 million as we incurred expenses associated with research activities for our lead product candidates and incurred general and administrative expenses, as well as changes in operating assets and liabilities of $1.6 million, partially offset by non-cash adjustments of $20.3 million.
Net cash used in operating activities for the six months ended June 30, 2020 was $38.9 million, consisting primarily of our net loss of $43.5 million as we incurred expenses associated with research activities for our lead product candidates and incurred general and administrative expenses, partially offset by changes in operating assets and liabilities of $3.0 million and non-cash adjustments of $0.3 million.
Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2021 of $80.0 million was attributable to the proceeds from maturities of marketable securities of $159.1 million, offset by net investment of excess cash of $77.8 million and the purchases of property and equipment of $1.3 million.
Net cash used in investing activities for the six months ended June 30, 2020 of $137.3 million was attributable to the net investment of excess cash of $137.2 million and the purchase of property and equipment of $56,000.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2021 of $0.3 million primarily relates to deferred financing costs of $0.4 million, partially offset by $70,000 from the issuance of common stock associated with the exercise of stock options.
Net cash provided by financing activities for the six months ended June 30, 2020 of $205.1 million primarily relates to net proceeds from the completion of our initial public offering of $172.5 million, the issuance of our Series C convertible preferred units of $14.2 million and contributions from noncontrolling interest owners of $18.4 million.
Funding Requirements
Our operating expenses have increased substantially in 2020 and to date in 2021 and are expected to increase substantially in the future in connection with our ongoing activities.
Specifically, our expenses will increase as we:
advance the clinical development of ZN-c3, ZN-c5, ZN-d5 and ZN-e4 for the treatment of oncology indications;
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pursue the preclinical and clinical development of other current and future research programs and product candidates;
in-license or acquire the rights to other products, product candidates or technologies;
maintain, expand and protect our intellectual property portfolio;
hire additional personnel in research, manufacturing and regulatory and clinical development as well as management personnel;
seek regulatory approval for any product candidates that successfully complete clinical development; and
expand our operational, financial and management systems and increase personnel, including personnel to support our operations as a public company.
We believe that our existing cash, cash equivalents and marketable securities as of June 30, 2021, together with the net proceeds from our July 2021 follow-on offering, will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2023. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical drugs, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:
the progress, costs and results of our clinical trials for our programs for ZN-c3, ZN-c5, ZN-d5 and ZN-e4;
the progress, costs and results of additional research and preclinical studies in other research programs we initiate in the future;
the costs and timing of process development and manufacturing scale-up activities associated with our product candidates and other programs we advance them through preclinical and clinical development;
our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements;
the extent to which we in-license or acquire rights to other products, product candidates or technologies; and
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims.
In addition, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this Quarterly Report on Form 10-Q, as the pandemic continues to evolve globally. We have considered and will continue to consider the availability of relief provided by such legislative actions as the Families First Act and the CARES Act, and have opted to pursue certain, but not all measures including the deferral of employer payroll taxes, but not including Payroll Protection Plan loans. See “Impact of COVID-19 Pandemic” and “Risk Factors— The COVID-19 pandemic has adversely impacted and we expect will continue to adversely impact our business, including our preclinical studies and clinical trials”.
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Further, our operating results may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements and marketing and distribution arrangements.
We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Critical Accounting Policies and Use of Estimates
There have been no significant changes to our critical accounting policies from our disclosure reported in “Critical Accounting Policies and Estimates” in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. The JOBS Act also exempts us from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b).
We will remain an “emerging growth company” until the earliest to occur of (1) the last day of the fiscal year in which our annual gross revenue is $1.07 billion or more, (2) the last day of 2025, (3) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter; and (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during any three-year period.
Recent Accounting Pronouncements
A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our interim unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not subject to any material legal proceedings.
Item 1A. Risk Factors.
You should carefully consider the risks and uncertainties described below and the other information in this Quarterly Report on Form 10-Q, including our interim unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. Such risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. Our business, financial condition, results of operations or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common stock could decline and you could lose all or part of your investment. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain important factors, including those set forth below.
Risks Related to Our Financial Position and Need for Additional Capital
We have a limited operating history, have not completed any clinical trials, and have no products approved for commercial sale, which may make it difficult for you to evaluate our current business and predict our future success and viability.
We are a clinical stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. We have no products approved for commercial sale and have not generated any revenue from product sales. To date, we have devoted substantially all of our resources and efforts to organizing and staffing our company, business planning, executing partnerships, raising capital, discovering, identifying and developing potential product candidates, securing related intellectual property rights and conducting preclinical studies and clinical trials of our product candidates, including the ongoing clinical trials of ZN-c3, ZN-c5, ZN-d5 and ZN-e4. We have not yet demonstrated our ability to successfully complete any clinical trials, obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. As a result, it may be more difficult for you to accurately predict our future success or viability than it could be if we had a longer operating history.
In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors and risks frequently experienced by clinical stage biopharmaceutical companies in rapidly evolving fields. We also may need to transition from a company with a research focus to a company capable of supporting commercial activities. If we do not adequately address these risks and difficulties or successfully make such a transition, our business will suffer.
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We have incurred significant net losses since inception and we expect to continue to incur significant net losses for the foreseeable future.
We have incurred net losses in each reporting period since our inception, have not generated any revenue from product sales to date and have financed our operations principally through private financings and our initial public offering, or IPO. We have incurred net losses of $118.5 million for the year ended December 31, 2020, and $105.5 million and $43.5 million for the six months ended June 30, 2021 and June 30, 2020, respectively. As of June 30, 2021, we had an accumulated deficit of $305.3 million. Our losses have resulted principally from expenses incurred in research and development of our product candidates and from management and administrative costs and other expenses that we have incurred while building our business infrastructure. Four of our product candidates, ZN-c3, ZN-c5, ZN-d5 and ZN-e4, are in clinical trials. Our other programs are in preclinical research. As a result, we expect that it will be several years, if ever, before we have a commercialized product and generate revenue from product sales. Even if we succeed in receiving marketing approval for and commercializing one or more of our product candidates, we expect that we will continue to incur substantial research and development and other expenses as we discover, develop and market additional potential products.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we continue our research and development efforts and seek to obtain regulatory approval and commercialization of our product candidates. The net losses we incur may fluctuate significantly from quarter to quarter such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our working capital and our ability to achieve and maintain profitability.
Our ability to generate revenue and achieve profitability depends significantly on our ability to achieve a number of objectives.
Our business depends entirely on the successful discovery, development and commercialization of our product candidates. We currently generate no revenues from sales of any products. We have no products approved for commercial sale and do not anticipate generating any revenue from product sales for the next several years, if ever. Our ability to generate revenue and achieve profitability depends significantly on our ability, or any future collaborator’s ability, to achieve a number of objectives, including:
successful and timely completion of preclinical and clinical development of our product candidates, including ZN-c3, ZN-c5, ZN-d5 and ZN-e4 and any other future product candidates, as well as the associated costs, including any unforeseen costs we have incurred and may continue to incur as a result of preclinical study or clinical trial delays due to the COVID-19 pandemic or other causes;
establishing and maintaining relationships with contract research organizations, or CROs, and clinical sites for the clinical development, both in the United States and internationally, of our product candidates, including ZN-c3, ZN-c5, ZN-d5 and ZN-e4 and any other future product candidates;
timely receipt of marketing approvals from applicable regulatory authorities for any product candidates for which we successfully complete clinical development;
making any required post-marketing approval commitments to applicable regulatory authorities;
developing an efficient and scalable manufacturing process for our product candidates, including obtaining finished products that are appropriately packaged for sale;
establishing and maintaining commercially viable supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to
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support clinical development and meet the market demand for product candidates that we develop, if approved;
successful commercial launch following any marketing approval, including the development of a commercial infrastructure, whether in-house or with one or more collaborators;
a continued acceptable safety profile following any marketing approval of our product candidates;
commercial acceptance of our product candidates by patients, the medical community and third-party payors;
identifying, assessing and developing new product candidates;
obtaining, maintaining and expanding patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally;
protecting our rights in our intellectual property portfolio;
defending against third-party interference or infringement claims, if any;
negotiating favorable terms in any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize our product candidates;
obtaining coverage and adequate reimbursement by hospitals, government and third-party payors for product candidates that we develop;
addressing any competing therapies and technological and market developments; and
attracting, hiring and retaining qualified personnel.
We may never be successful in achieving our objectives and, even if we do, may never generate revenue that is significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to maintain or further our research and development efforts, raise additional necessary capital, grow our business and continue our operations.
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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.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. Our operations have consumed substantial amounts of cash since inception, and we expect our expenses to increase in connection with our ongoing activities, particularly as we initiate and conduct clinical trials of, and seek marketing approval for, ZN-c3, ZN-c5, ZN-d5, ZN-e4 and our other product candidates. Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies to perform clinical trials or preclinical studies in addition to those that we currently anticipate. Other unanticipated costs may also arise. In addition, if we obtain marketing approval for any of our product candidates, including ZN-c3, ZN-c5, ZN-d5 and ZN-e4, we expect to incur significant commercialization expenses related to drug sales, marketing, manufacturing and distribution. Because the design and outcome of our planned and anticipated clinical trials are highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate we develop. We have also incurred, and expect to continue to incur, additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in order to maintain our continuing operations.
As of June 30, 2021, we had cash and cash equivalents and marketable securities of $250.9 million. Based on current business plans, we believe that our existing cash, cash equivalents and marketable securities as of June 30, 2021, together with the net proceeds from our July 2021 follow-on offering, will be sufficient to fund our operating expenses and capital expenditures requirements into the third quarter of 2023, but will not be sufficient to fund all of the activities that are necessary to complete the development of our product candidates. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned.
We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources, which may dilute our stockholders or restrict our operating activities. We do not have any committed external source of funds. Adequate additional financing may not be available to us on acceptable terms, or at all. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. Our failure to raise capital as and when needed or on acceptable terms would have a negative impact on our financial condition and our ability to pursue our business strategy, and we may have to delay, reduce the scope of, suspend or eliminate one or more of our research-stage programs, clinical trials or future commercialization efforts.
Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
We are substantially dependent on the success of our lead product candidates, ZN-c3, and/or ZN-c5, 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.
Our future success is dependent on our ability to timely complete clinical trials, obtain marketing approval for and successfully commercialize our lead product candidates. We are investing significant efforts and financial resources in the research and development of ZN-c3 and ZN-c5. ZN-c3 and ZN-c5 will require additional clinical development, evaluation of clinical, preclinical and manufacturing activities, marketing approval from government regulators, substantial investment and significant marketing efforts before we can generate any revenues from product sales. We are not permitted to market or promote ZN-c3 or ZN-c5, or any other product candidate, before we receive marketing approval from the FDA and comparable foreign regulatory authorities, and we may never receive such marketing approvals.
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The success of our lead product candidates will depend on several factors, including the following:
the successful and timely completion of our ongoing clinical trials of ZN-c3 and ZN-c5;
the initiation and successful patient enrollment and completion of additional clinical trials of ZN-c3 and ZN-c5 on a timely basis;
maintaining and establishing relationships with CROs and clinical sites for the clinical development of ZN-c3 and ZN-c5 both in the United States and internationally;
the frequency and severity of adverse events in the clinical trials;
the efficacy, safety and tolerability profiles that are satisfactory to the FDA, EMA or any comparable foreign regulatory authority for marketing approval;
the timely receipt of marketing approvals for ZN-c3 and ZN-c5 from applicable regulatory authorities;
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
the maintenance of existing or the establishment of new supply arrangements with third-party drug product suppliers and manufacturers for clinical development of ZN-c3 and ZN-c5;
the maintenance of existing, or the establishment of new, scaled production arrangements with third-party manufacturers to obtain finished products that are appropriate for commercial sale of ZN-c3 and ZN-c5 if approved, including for supplies of drugs that we are testing in combination with ZN-c3 and ZN-c5;
obtaining and maintaining patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally;
the protection of our rights in our intellectual property portfolio;
the successful launch of commercial sales following any marketing approval;
a continued acceptable safety profile following any marketing approval;
commercial acceptance by patients, the medical community and third-party payors; and
our ability to compete with other therapies.
We do not have complete control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any future collaborator. If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize ZN-c3 and ZN-c5, which would materially harm our business. If we do not receive marketing approvals for ZN-c3 and ZN-c5, we may not be able to continue our operations.
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We expect to depend on collaborations with third parties for the research, development and commercialization of certain of the product candidates we may develop. If any of these collaborations are not successful, we may not be able to capitalize on the market potential of those product candidates.

We anticipate seeking third-party collaborators for the research, development and commercialization of some of our product candidates. Our likely collaborators in any future collaboration arrangements we may enter into include large and mid-size pharmaceutical companies and biotechnology companies. If we were to enter into any collaboration arrangements with third parties, those agreements may limit our control over the amount and timing of resources that our collaborators dedicate to the development and commercialization of any product candidates we may seek to develop with them. We cannot predict the success of any collaboration in which we have entered or may enter.

Collaborations involving our research programs or any product candidates we may develop pose the following risks to us:

•    Collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations.

• Collaborators may not pursue development and commercialization of any product candidates we may develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator's strategic focus or market considerations or available funding or external factors such as an acquisition or business combination that diverts resources or creates competing priorities. If this were to happen, we may need additional capital to pursue further development or commercialization of the applicable product candidates.

• Collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing.

• Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours.

• Subject to certain diligence obligations, collaborators with marketing and distribution rights to one (1) or more products may not commit sufficient resources to the marketing and distribution of such product or products.
• Collaborators may not properly obtain, maintain, enforce or defend our intellectual property or proprietary rights or may use proprietary information in a way that could jeopardize or invalidate our proprietary information or expose us to potential litigation.

• Collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in cases where that applies, we would not have the exclusive right to commercialize the collaboration intellectual property.

• Disputes may arise between our collaborators and us that result in the delay or termination of the research, development or commercialization of our products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources.

• We may lose certain valuation rights under circumstances identified in our collaborations, including if we undergo a change of control.

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• Collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.

• Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated.

• Collaborators may be unable to maintain compliance with GLP and GCP requirements or to secure approval for clinical development plans from the FDA or foreign regulatory authorities.

If we do not receive the funding we expect under these agreements, our development of product candidates could be delayed and we may need additional resources to develop our product candidates. In addition, if one of our collaborators terminates its agreement with us, we may find it more difficult to find a suitable replacement collaborator or attract new collaborators and our development programs may be delayed or the perception of us in the business and financial communities could be adversely affected. All of the risks relating to product development, marketing approval and commercialization described in this annual report apply to the activities of our collaborators.

We may in the future decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of any product candidates we may develop. These and other similar relationships may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we could face significant competition in seeking appropriate collaborators and the negotiation process is time-consuming and complex. Our ability to reach a definitive collaboration agreement will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of several factors. If we license rights to any product candidates we or our collaborators may develop, we may not be able to realize the benefit of those transactions if we are unable to successfully integrate them with our existing operations and company culture.

There is currently no FDA-approved oral SERD, and our development of ZN-c5 may never lead to a marketable product.
We are developing ZN-c5 as an oral SERD. There is currently no FDA-approved oral SERD. We have not received regulatory approval for ZN-c5 and cannot be certain that our approach will lead to the development of an approvable or marketable product, alone or in combination with other therapies. We may not succeed in demonstrating safety and efficacy of ZN-c5 in our ongoing Phase 1/2 clinical trial or in larger-scale clinical trials. Advancing ZN-c5 as an oral SERD creates significant challenges for us, including:
obtaining marketing approval, as the FDA or other regulatory authorities have never approved an orally available SERD;
if ZN-c5 is approved, educating medical personnel regarding the potential efficacy and safety benefits, as well as the challenges, of incorporating our ZN-c5 into existing treatment regimens, including in combination with other treatments for breast cancer; and
establishing the sales and marketing capabilities upon obtaining any marketing approvals to gain market acceptance.
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Our long-term prospects depend in part upon discovering, developing and commercializing additional product candidates, which may fail in development or suffer delays that adversely affect their commercial viability.
Our future operating results are dependent on our ability to successfully discover, develop, obtain regulatory approval for and commercialize product candidates beyond those we currently have in clinical development. A product candidate can unexpectedly fail at any stage of preclinical and clinical development. The historical failure rate for product candidates is high due to risks relating to safety, efficacy, clinical execution, changing standards of medical care and other unpredictable variables. The results from preclinical testing or early clinical trials of a product candidate may not be predictive of the results that will be obtained in later stage clinical trials of the product candidate.
The success of other product candidates we may develop will depend on many factors, including the following:
generating sufficient data to support the initiation or continuation of clinical trials;
obtaining regulatory permission to initiate clinical trials;
contracting with the necessary parties to conduct clinical trials;
successful enrollment of patients in, and the completion of, clinical trials on a timely basis;
the timely manufacture of sufficient quantities of the product candidate for use in clinical trials; and
adverse events in the clinical trials.
Even if we successfully advance any other product candidates into clinical development, their success will be subject to all of the clinical, regulatory and commercial risks described elsewhere in this “Risk Factors” section. Accordingly, we cannot assure you that we will ever be able to discover, develop, obtain regulatory approval of, commercialize or generate significant revenue from our other product candidates.
The regulatory approval processes of the FDA and other comparable foreign 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 are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Foreign regulatory authorities impose similar requirements. The time required to obtain approval by the FDA and other comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the type, complexity and novelty of the product candidates involved. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other data. Even if we eventually complete clinical testing and receive approval of any regulatory filing for our product candidates, the FDA and other comparable foreign regulatory authorities may approve our product candidates for a more limited indication or a narrower patient population than we originally requested. We have not submitted for, or obtained, regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
Further, development of our product candidates and/or regulatory approval may be delayed for reasons beyond our control. For example, a U.S. federal government shutdown or budget sequestration, such as ones that occurred
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during 2013, 2018 and 2019, may result in significant reductions to the FDA’s budget, employees and operations, which may lead to slower response times and longer review periods, potentially affecting our ability to progress development of our product candidates or obtain regulatory approval for our product candidates.
Applications for our product candidates could fail to receive regulatory approval for many reasons, including the following:
the FDA or other comparable foreign regulatory authorities may disagree with the design, implementation or results of our clinical trials;
the FDA or other comparable foreign regulatory authorities may determine that our product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use;