10-Q 1 zntl-20220630.htm 10-Q zntl-20220630
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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, 2022
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 001-39263
Zentalis Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware82-3607803
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1359 Broadway, Suite 1710
New York,
 New York
10018
(Address of principal executive offices)(Zip Code)
(212) 433-3791
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
$0.001 par value per share
ZNTL
The Nasdaq Stock Market LLC (The Nasdaq Global Market)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☒  No ☐   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
  Accelerated filer
Non-accelerated Filer  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
As of August 8, 2022, the registrant had 56,983,641 shares of common stock, $0.001 par value per share, outstanding.


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


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements within the meaning of the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” 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, global supply chain issues and increased inflation, 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, they may turn out to be inaccurate and you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results, financial condition, performance or achievements could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we assume no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

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

SUMMARY RISK FACTORS

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

We have a limited operating history and have no products approved for commercial sale, which may make it difficult for you to evaluate our current business and predict our future success and viability.
We have incurred significant net losses since inception and we expect to continue to incur significant net losses for the foreseeable future.
We will require substantial additional capital to finance our operations. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce 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/or ZN-d5, which are currently in clinical trials. If we are unable to complete development of, obtain approval for and commercialize ZN-c3 and/or ZN-d5 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 intend to develop ZN-c3 and ZN-d5 and potentially other product candidates in combination with other therapies, which exposes us to additional risks.
The regulatory approval processes of the U.S. Food and Drug Administration, or 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.
ii


We face significant competition and, if our competitors develop and market technologies or products more rapidly than we do or that are more effective, safer or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted.
Our success depends on our ability to protect our intellectual property and our proprietary platform. If we are unable to adequately protect our intellectual property and our proprietary platform, or to obtain and maintain issued patents that 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 collaborations may also be important to us and, if we are unable to maintain any of these collaborations, or if these arrangements are not successful, our business could be adversely affected.
We rely, and expect to continue to rely, on third parties, including independent clinical investigators and CROs, to conduct certain aspects of our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Claims by third parties that we infringe their proprietary rights may result in liability for damages or prevent or delay our developmental and commercialization efforts.
The competition for qualified personnel is particularly intense in our industry. If we are unable to retain or hire key personnel, then we may not be able to sustain or grow our business.
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.
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,
 20222021
ASSETS
Current assets
Cash and cash equivalents$55,143 $59,714 
Marketable securities, available-for-sale400,078 280,173 
Prepaid expenses and other current assets12,405 10,640 
Restricted cash 243 
Total current assets467,626 350,770 
Property and equipment, net8,218 8,148 
Operating lease right-of-use assets43,305 44,691 
Prepaid expenses and other assets11,938 7,040 
Goodwill3,736 3,736 
Investment in Zentera Therapeutics30,406 37,495 
Restricted cash2,627 2,627 
Total assets$567,856 $454,507 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$12,041 $11,590 
Accrued expenses36,595 32,354 
Total current liabilities48,636 43,944 
Deferred tax liability1,325 1,622 
Other long-term liabilities45,072 44,459 
Total liabilities95,033 90,025 
Commitments and contingencies
EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2022 and December 31, 2021
  
Common stock, $0.001 par value; 250,000,000 shares authorized; 56,969,118 and 45,490,764 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
57 45 
Additional paid-in capital
961,205 723,593 
Accumulated other comprehensive loss(1,779)(125)
Accumulated deficit(486,993)(359,559)
Total stockholders’ equity472,490 363,954 
Noncontrolling interests333 528 
Total equity472,823 364,482 
Total liabilities and stockholders’ equity$567,856 $454,507 

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,
 2022 202120222021
Operating Expenses 
Research and development$43,825 $44,770 $89,937 $83,164 
General and administrative19,636 10,362 31,403 22,315 
Total operating expenses63,461 55,132 121,340 105,479 
Operating loss(63,461)(55,132)(121,340)(105,479)
Other Income (Expense)
Investment and other income, net424 115 850 214 
Net loss before income taxes(63,037)(55,017)(120,490)(105,265)
Income tax expense17 45 50 241 
Loss on equity method investment5,338  7,089  
Net loss(68,392)(55,062)(127,629)(105,506)
Net loss attributable to noncontrolling interests(35)(488)(195)(1,031)
Net loss attributable to Zentalis $(68,357)$(54,574)$(127,434)$(104,475)
Net loss per common share outstanding, basic and diluted$(1.34)$(1.34)$(2.64)$(2.58)
Common shares used in computing net loss per share, basic and diluted51,117 40,738 48,197 40,549 

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,
2022202120222021
Net loss$(68,392)$(55,062)(127,629)(105,506)
Other comprehensive income:
Currency translation effects 45  45 
Unrealized gain (loss) on marketable securities(670)(1)(1,654)13 
Total comprehensive loss(69,062)(55,018)$(129,283)$(105,448)
Comprehensive loss attributable to noncontrolling interests(35)(488)(195)(1,031)
Comprehensive loss attributable to Zentalis$(69,027)$(54,530)$(129,088)$(104,417)

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,
 20222021
Operating Activities: 
Consolidated net loss$(127,629)$(105,506)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization692 198 
Share-based compensation26,911 19,610 
Loss on disposal of equipment57 15 
Amortization of premiums on marketable securities, net17 521 
Loss on equity method investment7,089  
Changes in operating assets and liabilities:
Prepaid expenses and other assets(6,663)(3,525)
Accounts payable and accrued liabilities4,025 4,838 
Operating lease right-of-use assets and liabilities, net2,278 267 
Net cash used in operating activities(93,223)(83,582)
Investing activities:
Purchases of marketable securities(277,576)(77,812)
Proceeds from maturities of marketable securities156,000 159,128 
Purchases of property and equipment(728)(1,255)
Net cash (used in) provided by investing activities(122,304)80,061 
Financing Activities:
Proceeds from issuance of common stock, net209,297  
Proceeds from issuance of common stock under equity incentive plans1,416 70 
Deferred financing costs (386)
Net cash provided by (used in) financing activities210,713 (316)
Net decrease in cash, cash equivalents and restricted cash(4,814)(3,837)
Cash, cash equivalents and restricted cash at beginning of period62,584 56,271 
Cash, cash equivalents and restricted cash at end of period$57,770 $52,434 
Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures$91 $ 
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:
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June 30,
20222021
Cash and cash equivalents$55,143 $49,170 
Restricted cash2,627 3,264 
Total cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statement of Cash Flows$57,770 $52,434 
See notes to condensed consolidated financial statements.
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Zentalis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)

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

Six Months Ended June 30, 2022
CommonAdditional
Paid-In
Capital
Accumulated Other Comprehensive IncomeAccumulated
Deficit
Noncontrolling
Interests
Total
Equity
SharesAmount
Balance at December 31, 202145,491 $45 $723,593 $(125)$(359,559)$528 $364,482 
Share-based compensation expense — — 26,911 — — — 26,911 
Other comprehensive income— — — (1,654)— — (1,654)
Issuance of common stock in connection with an equity offering, net of underwriting discounts, commissions and offering costs11,284 11 209,286 — — — 209,297 
Issuance of common stock in connection with restricted stock unit vesting149 1 — — — — 1 
Issuance of common stock upon exercise of options, net42 — 803 — — — 803 
Shares issued under employee stock purchase plan16 612 612 
Cancellation of restricted stock awards(15)— — — — — — 
Net loss attributable to non-controlling interest— — — — — (195)(195)
Net loss attributable to Zentalis — — — — (127,434)— (127,434)
Balance at June 30, 202256,967 $57 $961,205 $(1,779)$(486,993)$333 $472,823 
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Three Months Ended June 30, 2021
 CommonAdditional
Paid-In
Capital
Accumulated Other Comprehensive IncomeAccumulated
Deficit
Noncontrolling
Interests
Total
Equity
 SharesAmount
Balance at March 31, 202141,040 $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 vesting272 — — — — — — 
Issuance of common stock upon exercise of options, net4 — 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)
June 30, 202141,315 $41 $529,019 $94 $(305,309)$23,764 $247,609 



Six Months Ended June 30, 2021
 CommonAdditional
Paid-In
Capital
Accumulated Other Comprehensive IncomeAccumulated
Deficit
Noncontrolling
Interests
Total
Equity
 SharesAmount
Balance at December 31, 202041,040 $41 $509,339 $36 $(200,834)$24,795 $333,377 
Share-based compensation expense— — 19,610 — — — 19,610 
Other comprehensive income— — — 58 — — 58 
Issuance of common stock in connection with restricted stock unit vesting272 — — — — — — 
Issuance of common stock upon exercise of options, net4 — 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)
June 30, 202141,315 $41 $529,019 $94 $(305,309)$23,764 $247,609 















See notes to condensed consolidated financial statements.
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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 tangible assets are held in the United States.
Liquidity
Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The Company determined that there are no conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date that the interim unaudited condensed consolidated financial statements for the quarter ended June 30, 2022 are issued.
2. Interim Unaudited Financial Statements
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. The year-end condensed consolidated balance sheet data was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022. The unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operation for the periods presented, with such adjustments consisting only of normal recurring adjustments. Certain reclassifications have been made to the prior period condensed consolidated balance sheet to conform to the current period presentation.
The accompanying interim unaudited condensed consolidated financial statements include our wholly-owned subsidiaries and variable interest entities (“VIEs”) for the periods in which we determined we were the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
We evaluate our ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, we apply a qualitative approach that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE.
We will continuously assess whether we are the primary beneficiary of a VIE, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of such VIE. During the
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periods presented, we have not provided any other material financial or other support to our VIEs that we were not contractually required to provide.
The equity method is used to account for investments in which we have the ability to exercise significant influence, but not control, over the investee. Such investments are recorded on the balance sheet, and the share of net income or losses of equity investments is recognized on a one quarter lag in investment and other income (expense), net.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.
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.
Significant Accounting Policies
During the six months ended June 30, 2022, there have been no changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
3. Significant Transactions
Zentera Therapeutics
In May 2020, we became a majority common shareholder of Zentera Therapeutics, Ltd., a Shanghai-based clinical-stage biopharmaceutical company focused on developing cancer therapeutics (“Zentera”), concurrent with its Series A convertible preferred stock offering. The financial position and results of operations of Zentera were included in our consolidated financial statements from the date of the initial investment as a result of our control of the entity and our determination that we were the primary beneficiary of Zentera. In July 2021, Zentera completed a Series B convertible preferred stock offering which diluted our investment to a position of less than majority owned. Upon review of the facts and circumstances, together with the authoritative accounting literature, we determined that while Zentera is a VIE, consolidation of Zentera is no longer appropriate. After the July 2021 Series B convertible preferred offering in which we did not participate, our review concluded that we ceased to be the primary beneficiary of Zentera as our equity ownership was reduced and changes were made to the corporate governance of Zentera. As a result, we no longer individually have the ability to direct the activities that most significantly impact Zentera's economic performance.
Beginning in July 2021, the financial position and results of operations of Zentera are no longer included in our consolidated financial statements. During the period of deconsolidation we measured the fair value of our retained investment in Zentera using the backsolve method with consideration for a lack of marketability. An equity method investment of $30.4 million is recorded on our balance sheet at June 30, 2022. This amount represents our maximum exposure to loss as a result of our involvement with Zentera. A deferred tax liability of $6.4 million representing the tax impact of the unrealized gain on deconsolidation is recorded on our balance sheet at June 30, 2022. A gain of $51.6 million, measured as the difference between the fair value of our retained noncontrolling interest together with the carrying amount of the Zentera noncontrolling interest, and the carrying amount of Zentera’s assets and liabilities was recognized during the year ended December 31, 2021. The difference between the carrying amount of our investment in Zentera and our portion of the Zentera net assets was $5.2 million as of
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June 30, 2022. This difference is accounted for in our equity method investment analogous to in-process research and development.
In May 2020, each of our subsidiaries Zeno Alpha, Inc., K-Group Alpha, Inc., Zeno Management Inc., and K-Group Beta, Inc. entered into a collaboration and royalty-bearing license agreement with 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-d5 and ZN-c5, collectively referred to as the “Collaboration Products,” respectively, 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.
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 the costs for global data management, pharmacovigilance, safety database management, and chemistry, manufacturing and controls activities with respect to each Collaboration Product. Prior to the deconsolidation of Zentera in July 2021, these costs were eliminated in consolidation. For the three and six months ended June 30, 2022, the amounts incurred under this arrangement totaled $3.0 million and $5.1 million, respectively, and are presented as contra-research and development expense in the unaudited condensed consolidated statement of operations. A corresponding receivable is recorded within prepaid expenses and other current assets on the unaudited condensed consolidated balance sheet. We have not provided material financial or other support to Zentera during the periods ended June 30, 2022 and 2021 that was not previously contractually required.

4. 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 December 21, 2017, the Company and Kalyra transacted for the delivery of research and development services and support. The financial position and results of operations of Kalyra have been included in our consolidated financial statements from the date of the initial investment.
Pursuant with authoritative guidance, we have recorded the identifiable assets, liabilities and noncontrolling interests in the VIE at their fair value upon initial consolidation. The identified goodwill is comprised of the workforce and expected synergies from combining the entities. Total assets and liabilities of Kalyra as of June 30, 2022 and December 31, 2021 are immaterial. The liabilities recognized as a result of consolidating Kalyra do not
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represent additional claims on our general assets. Pursuant to the authoritative guidance, the equity interest in Kalyra not owned by Zentalis is reported as a noncontrolling interest on our condensed consolidated balance sheets.
The following is a reconciliation of equity (net assets) attributable to the noncontrolling interest (in thousands):
June 30,December 31,
 20222021
Noncontrolling interest at beginning of period$528 $24,795 
Net loss attributable to noncontrolling interest(195)(7,368)
Deconsolidation of Zentera (16,899)
Noncontrolling interest at end of period$333 $528 
5. Fair Value Measurement
Available-for-sale marketable securities consisted of the following (in thousands):
June 30, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Commercial paper $255,912 $ $(763)$255,149 
Corporate Debt Securities5,063  (59)5,004 
US Government Agencies18,997  (78)18,919 
US Treasury121,882 5 (881)121,006 
$401,854 $5 $(1,781)$400,078 
December 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Commercial paper $199,321 $11 $(55)$199,277 
Corporate Debt Securities10,085  (7)10,078 
US Government Agencies20,032 1  20,033 
US Treasury50,860  (75)50,785 
$280,298 $12 $(137)$280,173 
As of June 30, 2022, sixty-two of our available-for-sale debt securities with a fair market value of $399.2 million were in a gross unrealized loss position of $1.8 million. When evaluating an investment for impairment, we review factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, our intent to sell or the likelihood that we would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. Based on our review of these marketable securities, we believe none of the unrealized loss is as a result of a credit loss as of June 30, 2022,
14


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, 2022December 31, 2021
Estimated Fair Value
Due within one year$396,203 $258,948 
After one but within five years3,875 21,225 
$400,078 $280,173 
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, 2022December 31, 2021
Level 1Level 2Total estimated fair valueLevel 1Level 2Total estimated fair value
Cash equivalents:
   Money market funds$30,223 $ $30,223 $43,653 $ $43,653 
Commercial paper18,943  18,943    
Total cash equivalents:49,166  49,166 43,653  43,653 
Available-for-sale marketable securities:
Commercial paper 255,149 255,149  199,277 199,277 
Corporate Debt Securities 5,004 5,004  10,078 10,078 
US Government Agencies 18,919 18,919  20,033 20,033 
US Treasury securities121,006  121,006 50,785  50,785 
Total available-for-sale marketable securities:121,006 279,072 400,078 50,785 229,388 280,173 
Total assets measured at fair value
$170,172 $279,072 $449,244 $94,438 $229,388 $323,826 

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2022. We had no instruments that were classified within Level 3 as of June 30, 2022 or December 31, 2021.
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6. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consisted of the following (in thousands):
June 30,December 31,
 20222021
Prepaid insurance$2,324 $990 
Prepaid software licenses and maintenance483 403 
Foreign R&D credit refund1,719 1,808 
Prepaid research and development expenses15,909 11,204 
Interest receivable 465 258 
Zentera receivable2,981 2,373 
Other prepaid expenses462 644 
Total prepaid expenses and other assets24,343 17,680 
Less long-term portion11,938 7,040 
Total prepaid expenses and other assets, current$12,405 $10,640 
7. Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
June 30,December 31,
 20222021
Lab equipment$2,585 $2,057 
Leasehold improvements4,649 4,515 
Office equipment and furniture2,065 2,123 
Computer equipment150 211 
Construction in progress97 34 
Subtotal9,546 8,940 
Accumulated depreciation and amortization(1,328)(792)
Property and equipment, net$8,218 $8,148 
Depreciation and amortization expense for the three months ended June 30, 2022 and 2021 was approximately $348 thousand and $119 thousand, respectively. Depreciation and amortization expense for the six months ended June 30, 2022 and 2021 was approximately $692 and $198 thousand, respectively.
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8. Accrued Expenses
Accrued expenses consist of the following (in thousands):
June 30,December 31,
20222021
Accrued research and development expenses$23,745 $18,531 
Accrued employee expenses8,195 9,250 
Accrued legal expenses1,372 669 
Accrued general and administrative expenses856 1,480 
Lease liability1,733 1,453 
Taxes payable694 971 
Total accrued expenses$36,595 $32,354 
9. Stockholders’ Equity
Direct Offering of Common Stock
On April 29, 2022, pursuant to our Registration Statement on Form S-3 (Registration No. 333-255769), filed with the SEC on May 4, 2021, we completed a direct offering of common stock to Pfizer Inc. (“Pfizer”). We issued and sold 953,834 shares of our common stock at an offering price of $26.21 per share. The total gross proceeds for the offering were approximately $25.0 million, before deducting offering expenses of $0.3 million payable by us. The parties have entered into an agreement to collaborate to advance the clinical development of ZN-c3, a selective Wee1 inhibitor designed to induce synthetic lethality in cancer cells. We did not grant Pfizer any economic ownership or control of ZN-c3 or the rest of our pipeline. $4.2 million of the gross offering proceeds received from Pfizer represented a premium in excess of the fair value of our common stock on the date of the investment. This amount has been recorded as accrued research and development expense on the unaudited condensed consolidated balance sheet and will be recognized as a reduction of research and development expense over the term of the collaboration agreement.
Follow-on Offering of Common Stock
On May 18, 2022, we completed a follow-on offering in which we issued and sold 10,330,000 shares of common stock at a public offering price of $19.38 per share. The total gross proceeds for the offering were approximately $200.2 million, before deducting offering expenses of $11.4 million payable by us.
Share-based Compensation

In April 2020, the Company’s Board of Directors adopted, and the Company’s stockholders approved the 2020 Incentive Award Plan (the “2020 Plan”), which allows for grants to selected employees, consultants and non-employee members of the Board of Directors. We currently grant stock options and restricted stock units (“RSUs”), under the 2020 Plan. 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
17


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, 2022, 8,300,142 shares were subject to outstanding awards under the 2020 Plan and 284,429 shares were available for future grants of share-based awards under the 2020 Plan.
In July 2022, the Company’s Board of Directors approved the Zentalis Pharmaceuticals, Inc. 2022 Employment Inducement Incentive Award Plan (the “2022 Inducement Plan”), which is used exclusively for the grant of equity awards to new employees as an inducement material to the employees’ entering into employment with the Company. The Board of Directors has initially reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to awards granted under the 2022 Inducement Plan.
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,
2022202120222021
Research and development expense$5,155 $3,923 $10,197 $7,049 
General and administrative expense11,609 5,996 16,714 12,561 
Total share-based compensation expense$16,764 $9,919 $26,911 $19,610 
Total share-based compensation expense for the six months ended June 30, 2022 and 2021 includes $0 and $138 thousand, respectively, of share-based compensation expense for employees, consultants and directors of Zentera.

Share-based compensation expense by type of share-based award (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Stock Options$12,524 $4,820 20,302 8,671 
Employee Stock Purchase Plan110 110 212 110 
RSAs and RSUs4,130 4,989 6,397 10,829 
$16,764 $9,919 $26,911 $19,610 
Stock Options and Restricted Stock Units
The exercise price of stock options granted is equal to the closing price of the Company’s common stock on the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes model. Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company estimates expected volatility based on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. The Company uses the “simplified method” for estimating the expected term of employee options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years). The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has not issued any dividends and does not expect to issue dividends over the life of the options. As a result, the Company has estimated the dividend yield to be zero. The fair value of the stock options granted during the six months ended June 30, 2022 and June 30, 2021 was determined with the following assumptions:
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June 30, 2022June 30, 2021
Expected volatility
73.6% - 80.5%%
75.1% - 76.6%
Average expected term (in years)
6.0 - 6.5
5.3 - 6.2
Risk-free interest rate
1.5% - 3.2%
0.5% - 1.1%
Expected dividend yield % %
Employee Stock Purchase Plan
In April 2020, the Company’s Board of Directors adopted, and the Company’s stockholders approved the Zentalis Pharmaceuticals, Inc. 2020 Employee Stock Purchase Plan (the “ESPP”), which was subsequently amended and restated effective March 15, 2021. The maximum aggregate number of shares of the Company’s common stock available for issuance under the ESPP at June 30, 2022 was 1,969,608. 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. The weighted average assumptions used to estimate the fair value of stock purchase rights under the ESPP are as follows:
Ended June 30, 2022
ESPP
Volatility73.3 %
Expected term (years)0.5
Risk free rate1.1 %
Expected dividend yield 
Compensation Expense Summary
Total unrecognized estimated compensation cost by type of award and the weighted average requisite service period over which such expense is expected to be recognized (in thousands, unless otherwise noted):

June 30, 2022
Unrecognized
Expense
Remaining
Weighted-Average Recognition Period
(years)
Stock options$117,461 3.26
RSAs569 1.20
RSUs13,278 3.13
ESPP$110 0.25

During the six months ended June 30, 2022, we issued 42.0 thousand shares of common stock in connection with the exercises of stock options. For the six months ended June 30, 2022, 0.1 million shares of common stock
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issued in conjunction with certain restricted stock awards (“RSAs”), vested. Outstanding stock options, unvested RSAs, and unvested RSUs totaling approximately 7.8 million shares, 0.2 million shares and 0.5 million shares of our common stock, respectively, were outstanding as of June 30, 2022.
10. Commitments and Contingencies
Legal Contingencies
From time to time, we may be involved in various disputes, including lawsuits and claims arising in the ordinary course of business, including actions with respect to intellectual property, employment, and contractual matters. Any of these claims could subject us to costly legal expenses. The Company records a liability in its consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements. While we do generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage, or our policy limits may be inadequate to fully satisfy any damage awards or settlement. If this were to happen, the payment of any such awards could have a material adverse effect on our consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. We are currently not a party to any legal proceedings that require a loss liability to be recorded.

Leases
Our commitments include payments related to operating leases. Approximate annual future minimum operating lease payments as of June 30, 2022 are as follows (in thousands):
YearOperating Leases
2022 (remaining)$1,602 
20236,340 
2024
6,486 
2025
6,799 
2026
7,278 
Thereafter
46,229 
Total minimum lease payments:74,734 
       Less: imputed interest
(27,929)
Total operating lease liabilities
46,805 
       Less: current portion
(1,733)
Lease liability, net of current portion
$45,072 
The weighted-average remaining lease term of our operating leases is approximately 10.3 years.
20


11. Net Loss Per Common Share
Basic and diluted net loss per common share were calculated as follows (in thousands except per share amounts):
Three Months Ended
June 30,
20222021
Numerator:
Net loss attributable to Zentalis$(68,357)$(54,574)
Denominator:
Weighted average number of common shares outstanding, basic and diluted51,117 40,738 
Net loss per common share$(1.34)$(