Zentalis Pharmaceuticals, Inc.

1. Organization and Business

Organization

Zentalis Pharmaceuticals, Inc. (“Zentalis,” “We” or the “Company”) is a clinical-stage biopharmaceutical company developing azenosertib (ZN-c3), an investigational potentially first-in-class and best-in-class WEE1 inhibitor for patients with Cyclin E1-positive platinum-resistant ovarian cancer ("Cyclin E1-positive PROC"). 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 statements 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 September 30, 2025 are issued.

2. Interim Unaudited Financial Statements

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. 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 were derived from the Company’s audited financial statements but do not include all disclosures required by U.S. GAAP. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 26, 2025. 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 accompanying interim unaudited condensed consolidated financial statements include our wholly-owned subsidiaries. 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.

Significant Accounting Policies

During thenine months ended September 30, 2025 we adopted the following significant accounting policies not previously reported in the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Restructuring Expense

The Company recognizes and measures a liability for one-time employee termination benefits for which no future service is required once the plan of termination meets all of the following criteria and has been communicated to employees: (i) management commits to a plan of termination; (ii) the plan identifies the number of employees to be terminated and their job classifications or functions, locations and the expected completion date; (iii) the plan establishes the terms of the benefit arrangement; and (iv) it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. For one-time termination benefits for which future service is required, a liability is measured at the communication date based on its fair value as of the termination date and recognized ratably over the future service period. The Company recognizes and measures a liability for other related costs in the period in which the liability is incurred.

3. Significant Transactions

Immunome License Agreement

In January 2024, the Company and Immunome, Inc. (“Immunome”) entered into an exclusive, worldwide license agreement under which Immunome licensed from Zentalis ZPC-21 (now known as IM-1021), a preclinical ROR1 antibody-drug conjugate (“ADC”) and proprietary ADC technology platform (the “Immunome License Agreement”). Simultaneously, the Company and Immunome entered into a stock issuance agreement (together with the Immunome License Agreement, the “Immunome License Agreements”). The upfront consideration from Immunome amounted to $40.6 million, which consisted of $15.0 million in cash and approximately 2.3 million shares (quantified using a 30-day volume average price) of Immunome common stock valued at approximately $25.6 million on the date of acquisition and accounted for as marketable equity securities on the condensed consolidated balance sheet. Changes to the fair value of the Immunome common stock were recorded as a component of investment and other income, net within the condensed consolidated statement of operations. The Company was eligible to receive up to $275.0 million in development, regulatory and sales milestones as well as tiered royalties on net sales of licensed products. The Immunome License Agreement terminated upon the parties’ entry into the Immunome Purchase Agreement in October 2024, as described below under “Immunome Asset Sale”, and the Company was no longer eligible to receive development, regulatory and sales milestones or royalties under this Immunome License Agreement. The Company divested the 2.3 million shares of Immunome common stock acquired through the Immunome License Agreement during the three months ended September 30, 2024, resulting in net proceeds of $33.5 million.

The Company determined that the Immunome License Agreements fell within the scope of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”) as Immunome has contracted to obtain goods and services that are an output of ordinary activities and is a customer. Furthermore, subsequent to the execution of the Immunome License Agreements, the Company was no longer an active participant in the research and was no longer exposed to the significant risks and rewards of the research. Management of the Company determined there was one combined performance obligation for the Immunome License Agreements and know-how given the deliverables are not distinct. The Company evaluated the performance obligation within the Immunome License Agreements and determined the combined performance obligation was satisfied at a point in time with Immunome as the Immunome License Agreements represented a right to use the functional intellectual property as it existed at the time of the Immunome License Agreements, the customer had significant risk and rewards of ownership of the asset and the customer had accepted the asset with the transfer of know-how within the quarter ended March 31, 2024. In addition, variable consideration consisting of milestone payments was evaluated based on the Company’s analysis that the possibility of achieving any of the milestone payments was remote, and therefore determined to be constrained and excluded from the transaction price.

Immunome Asset Sale

In October 2024, the Company and Immunome entered into an asset purchase agreement, pursuant to which Immunome purchased from the Company ZPC-21 (now known as IM-1021), a preclinical ROR1 ADC, and the Company’s proprietary ADC platform technology (the “Immunome Purchase Agreement”). The assets subject to the Immunome Asset Sale Agreement were previously licensed to Immunome under the Immunome License Agreement. Simultaneously, the Company and Immunome entered into a stock issuance agreement (together with the Immunome Purchase Agreement, the "Immunome Asset Purchase Agreements"). The upfront consideration from Immunome amounted to $30 million, which consisted of 1.8 million shares of Immunome common stock based on the trailing 30-day volume weighted average price of Immunome common stock (valued at approximately $21.9 million based on the closing price of Immunome's common stock on the date of acquisition), and $5.0 million of contingent consideration due upon the achievement of a developmental milestone. The developmental milestone was achieved in December 2024. Pursuant to the terms of the Immunome Stock Agreement, Zentalis was obligated to hold and not sell greater than 50% of the shares until the six-month anniversary in April 2025 of the closing date, subject to certain exceptions. The Immunome License Agreement terminated upon the parties’ entry into the Immunome Purchase Agreement. The Company divested 1.6 million shares of Immunome common stock acquired through the Immunome Purchase Agreement during the three months ended September 30, 2025, resulting in net proceeds of $17.9 million. As of September 30, 2025, the Company held 0.2 million shares of Immunome common stock. In October 2025, the Company divested all of these remaining shares, resulting in net proceeds of $2.6 million.

The Company determined that the Immunome Asset Purchase Agreements fall within the scope of ASC 606, Revenue from Contracts with Customers, as Immunome has contracted to obtain goods and services that are an output of ordinary activities and is a customer. Furthermore, the Immunome Asset Purchase Agreements change existing enforceable rights and obligations of the Immunome License Agreements and is accounted for as a contract modification. Management of the Company determined there was one combined performance obligation for the Immunome Asset Purchase Agreements. The Company evaluated the performance obligation within the Immunome Asset Purchase Agreements and determined the performance obligation was satisfied at a point in time with Immunome as the Immunome Asset Purchase Agreements represented the transfer of ownership of functional intellectual property as it existed at the time of the Immunome Asset Purchase Agreements within the quarter ended December 31, 2024. In addition, variable consideration consisting of milestone payments was evaluated based on the Company’s analysis that the possibility of achieving the milestone payment was probable. During the twelve months ended December 31, 2024, the Company recognized revenue from milestone payments of $5.0 million and received payment during the three months ended March 31, 2025.

4. Segment Reporting and Disaggregation of Relevant Expense Captions

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The determination of a single business segment is consistent with the consolidated financial information periodically reviewed by the Chief Executive Officer as chief operating decision maker ("CODM") in assessing segment performance and deciding how to allocate resources.

The CODM uses net income or loss to monitor budgets, forecasts and expected and actual cash flow from operations in assessing segment performance and in deciding how to allocate resources. The measure of segment assets is reported on the consolidated balance sheets as total assets.

The following table presents information about reported significant segment expenses and net loss (in thousands):

(1) The Company tracks external development costs by product candidate or development program, but does not allocate personnel costs, general license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates. These costs are included in unallocated research and development expenses and discontinued programs.

(2)Other consists of investment and other income, net, restructuring charges and income tax expense (benefit).

5. Fair Value Measurement

Available-for-sale marketable debt securities consisted of the following (in thousands):

As of September 30, 2025, seven of the Company’s available-for-sale debt securities with a fair market value of $59.6 million were in a gross unrealized loss position of $44 thousand. Three have been in a gross unrealized loss position of $14 thousand for less than one year andfour have been in a gross unrealized loss position of $30 thousand for more than one year. When evaluating an investment for impairment, the Company reviews factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that the Company 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 the Company’s review of these marketable securities, the Company believes none of the unrealized loss is as a result of a credit loss as of September 30, 2025, because the Company does not intend to sell these securities, and it is not more-likely-than-not that the Company 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):

Equity investment gains comprised the following (in thousands):

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. The Company determines the fair value of financial assets and liabilities using three levels of inputs as follows:

Level 1—Inputs which include quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted market prices included in Level 1) that are either directly or indirectly observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument’s anticipated life.

Level 3—Unobservable inputs for assets or liabilities and include little or no market activity.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company had $0.5 million in contingent consideration liabilities as of September 30, 2025 related to the agreement to terminate its Collaboration and License Agreements with Zentera. The contingent consideration balance is limited toone potential milestone payment measured at fair value. The fair value of the contingent consideration is estimated based on the monetary value of the milestone discounted for the probability of achieving the milestone and a present value factor based on the timing of when the milestone is expected to be achieved. The value for the contingent consideration balance is based on significant inputs not observable in the market which represents Level 3 measurement within the fair value hierarchy.

The following table summarizes the financial assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):

The following significant unobservable inputs were used in the valuation of the contingent consideration payable to Zentera pursuant to the Termination Agreement at September 30, 2025:

The following table reflects the activity for the Company’s contingent consideration, measured at fair value using Level 3 inputs (in thousands):

There were no transfers between levels of the fair value hierarchy during the nine months ended September 30, 2025. The Company had one instrument that was classified within Level 3 as of September 30, 2025. As of September 30, 2025 and December 31, 2024, no material fair value adjustments were required for non-financial assets and liabilities.

6. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consisted of the following (in thousands):

7. Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

Depreciation and amortization expense for the three months ended September 30, 2025 and 2024 was approximately $160 thousand and $321 thousand, respectively. Depreciation and amortization expense for thenine months ended September 30, 2025 and 2024 was$582 thousand and$972 thousand, respectively.

During thenine months ended September 30, 2025, management determined that changes in circumstances indicated the carrying value of certain research and development equipment may not be recoverable and recorded an impairment charge of $1.2 million, which is reported in the Research and development expense line item of the condensed consolidated statement of operations.

8. Accrued Expenses

Accrued expenses consist of the following (in thousands):

9. Stockholders’ Equity

Share-based Compensation

Effective April 2020, the Company’s Board of Directors adopted, and the Company’s stockholders approved, the 2020 Incentive Award Plan (the “2020 Plan”), which allows for grants to selected employees, consultants and non-employee members of the Board of Directors. The Company currently grants stock options and restricted stock units (“RSUs”) under the 2020 Plan. Awards may be made under the 2020 Plan covering up to the sum of (1)5,600,000 shares of common stock; plus (2) any shares forfeited from the unvested restricted shares of our common stock issued upon conversion of unvested Class B common units (up to 1,250,000 shares); plus (3) an annual increase on the first day of each fiscal year beginning with the fiscal year ending December 31, 2021 and continuing to, and including, the fiscal year ending December 31, 2030, equal to the lesser of (a)5% of the shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by our Board of Directors.

As of September 30, 2025,11,460,519 shares were subject to outstanding awards under the 2020 Plan and 5,695,684 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. As of September 30, 2025, the Board of Directors has reserved 8,775,000 shares of the Company’s common stock for issuance pursuant to awards granted under the 2022 Inducement Plan.

As of September 30, 2025,6,665,630 shares were subject to outstanding awards under the 2022 Inducement Plan and 1,912,370 shares were available for future grants of share-based awards under the 2022 Inducement Plan.

Total share-based compensation expense related to share-based awards was comprised of the following (in thousands):

Share-based compensation expense by type of share-based award (in thousands):

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 bezero. The fair value of the stock options granted during the nine months ended September 30, 2025 and September 30, 2024 was determined with the following assumptions:

Employee Stock Purchase Plan

Effective April 2020, the Company’s Board of Directors adopted, and the Company’s stockholders approved the Zentalis Pharmaceuticals, Inc. 2020 Employee Stock Purchase Plan (the “ESPP”), which was subsequently amended and restated effective March 15, 2021. The maximum aggregate number of shares of the Company’s common stock available for issuance under the ESPP at September 30, 2025 was 1,628,130. 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 asix-month offering period, or (ii) the applicable purchase date, defined as the last trading day of thesix-month offering period. The weighted average assumptions used to estimate the fair value of stock purchase rights under the ESPP during the period ended are as follows:

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):

During the nine months ended September 30, 2025, we issued zero shares of common stock in connection with the exercises of stock options. Outstanding stock options and unvested RSUs totaling approximately 12.4 million shares and 5.8 million shares of our common stock, respectively, were outstanding as of September 30, 2025.

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 September 30, 2025 are as follows (in thousands):

The weighted-average remaining lease term of our operating leases is approximately 7.0 years.

On March 6, 2023, we entered into a sublease agreement pursuant to which we sublet the office space located at 1359 Broadway, Suites 1710 and 1800 in New York, New York to a subtenant. For the nine months ended September 30, 2025, we recorded lease income of $1.1 million relating to our New York sublease.

11. Net Loss Per Common Share

Basic and diluted net (loss) income per common share were calculated as follows (in thousands except per share amounts):

Our potential and dilutive securities, which include outstanding stock options 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 income (loss) per common share because their inclusion would be antidilutive (in thousands).

12. Restructuring

On January 28, 2025, the Company announced a corporate restructuring, (the “Restructuring”) that reduced its work force by approximately 40%. The Company has substantially completed all of the activities included in the restructuring plan and all of the costs associated with the restructuring were incurred during the quarter ended March 31, 2025.

In connection with the Restructuring, the Company recorded restructuring charges of $7.8 million which are reported as a separate line item in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2025. The following table summarizes the components of the restructuring charges (in thousands):

Employee separation costs consist primarily of salaries and benefits earned during the minimum notification period proscribed by law and severance costs associated with the reduction in the Company’s workforce. Other restructuring charges consist of incremental direct costs associated with the Restructuring.

The following table sets forth activity in the restructuring liability (in thousands):

The Company records restructuring activities in accordance with ASC 420, Exit or Disposal Cost Obligations.