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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
______________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
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: 001-41535
______________________________________
ZYMEWORKS INC.
(Exact name of registrant as specified in its charter)
______________________________________
Delaware
88-3099146
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
108 Patriot Drive, Suite A
Middletown, Delaware 19709
(Address of principal executive offices, including zip code)
(302) 274-8744
(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, $0.00001 par value per share
ZYME
The Nasdaq Stock Market LLC
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 Securities Exchange Act of 1934).    Yes      No  
The number of outstanding shares of common stock of the registrant, $0.00001 par value per share, as of April 30, 2024 was 70,704,890.



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ZYMEWORKS INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2024
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Page



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” or information within the meaning of applicable securities legislation, including Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements can often be identified by the use of terminology such as “subject to,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “estimate,” “project,” “may,” “will,” “should,” “would,” “could,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. In particular, these forward-looking statements include, but are not limited to, statements about:
the size of our addressable markets and our ability to commercialize product candidates;
the achievement of advances in and expansion of our therapeutic platforms and antibody engineering expertise;
the likelihood of product candidate development and clinical trial progression, initiation or success; and
our ability to predict and manage government regulation.
All forward-looking statements, including, without limitation, those related to our examination of historical operating trends, are based upon our current expectations and various assumptions. Certain assumptions made in preparing the forward-looking statements include:
our ability to manage our growth effectively;
the absence of material adverse changes in our industry or the global economy;
our ability to understand and predict trends in our industry and markets;
our ability to enter into and maintain good business relationships with our strategic partners;
our ability to comply with current and future regulatory standards;
our ability to protect our intellectual property rights;
our continued compliance with third-party license terms and the non-infringement of third-party intellectual property rights;
our ability to manage and integrate any acquisitions we may pursue;
our ability to retain key personnel; and
our ability to raise sufficient debt or equity financing to support our continued growth.
We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. The following uncertainties and factors, among others (including those referred to in the section titled “Risk Factors”), could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements:
our or our partners’ ability to obtain regulatory approval for product candidates without significant delays;
the predictive value of our current or planned clinical trials;
delays with respect to the development and commercialization of our product candidates, which may cause increased costs or delay receipt of product revenue;
our or any of our partners’ ability to enroll subjects in clinical trials and thereby complete trials on a timely basis;
the design or our execution of clinical trials may not support regulatory approval, including where clinical trials are conducted outside the United States;
our ability to achieve milestones and receive associated milestone payments pursuant to the terms of our collaboration agreements, including the Amended Jazz Collaboration Agreement (as defined below);
i

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the extent to which our business may be adversely affected by pandemics or other health crises;
global economic and political conditions, including as a result of the Russian invasion of Ukraine and the conflicts in Israel and the Gaza Strip and the broader Middle East, as well as social and political unrest in the locations where our clinical trials are held, and the related impact on our business and the markets generally;
unanticipated tax consequences in connection with the Redomicile Transactions (as defined below);
the Fast Track and Breakthrough Therapy designations for any of our product candidates may not expedite regulatory review or approval;
the U.S. Food and Drug Administration (the “FDA”) may not accept data from trials we conduct outside the United States;
disruptions at the FDA and other government agencies caused by funding shortages or global health concerns;
our discretion to discontinue or reprioritize the development of any of our product candidates;
the potential for our product candidates to have undesirable side effects;
no regulatory agency has made a determination that any of our product candidates are safe or effective for use by the general public or for any indication;
our ability to face significant competition, including biosimilar products;
the likelihood of broad market acceptance of our product candidates;
our ability to obtain Orphan Drug Designation or exclusivity for some or all of our product candidates;
our ability to commercialize products outside of the United States;
the outcome of reimbursement decisions by third-party payors relating to our products;
our expectations with respect to the market opportunities for any product that we or our strategic partners develop;
our ability to pursue product candidates that may be profitable or have a high likelihood of success;
our ability to use and expand our therapeutic platforms to build a pipeline of product candidates;
our ability to meet the requirements of ongoing regulatory review;
the threat of product liability lawsuits against us or any of our strategic partners;
changes in product candidate manufacturing or formulation that may result in additional costs or delay;
the potential disruption of our business and dilution of our shareholdings associated with acquisitions and joint ventures;
the potential for foreign governments to impose strict price controls;
the risk of security breaches and incidents or data loss, which could compromise sensitive business or health information;
current and future legislation that may increase the difficulty and cost of commercializing our product candidates;
economic, political, regulatory and other risks associated with international operations;
our exposure to legal and reputational penalties as a result of any of our current and future relationships with various third parties;
our ability to comply with export control and import laws and regulations;
our history of significant losses since inception;
our ability to generate revenue from product sales and achieve profitability;
our requirement for substantial additional funding;
the potential dilution to our stockholders associated with future financings;
restrictions on our ability to seek financing, which may be imposed by future debt;
unstable market and economic conditions;
currency fluctuations and changes in foreign currency exchange rates;
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our ability to maintain existing and future strategic partnerships;
our ability to realize the anticipated benefits of our strategic partnerships;
our ability to secure future strategic partners;
our reliance on third-party manufacturers to produce our product candidate supplies and on other third parties to monitor and transport bulk drug substance and drug product;
our reliance on third parties to oversee clinical trials of our product candidates and, in some cases, maintain regulatory files for those product candidates;
risks related to the manufacture of product candidates and difficulties in production;
our reliance on third parties for various operational and administrative aspects of our business including our reliance on third parties’ cloud-based software platforms;
our reliance on the performance of independent clinical investigators and contract research organizations (“CROs”);
our ability to operate without infringing the patents and other proprietary rights of third parties;
our ability to obtain and enforce patent protection for our product candidates and related technology;
our patents could be found invalid or unenforceable if challenged;
our intellectual property rights may not necessarily provide us with competitive advantages;
we may become involved in expensive and time-consuming patent lawsuits;
the risk that the duration of our patents will not adequately protect our competitive position;
our ability to obtain protection under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Amendments”) and similar foreign legislation;
we may be unable to protect the confidentiality of our proprietary information;
our ability to comply with procedural and administrative requirements relating to our patents;
the risk of claims challenging the inventorship of our patents and other intellectual property;
our intellectual property rights for some of our product candidates are dependent on the abilities of third parties to assert and defend such rights;
patent reform legislation and court decisions can diminish the value of patents in general, thereby impairing our ability to protect our products;
we may not be able to protect our intellectual property rights throughout the world;
we will require FDA approval for any proposed product candidate names and any failure or delay associated with such approval may adversely affect our business;
the risk of employee misconduct including noncompliance with regulatory standards and insider trading;
our ability to market our products in a manner that does not violate the law and subject us to civil or criminal penalties;
if we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected;
our ability to retain key executives and attract and retain qualified personnel;
our ability to manage any organizational growth;
our exposure to potential securities class action litigation; and
if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
Consequently, forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events, except as required by
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law. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are our service marks or trademarks. Our registered trademarks include Azymetric, Zymeworks, ZymeCAD, EFECT, ZymeLink and the phrase “Building Better Biologics”. The other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks, service marks, tradenames and copyrights referred to in this Quarterly Report on Form 10-Q are listed without the ©, ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames.
We express all amounts in this Quarterly Report on Form 10-Q in U.S. dollars, except where otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” are to Canadian dollars.
Unless the context otherwise requires or otherwise expressly states, all references in this Quarterly Report on Form 10-Q to “Zymeworks,” the “Company,” “we,” “us” and “our” (i) for periods until the Redomicile Transactions, refer to Zymeworks BC Inc. (“Zymeworks BC”) and its subsidiaries and (ii) for periods after the Redomicile Transactions, refer to Zymeworks Inc. and its subsidiaries. Effective October 13, 2022, we became a Delaware corporation, following receipt of necessary shareholder, stock exchange, and court approvals (the “Redomicile Transactions”).
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PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements.
Zymeworks Inc.
Index to Interim Condensed Consolidated Financial Statements (unaudited)
As of and for the three months ended March 31, 2024
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ZYMEWORKS INC.
Condensed Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars except share data)
March 31,
2024
December 31,
2023
Assets
(unaudited)
Current assets:
Cash and cash equivalents$114,814 $157,557 
Short-term marketable securities (note 5)
230,233 216,770 
Accounts receivable30,949 19,477 
Prepaid expenses and other current assets17,824 19,122 
Total current assets393,820 412,926 
Long-term marketable securities (note 5)
75,446 81,930 
Long-term prepaids and other assets
7,676 7,566 
Deferred tax asset 3,704 3,615 
Property and equipment, net 18,972 19,847 
Operating lease right-of-use assets17,067 17,696 
Intangible assets, net 7,423 7,656 
Acquired in-process research and development (note 6)17,628 17,628 
Goodwill (note 6) 12,016 12,016 
Total assets$553,752 $580,880 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (note 7)$47,434 $45,992 
Income tax payable1,861 1,811 
Current portion of operating lease liability (note 11)4,155 4,261 
Deferred revenue (note 9)
3,440 3,699 
Total current liabilities56,890 55,763 
Long-term portion of operating lease liability (note 11)20,977 22,369 
Deferred revenue (note 9)32,941 32,941 
Other long-term liabilities (note 7)1,594 1,701 
Deferred tax liability 3,351 3,300 
Total liabilities115,753 116,074 
Stockholders’ equity:
Common stock, $0.00001 par value; 900,000,000 authorized shares at March 31, 2024 and December 31, 2023, respectively; 70,677,106 and 70,115,997 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively (note 8b)
1,003,481 997,227 
Preferred shares, $0.00001 par value; 100,000,000 authorized shares of preferred stock, out of which, one share of preferred stock is a share of Special Voting Preferred Stock and outstanding as of March 31, 2024 and December 31, 2023 (note 8b).
  
Exchangeable shares, no par value, 570,637 and 651,219 issued and outstanding shares at March 31, 2024 and December 31, 2023, respectively (note 8b)
8,188 9,345 
Additional paid-in capital143,144 142,274 
Accumulated other comprehensive loss(7,724)(6,603)
Accumulated deficit(709,090)(677,437)
Total stockholders’ equity437,999 464,806 
Total liabilities and stockholders’ equity$553,752 $580,880 
Research collaboration and licensing agreements (note 9)
Commitments and contingencies (note 13)
The accompanying notes are an integral part of these financial statements.
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ZYMEWORKS INC.
Condensed Consolidated Statements of Loss and Comprehensive Loss
(Expressed in thousands of U.S. dollars except share and per share data)
(unaudited)

Three Months Ended March 31,
20242023
Revenue
Research and development collaborations (note 9)$10,030 $35,578 
Operating expenses:
Research and development32,042 45,912 
General and administrative15,790 16,947 
Total operating expenses47,832 62,859 
Loss from operations(37,802)(27,281)
Other income:
Interest income5,920 4,805 
Other income (expense), net (note 10)
304 (487)
Total other income, net6,224 4,318 
Loss before income taxes(31,578)(22,963)
Income tax expense(75)(1,390)
Net loss(31,653)(24,353)
Other comprehensive (loss) income:
Unrealized (loss) income on available for sale securities, net of tax of nil (note 5)
(1,121)720 
Total other comprehensive (loss) income(1,121)720 
Comprehensive loss$(32,774)$(23,633)
Net loss per common share (note 4):
Basic$(0.42)$(0.36)
Diluted$(0.42)$(0.37)
Weighted-average common stock outstanding (note 4):
Basic76,214,833 66,739,308 
Diluted76,248,158 66,742,030 

The accompanying notes are an integral part of these financial statements.
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ZYMEWORKS INC.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
(Expressed in thousands of U.S. dollars except share data)
(unaudited)
Preferred stockExchangeable sharesCommon stockAccumulated
deficit
Accumulated
other
comprehensive
 loss
Additional
paid-in
capital
Total
stockholders’
equity
SharesAmountSharesAmountSharesAmount
Balance at January 1, 20241 $ 651,219 $9,345 70,115,997 $997,227 $(677,437)$(6,603)$142,274 $464,806 
Issuance of common stock on exercise of options— — — — 203,518 2,581 — — (626)1,955 
Issuance of common stock through employee stock purchase plan— — — — 52,905 577 — — — 577 
Issuance of common stock upon vesting of restricted stock units (RSUs)
— — — — 224,104 1,939 — — (1,939) 
Issuance of common stock for retracted exchangeable shares (note 8b)
— — (80,582)(1,157)80,582 1,157 — — —  
Stock-based compensation— — — — — — — — 3,435 3,435 
Net loss— — — — — — (31,653)— — (31,653)
Other comprehensive loss— — — — — — — (1,121)— (1,121)
Balance at March 31, 20241 $ 570,637 $8,188 70,677,106 $1,003,481 $(709,090)$(7,724)$143,144 $437,999 


Preferred stockExchangeable sharesCommon stockAccumulated
deficit
Accumulated
other
comprehensive
loss
Additional
paid-in
capital
Total
stockholders’
equity
SharesAmountSharesAmountSharesAmount
Balance at January 1, 20231 $ 1,424,533 $20,442 63,059,501 $886,322 $(558,763)$(6,659)$151,614 $492,956 
Issuance of common stock on exercise of options— — — — 203,239 2,649 — — (1,001)1,648 
Issuance of common stock through employee stock purchase plan— — — — 50,420 371 — — — 371 
Issuance of common stock upon vesting of RSUs— — — — 2,965 132 — — (132) 
Issuance of common stock for retracted exchangeable shares (note 8b)
— — (767,645)(11,016)767,645 11,016 — — —  
Stock-based compensation— — — — — — — — 2,196 2,196 
Net loss— — — — — — (24,353)— — (24,353)
Other comprehensive income— — — — — — — 720 — 720 
Balance at March 31, 20231  656,888 9,426 64,083,770 900,490 (583,116)(5,939)152,677 473,538 
The accompanying notes are an integral part of these financial statements.
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ZYMEWORKS INC.
Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(unaudited)
Three Months Ended March 31,
20242023
Cash flows from operating activities:
Net loss$(31,653)$(24,353)
Items not involving cash:
Depreciation of property and equipment1,061 1,584 
Amortization of intangible assets702 679 
Stock-based compensation expense
3,552 2,325 
Amortization of operating lease right-of-use assets549 637 
Deferred income tax (recovery) expense
(38)9 
Change in fair value of contingent consideration liability(700)499 
Unrealized foreign exchange gain(487)(298)
Changes in non-cash operating working capital:
Accounts receivable(11,468)(33,516)
Prepaid expenses and other current assets(227)(1,671)
Accounts payable and accrued liabilities2,284 (28,266)
Operating lease liabilities(1,035)(820)
Deferred revenue and other consideration(259) 
Income taxes payable50  
Net cash used in operating activities(37,669)(83,191)
Cash flows from financing activities:
Issuance of common stock on exercise of stock options 1,743 1,516 
Issuance of common stock through employee stock purchase plan386 236 
Finance lease payments(6)(14)
Net cash provided by financing activities2,123 1,738 
Cash flows from investing activities:
Purchases of marketable securities(66,509)(182,055)
Proceeds from marketable securities59,847 44,219 
Acquisition of property and equipment(185)(386)
Acquisition of intangible assets(469) 
Net cash used in investing activities(7,316)(138,222)
Effect of exchange rate changes on cash and cash equivalents119 346 
Net change in cash and cash equivalents(42,743)(219,329)
Cash and cash equivalents, beginning of period157,557 400,912 
Cash and cash equivalents, end of period$114,814 $181,583 
The accompanying notes are an integral part of these financial statements.
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ZYMEWORKS INC.
Notes to the Interim Condensed Consolidated Financial Statements
(unaudited)
(Expressed in thousands of U.S. dollars except share and per share data)

1. Nature of Operations
Zymeworks Inc. together with its subsidiaries (collectively the “Company” or “Zymeworks”) is a clinical-stage biopharmaceutical company dedicated to the development of next-generation multifunctional biotherapeutics. Zymeworks BC Inc. (“Zymeworks BC”), (previously known as “Zymeworks Inc.”) was incorporated on September 8, 2003 under the laws of the Canada Business Corporations Act. On October 22, 2003, the Company was registered as an extra-provincial company under the Company Act (British Columbia). On May 2, 2017, the Company continued under the Business Corporations Act (British Columbia).
Since its inception, the Company has devoted substantially all of its resources to research and development activities, including developing its therapeutic platforms and identifying and developing potential product candidates by undertaking preclinical studies and clinical trials. The Company supports these activities through general and administrative support, as well as by raising capital, conducting business planning and protecting its intellectual property.
On October 13, 2022, the Company completed an internal reorganization transaction resulting in a Delaware incorporated entity becoming the listed company (the “Redomicile Transactions”). Prior to the Redomicile Transactions, the shares of Zymeworks BC Inc. (formerly known as Zymeworks Inc.) were publicly listed. Unless the context otherwise requires or otherwise expressly states, all references in the accompanying consolidated financial statements to “Zymeworks,” the “Company,” “we,” “us” and “our” (i) for periods until completion of the Redomicile Transactions, refer to Zymeworks BC Inc. and its subsidiaries and (ii) for periods after completion of the Redomicile Transactions, refer to Zymeworks Inc. (formerly known as Zymeworks Delaware Inc.) and its subsidiaries.
To effect the Redomicile Transactions, the Company conducted a share exchange, pursuant to which holders of the Company’s common shares exchanged their common shares in the Company for shares of common stock of Zymeworks Inc. (formerly known as Zymeworks Delaware Inc.) or, at their election with respect to all or a portion of their common shares in the Company and subject to applicable eligibility criteria and an overall cap, exchangeable shares (the “Exchangeable Shares”) in the capital of a newly formed indirect subsidiary of Zymeworks Inc. A special meeting of Company security holders was held on October 7, 2022 to approve the Redomicile Transactions. The Redomicile Transactions were governed by a transaction agreement dated July 14, 2022, as restated and amended on August 18, 2022 (the “Restated and Amended Transaction Agreement”), by and among the Company and its direct or indirect subsidiaries Zymeworks Inc., Zymeworks CallCo ULC (“CallCo”) and Zymeworks ExchangeCo Ltd., (“ExchangeCo”) including a plan of arrangement included as Exhibit A to the Restated and Amended Transaction Agreement (the “Plan of Arrangement”).
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these financial statements do not include all the information and footnotes required for complete financial statements and should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto for the year ended December 31, 2023.
These unaudited interim condensed consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three months ended March 31, 2024 and 2023 are not necessarily indicative of results that can be expected for a full year. These unaudited interim condensed consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2023.
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All amounts expressed in the interim condensed consolidated financial statements of the Company and the accompanying notes thereto are expressed in thousands of U.S. dollars, except for share and per share data and where otherwise indicated. References to “$” are to U.S. dollars and references to “C$” are to Canadian dollars.
Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of interim condensed consolidated financial statements in accordance with U.S. GAAP requires the Company to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, most notably those related to revenue recognition including estimated timing of completion of performance obligations required to meet revenue recognition criteria, accrual of expenses including clinical and preclinical study expense accruals, stock-based compensation, valuation allowance for deferred taxes, measurement of contingent consideration liabilities, and other contingencies. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from these estimates.
3. Recent Accounting Pronouncements
Recent accounting pronouncements not yet adopted
The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to the business, or that no material effect is expected on the consolidated financial statements as a result of future adoption.

4. Net loss per share
Net loss per share for the three months ended March 31, 2024 and 2023 was as follows:

Three Months Ended
March 31,
20242023
Numerator:
Net loss attributable to common stockholders:
Basic$(31,653)$(24,353)
Adjustment for change in fair value of liability classified stock options(209)(354)
Diluted$(31,862)$(24,707)
Denominator:
Weighted-average common stock outstanding:
Basic76,214,833 66,739,308 
Adjustment for dilutive effect of liability classified stock options33,325 2,722 
Diluted76,248,158 66,742,030 
Net loss per common share – basic$(0.42)$(0.36)
Net loss per common share – diluted$(0.42)$(0.37)
Weighted average number of shares of common stock used in the basic and diluted earnings per share calculations include Exchangeable Shares and the pre-funded warrants issued in connection with the Company’s June 2019 and January 2020 offerings and December 2023 private placement as the warrants were exercisable at any time for nominal cash consideration. The Company’s potentially dilutive securities, which include stock options and RSUs, have been excluded from the computation of diluted net loss per share for the three months ended March 31, 2024 as the effect would be to reduce the net loss per share.
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5. Cash, Cash Equivalents and Marketable Securities
The following table summarizes the Company’s marketable securities as of March 31, 2024:

March 31, 2024
Amortized Cost
Unrealized Loss
Fair Value
Short-term marketable securities:
Contractual maturity of one year or less:
Guaranteed investment certificates (“GICs”)
$76,053 $ $76,053 
U.S. Treasury notes38,993 (43)38,950 
Corporate debt securities115,412 (182)115,230 
230,458 (225)230,233 
Long-term marketable securities:
Contractual maturity of one to three years:
U.S. Treasury notes8,060 (5)8,055 
Corporate debt securities58,394 (687)57,707 
Contractual maturity of three to four years:
Corporate debt securities9,832 (148)9,684 
76,286 (840)75,446 
$306,744 $(1,065)$305,679 

The following table summarizes the Company’s marketable securities as of December 31, 2023:
December 31, 2023
Amortized Cost
Unrealized Gain (Loss)
Fair Value
Short-term marketable securities:
Contractual maturity of one year or less:
GICs
$75,066 $ $75,066 
U.S. Treasury notes46,416 136 46,552 
Corporate debt securities94,900 252 95,152 
216,382 388 216,770 
Long-term marketable securities:
Contractual maturity of one to three years:
Corporate debt securities70,181 (321)69,860 
Contractual maturity of three to four years:
Corporate debt securities12,081 (11)12,070 
82,262 (332)81,930 
$298,644 $56 $298,700 
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The following tables present information about the Company’s assets that are measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques used to determine such fair value:
March 31,
2024
December 31,
2023
Level 1Level 2Level 3
Total
Level 1Level 2Level 3
Total
Cash and cash equivalents:
Cash$17,830 $23,126 
Cash equivalents:
Money market funds$36,551 $ $ $36,551 $64,247 $ $ $64,247 
GICs60,433   60,433 70,184   70,184 
96,984   114,814 134,431   157,557 
Marketable securities:
GICs
76,053   76,053 75,066   75,066 
U.S. Treasury notes
47,005   47,005 46,552   46,552 
Corporate debt securities 182,621  182,621  177,082  177,082 
123,058 182,621  305,679 121,618 177,082  298,700 
Total
$220,042 $182,621 $ $420,493 $256,049 $177,082 $ $456,257 

6. IPR&D and Goodwill
Acquired IPR&D
In-process research and development assets (“IPR&D”) acquired in the 2016 Kairos Therapeutics Inc. (“Kairos”) business combination are classified as indefinite-lived intangible assets and are not currently being amortized. The carrying value of IPR&D, net of impairment, was $17,628 at both March 31, 2024 and December 31, 2023. The Company concluded that there were no impairment indicators related to IPR&D as of March 31, 2024.
Goodwill
The Company performed its most recent annual impairment test of goodwill as of December 31, 2023. As part of the evaluation of the recoverability of goodwill, the Company identified only one reporting unit to which the total carrying amount of goodwill has been assigned. As at December 31, 2023, the Company performed a qualitative assessment for its annual impairment test of goodwill after concluding that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. Consequently, a quantitative impairment test was not required. The Company concluded that there were no impairment indicators related to goodwill as of March 31, 2024.
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7. Liabilities
Accounts payable and accrued liabilities consisted of the following:
March 31,
2024
December 31,
2023
Trade payables$2,520 $6,212 
Accrued research and development expenses38,354 26,661 
Employee compensation and vacation accruals2,536 6,153 
Fair value of liability classified stock options
742 960 
Accrued legal and professional fees1,978 3,707 
Liability for contingent consideration (note 13)
870 1,570 
Other434 729 
Total$47,434 $45,992 
Other long-term liabilities consisted of the following:
March 31,
2024
December 31,
2023
Liability for contingent consideration (note 13)$308 $308 
Liability from in-licensing agreements747 747 
Finance lease liability (note 11)91 92 
Other448 554 
Total$1,594 $1,701 
8. Stockholders’ Equity
a.Equity Offerings
2023 Private Placement
On December 28, 2023, the Company completed a private placement pursuant to which the Company sold 5,086,521 pre-funded warrants to purchase 5,086,521 shares of common stock at $9.8299 per pre-funded warrant. The Company received gross proceeds of $50,000 and net proceeds were $49,862, after expenses.
2023 ATM financing
On June 16, 2023, the Company sold 3,350,000 shares of common stock pursuant to the Company’s at-the-market sale program, at $8.12 per common share. Net proceeds were $26,233 after underwriting commissions and offering expenses.
b.Authorized Share Capital and Preferred Stock
The Company’s authorized share capital consists of 1,000,000,000 shares of stock, consisting of (i) 900,000,000 shares of common stock, par value $0.00001 per share, and (ii) 100,000,000 shares of preferred stock, par value $0.00001 per share.
In connection with the Plan of Arrangement, the Company issued to Computershare Trust Company of Canada, a trust company existing under the laws of Canada (the “Share Trustee”), one share of the Company’s preferred stock, par value $0.00001 per share, which has certain variable voting rights in proportion to the number of Exchangeable Shares outstanding (the “Special Voting Preferred Stock”), enabling the Share Trustee to exercise voting rights for the benefit of the Exchangeable Shareholders.
Immediately prior to the completion of the Redomicile Transactions, there were 61,699,387 Zymeworks BC common shares issued and outstanding. In connection with the consummation of the Plan of Arrangement, 60,274,854 shares of Common Stock and 1,424,533 Exchangeable Shares were issued to former Zymeworks BC shareholders. As of March 31, 2024, there were 570,637 Exchangeable Shares held by former Zymeworks BC shareholders (December 31, 2023: 651,219). The Company will issue shares of its common stock as consideration when a holder of Exchangeable Shares calls for Exchangeable Shares to be retracted by ExchangeCo, when ExchangeCo redeems Exchangeable Shares from the holder, or when CallCo purchases
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Exchangeable Shares from the Exchangeable Shareholder under CallCo’s overriding call rights. These Exchangeable Shares and the Special Voting Preferred Stock, when taken together, are similar in substance to the Company’s common stock.
c.Pre-Funded Common Share Warrants
In connection with the public offerings completed on June 24, 2019, January 27, 2020, January 31, 2022 and private placement completed on December 28, 2023 (note 8a), the Company issued a total of 13,668,482 pre-funded warrants which granted holders of warrants the right to purchase up to 8,581,961 common shares of the Company, at an exercise price of $0.0001 per share.
The pre-funded warrants are exercisable by the holders at any time on or after the original issue date. The pre-funded warrants do not expire unless they are exercised or settled in accordance with the pre-funded warrant agreement. As the pre-funded warrants meet the condition for equity classification, proceeds from issuance of the pre-funded warrants, net of any transaction costs, are recorded in additional paid-in capital. Upon exercise of the pre-funded warrants, the historical costs recorded in additional paid-in capital along with exercise price collected from holders will be recorded in common shares.
On August 23, 2022, October 25, 2022, October 27, 2022 and October 19, 2023, a total of 8,581,961 pre-funded warrants were exercised in exchange for issuance of 8,581,868 common shares. As a result of the December 28, 2023 private placement, as of March 31, 2024, there were 5,086,521 pre-funded warrants outstanding (December 31, 2023: 5,086,521).
d.Stock-Based Compensation
As of March 31, 2024, 5,035,012 shares of common stock were available for future award grants under the New Plan (December 31, 2023: 4,594,639 shares of common stock).
On January 5, 2022, the board of directors approved the Zymeworks Inc. Inducement Stock Option and Equity Compensation Plan (the “Inducement Plan”) and reserved 750,000 of the Company’s common shares for issuance pursuant to equity awards granted thereunder. As of March 31, 2024, 50,000 shares of common stock were available for future award grants under this plan (December 31, 2023: 50,000).
RSUs
The following table summarizes the Company’s RSU activity under the New Plan since December 31, 2023:
Number of RSUsWeighted-
average grant
date fair value
($)
Outstanding, December 31, 2023771,413 8.63 
Granted957,750 10.56 
Vested and settled(224,104)8.65 
Forfeited(104,102)11.53 
Outstanding, March 31, 20241,400,957 9.73 
As of March 31, 2024, there was $7,830 of unamortized RSU expense that will be recognized over a weighted average period of 1.66 years.
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Stock Options
The following table summarizes the Company’s stock options granted in Canadian dollars under the Original Plan and the New Plan:
Number
of Options
Weighted-
Average
Exercise Price
(C$)
Weighted-
Average
Exercise Price
($)
Weighted-
Average
Contractual
Term
(years)
Aggregate
intrinsic value
(C$)
Aggregate
intrinsic value
($)
Outstanding, December 31, 20231,489,478 19.59 14.39 5.502,987 2,255 
Granted   
Exercised(103,814)11.57 8.57 
Forfeited(20,758)19.54 14.50 
Outstanding, March 31, 20241,364,906 20.20 14.83 5.372,994 2,211 
The following table summarizes the Company’s stock options granted in U.S. dollars under the New Plan and the Inducement Plan:
Number
of Options
Weighted-
Average
Exercise Price
($)
Weighted-
Average
Contractual
Term
(years)
Aggregate
intrinsic value
($)
Outstanding, December 31, 20236,069,242 12.97 7.679,213 
Granted1,808,800 10.78 
Exercised(99,704)8.65 
Forfeited(277,406)9.54 
Outstanding, March 31, 20247,500,932 12.63 7.969,071 
During the three months ended March 31, 2024, the Company received cash proceeds of $1,743 from stock options exercised.
The stock options outstanding at March 31, 2024 expire at various dates from April 1, 2024 to March 10, 2034.
The estimated fair values of options granted to officers, directors, employees and consultants are amortized over the relevant vesting periods. Stock-based compensation expense for equity classified instruments, RSUs, as well as the financial statement impact of the amortization and periodic revaluation of liability classified instruments, are recorded in research and development expense, general and administration expense and finance expense as follows:
Three Months Ended March 31,
20242023
Research and development expense
$1,925 $445 
General and administrative expense
1,534 1,732 
The amounts above include stock-based compensation expense relating to RSUs of $1,022 for the three months ended March 31, 2024 (2023: $655).
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The estimated fair value of stock options granted under the New Plan was determined using the Black-Scholes option pricing model with the following weighted-average assumptions:
Three Months Ended March 31,
20242023
Dividend yield0 %0 %
Expected volatility65.0 %67.8 %
Risk-free interest rate4.01 %3.82 %
Expected average life of options6.04 years6.07 years
The weighted-average Black-Scholes option pricing assumptions for liability classified stock options outstanding at March 31, 2024 and 2023 are as follows:
March 31,
2024
March 31,
2023
Dividend yield
0 %0 %
Expected volatility
49.1 %80.6 %
Risk-free interest rate
4.10 %3.70 %
Expected average option term
0.77 years1.78 years
Number of liability classified stock options outstanding
369,096563,403
At March 31, 2024, the unamortized compensation expense related to unvested options was $14,644. The remaining unamortized compensation expense as of March 31, 2024 will be recognized over a weighted-average period of 1.78 years.
9. Research, Collaboration and Licensing Agreements
Revenue recognized from the Company’s strategic partnerships. which includes amounts from Jazz Pharmaceuticals Ireland Limited or Jazz Pharmaceuticals, Inc. (subsidiaries of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”) is summarized as follows:
Three Months Ended
March 31,
20242023
Jazz:
Development support payments$2,066 $26,142 
Drug supply for ongoing studies
6,218 4,753 
Other drug supply
1,578 3,528 
Research support and other payments from other partners168 1,155 
$10,030 $35,578 
Since December 31, 2023, there have not been any material changes to the key terms of our collaboration and license agreements.
Contract Assets and Liabilities
As at March 31, 2024, contract assets from research, collaboration and licensing agreements were nil, which is presented within accounts receivable (December 31, 2023: nil which is presented within accounts receivable) and contract liabilities were $36,381 (December 31, 2023: $36,640). As at March 31, 2024 and December 31, 2023, $3,440 and $3,699 respectively, of the contract liabilities is classified as short-term. Contract liabilities relate to deferred revenue from the BeiGene and Jazz agreements.
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10. Other income (expense), net
Other income (expense), net, consists of the following:
Three Months Ended
March 31,
20242023
Foreign exchange gain (loss), net
$285 $(456)
Other19 (31)
$304 $(487)

11. Leases
The lease for our Vancouver location, which we entered into in January 2019, has an initial term expiring in February 2032, with two five-year extension options. In addition, the Company leases office spaces in Bellevue and Seattle, Washington and in Redwood City, California with lease terms expiring between December 2024 and May 2027. None of the optional extension periods have been included in the determination of the right-of-use assets or the lease liabilities for operating leases as the Company did not consider it reasonably certain that the Company would exercise any such options. On April 4, 2024, the Company terminated a lease for office space in Seattle, pursuant to which the Company will pay $6.1 million as a termination fee. The operating lease liability for this office space lease was $4.4 million as of March 31, 2024, which excludes variable lease payments.
The Company also leases office equipment under capital lease agreements.
The balance sheet classification of the Company’s lease liabilities was as follows:
March 31,
2024
December 31,
2023
Operating lease liabilities:
Current portion
$4,155 $4,261 
Long-term portion
20,977 22,369 
Total operating lease liabilities
25,132 $26,630 
Finance lease liabilities:
Current portion included in other current liabilities24 30 
Long-term portion included in other long-term liabilities91 92 
Total finance lease liabilities
115 122 
Total lease liabilities
$25,247 $26,752 
Weighted average remaining lease term:
Operating leases
6.5 years6.7 years
Weighted average discount rate:
Operating leases in U.S. dollars
3.6 %3.6 %
Operating leases in Canadian dollars
4.8 %4.8 %
Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2024 was $1,341 and were included in net cash used in operating activities in the consolidated statement of cash flows.
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As of March 31, 2024, the maturities of the Company’s operating lease liabilities were as follows:
Operating
leases
Within 1 year$5,325 
1 to 2 years5,010 
2 to 3 years4,946 
3 to 4 years3,370 
4 to 5 years3,110 
Thereafter7,773 
Total operating lease payments29,534 
Less:
Imputed interest(4,402)
Operating lease liabilities$25,132 
The cost components of the operating leases were as follows for the three months ended March 31, 2024 and 2023:
Three Months Ended
March 31,
20242023
Lease expenses:
Operating lease expense$422 $657 
Variable lease expense
418 386 
$840 $1,043 
12. Financial Instruments
The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the fair value hierarchy.
Fair Value Measurements
The Company measures certain financial instruments and other items at fair value.
To determine fair value, the Company uses a fair value hierarchy that prioritizes the inputs, assumptions and valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
•    Level 1 inputs are unadjusted quoted market prices for identical instruments available in active markets.
•    Level 2 inputs are inputs other than Level 1 prices, such as prices for a similar asset or liability that are observable either directly or indirectly. If the asset or liability has a contractual term, the input must be observable for substantially the full term. An example includes quoted market prices for similar assets or liabilities in active markets.
•    Level 3 inputs are unobservable inputs for the asset or liability and will reflect management’s assessment about market assumptions that would be used to price the asset or liability.
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The Company’s financial instruments consist of cash and cash equivalents, short-term and long-term investments in marketable and other securities, accounts receivable, accounts payable and accrued liabilities, contingent consideration, finance and operating lease obligations, and other long-term liabilities.
The carrying values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the near-term maturities of these financial instruments. All marketable securities are classified as available-for-sale and are recorded at fair value. As at March 31, 2024, long-term investments in equity securities of private entities are accounted for as available for sale at their fair values. Other long-term liabilities for contingent consideration related to business
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acquisitions are recorded at fair value on the acquisition date and are adjusted quarterly for changes in fair value. Changes in the fair value of contingent consideration liabilities can result from changes in anticipated milestone payments and changes in assumed discount periods and rates. These inputs are unobservable in the market and therefore categorized as level 3 inputs as defined above.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, short-term and long-term marketable securities and accounts receivable. Cash and cash equivalents and investments in marketable securities are invested in accordance with the Company’s cash investment policy with the primary objective being the preservation of capital and maintenance of liquidity. The cash investment policy includes guidelines on the quality of financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk. The Company limits its exposure to credit loss by placing its cash and cash equivalents and investments with high credit quality financial institutions.
At March 31, 2024, the maximum exposure to credit risk for accounts receivable was $30,949, 90% which was from Jazz (December 31, 2023: $19,477) and all accounts receivable are due within the next 12 months. As at March 31, 2024 and December 31, 2023, the Company has recognized nominal amounts of provision for expected credit losses in relation to accounts receivable.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s short-term cash requirements are primarily to settle its financial liabilities, which consist primarily of accounts payable and accrued liabilities falling due within 45 days and current portion of lease obligations falling due within the next 12 months, with medium term requirements to invest in property and equipment and research and development. The Company’s principal sources of liquidity to settle its financial liabilities are cash, cash equivalents, short-term and long-term investments, collection of accounts receivable relating to research collaboration and license agreements and additional public equity offerings as required. The Company believes that these principal sources of liquidity are sufficient to fund its operations for at least the next 12 months.
Foreign Currency Risk
The Company incurs certain operating expenses in currencies other than the U.S. dollar and accordingly is subject to foreign exchange risk due to fluctuations in exchange rates. The Company does not use derivative instruments to hedge exposure to foreign exchange risk and therefore assumes the risk of future gains or losses in its consolidated statements of (loss) income. At March 31, 2024, the Company’s net monetary assets denominated in Canadian dollars were $2,114 (C$2,863).
The operating results and financial position of the Company are reported in U.S. dollars in the Company’s interim condensed consolidated financial statements. The fluctuation of the U.S. dollar relative to the Canadian dollar and other foreign currencies will have an impact on the reported balances for net assets, net loss and stockholders’ equity in the Company’s interim condensed consolidated financial statements.
13. Commitments and Contingencies
Commitments
The Company has entered into research collaboration agreements with strategic partners in the ordinary course of operations that may include contractual milestone payments related to the achievement of pre-specified research, development, regulatory and commercialization events and indemnification provisions, which are common in such agreements. Pursuant to the agreements, the Company is obligated to make research and development and regulatory milestone payments upon the occurrence of certain events and royalty payments based on net sales. The maximum amount of potential future indemnification is unlimited, however, the Company currently holds commercial and product liability insurance that limits the Company’s liability and may enable it to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under such agreements and believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to indemnification obligations for any period presented in the interim condensed consolidated financial statements.
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In connection with the Company’s 2016 Kairos acquisition, the Company may be required to make future payments of up to an aggregate of C$8,500, consisting of (i) a C$2,500 payment when the first patient is dosed in the first Phase 2 trial and (ii) a C$6,000 payment when the first patient is dosed in the first Phase 3 trial, to CDRD Ventures Inc. (“CVI”) upon the direct achievement of certain development milestones for products incorporating certain Kairos intellectual property (such as zanidatamab zovodotin or other product candidates using our ZymeLink technology). In addition, CVI is eligible to receive low single-digit royalty payments from the Company on the net sales of such products. For out-licensed products and technologies incorporating certain Kairos intellectual property, the Company may also be required to pay CVI a mid-single digit percentage of certain future revenue. As of March 31, 2024, the contingent consideration had an estimated fair value of $1,178, which has been recorded within liabilities (note 7) on the Company’s consolidated balance sheet (December 31, 2023: $1,878). The contingent consideration was calculated using a probability weighted assessment of the likelihood of the milestones being met, a probability adjusted discount rate that reflects the stage of the development and time to complete the development. Contingent consideration is a financial liability and measured at its fair value at each reporting period, with any changes in fair value from the previous reporting period recorded within research and development expenses in the statement of loss and comprehensive loss.
The following table presents the changes in fair value of the Company’s liability for contingent consideration:
Liability at
the beginning
of the period
Increase / (decrease) in
fair value of
liability for
contingent
consideration
Amounts paid or transferred to payablesLiability at end
of the period
Three months ended March 31, 2024$1,878 $(700)$ $1,178 

The following tables present information about the Company’s liability for contingent consideration measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation technique used to determine such fair value:
March 31,
2024
Level 1Level 2Level 3
Liability for contingent consideration
$1,178   $1,178 
Total$1,178 $ $ $1,178 

December 31,
2023
Level 1Level 2Level 3
Liability for contingent consideration
$1,878   $1,878 
Total$1,878 $ $ $1,878 
The Company used the following assumptions to estimate fair value of contingent consideration liability as of March 31, 2024 and December 31, 2023 :
March 31,
2024
December 31,
2023
Weighted assessment of the likelihood of the milestones21.8 %33.5 %
Weighted average estimated period for achievement of milestones
1.02 years0.92 years
Discount rate17.0 %17.0 %
Contingencies
From time to time, the Company may be subject to various legal proceedings and claims related to matters arising in the ordinary course of business. The Company does not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred.
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the attached financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 6, 2024 and with the securities commissions in all provinces and territories of Canada on March 6, 2024. This Quarterly Report on Form 10-Q, including the following sections, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. As a result of many factors, including without limitation those set forth under “Risk Factors” under Item 1A of Part II below, and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update forward-looking statements which reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q, except as required by law. Unless the context otherwise requires or otherwise expressly states, all references in this Quarterly Report on Form 10-Q to “Zymeworks,” the “Company,” “we,” “us” and “our” (i) for periods until completion of the Redomicile Transactions, refer to Zymeworks BC and its subsidiaries and (ii) for periods after completion of the Redomicile Transactions, refer to Zymeworks Inc. and its subsidiaries.
Overview
Zymeworks is a clinical-stage biotechnology company developing a diverse pipeline of novel, multifunctional biotherapeutics to improve the standard of care for difficult-to-treat diseases. Zymeworks’ complementary therapeutic platforms and fully integrated drug development engine provide the flexibility and compatibility to precisely engineer and develop highly differentiated antibody-based therapeutic candidates.
Our proprietary capabilities and technologies include several modular, complementary therapeutic platforms that can be used in combination with each other and with existing approaches. This ability to layer technologies without compromising manufacturability enables us to engineer next-generation biotherapeutics with synergistic activity, which we believe will result in improved patient outcomes. Our platforms include:
Azymetric, our multispecific antibody platform, which enables therapeutic antibodies to simultaneously bind multiple distinct locations on a target (known as an epitope) or to multiple targets. This is achieved by tailoring multiple configurations of the antibody’s Fc and Fab regions (locations on the antibody to which epitopes bind);
Drug Conjugate Platforms, used to develop antibody-drug conjugate (“ADC”) candidates, are comprised of cytotoxins and the linker technologies used to couple these cytotoxins to tumor-targeting antibodies or proteins. These platforms can be used in conjunction with our other therapeutic platforms, including our multispecific antibody platform, to increase safety and efficacy as compared to existing ADC technologies;
EFECT, which enables finely tuned modulation (both up and down) of immune cell recruitment and function; and
ProTECT, which enables tumor-specific activity that may reduce systemic toxicity and simultaneously enhances localized immune co-stimulation or checkpoint modulation that may increase efficacy.
Our protein engineering expertise and proprietary structure-guided molecular modeling capabilities enable these therapeutic platforms. Together with our internal antibody discovery and generation technologies, we have established a fully integrated drug development engine and toolkit capable of rapidly delivering a steady pipeline of next-generation product candidates in oncology and other therapeutic areas.
Our lead product candidate, zanidatamab, is a novel bispecific antibody that targets two distinct domains of the human epidermal growth factor receptor 2 (“HER2”). Zanidatamab’s unique binding properties result in multiple mechanisms of action that may enable it to address unmet need in patient populations with HER2-expressing cancers. We have entered into separate agreements with BeiGene, Ltd. (“BeiGene”) and Jazz Pharmaceuticals Ireland Limited, granting to each of them exclusive rights to develop and commercialize zanidatamab in different territories. Jazz Pharmaceuticals Ireland Limited and Jazz Pharmaceuticals, Inc. (“Jazz Inc.”) are both subsidiaries of Jazz Pharmaceuticals plc. Jazz Pharmaceuticals Ireland Limited, Jazz Inc. and Jazz Pharmaceuticals plc are referred to herein collectively as “Jazz”. For additional information regarding these agreements with BeiGene and Jazz, see the section titled “Strategic Partnerships and Collaborations” below. In April 2024, our partner Jazz announced that the rolling Biologics License Application (“BLA”) submission seeking accelerated approval for zanidatamab in second-line biliary tract cancers (“BTC”) in the United States had been completed. Jazz’s plans to submit a marketing
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authorization application (MAA) to the European Medicines Agency (EMA) are also proceeding. Jazz has also initiated a Phase 3 confirmatory trial for zanidatamab as first-line treatment in BTC. Based on the expected timeline and subject to approval, Jazz is aiming to launch zanidatamab in the United States for second-line BTC in 2025 or earlier. Similarly, our partner BeiGene has announced its intention to submit a BLA for zanidatamab with the National Medical Products Administration (“NMPA”) in China for treatment of HER2-amplified inoperable and advanced or metastatic BTC in the second half of 2024. Jazz is also evaluating zanidatamab for the first-line treatment of HER2-positive unresectable locally advanced or metastatic gastroesophageal adenocarcinomas (“GEA”). Jazz is targeting the pivotal Phase 3 top-line readout from the zanidatamab HERIZON-GEA-01 trial in late 2024. In March 2024, Jazz announced its intention to initiate a Phase 3 clinical trial, anticipated in the second half of 2024, for breast cancer patients who have progressed on trastuzumab deruxtecan (“T-DXd”).
Our second clinical-stage product candidate, zanidatamab zovodotin (formerly known as “ZW49”), combines the unique biparatopic antibody design of zanidatamab with our ZymeLink auristatin ADC technology, comprised of our proprietary cytotoxin (cancer cell-killing compound) and cleavable linker. We designed zanidatamab zovodotin to be a potential best-in-class HER2-targeting ADC to further address unmet need across a range of HER2-expressing cancers. Zanidatamab zovodotin remains ready for a Phase 2 study in combination with pembrolizumab in patients with locally advanced (unresectable) or metastatic HER2-overexpressing non-squamous non-small cell lung cancer (NSCLC”). However, we have deprioritized the initiation of the planned Phase 2 study and have paused recruitment of our Phase 1 clinical trial in Japan. We continue to explore potential development and commercial collaborations for zanidatamab zovodotin.
Our preclinical programs include novel ADC and multispecific antibody therapeutics (MSAT”) candidates focusing on validated targets which provide opportunities for benchmarking in preclinical development and expected clinical differentiation. Our ADC candidates exploit our proprietary topoisomerase 1 inhibitor (TOPO1i”) payload (ZD06519) while exploring alternate mechanisms of action for longer-term development and leveraging validated peptide-cleavable linkers and stochastic conjugations. With potential for enhanced activity compared to combination therapy, our current MSAT candidates are developed with 2+1 bispecific or trispecific (with co-stimulation or checkpoint inhibition) T cell engager engineering. These approaches are designed to optimize tumor cell engagement and enhance T cell activation to increase anti-tumor activity while also minimizing cytokine release and off-tumor toxicities.
Our early-stage pipeline currently includes four preclinical candidates which have been nominated for development:
ZW191, an ADC that targets folate receptor alpha (“FRα”)-expressing tumors including ovarian, other gynecological, and NSCLC, is built using our drug conjugate platforms, including our novel bystander active TOPO1i-based payload technology. A drug-antibody-ratio (“DAR”) of eight was selected to balance tolerability and efficacy. The FRα monoclonal antibody (“mAb”) incorporated in ZW191 was generated in-house and selected based on enhanced internalization characteristics to enable targeting of high, mid, and low levels of FRα expression. FRα is a clinically validated target, and data supports its expression in approximately 75% of ovarian carcinomas and in 70% of NSCLC. Preclinical data is encouraging, demonstrating strong activity across a range of FRα-expressing patient-derived xenografts and superior internalization, payload delivery and tissue penetration compared to multiple FRα mAbs from other ADCs. ZW191 has been well tolerated in non-human primates at 60mg/kg.
ZW171, a multispecific antibody built using our Azymetric platform, is a novel 2 + 1 format T cell engaging multispecific antibody targeting mesothelin (“MSLN”)-expressing cancers. ZW171 has a unique geometry, with two single-chain fragment variable arms targeting MSLN and one Fab arm targeting the cluster of differentiation 3 protein (“CD3”) component of the T cell receptor, to redirect the body’s natural immune system to fight cancer cells. Preclinical data demonstrated in vivo anti-tumor activity, with engagement in high-expressing cells but not low-expressing cells, mitigating the risk of on-target, off-tumor toxicities. MSLN has strong expression in ovarian cancer (~84%), with moderate to strong expression levels across mesothelioma (~56%) and NSCLC (~36% ), making it an appealing target for therapeutic development with our proprietary T cell engager technology.
ZW220, an ADC that targets sodium-dependent phosphate transporter 2b (“NaPi2b”)-expressing NSCLC and ovarian cancer, is (like ZW191) built using our proprietary TOPO1i-based payload technology. The NaPi2b-targeting monospecific antibody incorporated in ZW220 was generated in-house and selected based on a favorable binding profile and enhanced internalization properties to enable targeting of both high- and low-expressing NaPi2b-expressing tumors. A DAR of four was selected to balance tolerability and efficacy, with the fragment crystallizable (“Fc”) gamma receptor being silenced with the goal to minimize potential toxicities associated with this target. NaPi2b is expressed in approximately 96% of ovarian and 87% of NSCLC, with anti-tumor activity being demonstrated in patient-derived cell lines and growth inhibition in 3D spheroid NSCLC models (data generated using ZW220 that had a wildtype Fc region of the antibody). The bystander effect of the TOPO1i payload may help address NaPi2b heterogeneity across different cancers.
ZW251, a potential first-in-class ADC molecule designed for the treatment of glypican 3 (“GPC3”)-expressing hepatocellular carcinoma (“HCC”), which incorporates the same Zymeworks proprietary bystander-active TOPO1i
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payload utilized in ZW191 (anti-FRα) and ZW220 (anti-NaPi2b). A DAR of four was selected to balance tolerability and efficacy, with ZW251 anti-tumor activity observed in multiple patient-derived xenograft models of HCC reflecting a range of GPC3 over-expression. GPC3, a glycosylphosphatidylinositol (“GPI”)-anchored cell surface oncofetal antigen, is over-expressed in most HCC patients (>75%), and displays minimal normal adult tissue expression, making it an appealing ADC target. We are encouraged by published research demonstrating the potential of GPC3-targeting antibody in HCC patients as evidenced by tumor localization of iodine radiolabeled condrituzumab, a prior clinical stage anti-GPC3 mAb, and believe that ADC-based targeting of GPC3 could enable a novel and effective approach to treatment of HCC.
We expect to submit investigational new drug (IND) and foreign equivalent applications for ZW191 and ZW171 in 2024. Similarly, we expect to submit INDs and foreign equivalent applications for ZW220 and ZW251 in 2025. Beyond this, we aim to nominate the preclinical candidate for our fifth development program during 2024, and intend to submit an IND and foreign equivalent applications for this candidate in 2026.
We maintain ongoing discovery efforts to identify and test new target combinations, product candidates and platform technologies that have the potential to address unmet medical needs. We have developed multiple preclinical product candidates targeting a combination of known and novel tumor antigens based on our platform technologies. All of these candidates remain unencumbered. We continue to focus on advancing multiple well-differentiated product candidates into clinical trials to build our pipeline portfolio as well as exploiting our protein engineering and ADC expertise to develop innovative product candidates.
Our goal is to use our experience and in-house capabilities of developing multifunctional therapeutics platforms, along with our proprietary protein engineering capabilities, to improve the standard of care for people living with difficult-to-treat cancers and other serious diseases with high unmet medical need.
We commenced operations in 2003 and have since devoted substantially all of our resources to research and development activities including developing our therapeutic platforms, identifying and developing potential product candidates and undertaking preclinical studies and clinical trials. Additionally, we have supported our research and development activities with general and administrative support, as well as by raising capital, conducting business planning and protecting our intellectual property. We have not generated any revenue from the sale of approved products as of March 31, 2024, and do not expect to do so until such time as we obtain regulatory approval and commercialize one or more of our product candidates. We cannot be certain of the timing or success of approval of our product candidates.
Since our initial public offering (“IPO”) in 2017, we have funded our operations primarily through follow-on public offerings, including the issuance of pre-funded warrants, and payments received under our license and collaboration agreements. Payments received or receivables from our license and collaboration agreements include upfront fees, milestone payments, as well as research support and reimbursement payments. Prior to our IPO, we also received financing from private equity placements and the issuance of convertible debt, which was subsequently converted into equity securities, and a credit facility. From inception to March 31, 2024, we received $995.3 million, net of equity issuance costs, from these sources of financing including proceeds from exercises of stock options and employee stock purchase plans. As of March 31, 2024, we had $420.5 million of cash resources consisting of cash, cash equivalents and marketable securities.
Although it is difficult to predict our funding requirements, based upon our current operating plan, we anticipate that our existing cash and cash equivalents and short-term investments as of March 31, 2024 will enable us to fund our operating expenditures and capital expenditure requirements for at least the next twelve months from the date of this Quarterly Report on Form 10-Q is filed with the SEC.
We reported a net loss of $31.7 million for the three months ended March 31, 2024 and through March 31, 2024, we had an accumulated deficit of $709.1 million. Over the next several years, we expect to continue to incur losses as we increase our research and development expenditures in connection with the ongoing development of our product candidates and other clinical, preclinical and regulatory activities.
Recent Developments
Zanidatamab Clinical Program
In March 2024, our partner Jazz announced their intention to initiate a Phase 3 clinical trial, EMPOWHER, in the second half of 2024 to evaluate zanidatamab plus chemotherapy or trastuzumab plus chemotherapy in patients with HER2-positive breast cancer whose disease has progressed on previous T-DXd treatment.
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In April 2024, our partner Jazz announced the completion of the rolling BLA submission to the FDA seeking accelerated approval for zanidatamab as a treatment for previously-treated, unresectable locally advanced, or metastatic HER2-positive BTC.
In April 2024, our partner Jazz announced their participation at the 2024 ASCO annual meeting with an abstract for zanidatamab in BTC to be included in the poster session titled Zanidatamab in previously-treated HER2+ BTC: OS and longer follow-up from the phase 2b HERIZON-BTC-01 study”.
In May 2024, our partner Jazz guided that their plans to submit a marketing authorization application (MAA) to the European Medicines Agency (EMA) for zanidatamab in BTC are proceeding.
Preclinical Programs
In April 2024, we presented five posters at the American Association for Cancer Research (“AACR”) annual meeting. Highlights from our three presentations on our ADC programs include:
(1) ZW191 - a FRα-targeting antibody-drug conjugate with strong preclinical activity across multiple FRα-expressing indications. Key results highlighted superior internalization, payload delivery, and spheroid penetration compared to other FRα-targeted multi-specific antibodies, with a highest non-severely toxic dose of 60 mg/kg in non-human primates.
(2) Screening novel format antibodies to design bispecific ADCs that address target heterogeneity. The poster demonstrated the technology capability to rapidly generate a library of 48 bispecific ADC molecules co-targeting FRα and NaPi2b, resulting in multiple options across paratopes, antibody formats, and valency bins (1+1, 2+1, 2+2) with functional screening in multiple cancer cell lines to reveal ranges in binding, internalization, and cytotoxicity.
(3) Development of three-dimensional (3D) cancer cell line spheroid models for the in vitro functional characterization of cytotoxic antibody-drug conjugates. In vitro assays were developed to evaluate the spheroid penetration capability and 3D cytotoxic activity of ADCs, enabling the interrogation of various antibody formats and payload classes. The model provides improved translation between in vitro and in vivo activity, supporting the characterization of therapeutic ADC candidates and their pipeline advancement.
Highlights from our two presentations on our MSAT programs include:
(1) TriTCE Co-Stim: A next generation trispecific T cell engager platform with integrated CD28 costimulation, engineered to improve responses in the treatment of solid tumors. The data highlighted that relative to comparator bispecific T cell engagers (“TCEs”), the lead claudin 18.2 (“CLDN18.2”) trispecific T cell engager (“TriTCE”) Co-Stim molecule demonstrated enhanced T cell-mediated killing of tumor cells at low E:T ratios, exhibited sustained T cell mediated activity in serial challenge assays, and supported superior anti-tumor activity in humanized models of gastric cancer. CLDN18.2 TriTCE Co-Stim was well tolerated in non-human primates upon repeat dosing, with minimal peripheral cytokine elevations and no observed on-target histopathological changes.
(2) DLL3 TriTCE Co-Stim: A next generation trispecific T cell engager with integrated CD28 costimulation for the treatment of DLL3-expressing cancers. Our data showed induction of greater in vitro cytotoxicity and improved T cell proliferation and survival compared to bispecific delta-like ligand 3 (“DLL3”) targeting TCEs as well as displaying no cross-linking of T cells. Data also showed improved in vivo tumor regression in an established small cell lung cancer (“SCLC”) humanized xenograft model relative to a clinical benchmark DLL3 targeting TCE.
Other Matters
On March 28, 2024, Zymeworks announced the appointment of Dr. Neil Gallagher to its board of directors effective April 2, 2024. Dr. Gallagher was also appointed to serve as a member of the research and development committee of the board of directors.
Effective March 31, 2024, Dr. Christopher Astle was removed from the positions of Senior Vice President and Chief Financial Officer, including as the Company’s principal financial officer and principal accounting officer. Pursuant to the terms of Dr. Astle’s amended and restated employment agreement, because Dr. Astle’s employment with the Company was terminated without cause, Dr. Astle was eligible to receive certain severance benefits, subject to his entry into a separation agreement with the Company. On April 3, 2024, Dr. Astle and Zymeworks BC entered into a separation agreement and release providing for these severance benefits in exchange for a release of claims by Dr. Astle and compliance with certain ongoing covenants. In connection with Dr. Astle’s removal, effective March 31, 2024, the Company’s board of directors appointed Mr. Kenneth Galbraith, the
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Company’s Chair of the Board, President and Chief Executive Officer, as the Company’s interim Chief Financial Officer. In connection with this appointment, Mr. Galbraith will continue in his roles as Chair of the Board, President and Chief Executive Officer and assume the duties of the Company’s principal financial officer and principal accounting officer, until his successor is appointed or until his earlier resignation or removal. The Company has initiated a search for a new Chief Financial Officer.
Strategic Partnerships and Collaborations
Our novel product candidates, together with our combination of proprietary protein engineering capabilities and resulting therapeutic platform technologies, have enabled us to enter into a number of strategic partnerships, many of which were subsequently expanded in scope. Our strategic partnerships and collaborations provide us with the ability to accelerate clinical development of our product candidates in certain geographical regions and provide our strategic partners with access to components of our proprietary therapeutic platforms for their own therapeutics development. In addition, these strategic partnerships have provided us with non-dilutive funding as well as access to proprietary therapeutic assets, which increase our ability to rapidly advance our product candidates while maintaining commercial rights to our own therapeutics.
Through collaboration agreements with Jazz and BeiGene relating to our lead programs for zanidatamab and zanidatamab zovodotin, we have received over $435 million through March 31, 2024 in the form of non-refundable upfront payments and milestone payments. In addition, through these partnerships with Jazz and BeiGene with respect to zanidatamab, we remain eligible to receive up to $1.56 billion in potential regulatory, development and commercial milestone payments, as well as tiered royalties on potential future product sales, pending receipt of regulatory approval. These partnerships have provided us with a significant source of non-dilutive funding and provide for additional future funding for our lead asset, zanidatamab. These partnerships also leverage our partners’ commercial infrastructure, helping accelerate the development and expanding the potential reach of our lead product candidates.
In addition to the payments we have received through our collaboration agreements with Jazz and BeiGene relating to zanidatamab and zanidatamab zovodotin as described above, as of March 31, 2024, we have received approximately $180.0 million in the form of non-refundable upfront and milestone payments from platform partnership and collaboration agreements. We continue to have revenue-generating strategic partnerships and collaborations with respect to our Azymetric, EFECT and drug conjugate therapeutic platforms with the following pharmaceutical companies: Celgene Corporation and Celgene Alpine Investment Co. LLC (now a Bristol-Myers Squibb company, “BMS”), GlaxoSmithKline Intellectual Property Development Limited (“GSK”), Daiichi Sankyo Co., Ltd. (“Daiichi Sankyo”), Janssen Biotech, Inc. (“Janssen”), Iconic Therapeutics, Inc. (“Iconic”), and Merck Sharp & Dohme Research GmbH (“Merck”). Under these agreements, we remain eligible to receive up to $1.91 billion in preclinical and development milestone payments and up to $3.52 billion in commercial milestone payments, as well as tiered royalties on potential future product sales, pending regulatory approval. It is possible, however, that our strategic partners’ programs will not advance as currently contemplated, which would negatively affect the amount of development and commercial milestone payments and royalties on potential future product sales we may receive. Importantly, these partnerships include predominantly non-target-exclusive licenses for any of our therapeutic platforms, so we maintain the ability to develop therapeutics directed to many high-value targets utilizing our platforms.
There have not been any material changes to the key terms of any of our licensing and collaboration agreements since December 31, 2023. For further information on the terms and conditions of our existing collaboration and license agreements, please refer to “Item 1. Business - Strategic Partnerships and Collaborations” of our Annual Report on Form 10-K for the year ended December 31, 2023.
Financial Operations Overview
Revenue
Our revenue consists of collaboration revenue, including amounts recognized relating to upfront non-refundable payments for licenses or options to obtain future licenses, research and development funding and milestone payments earned under collaboration and license agreements. We expect that collaboration revenue from our strategic partnerships will be our primary source of revenue for the foreseeable future.
Operating Expenses
Our operating expenses consist primarily of research and development expenses and general and administrative expenses. Personnel costs, including salaries, benefits, bonuses and stock-based compensation expense, comprise a significant component of research and development and general and administrative expenses. We allocate certain indirect expenses associated with our facilities, information technology, depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee.
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Research and Development Expense
Research and development expenses consist of expenses incurred in performing research and development activities such as conducting clinical trials and preclinical research studies, technical and manufacturing operations, regulatory affairs and other indirect expenses in support of advancing our product candidates and therapeutic platforms. Research and development expenses include third-party program costs, internal personnel costs and other indirect costs as follows:
fees paid to CROs, consultants, subcontractors and other third-party vendors for work performed for our clinical trials, preclinical studies and regulatory activities;
fees paid to third-party manufacturers to produce our product candidate supplies;
amounts paid to vendors and suppliers for laboratory supplies;
fees, milestone payments and other expenses incurred in connection with license agreements and amendments;
employee-related expenses such as salaries and benefits and stock-based compensation;
depreciation of laboratory equipment, computers and leasehold improvements; and
overhead expenses such as facilities, information technology and other allocated items.
It is difficult to determine with certainty the duration and completion costs of our current or future clinical trials and preclinical programs of our product candidates, or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of clinical trials and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential. We expect our research and development expenses to increase in the future, subject to periodic fluctuations, as we continue to advance, expand and complete the clinical development of our product candidates, support our ongoing collaborations, and conduct our ongoing preclinical research activities.
General and Administrative Expense
General and administrative expenses consist of salaries, benefits and stock-based compensation costs for employees in our executive, finance, legal, intellectual property, business development, human resources and other support functions, as well as legal and professional fees, business insurance, facilities and information technology costs and other expenses. Our general and administrative expenses may increase in the future as we expand our infrastructure to support our ongoing research and development activities.
Other Income (Expense)
Other income (expense) primarily consists of interest income and foreign exchange gain (loss).
Critical Accounting Policies and Significant Judgments and Estimates
Our critical accounting policies are those policies that require the most significant judgments and estimates in the preparation of our interim condensed consolidated financial statements. A summary of our critical accounting policies is presented in note 2 of our annual consolidated financial statements for the year ended December 31, 2023.
Our management’s discussion and analysis of financial condition and results of operations is based on our interim condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these interim condensed consolidated financial statements requires us to make estimates, judgments and assumptions that are inherently uncertain that affect the amounts reported in the interim condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. We review and evaluate these estimates on an ongoing basis. These assumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities and amounts that have been recorded as revenue and expenses. Actual results and experiences may differ from these estimates. The results of any material revisions would be reflected in the interim condensed consolidated financial statements prospectively from the date of the change in estimate.
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There have been no material changes in our critical accounting policies and significant judgments and estimates during the three months ended March 31, 2024 as compared to what has been described in our most recent annual consolidated financial statements.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements is presented in note 3 of our interim condensed consolidated financial statements for the quarter ended March 31, 2024 within this Quarterly Report on Form 10-Q.

Results of Operations for the Three Months Ended March 31, 2024 and 2023
Revenue
Three Months Ended
March 31,
Increase/
(Decrease)
(dollars in millions)20242023
Revenue from research and collaborations$10.0 $35.6 $(25.6)(72)%
Our revenue relates primarily to non-recurring upfront fees, expansion payments or milestone payments from our licensing and collaboration agreements.
Total revenue decreased by $25.6 million in the three months ended March 31, 2024 compared to the same period in 2023. Revenue for the three months ended March 31, 2024 included $9.9 million for development support and drug supply revenue from Jazz and $0.2 million from our partners for research support and other payments. Revenue for the same period in 2023 included $34.4 million revenue for development support and drug supply payments from Jazz and $1.2 million from our partners for research support and other payments. The decrease in revenue from Jazz reflects the transfer of responsibility for certain clinical trials regarding zanidatamab to Jazz pursuant to the Transfer Agreement (as defined below) and the Amended Jazz Collaboration Agreement, with such future costs to be borne by Jazz instead of being incurred by us and reimbursed by Jazz.  
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Research and Development Expense
 
Three Months Ended
March 31,
Increase/
(Decrease)
(dollars in millions)20242023
Third-party research and development program expenses:
Clinical development programs:
Zanidatamab$3.4 $23.4 $(20.0)(85)%
Zanidatamab zovodotin
2.6 1.5 1.1 73 %
Preclinical and other research programs:
ZW1712.3 0.9 1.4 156 %
ZW1912.7 1.0 1.7 170 %
ZW220
3.4 0.4 3.0 750 %
Other preclinical and research programs3.4 2.0 1.4 70 %
17.8 29.2 (11.4)(39)%
Unallocated departmental research and development expenses:
Salaries and benefits8.6 11.4 (2.8)(25)%
Stock-based compensation expense
2.0 0.4 1.6 400 %
Other unallocated expenses3.6 4.9 (1.3)(27)%
Research and development expense (1)
$32.0 $45.9 $(13.9)(30)%
(1) Excluding zanidatamab, we expect research and development expenditures to increase over time, subject to periodic fluctuations, in line with the advancement, expansion and completion of the clinical development of our product candidates, support of our ongoing collaborations, and our ongoing preclinical research activities.
Research and development expense decreased by $13.9 million for the three months ended March 31, 2024 compared to the same period in 2023. The decrease in research and development expense was primarily due to a decrease in expenses for zanidatamab as a result of transfer of responsibility for this program to Jazz per our Transfer Agreement and the Amended Jazz Collaboration Agreement. This decrease, compared to the same period in 2023, was partially offset by an increase in preclinical expenses, primarily with respect to preclinical product candidates ZW171, ZW191 and ZW220. Salaries and benefits expenses decreased compared to the same period in 2023, due to lower headcount in 2024, which was partially offset by an increase in stock-based compensation expense in 2024.
Our research and development expenses relating to zanidatamab, following the May 2023 transfer of responsibility for the zanidatamab development program to Jazz, have decreased significantly compared to the three months ended March 31, 2023. We expect to continue incurring research and development expenses for activities over which we maintain responsibility under the Amended Jazz Collaboration Agreement and for costs of third party services and other expenses under certain contracts being transferred to Jazz pursuant to the Transfer Agreement. We are eligible for reimbursement of these expenses from Jazz and expect to recognize these reimbursements as revenue from research and collaborations.
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General and Administrative Expense
 Three Months Ended
March 31,
Increase/
(Decrease)
 (dollars in millions)20242023
 
Salaries and benefits$4.8 $5.0 $(0.2)(4)%
Stock-based compensation expense
1.6 1.7 (0.1)(6)%
Professional fees, consulting and business insurance5.4 6.6 (1.2)(18)%
Other general and administrative expenses4.0 3.6 0.4 11 %
General and administrative expense$15.8 $16.9 $(1.1)(7)%
General and administrative expense decreased by $1.1 million for the three months ended March 31, 2024 compared to the same period in 2023. The decrease in general and administrative expense was primarily due to a decrease in expenses related to external legal spend and insurance expenses compared to the same period in 2023.
Other Income, net 
Three Months Ended
March 31,
Increase/
(Decrease)
(dollars in millions)20242023
Other income, net$6.2 $4.3 $1.9 44 %
Other income, net increased by $1.9 million for the three months ended March 31, 2024 compared to the same period in 2023. Other income, net for 2024 included $5.9 million in interest income and $0.3 million in net foreign exchange gain and other miscellaneous income. Other income, net for the three months ended March 31, 2023 included $4.8 million in interest income and a $0.5 million net foreign exchange loss and other miscellaneous amounts. The increase in interest income was driven by higher rates of return on our cash, cash equivalents and marketable securities.
Income Tax
Three Months Ended
March 31,
Increase/
(Decrease)
20242023
(dollars in millions)
Income tax expense
$0.1 $1.4 $(1.3)(93)%
Income tax expense decreased by $1.3 million for the three months ended March 31, 2024 compared to the same period in 2023, primarily due to a reduction in U.S. taxes under the global intangible low-taxed income rules for the three months ended March 31, 2024.

Liquidity and Capital Resources
Sources of Liquidity
Since our IPO in 2017, we have funded our operations primarily through follow-on public offerings, including the issuance of pre-funded warrants, as well as from upfront fees, milestone payments, and research support payments generated from our strategic collaborations and licensing agreements.
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On November 9, 2022, we entered into a sales agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) to sell shares of our common stock subject to a maximum aggregate dollar amount registered pursuant to an applicable prospectus supplement, from time to time, through an “at-the-market” equity offering program under which Cantor is acting as our sales agent. On June 16, 2023, we sold an aggregate of 3,350,000 shares of common stock at $8.12 per share under the Sales Agreement. We received gross proceeds of $27.2 million and net cash proceeds of $26.2 million, after underwriting commissions and offering expenses.
On December 28, 2023, we completed a private placement pursuant to which we sold 5,086,521 pre-funded warrants at a price of $9.8299 per pre-funded warrant. We received gross proceeds of $50.0 million, and net proceeds of $49.9 million, after expenses. Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.0001 per share, subject to adjustments as provided under the terms of the pre-funded warrants.
As of March 31, 2024, we had $420.5 million of cash, cash equivalents, and marketable securities, comprised of $114.8 million in cash and cash equivalents and $305.7 million in marketable securities.
Cash Flows
The following table represents a summary of our cash flows for the three months ended March 31, 2024 and 2023:
Three Months Ended
March 31,
20242023
(dollars in millions)
Net cash (used in) provided by:
Operating activities$(37.7)$(83.2)
Investing activities(7.3)(138.2)
Financing activities2.1 1.7 
Effect of exchange rate changes on cash and cash equivalents0.1 0.3 
Net change in cash and cash equivalents$(42.7)$(219.3)
Operating Activities
During the three months ended March 31, 2024, cash used in operating activities was $37.7 million compared to $83.2 million for the same period in the prior year. The decrease in net cash used in operating activities was primarily due to a decrease in cash expenditures for operations as a result of transfer of responsibility over the zanidatamab program to Jazz and favorable movements in working capital compared to the same period in the prior year. This was partly offset by increased expenditure on our preclinical product candidates.
Investing Activities
Net cash provided by investing activities for the three months ended March 31, 2024 primarily related to net purchases of investments in marketable securities of $6.7 million and cash outflows of $0.7 million for the expenditures for software implementation and acquisition of property and equipment in our office and laboratory spaces in Canada and the U.S. Net cash used in investing activities for the three month period ended March 31, 2023 primarily related to net purchases of short-term investments in marketable securities of $137.8 million partially offset by cash outflows of $0.4 million for the acquisition of property and equipment in relation to our office and lab spaces in Canada.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2024 included net proceeds of $1.7 million from stock option exercises and $0.4 million from the issuance of shares of common stock under our employee stock purchase plan. Net cash provided by financing activities for the three months ended March 31, 2023 included net proceeds of $1.5 million from
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stock option exercises and $0.2 million from the issuance of shares of common stock in relation to our employee stock purchase plan.
Funding Requirements
We have not generated any revenue from approved product sales as of March 31, 2024 and do not expect to do so until such time as we obtain regulatory approval and commercialize one or more of our product candidates. As we are currently in the clinical and preclinical stages of development, it will be some time before we expect to achieve this, and it is uncertain that we ever will. We expect that we will continue to increase our operating expenses in connection with ongoing clinical trials and preclinical activities and the development of product candidates in our pipeline. In addition, inflation generally may affect us by increasing our cost of labor, outside services, manufacturing and clinical trial expenses. Our funding requirements in the short-term and long-term will consist of the operational, capital, and manufacturing expenditures, a portion of which contain contractual or other obligations including future minimum lease payments under non-cancelable operating leases as presented in note 11 and other commitments and contingencies as presented in note 13 to the interim consolidated financial statements. Because of the inherent risks and uncertainties associated with the development and commercialization of our drug candidates, it is difficult to predict the amounts of capital outflows and operating expenditures associated with our current and anticipated clinical trials and preclinical studies.
Although it is difficult to predict our funding requirements, based on our current operating plan, we anticipate that our existing cash and cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months from the date this Quarterly Report on Form 10-Q is filed with the SEC. We have based these estimates on assumptions and plans which may change and which could impact the magnitude and/or timing of operating expenses, capital expenditures and our cash runway. The successful development of our product candidates and the achievement of milestones by our strategic partners is uncertain, and therefore it is difficult to predict the actual funds we will require to complete the research, development and commercialization of product candidates. See Part II, Item 1A, “Risk Factors - Risks Related to Our Business and the Development and Commercialization of Our Product Candidates” and “Risk Factors - Risks Related to Our Dependence on Third Parties”.
We will need substantial additional funding to support our continuing operations and pursue our long-term business plans. Accordingly, our future funding requirements will depend on many factors, including but not limited to:
the scope, rate of progress, results and costs of our clinical trials, preclinical studies and other related activities;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements as well as our ability to enter into new arrangements;
the timing and the costs of obtaining regulatory approvals for any of our current or future drug candidates;
the cost of commercialization activities if any of our current or future drug candidates are approved for sale, including marketing, sales and distribution costs;
the amount of royalties and sales-based milestones, if any, received from our collaboration partners for commercial sales of drug candidates, should any of such drug candidates receive marketing approval; and
the amount of revenue, if any, received from commercial sales of our drug candidates, should any of our drug candidates receive marketing approval.
If adequate funds are not available at favorable terms, we may be required to reduce operating expenses, delay or reduce the scope of our product development and commercial expansion programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves or cease operations. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. A deterioration in the equity or credit markets may make any necessary debt or equity financing more difficult, more costly and more dilutive.
Segment Reporting
We view our operations and manage our business in one segment, which is the development of next-generation multifunctional biotherapeutics.
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Outstanding Share Data
Our authorized share capital consists of 1,000,000,000 shares of stock, consisting of 900,000,000 shares of common stock, par value $0.00001 per share, and 100,000,000 shares of preferred stock, par value 0.00001 per share. As of April 30, 2024, 70,704,890 shares of common stock were issued and outstanding. In addition, as of April 30, 2024, we had 5,086,521 shares of common stock issuable pursuant to 5,086,521 pre-funded warrants, 4,486,687 shares of common stock issuable pursuant to 4,486,687 exercisable outstanding stock options, 4,337,507 shares of common stock issuable pursuant to 4,337,507 outstanding options that were not exercisable at that date, and 1,379,323 shares of common stock issuable upon vesting of outstanding restricted stock units.
In connection with the Plan of Arrangement (as defined in note 1 of our interim condensed consolidated financial statements as of and for the quarter ended March 31, 2024 within this Quarterly Report on Form 10-Q), we issued to Computershare Trust Company of Canada, a trust company existing under the laws of Canada (the “Share Trustee”), one share of our preferred stock, par value $0.00001 per share, which has certain variable voting rights in proportion to the number of Exchangeable Shares (as defined below) outstanding, enabling the Share Trustee to exercise voting rights for the benefit of the holders of Exchangeable Shares. In connection with the consummation of the Plan of Arrangement, 1,424,533 Exchangeable Shares were issued to former Zymeworks BC shareholders. We will issue shares of our common stock as consideration when a holder of Exchangeable Shares calls for Exchangeable Shares to be retracted by Zymeworks ExchangeCo Ltd (“ExchangeCo”), when ExchangeCo redeems Exchangeable Shares from the holder, or when Zymeworks CallCo ULC (“CallCo”) purchases Exchangeable Shares from the holder of Exchangeable Shares under CallCo’s overriding call rights.
As of April 30, 2024, 853,896 Exchangeable Shares have been exchanged on a one-to-one basis for 853,896 shares of our common stock and 570,637 Exchangeable Shares are held by former Zymeworks BC shareholders and are exchangeable on a one-to-one basis, subject to adjustment, for up to 570,637 shares of our common stock.
Item 3.    Quantitative and Qualitative Disclosure About Market Risk.
Interest Rate Risk
As of March 31, 2024 and December 31, 2023, we had cash, cash equivalents and marketable securities of $420.5 million, and $456.3 million, respectively, consisting primarily of funds in cash, money market funds, guaranteed investment certificates, U.S. treasury securities and corporate debt securities. The primary objective of our investment activities is to preserve principal while also maintaining liquidity and maximizing investment returns without significantly increasing risk. Our exposure to interest rate risk is related to our investment portfolio. Fixed rate investments may have their fair market value adversely impacted from changes in interest rates. Due in part to these factors, our future investment income may fall short of expectations. Further, we may suffer losses in investment principal if we are forced to sell securities that have declined in market value due to changes in interest rates. However, historical fluctuations of interest income have not been significant. We do not enter into investments for trading or speculative purposes and we have not used any derivative financial instruments to manage our interest rate exposure. We mitigate credit risk by maintaining a well-diversified portfolio and limiting the amount of investment exposure as to institution, maturity and investment type. As of March 31, 2024, approximately 75% of our investment portfolio was composed of short-term investments with maturities less than 12 months. A hypothetical 100 basis point increase in interest rates would have resulted in a $2.1 million decrease in the fair market value of our portfolio but would not have a material effect on our investment income as at March 31, 2024. Accordingly, we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
Foreign Currency Exchange Risk
Our functional currency is the U.S. dollar as most of our revenues and operating expenses are denominated in U.S. dollars. We incur certain operating expenses in Canadian dollars and other foreign currencies and accordingly, are subject to foreign currency transaction risk. We do not use derivative instruments to hedge exposure to foreign currency transaction risk due to the low volume of transactions denominated in Canadian dollars and other foreign currencies. We do not anticipate that foreign currency transaction gains or losses will be significant at our current level of operations.
At March 31, 2024 , our net monetary assets denominated in Canadian dollars were $2.1 million (C$2.9 million). We are subject to foreign currency translation risk when translating these foreign currency denominated net monetary assets to U.S. dollars for period end financial statement preparation. The fluctuation of the Canadian dollar relative to the U.S. dollar will have an impact on the reported balances for net assets, net loss and stockholders’ equity in our consolidated financial statements. A hypothetical 10% increase (decrease) in the value of the Canadian dollar relative to the U.S. dollar would result in a foreign exchange gain
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(loss) of $0.2 million in our Consolidated Statement of Loss and Comprehensive Loss for the three months ended March 31, 2024.
Inflation Risk
Inflation generally may affect us by increasing our cost of labor and clinical trial expenses. We do not believe that inflation and changing prices had a material impact on our business, financial condition, or results of operations for any of the periods presented herein.

Item 4.    Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer and our interim Chief Financial Officer, evaluated the design and operating effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Any such information is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our evaluation of our disclosure controls and procedures as of March 31, 2024, our Chief Executive Officer and our interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were, in design and operation, effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended March 31, 2024 that have 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.
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. As of March 31, 2024, we are not a party to any legal proceedings that, in the opinion of our management, would reasonably be expected to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A.    Risk Factors.
You should carefully consider the following risk factors, in addition to the other information contained in this Quarterly Report on Form 10-Q, including our interim condensed consolidated financial statements and related notes. If any of the events described in the following risk factors occurs, our business, operating results and financial condition could be seriously harmed. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Quarterly Report on Form 10-Q. See “Cautionary Note Regarding Forward-Looking Statements.” The risks below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations, and/or prospects. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
Summary of Risk Factors
Below is a summary of the principal factors that make an investment in shares of our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-Q and our other filings with the SEC, before making an investment decision regarding shares of our common stock.
We have a limited number of product candidates, all of which are still in preclinical or clinical development. If we do not obtain regulatory approval of one or more of our product candidates, or experience significant delays in doing so, our business will be materially adversely affected.
Clinical trials are expensive, time consuming, difficult to design and implement, and involve uncertain outcomes. Furthermore, the results of previous preclinical studies and clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or comparable regulatory authorities outside the United States.
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 product candidates may have undesirable side effects that may delay or prevent marketing approval or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales; no regulatory agency has made any determination that any of our product candidates are safe or effective for use by the general public for any indication.
We face significant competition, and if our competitors develop and market products that are more effective, safer or less expensive than our product candidates, our commercial opportunities will be negatively impacted.
If any of our product candidates receive regulatory approval, the approved products may not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, in which case revenue generated from their sales would be limited.
We may not be successful in our efforts to use our therapeutic platforms to build a pipeline of product candidates.
If any product liability lawsuits are successfully brought against us or any of our strategic partners, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
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Security breaches and incidents, loss of data and other disruptions could compromise sensitive information related to our business or protected health information or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
Current and future legislation may increase the difficulty and cost for us to commercialize any products that we or our strategic partners develop and affect the prices we may obtain.
We have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have no products approved for commercial sale, and, as of March 31, 2024, we have not generated any revenue or profit from product sales. We may never achieve or sustain profitability.
We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back, or cease our product development programs or operations.
We depend on our collaborative relationship with Jazz to further develop and commercialize zanidatamab, and if our relationship is not successful or is terminated, we may be delayed in or unable to effectively develop and/or commercialize zanidatamab, which could have a material adverse effect on our business.
Our existing strategic partnerships are important to our business, and future strategic partnerships will likely also be important to us. If we are unable to maintain our strategic partnerships, or if these strategic partnerships are not successful, our business could be adversely affected.
We rely on third-party manufacturers to produce our product candidates and on other third parties to provide supplies and store, monitor and transport bulk drug substance and drug product. We and our third-party partners may encounter difficulties with respect to these activities that could delay or impair our ability to initiate or complete our clinical trials or commercialize approved products.
We rely on third parties to monitor, support, conduct and oversee clinical trials of the product candidates that we are developing and, in some cases, to maintain regulatory files for those product candidates. We may not be able to obtain regulatory approval for our product candidates or commercialize any products that may result from our development efforts if we are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform their services as required, or if these third parties fail to timely transfer any regulatory information held by them to us.
If we are unable to obtain, maintain and enforce patent and trade secret protection for our product candidates and related technology, our business could be materially harmed.
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