zyme-20210331

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, 2021


☐			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: 001-38068

______________________________________

ZYMEWORKS INC.

(Exact name of registrant as specified in its charter)

______________________________________


British Columbia, Canada			98-1398788
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

Suite 540—1385 West 8th Avenue

Vancouver, BC V6H 3V9

(Address of principal executive offices, including zip code)

(604) 678-1388

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

______________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, no par value per share	ZYME	New York Stock Exchange

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 common shares of the registrant, no par value per share, as of May 3, 2021 was 46,170,034.

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ZYMEWORKS INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2021

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		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	26
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of Canadian securities laws, or collectively, forward-looking statements. 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 “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:

•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;

•our ability to predict and manage government regulation; and

•the impact of the COVID-19 pandemic on our business and operations.

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 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 acquisitions;

•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 set forth under “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 ability to obtain regulatory approval for our 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;

•the extent to which our business may be adversely affected by the COVID-19 pandemic;

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•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 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 shareholders associated with future financings;

•restrictions on our ability to seek financing, which may be imposed by future debt;

•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 clinical product candidate supplies and on other third parties to store, 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;

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•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 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 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 law.

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. Azymetric, Zymeworks, ZymeCAD, EFECT, ZymeLink and the phrase “Building Better Biologics” are our registered trademarks. 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.

iii

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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.

Except as otherwise indicated, references in this Quarterly Report on Form 10-Q to “Zymeworks,” the “Company,” “we,” “us” and “our” refer to Zymeworks Inc. and its consolidated subsidiaries.

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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, 2021


			Page
Condensed Consolidated Balance Sheets			2
Condensed Consolidated Statements of Loss and Comprehensive Loss			3
Condensed Consolidated Statement of Changes in Shareholders’ Equity			4
Condensed Consolidated Statements of Cash Flows			5
Notes to the Condensed Consolidated Financial Statements			6

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ZYMEWORKS INC.

Condensed Consolidated Balance Sheets

(Expressed in thousands of U.S. dollars except share data)


	March 31, 2021		December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	279,947	$	242,036
Short-term investments (note 5)	131,527		184,318
Accounts receivable	4,576		15,293
Prepaid expenses and other current assets	16,718		13,429
Total current assets	432,768		455,076
Deferred financing fees	848		805
Long-term investments (note 5)	886		25,921
Long-term prepaid assets	2,149		2,290
Deferred tax asset	1,813		1,723
Property and equipment, net	12,305		12,185
Operating lease right-of-use assets	5,433		5,429
Intangible assets, net	4,213		5,303
Acquired in-process research and development (note 6)	17,628		17,628
Goodwill (note 6)	12,016		12,016
Total assets	$	490,059	$	538,376
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (note 7)	$	43,654	$	43,655
Fair value of liability classified stock options (note 12)	23,617		39,284
Current portion of operating lease liability (note 11)	2,952		2,710
Other current liabilities	22		17
Total current liabilities	70,245		85,666
Long-term portion of operating lease liability (note 11)	5,333		5,812
Deferred revenue (note 9)	32,941		32,941
Other long-term liabilities (note 7)	2,880		2,857
Deferred tax liability	1,515		1,178
Total liabilities	112,914		128,454
Shareholders’ equity:
Common shares, no par value; unlimited authorized shares at March 31, 2021 and December 31, 2020, respectively; 46,164,888 and 46,035,389 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively (note 8b)	729,007		724,219
Additional paid-in capital	170,648		163,623
Accumulated other comprehensive loss	(6,659)		(6,659)
Accumulated deficit	(515,851)		(471,261)
Total shareholders’ equity	377,145		409,922
Total liabilities and shareholders’ equity	$	490,059	$	538,376
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,
		2021		2020
Revenue
Research and development collaborations (note 9)		$	644	$	8,269
Operating expenses:
Research and development		44,283		36,943
General and administrative		1,296		7,206
Total operating expenses		45,579		44,149
Loss from operations		(44,935)		(35,880)
Other income (expense):
Interest income		741		1,869
Other income, net (note 10)		129		3,250
Total other income, net		870		5,119
Loss before income taxes		(44,065)		(30,761)
Income tax expense		(525)		(375)
Net loss and comprehensive loss		$	(44,590)	$	(31,136)

Net loss per common share (note 4):
Basic and diluted		$	(0.87)	$	(0.64)
Weighted-average common shares outstanding (note 4):
Basic and diluted		51,367,663		48,686,718

The accompanying notes are an integral part of these financial statements

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ZYMEWORKS INC.

Condensed Consolidated Statement of Changes in Shareholders’ Equity

(Expressed in thousands of U.S. dollars except share data)

(unaudited)


	Common shares			Accumulated deficit		Accumulated other comprehensive loss		Additional paid-in capital		Total shareholders’ equity
	Shares	Amount
Balance at January 1, 2021	46,035,389	$	724,219	$	(471,261)	$	(6,659)	$	163,623	$	409,922
Issuance of common shares on exercise of options	78,736	2,624		—		—		(662)		1,962
Issuance of common shares through employee stock purchase plan	26,807	1,321		—		—		—		1,321
Issuance of common shares upon vesting of restricted stock units ("RSUs")	23,956	843		—		—		(843)		—
Stock-based compensation	—	—		—		—		8,530		8,530
Net loss	—	—		(44,590)		—		—		(44,590)
Balance at March 31, 2021	46,164,888	$	729,007	$	(515,851)	$	(6,659)	$

SEC Form 10-Q filed by Zymeworks Inc.