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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-K
_________________________
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
or
For the transition period from ___________to ___________
Commission file number: 001-41535
_________________________
ZYMEWORKS INC.
(Exact name of registrant as specified in its charter)
_________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
88-3099146
(I.R.S. Employer
Identification Number)
108 Patriot Drive — Suite A
Middletown, Delaware 19709
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (302) 274-8744
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.00001 par value per share
Title of each class
Trading Symbol(s)
ZYME
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
_________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No
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
Non-accelerated filer
☐
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant, based on the closing sale price of the
registrant’s common shares on the last business day of its most recently completed second fiscal quarter, as reported on the Nasdaq Stock Market LLC, was
approximately $468.5 million.
The number of outstanding shares of common stock of the registrant, $0.00001 par value per share, as of March 4, 2024 was 70,568,222.
None.
DOCUMENTS INCORPORATED BY REFERENCE
ZYMEWORKS INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2023
Table of Contents
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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:
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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:
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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:
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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;
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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);
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 conflict in Israel and the Gaza Strip, 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;
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unstable market and economic conditions;
currency fluctuations and changes in foreign currency exchange rates;
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;
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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;
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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;
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our election to rely on certain reduced reporting and disclosure requirements available to smaller reporting companies may make our common
stock less attractive to investors;
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.
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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. 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 Annual Report on Form 10-K, 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 Annual Report on
Form 10-K are the property of their respective owners. Solely for convenience, the trademarks, service marks, tradenames and copyrights referred to in this
Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K to “Zymeworks,” the “Company,”
“we,” “us” and “our” (i) for periods until the Redomicile Transactions, refer to Zymeworks BC Inc. and its subsidiaries and (ii) for periods after the
Redomicile Transactions, refer to Zymeworks Inc. and its subsidiaries.
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Item 1. Business
Overview
PART I
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:
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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;
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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 (a subsidiary of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”), granting to each of BeiGene and Jazz exclusive rights to develop and
commercialize zanidatamab in different territories. For additional information regarding these agreements with BeiGene and Jazz, see the section titled
“Strategic Partnerships and Collaborations” below. Our partner Jazz has initiated a rolling Biologics License Application (“BLA”) submission for
zanidatamab in second-line biliary tract cancers (“BTC”) in the United States, and intends to complete the rolling BLA submission in the first half of 2024.
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. Our partner 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.
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, the initiation of the planned Phase 2 study has been
deprioritized, pending more clarity from the evolving clinical landscape. We continue to explore potential development and commercial collaborations for
zanidatamab zovodotin.
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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.
The below chart summarizes our early-stage preclinical candidates.
Our Strategy
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.
To achieve this goal, we are focused on delivering substantial progress across five key areas of our business:
Zanidatamab Collaboration with Jazz
Our collaboration agreement with Jazz, entered into during the fourth quarter of 2022, (and amended and restated during the second quarter of 2023)
represents an important component of our commercialization strategy for zanidatamab and our financial strategy for expanding and developing our product
pipeline. Through December 31, 2023, we have received $375 million in proceeds from the Jazz collaboration in addition to development support and drug
supply reimbursement. We also remain eligible to receive regulatory approval milestones of up to $525 million, commercial milestones of up to $862.5
million, and royalties of between 10% and 20% of future zanidatamab sales, pending regulatory approval of zanidatamab. In conjunction with Jazz, we plan
to provide updates on progress towards regulatory filings, new clinical studies, and future clinical data releases, which includes the targeted report of top-
line data from the HERIZON-GEA-01 (NCT05152147) pivotal clinical trial in late 2024.
Zanidatamab Collaboration with BeiGene
Our collaboration agreement with BeiGene regarding zanidatamab in the key Asia Pacific (“APAC”) regions (excluding Japan) is important given the high
prevalence of BTC and GEA in the APAC region. As of December 31, 2023, we have received $53 million in upfront and milestone payments from this
collaboration as well as certain co-development funding for zanidatamab clinical studies. Through our collaboration with BeiGene on zanidatamab, we
remain eligible to receive up to $172 million in additional development and commercial milestones together with tiered royalties of up to 19.5% of net
sales in BeiGene territories, increasing to up to 20% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the low
double-digit millions of dollars. In conjunction with BeiGene, we plan to provide updates on progress towards regulatory filings in the APAC region, new
clinical studies, and future clinical data releases.
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Research and Early Development Programs
Our current scientific strategy provides for a broad and differentiated product pipeline of ADCs and MSATs to be developed from our technology platforms
with the goal of five new investigational new drug (“IND”) applications by 2027. We plan to continue actively presenting and publishing additional data on
our preclinical programs in 2024, with a focus on the American Association for Cancer Research (“AACR”) meeting scheduled for the second quarter of
2024. We expect to evaluate, and potentially enter into, additional multi-product collaborations and partnerships in 2024 to expand the breadth of our
research and early development programs. We plan to make additional investments during 2024 in the size and capabilities of our research group in order to
maintain the desired speed, quality, diversity, and novelty in our future product pipeline. Further, we also plan to evaluate external opportunities in adjacent
research areas to expand our focus beyond the current technology platforms.
Zanidatamab Zovodotin
We have initiated our Phase 1 clinical study of Japanese patients to gather additional data for safety with zanidatamab zovodotin monotherapy
(NCT03821233). Zanidatamab zovodotin remains ready for a Phase 2 study in combination with pembrolizumab in subjects with locally advanced
(unresectable) or metastatic HER2-overexpressing non-squamous NSCLC with the recommended Phase 2 dose (“RP2D”) of 2.5 mg/kg every three weeks.
This RP2D is supported by data generated as of the date of this report from the Phase 1 clinical study, as presented at the EORTC-NCI-AACR Symposium
on Molecular Targets and Cancer Therapeutics (“ENA”) in October 2023. However, the initiation of the planned Phase 2 study has been deprioritized,
pending more clarity from the evolving clinical landscape. We continue to explore potential development and commercial collaborations for zanidatamab
zovodotin.
Platform Licensing Portfolio
As of December 31, 2023, we have received approximately $180.0 million in the form of non-refundable upfront and milestone payments from platform
partnership and collaboration agreements, excluding amounts received related to zanidatamab or zanidatamab zovodotin. 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 through our relationship with Iconic, Exelixis, Inc. (“Exelixis”)), and Merck Sharp & Dohme Research GmbH
(“Merck”). During 2024, we expect to earn additional milestone payments under certain of these agreements as products continue to advance in
development, and we have the potential to receive additional payments in connection with any expansion or extension of these agreements.
Product Candidate Pipeline
Our two clinical-stage lead product candidates, zanidatamab and zanidatamab zovodotin, utilize the Azymetric platform to address patient populations with
HER2-expressing cancers. We are also actively advancing a diverse set of preclinical programs, which leverage one or more of our proprietary therapeutic
platforms to create a deep pipeline of well-differentiated product candidates for oncology and other therapeutic areas with significant unmet medical need.
Zanidatamab
Overview
Zanidatamab, our lead product candidate, is currently being evaluated in Phase 1, Phase 2, and Phase 3 clinical trials, including certain ongoing pivotal
clinical trials. It is a biparatopic antibody, based on our Azymetric platform, that can simultaneously bind two non-overlapping epitopes of HER2.
Zanidatamab’s unique binding properties result in multiple mechanisms of action including HER2‑receptor clustering, internalization, and downregulation;
inhibition of growth factor-dependent and
-independent tumor cell proliferation; antibody-dependent cellular cytotoxicity and phagocytosis; and complement-dependent cytotoxicity. These combined
mechanisms of action have led to promising anti-tumor activity in preclinical models of HER2-expressing cancers, including tumors resistant to
trastuzumab (currently branded as Herceptin).
We have entered into separate agreements with BeiGene and Jazz, granting each of BeiGene and Jazz exclusive rights to develop and commercialize
zanidatamab in different territories. Through these agreements, we have no funding obligations for current or future clinical studies or research and
development spending and retain rights to receive potential regulatory and commercial milestones, as well as royalties for future net sales, pending
approval in relevant regulatory jurisdictions.
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Following the potential market entry in BTC, together with our partners, we expect our partners to pursue approval in first-line GEA with a planned
supplemental BLA submission. We believe that a substantial opportunity remains to address the unmet patient need in first-line GEA, including in the
HER2 positive / PD-L1 negative patient population. For patients who are PD-L1 positive, we believe that zanidatamab has the potential to be the HER2-
targeted treatment of choice, while also combining with tislelizumab in order to treat those who are eligible to receive anti-PD1 therapy in GEA. There also
remains an opportunity to move into earlier stages of GEA where we see the potential to help those patients prior to the metastatic setting in the
neoadjuvant and adjuvant settings.
Based on encouraging signs of activity, we believe that the long-term development goals for zanidatamab have the potential to go beyond addressing the
significant unmet need in BTC and GEA, to include breast cancer as well as multiple HER2-expressing cancers. The following graphic was adapted from
guidance provided by Jazz in November 2023 and subsequently updated as of February 2024:
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1L: first-line treatment, 2L; second-line treatment; BC: breast cancer; HCP: healthcare provider; PD-L1: programmed cell death ligand 1; sBLA: supplemental biologics license application; T-DXd: trastuzumab deruxtecan.
1 Pending regulatory approvals, 2 Incidence sources: Kantar reports, ToGA surveillance report; SEER, cancer.gov; ClearView Analysis; GLOBOCAN, Data on file, 3 Major markets, U.K, France, Germany, Spain, Italy, 4
NCT01042379, 5 Incidence source estimates derived from multiple sources: Decision Resources Group, Kantar Health, Jazz Market Research, data on file, 6 Funda Meric-Bernstam et al, Zanidatamab, a novel bispecific
antibody, for the treatment of locally advanced or metastatic HER2-expressing or HER2-amplified cancers: a phase 1, dose-escalation and expansion study, The Lancet Oncology, Volume 23, Issue 12, 2022, Pages 1558-
1570, ISSN 1470-2045, https://doi.org/10.1016/S1470-2045(22)00621-0.
Clinical Development of Zanidatamab
In clinical trials, zanidatamab monotherapy and zanidatamab in combination with chemotherapy have been well tolerated with promising anti-tumor
activity in patients with treatment-naive and heavily pretreated HER2-expressing cancers, including individuals whose disease had progressed on multiple
prior treatment regimens that included HER2-targeted agents. Based on these data, a number of global multicenter clinical trials have been initiated to
evaluate zanidatamab in specific indications and lines of therapy.
In January 2023, we presented updated Phase 2 clinical data at the ASCO Gastrointestinal Cancers Symposium (“ASCO GI”). The presentation included
updated data from a clinical study evaluating zanidatamab in combination with standard of care chemotherapy in first-line HER2-expressing GEA patients.
Patients had not received prior HER2-targeted agents or systemic treatment for metastatic GEA. A total of 46 patients with metastatic GEA were enrolled
from 15 sites across the United States, Canada and South Korea. The data demonstrated zanidatamab combined with standard chemotherapy is a highly
active treatment regimen for first-line therapy of HER2-positive metastatic GEA. In 42 patients evaluable for overall survival (“OS”) receiving
zanidatamab in combination with chemotherapy, the 18-month OS rate was 84% [95% CI: 68, 93], the 12-month OS rate was 88% [95% CI: 73, 95], and
the median OS had not yet been reached (with 26.5 months median duration of study follow-up). These data represent the first OS data presented for a
zanidatamab containing regimen. Treatment with zanidatamab resulted in a confirmed objective response rate (“CORR”) of 79% [95% CI: 63, 90], a
decease control rate (“DCR”) of 92% [95% CI: 79, 98], with three patients achieving complete response among 38 response-evaluable patients. The median
duration of response was 20.4 months [95% CI: 8.3, NE] with an mPFS of 12.5 months [95% CI: 7.1, NE] with 17 patients having an ongoing response at
the time of data cut-off. The regimen was manageable, tolerable and consistent with the observed safety profiles reported for other standard combination
regimens for patients with HER2-positive GEA.
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In June 2023, at the American Society of Clinical Oncology (ASCO) Annual Meeting, positive pivotal data was presented from the Phase 2b HERIZON-
BTC-01 trial of zanidatamab in patients with previously treated HER2-amplified BTC (gallbladder cancer, intra-/extra-hepatic cholangiocarcinoma). The
results, with a median study follow-up time of 12.4 months, were concurrently published in The Lancet Oncology. For the trial’s primary endpoint, data
from 80 patients with HER2-amplified BTC (defined as in situ hybridization positive and immunohistochemistry (“IHC”) 2+ or 3+) demonstrated a
confirmed objective response rate of 41.3% [95% CI: 30.4, 52.8] with a Kaplan Meier (“KM”) estimated median duration of response of 12.9 months. The
response was more than double the historical response rates of 5 to 15% reported for second-line standard of care chemotherapy in patients with BTC. Of
the 80 patients with HER2-amplified BTC, 78% were IHC3+ and had a response rate of 51.6%, while 23% of patients were IHC2+ and had a response rate
of 5.6%. The KM estimated median PFS for all patients was 5.5 months [95% CI: 3.7, 7.2] with a range of 0.3 to 18.5 months. Zanidatamab demonstrated a
manageable and tolerable safety profile, with two of the 87 patients (2.3%) experiencing adverse events (“AEs”) leading to treatment discontinuation.
There were no Grade 4 AEs and no deaths were treatment-related. The most common AEs were diarrhea and infusion-related reactions, which were
predominately low-grade, reversible, and manageable with routine supportive care.
In October 2023, as part of The European Society for Medical Oncology (“ESMO”) Annual Congress, our partner BeiGene presented clinical results from
the ongoing global open-label Phase 1b/2 study for zanidatamab plus chemotherapy and tislelizumab, an anti-PD-1 monoclonal antibody, for the first-line
treatment of HER2-positive gastric/gastroesophageal junction adenocarcinoma (“G/GEJC”) in patients with untreated, unresectable, locally
advanced/metastatic HER2+ G/GEJC. As of November 22, 2022, 33 patients were assigned to Cohort 2a (n=19) or 2b (n=14). Cohort 2a received
zanidatamab 30 mg/kg intravenously (“IV”), Cohort 2b received zanidatamab 1800 mg IV (weight <70 kg) or 2400 mg IV (weight ≥70 kg), each with
tislelizumab 200 mg IV every 3 weeks. Both cohorts also received standard capecitabine-oxaliplatin. Primary endpoints were safety and investigator
(“INV”)-assessed objective response rate (“ORR”) per RECIST v1.1. Secondary endpoints included INV-assessed progression-free survival (“PFS”),
duration of response, and disease control rate. The study showed zanidatamab plus chemotherapy and tislelizumab produced anti-tumor activity with a
confirmed ORR of 75.8% (95% CI: 57.7, 88.9); median PFS of 16.7 months (95% CI: 8.2, NE), and median duration of response of 22.8 months (95% CI:
7.4, NE). Safety data showed 22 patients (66.7%) experienced at least one grade ≥3 treatment-related adverse event (“TRAE”). The most common TRAEs
of any grade were diarrhea (100%), nausea (63.6%), and decreased appetite (48.5%). In total, nine patients (27.3%) experienced immune-mediated adverse
events. Overall, 13 (39.4%) patients remained on treatment. In Cohort 2a, two patients (6.1%) died as a result of TRAEs (one from lung infection and
pneumonitis and the other of sudden death). A Phase 3 trial (NCT05152147) evaluating this regimen is ongoing with top-line data from HERIZON-GEA-
01 targeted to be reported in 2024.
Also at ESMO in October 2023, our partner Jazz presented clinical results on quality of life outcomes from the Phase 2b HERIZON-BTC-01 study
evaluating patients with zanidatamab-treated HER2-positive BTC in patients with centrally confirmed HER2-amplified tumors (detected by in situ
hybridization). Patients were prospectively assigned into one of two cohorts, Cohort 1 (IHC 2+ or 3+; defined as HER2-positive), and Cohort 2 (IHC 0 or
1+). Due to limited sample size (n=7) and no confirmed responses in Cohort 2, the health-related quality of life (“HRQoL”) analyses reported were focused
on Cohort 1 only (HER2-positive). HRQoL outcomes were exploratory endpoints and were assessed using patient-reported 5-Level EQ-5 Dimension (EQ-
5D-5L) descriptive system questionnaire which assesses five dimensions (mobility, self-care, usual activities, pain or discomfort, and anxiety or depression)
by five levels (for each dimension, patients could report: 1, no problems; 2, slight problems; 3, moderate problems; 4, severe problems; 5, extreme
problems/unable to engage in activity). Other exploratory endpoints were assessed using EQ-5D visual analogue scale (VAS) to assesses overall current
health. Patients with HER2-positive BTC who responded to zanidatamab reported improved HRQoL compared with baseline. Overall, zanidatamab
showed positive results that support its potential to reduce disease burden and potentially result in improved patient HRQoL compared to baseline.
Zanidatamab is currently being evaluated in the following clinical trials:
• NCT05035836 – A Phase 2, single-site, single-arm open-label study to determine the efficacy of zanidatamab for patients with early stage low-
risk HER2-positive breast cancer.
• NCT05270889 – A Phase 2 single-arm, open-label, multi-center study of zanidatamab in combination with tislelizumab as a second-line
treatment for HER2-positive advanced gastric cancer as part of the
investigator-initiated K-Umbrella Trial.
• NCT05027139 – A Phase 1b/2 single-arm, open-label, multi-cohort, multicenter study of zanidatamab in combination with evorpacept
(formerly ALX148) in patients with advanced HER2-expressing cancer. Part one of the study evaluates safety and tolerability and establishes
the recommended doses (“RD”). Part two of the study evaluates the anti-tumor activity of the combination at the RD levels in indication-
specific expansion cohorts.
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• NCT04578444 – An intermediate-size Expanded Access Protocol for use of zanidatamab in patients with HER2-positive advanced solid
tumors who are not eligible for other zanidatamab clinical trials, and who in the opinion of the treating oncologist, would potentially benefit
from treatment with zanidatamab.
• NCT05152147 – A randomized, global, multicenter, Phase 3 study of zanidatamab in combination with chemotherapy with or without
tislelizumab in subjects with HER2-positive unresectable locally advanced or metastatic GEA.
• NCT02892123 – A Phase 1 study to evaluate the maximal tolerated dose, optimal biological dose or other recommended dose, and overall
safety and tolerability of zanidatamab in patients with unresectable locally advanced and/or metastatic HER2-expressing cancers.
• NCT03929666 – A multicenter, global, Phase 2, open-label, 2-part, first-line study to investigate the safety, tolerability, and anti-tumor activity
of zanidatamab plus standard first-line combination chemotherapy regimens for selected gastrointestinal (GI) cancers. Eligible patients include
those with unresectable, locally advanced, recurrent or metastatic HER2-expressing GEA, BTC, or CRC.
• NCT04224272 – A multicenter, global, Phase 2, open-label, two-part study. Part one of the study evaluates the safety and tolerability of
zanidatamab in combination with palbociclib and fulvestrant and identify the RD of zanidatamab and palbociclib. Part two of the study
evaluates anti-tumor activity at the recommended dose level.
• NCT04466891 – A multicenter, pivotal, open-label, single-arm trial evaluating the anti-tumor activity of zanidatamab monotherapy in patients
with HER2-amplified, inoperable and advanced or metastatic BTC, including intra-hepatic cholangiocarcinoma, extra-hepatic
cholangiocarcinoma, and gallbladder cancer.
• NCT04513665 – A study to evaluate zanidatamab monotherapy in women with HER2-overexpressed endometrial cancer or carcinosarcoma
that has been treated in the past.
• NCT04276493 – A study to assess the safety, tolerability and preliminary anti-tumor activity of zanidatamab in combination with docetaxel in
participants with HER2-positive breast cancer, and zanidatamab in combination with tislelizumab and chemotherapy in participants with
HER2-positive gastric/gastroesophageal junction adenocarcinoma.
• NCT05615818 – An international, randomized, controlled, open-label platform Phase 3 trial evaluating whether the introduction of molecular
targeted therapies, including zanidatamab, as maintenance after four cycles of standard-of-care first-line systemic therapy is superior to
continuation of first-line standard-of-care in the treatment of patients with advanced biliary cancer as part of the investigator-initiated SAFIR-
ABC10 Trial.
•
jRCT2031210161 – A single arm Phase 1 study of zanidatamab in Japanese subjects with locally advanced (unresectable) and/or metastatic
HER2-expressing cancers.
• NCT01042379 – An adaptive Phase 2 clinical trial design in the neoadjuvant setting for women with locally advanced breast cancer (I-SPY).
• MD Anderson- Jazz Pharmaceuticals 5-year collaboration to evaluate zanidatamab (as monotherapy/ in combination) in patients in different
stages with HER2-expressing solid tumors.
Zanidatamab has been granted Breakthrough Therapy designation by the FDA for the treatment of patients with previously treated HER2 gene-amplified
locally advanced/unresectable or metastatic BTC as well as two Fast Track designations, one for previously treated or recurrent HER2 gene-amplified BTC
and another for first-line HER2-overexpressing GEA in combination with standard of care chemotherapy. Zanidatamab also received Orphan Drug
designation for the treatment of BTC and gastric cancer, including cancer of the gastroesophageal junction, in the United States and for gastric cancer and
BTC in the European Union (“EU”). Zanidatamab has also been granted Breakthrough Therapy designation from the Center for Drug Evaluation in China
for treating patients with BTC who have failed prior systemic therapies. Our partner Jazz Pharmaceuticals has initiated a rolling biologics license
application (BLA) filing with the FDA for zanidatamab as second-line treatment in biliary tract cancers (BTC) in the United States (US) with anticipated
completion of the regulatory submission expected in the first half of 2024. Jazz has also initiated a Phase 3 confirmatory trial for zanidatamab as first-line
treatment in BTC. Similarly, our partner BeiGene expects 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 during the second half of 2024. Our partner Jazz is also evaluating
zanidatamab for the first line treatment of HER2-positive unresectable locally advanced or metastatic GEA. Jazz is targeting to provide the pivotal Phase 3
top-line readout from the zanidatamab HERIZON-GEA-01 trial in late 2024.
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Zanidatamab Zovodotin: HER2-Targeted Bispecific ADC
Overview
Zanidatamab zovodotin, our second clinical-stage product candidate, is currently being evaluated in a Phase 1 clinical trial. It is a biparatopic anti-HER2
ADC developed based on Zymeworks’ proprietary Azymetric multispecific and ZymeLink ADC platforms and combines the unique design of zanidatamab
with a proprietary cytotoxin and cleavable linker. Our cytotoxin destabilizes tubulin, a protein necessary for cell division, and therefore kills rapidly
dividing cancer cells. In preclinical models, compared to certain approved HER2-targeted therapies, zanidatamab zovodotin mediates a superior therapeutic
effect on HER2-expressing tumors through multiple potential mechanisms, including:
•
•
•
•
increased maximum HER2 binding density;
unique biparatopic-induced HER2 receptor clustering;
increased HER2-mediated ADC internalization; and
enhanced toxin-mediated cytotoxicity and tumor growth inhibition.
We are developing zanidatamab zovodotin to be a potential best-in-class HER2-targeting ADC for several indications characterized by HER2 aberrations,
especially for patients whose tumors have progressed or are refractory to HER2-targeted agents and those that express lower levels of HER2 and are
ineligible for treatment with other HER2-targeted therapies.
Preclinical Development of Zanidatamab Zovodotin
In preclinical studies, zanidatamab zovodotin demonstrated complete tumor regressions in a panel of high and low HER2-expressing patient-derived
xenografts and promising efficacy in a model of breast cancer brain metastases. These results compared favorably when benchmarked against approved and
leading HER2 ADCs in clinical development. In a repeat dose toxicology study in non-human primates, zanidatamab zovodotin was well tolerated at 18
mg/kg, suggesting a broad therapeutic window.
Clinical Development of Zanidatamab Zovodotin
We are currently evaluating zanidatamab zovodotin as a monotherapy in a non-randomized, open-label Phase 1 clinical trial in patients with HER2-positive
breast, gastric and other HER2-expressing cancers, whose disease has progressed after all standard of care therapies. The primary objective of the Phase 1
clinical trial is to characterize the safety, tolerability, pharmacokinetics and maximum tolerated dose of zanidatamab zovodotin. The secondary objectives
for the trial include evaluation of preliminary anti-tumor activity of zanidatamab zovodotin, as well as an exploration of potential biomarkers of response.
Based upon the observed safety and activity, subsequent development may focus on patients with HER-positive breast cancer, HER2-positive gastric
cancer, other HER2-expressing cancers, as well as cancers with lower levels of HER2 expression, including breast cancer.
In January 2023, we announced our plans for the continued development of zanidatamab zovodotin at the RP2D of 2.5 mg/kg every three weeks.
In October 2023, as part of the ENA conference, we presented clinical data for zanidatamab zovodotin in a poster titled “Phase 1 Study of Zanidatamab
Zovodotin (ZW49): Safety Profile and Recommended Dose (RD) in Patients with Human Epidermal Growth Factor 2 (HER2)-positive Solid Cancers.” In
total, 67 patients were treated with zanidatamab zovodotin at select cohorts in the 1.25 mg/kg (n =18) and 1.5 mg/kg (n = 18) QW; 2.5 mg/kg Q3W (n =
31) dosing regimens. Of these 67 patients, eight patients discontinued due to TRAEs, including five patients discontinued in 2.5 mg/kg Q3W (three Grade 2
and one Grade 3 keratitis; and one serious TRAE of Grade 4 infusion-related reaction); one patient discontinued in 1.25 mg/kg QW (Grade 2 ophthalmic
herpes zoster); and two patients discontinued in 1.5 mg/kg QW (two Grade 2 keratitis). In the evaluation of zanidatamab zovodotin, the safety profile was
consistent between the 1.25 mg/kg QW and 2.5 mg/kg Q3W regimens, with manageable low-grade keratitis events and no severe complications, and based
on a comprehensive review of the safety and preliminary anti-tumor activity data, zanidatamab zovodotin 2.5 mg/kg Q3W IV was identified as the
recommended dose. Additionally, zanidatamab zovodotin at 2.5 mg/kg Q3W IV demonstrated promising anti-tumor activity in heavily pretreated patients
with advanced HER2+ cancers, achieving a 30% overall response rate with response durations ranging from 1.4 to 19.8 months. These findings suggest
that zanidatamab zovodotin 2.5 mg/kg Q3W IV is the recommended dose, offering an acceptable tolerability profile and potential as a novel treatment
option for advanced HER2+ cancers, supporting further investigation.
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Based on the data generated as of the date of this report from the Phase 1 clinical study, which has continued to enroll subjects to gather additional data for
zanidatamab zovodotin monotherapy, zanidatamab zovodotin remains ready for a Phase 2 study in combination with pembrolizumab in subjects with
locally advanced (unresectable) or metastatic HER2-overexpressing non-squamous NSCLC. However, the initiation of the planned Phase 2 study has been
deprioritized, pending more clarity from the evolving clinical landscape. We continue to explore potential development and commercial collaborations for
zanidatamab zovodotin.
Early-Stage Research and Development
Our early-stage pipeline currently includes four preclinical candidates which have been nominated for development; ZW191, ZW171, ZW220, and ZW251.
The four nominated candidates are as follows:
ZW191, an ADC that targets folate receptor alpha (“FRa”)-expressing tumors including ovarian, other gynecological, and NSCLC, is built using our drug
conjugate platforms, including our novel TOPO1i-based payload technology. A drug-antibody-ratio (“DAR”) of eight was selected to balance tolerability
and efficacy. The FRa monoclonal antibody incorporated in ZW191 was generated in-house and selected based on enhanced internalization characteristics
to enable targeting of high, mid, and low levels of FRa expression. FRa is a clinically validated target, and data supports its expression in approximately
75% of ovarian carcinomas, and in 70% of NSCLC. Our preclinical data is encouraging, with strong anti-tumor activity demonstrated across a range of
patient-derived NSCLC and ovarian xenograft models.
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. A DAR of four was selected to balance tolerability and efficacy. 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. 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. The bystander affect 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 payload utilized in ZW191 (anti-FRa) 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 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 antibody drug conjugate-based targeting of GPC3 could enable a novel and effective approach to treatment of HCC.
We expect to submit IND or foreign equivalent applications for ZW191 and ZW171 in 2024. Similarly, we expect to submit INDs or 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 or foreign equivalent 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.
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Our Proprietary Therapeutic Platforms
Our expertise in protein engineering has enabled the development of our proprietary therapeutic platforms, a complementary suite of highly tailored
biologics solutions. Our therapeutic platforms can be used alone or in combination to develop multifunctional fit-for-purpose biotherapeutics with
bispecific capabilities (Azymetric), targeted cytotoxin payload delivery and linker technologies (Drug Conjugate Platforms), finely tuned immune function
modulation (EFECT), and tumor-specific immune co-stimulation (ProTECT). The modular design and ease of use of our therapeutic platforms allow for
the design and evaluation of multiple candidates with different formats to determine the optimal therapeutic combination early in development. We
continue to leverage these therapeutic platforms to expand our pipeline of next-generation multispecific and ADCs that we believe could represent
significant improvements to the standard of care in multiple cancer types and other serious diseases.
Azymetric Multispecific Antibody Platform
The Azymetric multispecific antibody platform is our foundation platform, which can produce either the backbone of our ADCs or be the base of our
multispecific therapeutics that can be combined with both our trispecific T-cell engager (“TriTCE”) technology and our ProTECT platform to develop
potential best-in-class trispecifics. The Azymetric platform consists of a library of proprietary amino acid substitutions that enable the transformation of
monospecific antibodies into bispecific or trispecific antibodies, which gives them the ability to simultaneously bind two non-overlapping epitopes. The
Azymetric platform enables the development of biotherapeutics with dual-targeting of receptors/ligands and simultaneous blockade of multiple signaling
pathways, increasing tumor-specific targeting and efficacy while reducing toxicities and the potential for drug resistance. In preclinical studies, the dual
targeting of Azymetric antibodies has demonstrated synergistic activity relative to the application of an equivalent dose of the corresponding monospecific
antibodies. Azymetric multispecifics can also be engineered to enhance internalization of the antibody into the tumor cell and consequently increase the
delivery of cytotoxins. Azymetric multispecifics retain the desirable drug-like qualities of monoclonal antibodies, including long half-life, stability and low
immunogenic potential, which increases their probability of success. Azymetric multispecifics are also compatible with standard manufacturing processes
with high production yields and purity.
The Azymetric platform is the foundation for the development of trispecific and trivalent antibodies. Our complementary suite of technologies can
incorporate multiple targets and mechanisms of action within a single antibody-based therapeutic. To achieve efficacy and durability in a difficult tumor
microenvironment, we have developed a TriTCE strategy that integrates checkpoint inhibition (“TriTCE-CPI”) and costimulatory technologies (“TriTCE-
costim”). TriTCE-CPI technology is designed to navigate suppressive tumor microenvironments and enhance the activity of T-cell engagers through
incorporation of a checkpoint pathway binder to restore and enhance T-cell engagement and overcome secondary resistance to provide durable responses.
TriTCE-costim technology can increase T-cell fitness, activation and proliferation via tumor-dependent T-cell co-stimulation. Further, T-cell engager
technologies can integrate with ProTECT, a technology built to mask an antibody arm to improve selectivity to minimize off-target, and mitigate on-target,
adverse events.
Drug Conjugate Platforms
Our Drug Conjugate Platforms are a suite of proprietary cytotoxins (including both topoisomerase and microtubulin inhibiting toxins), stable linkers, and
conjugation technologies that are compatible with and complementary to our product candidates and enable delivery of cytotoxins directly to target cells.
We believe that our platforms provide multiple competitive advantages over existing ADC approaches, including optimized activity and tolerability profiles
through increased drug delivery to target cells with reduced off-target effects, as well as improved pharmacokinetics and stability. Our Drug Conjugate
Platforms can be
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used in conjunction with our other therapeutic platforms to potentially increase safety and efficacy as compared to existing ADC platforms.
Our TOPO1i ADC platform is one of several proprietary Zymeworks linker-payload platforms. TOPO1i-based technologies have shown meaningful
clinical benefit in a wide range of solid tumors, including hard-to-treat solid tumors, and have been validated across many targets. Our novel camptothecin
ZD06519 (FD1) has been specifically designed for its application as an ADC payload. A panel of camptothecin analogs with different substituents at the C-
7 and C-10 positions of the camptothecin core were prepared and tested in vitro. Selected compounds spanning a range of potency and hydrophilicity were
elaborated into drug-linkers, conjugated to trastuzumab, and evaluated in vitro and in vivo. ZD06519 was selected based on its favorable properties as a
free molecule and as an antibody conjugate, which include moderate free payload potency (~1 nanomolar (“nM”)), low hydrophobicity, strong bystander
activity, robust plasma stability, and high-monomeric ADC content. When conjugated to different antibodies using a clinically validated MC-GGFG-based
linker, ZD06519 demonstrated impressive efficacy in multiple cell-derived xenograft (“CDX”) models and noteworthy tolerability in healthy mice, rats,
and non-human primates.
EFECT Antibody Effector Function Modulation Platform
The EFECT platform consists of sets of modifications to the crystallizable fragment (“Fc”) region of antibodies that enable the selective modulation of
recruited cytotoxic immune cells for diverse therapeutic applications. This allows us to rationally tailor the selective enhancement or suppression of
immune effector function to optimize product candidates.
ProTECT Tumor-Specific Immune Co-stimulation Platform
The ProTECT platform is a novel conditionally active antibody technology that can simultaneously increase the tolerability and efficacy for therapeutics,
thereby potentially enhancing therapeutic window and clinical utility. Functional, natural immunomodulatory heterodimers are introduced to sterically
block antigen binding outside the tumor, enabling therapeutics with limited activity in normal healthy tissue, avoiding on-target, off-tumor toxicities. Once
in the tumor microenvironment, specific proteases cleave and release one half of the functional block activating both the targeting antibody and the
immunomodulatory function. The resulting activated multifunctional therapeutic enables immune modulation in concert with antigen binding, which
enables an overall increase in the therapeutic window through selective tumor activity and enhanced potency.
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 December 31, 2023 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.
Product Partnerships
Jazz
In October 2022, we entered into a license and collaboration agreement with Jazz (“Original Jazz Collaboration Agreement”; as amended in April 2023,
“Amended Jazz Collaboration Agreement” and collectively with the Original Jazz Collaboration Agreement, the “Jazz Collaboration Agreement”). Under
the Jazz Collaboration Agreement, Jazz is solely responsible for all development and commercialization rights for zanidatamab throughout the world,
excluding existing APAC territories (other than Japan) already governed by Zymeworks BC’s agreement with BeiGene (“Territory”).
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As part of our collaboration, we granted to Jazz certain exclusive and non-exclusive licenses, under our intellectual property, to research, develop,
manufacture, and commercialize pharmaceutical products containing or incorporating zanidatamab or certain related antibodies excluding ADCs (such
antibodies, collectively, “Licensed Antibodies”, and such pharmaceutical products, “Licensed Products”).
Jazz also granted us certain licenses, under Jazz’s intellectual property, to develop, commercialize, and manufacture the Licensed Antibodies and Licensed
Products including to make and have made such antibodies for incorporation into zanidatamab zovodotin for development and commercialization purposes.
During the Term (as defined below), Jazz and its affiliates are prohibited from performing any clinical development of, or commercialization of, any
pharmaceutical product containing a bispecific antibody directed to the ECD2 and ECD4 domains of HER2 in the Territory, other than Licensed Products.
During the Term, Zymeworks BC and its affiliates are prohibited from (i) performing any preclinical development (except for certain independent, internal
preclinical development by Zymeworks BC or its affiliates) or clinical development of, or commercializing, any pharmaceutical product that is directed to
HER2 in the Territory (each, a “Zymeworks Competing Product”), other than Licensed Products and (ii) using clinical data resulting from certain clinical
trials regarding zanidatamab that were being conducted or initiated by Zymeworks BC (the “Program”) to perform any pre-clinical development or clinical
development, or commercialization of, any pharmaceutical product that is directed to HER2; provided that zanidatamab zovodotin is excluded from each
restriction. Zymeworks BC retains the right to grant third parties rights to apply any of Zymeworks BC’s platforms to derive or generate, without any
assistance from Zymeworks BC, antibodies directed to any biological target where Zymeworks BC is not aware of the identity of any such target, and
Zymeworks BC retains the right to fulfill its obligations under agreements with its existing platform partners; provided, however, that Zymeworks BC
cannot generate, or grant development or commercialization licenses to, Zymeworks Competing Products in new platform-based agreements entered into
after the effective date of the Original Jazz Collaboration Agreement.
Jazz is required to use commercially reasonable efforts to develop and obtain regulatory approval for a Licensed Product in certain major market countries
for the treatment of certain diseases. Jazz will be the holder of regulatory approvals and regulatory submissions for Licensed Products in the Territory.
Zymeworks BC will continue to supply zanidatamab and Licensed Product to certain clinical sites pursuant to the terms of the Jazz Collaboration
Agreement.
Jazz shall be solely responsible for commercializing the Licensed Products in the Territory and use commercially reasonable efforts to commercialize in
each specified major market country each Licensed Product that obtains regulatory approval in such country. Jazz shall conduct such commercialization at
its sole cost and expense.
Under the Jazz Collaboration Agreement, we received (i) a non-refundable $50.0 million upfront payment following receipt of HSR Clearance and delivery
of licenses and technology transfer to Jazz and (ii) a further payment of $325.0 million following Jazz’s decision to continue the collaboration after readout
of the top-line clinical data from HERIZON-BTC-01,in addition to our delivery of other data, analyses and other information. We are also eligible to
receive up to an aggregate of $525.0 million in certain regulatory milestones payments and up to an aggregate of $862.5 million in potential commercial
milestone payments. Pending approval, we are eligible to receive tiered royalties between 10% and 20% on annual net sales of Licensed Products in the
Territory, with customary reductions in specified circumstances. Royalties are payable on a Licensed Product-by-Licensed Product and country-by-country
basis until the latest of (i) ten years after the first commercial sale of such Licensed Product in such country, (ii) the expiration of the last valid licensed
patent claim within the licensed Zymeworks BC intellectual property covering such Licensed Product in such country, and (iii) the expiration of regulatory
exclusivity of such Licensed Product in such country.
The term of the Amended Jazz Collaboration Agreement will continue on a Licensed Product-by-Licensed Product and country-by-country basis until the
expiration of the royalty term for such Licensed Product in such country (the “Term”). The Amended Jazz Collaboration Agreement contains customary
termination rights for Jazz and us, including the right for Jazz to terminate the agreement in its sole discretion with advance notice to us. We may also
terminate the Amended Jazz Collaboration Agreement if Jazz or its affiliates file or initiate a patent challenge against us.
In May 2023, we also entered into a stock and asset purchase agreement with Jazz Pharmaceuticals, Inc. (“Jazz Inc.”) (as amended, the “Transfer
Agreement”) to provide for a series of steps designed to simplify, focus, and potentially expedite the clinical development and commercialization of
zanidatamab in partnership with Jazz Inc. by transferring certain assets, contracts and employees associated with the clinical trials for zanidatamab to Jazz
Inc. and its affiliates.
Pursuant to the Transfer Agreement, at the closing (the “Closing”) thereunder, (i) Jazz acquired from Zymeworks Biopharmaceuticals Inc. (“ZBI”) 100% of
the issued and outstanding capital stock of Zymeworks Zanidatamab Inc. (“ZZI”, a subsidiary of ZBI); (ii) Jazz engaged certain Zymeworks BC and ZZI
employees associated with the development of
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zanidatamab, and the Company transferred to Jazz or one of its affiliates contracts with respect to the engagement of certain independent contractors of
Zymeworks BC and ZBI that worked on the Program; (iii) Jazz and its affiliates acquired from Zymeworks BC and ZBI and their affiliates the Acquired
Assets (as defined in the Transfer Agreement); and (iv) Jazz and its affiliates assumed certain liabilities arising following the Closing related to the
Acquired Assets and the Program, including with respect to the transferred service providers, in each case subject to the terms and conditions of the
Transfer Agreement ((i) through (iv) are collectively referred to as the “Transactions”). No shares of the Company’s common stock were sold by the
Company or acquired by Jazz Inc. and its affiliates in connection with the Transactions.
BeiGene
In November 2018, we entered into agreements with BeiGene whereby we granted BeiGene royalty-bearing exclusive licenses for the research,
development, and commercialization of zanidatamab and zanidatamab zovodotin in Asia (excluding Japan but including the People’s Republic of China,
South Korea and other countries), Australia, and New Zealand (such agreement relating to zanidatamab, as amended, the “Zanidatamab Agreement,” and
such agreement relating to zanidatamab zovodotin, the “Zovodotin Agreement”). In September 2023, Zymeworks BC and BeiGene entered into a
termination agreement relating to the Zovodotin Agreement (the “Termination Agreement”).
For the research, development and commercialization licenses to zanidatamab and zanidatamab zovodotin, we received an upfront payment of $40.0
million. Under the Zanidatamab Agreement, we are also eligible to receive development and commercial milestone payments of up to $172 million,
together with tiered royalties of up to 19.5% of net sales in BeiGene territories, increasing to up to 20% when cumulative amounts forgone as a result of a
royalty reduction of 0.5% reaches a cap in the low double-digit millions of dollars.
In March 2020, BeiGene dosed the first patient in a two-arm Phase 1b/2 trial evaluating zanidatamab in combination with chemotherapy as a first-line
treatment for patients with metastatic HER2-positive breast cancer and in combination with chemotherapy and BeiGene’s PD-1-targeted antibody
tislelizumab as a first-line treatment for patients with metastatic HER2-positive GEA. We received a payment of $5.0 million in relation to this milestone.
In November 2020, BeiGene dosed the first patient in South Korea in the pivotal HERIZON-BTC-01 study, and we received a payment of $10.0 million in
relation to this milestone. In December 2021, BeiGene dosed the first patient in South Korea in the pivotal HERIZON-GEA-01 study, and we received a
payment of $8.0 million in relation to this milestone.
Under the Zanidatamab Agreement, Zymeworks and BeiGene are collaborating on certain global clinical studies and both Zymeworks and BeiGene will
independently conduct other clinical studies in their own respective territories. Each of Zymeworks and BeiGene are responsible for all of the development
and commercialization costs in their own territories. Unless earlier terminated, the Zanidatamab Agreement will terminate on a licensed product-by-product
and country-by-country basis upon the expiration of the royalty term in such country for such licensed product. The Zanidatamab Agreement may be
terminated by BeiGene upon prior written notice or by either party upon the other party’s bankruptcy or uncured material breach.
As noted above, the Zovodotin Agreement was terminated under the Termination Agreement. The Termination Agreement does not relieve us or BeiGene
from obligations under the Zovodotin Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the
termination, including certain licenses to BeiGene intellectual property with respect to zanidatamab zovodotin. For additional information on the
Termination Agreement, please see the section titled “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations— Licensing and Collaboration Agreements—Termination of BeiGene License and Collaboration Agreement Regarding Zanidatamab
Zovodotin.”
Platform Partnerships
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 December 31, 2023, we have received approximately $180.0 million in the form of non-refundable upfront and
milestone payments from platform partnership and collaboration agreements. Under existing revenue-generating strategic partnerships and collaboration
agreements with respect to our Azymetric, EFECT and drug conjugate therapeutic platforms, 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.
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The table below summarizes the stage of each of our platform partners’ most advanced publicly disclosed program.
BMS
In December 2014, we entered into a collaboration agreement with Celgene (now BMS) to research, develop and commercialize bispecific antibodies
generated through the use of our Azymetric platform. This agreement was expanded in 2018 to increase the number of programs from eight to ten and to
extend BMS’s research period. Under the terms of the agreement, we granted BMS a right to exercise options to worldwide, royalty-bearing, antibody
sequence pair-specific exclusive licenses to research, develop and commercialize certain licensed products. We received an upfront payment of $8.0 million
and an expansion fee of $4.0 million. BMS has the right to exercise options on up to ten programs, but in 2023 BMS stopped further development of one of
the ten programs. If BMS opts in on a program, we are eligible to receive up to $164.0 million per product candidate (up to $1.64 billion for all ten
programs, or $1.48 billion not including the one program for which BMS has stopped development), comprised of a commercial license option payment of
$7.5 million, development milestone payments of up to $101.5 million and commercial milestone payments of up to $55.0 million. As of December 31,
2023, BMS has exercised one commercial license option and we have received a total of $7.5 million in product candidate-specific payments. In addition,
we are eligible to receive tiered royalties calculated upon the global net sales of the resulting products. BMS will have exclusive worldwide
commercialization rights to products derived from the agreement if BMS elects to exercise a commercial license option for each product. After conclusion
of BMS’s research period, BMS will be solely responsible for the research, development, manufacturing and commercialization of the products.
In June 2020, our existing collaboration agreement with BMS was amended to expand the license grant to include the use of our EFECT platform for the
development of therapeutic candidates and to extend the research term. We received an upfront expansion fee of $12.0 million and all other financial terms
were unchanged.
The agreement contains customary termination rights for BMS and us, including the right of BMS to terminate the agreement in its entirety or on a
product-by-product basis in its sole discretion with advance notice to us. The agreement will terminate on a product-by-product and country-by-country
basis upon the later of the expiration of the last-expiring patent related to the BMS licensed product, or ten years after the first commercial sale of the BMS
licensed product in such a country. If BMS does not exercise its option for the commercial license, the agreement will terminate on a product-by-product
basis for which the option was not exercised.
GSK
In December 2015, we entered into a collaboration and license agreement with GSK to research, develop and commercialize up to ten Fc-engineered
monoclonal and bispecific antibodies generated through the use of our EFECT and Azymetric platforms. Under the terms of the agreement, we granted
GSK a worldwide, royalty-bearing antibody target-exclusive license to new intellectual property generated to the EFECT platform under this collaboration
and a non-exclusive license to the Azymetric platform to research, develop and commercialize future licensed products. We are eligible to receive up to
$1.1 billion, including research, development and commercial milestone payments of up to $110.0 million for each product. In addition, we are eligible to
receive tiered royalties in the low single digits on net sales of products. No development or commercial milestone payments or royalties have been received
as of December 31, 2023. We retained the right to develop up to four products, free of royalties, using the new intellectual property generated in this
collaboration, and after a period of time, to grant licenses to such intellectual property for development of additional products by third parties. Under this
agreement, we are sharing certain research and development responsibilities with GSK to generate new Fc-engineered antibodies. Each party will bear its
own costs for the responsibilities assigned to it during the research period. After the conclusion of the research period, each party will be solely responsible
for the further research, development, manufacturing and commercialization of its own respective
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products. The agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole
discretion with advance notice to us. The agreement will terminate on the earlier of (i) the end of the research period if GSK does not elect to advance one
or more products incorporating intellectual property generated under the research period for further research and development or (ii) on a product-by-
product and country-by-country basis upon the latter of the product being no longer covered by a patent related to the GSK licensed product, or ten years
after the first commercial sale of the GSK licensed product in such a country.
In April 2016, we entered into a platform technology transfer and license agreement with GSK to research, develop and commercialize up to six bispecific
antibodies generated through the use of our Azymetric platform. This may include bispecific antibodies incorporating new engineered Fc regions generated
under the 2015 GSK agreement. Under the terms of this 2016 agreement, we granted GSK a worldwide, royalty-bearing antibody sequence pair-specific
exclusive license to research, develop and commercialize licensed products. In May 2019, this agreement was expanded to provide GSK access to
Zymeworks’ unique heavy-light chain pairing technology under the Azymetric platform. Under the expanded agreement, we are eligible to receive up to
$1.1 billion in milestone and other payments. As of December 31, 2023, we have received an upfront technology access fee payment of $6.0 million. We
remain eligible to receive research milestone payments of up to $37.5 million, development milestone payments of up to $183.5 million and commercial
milestone payments of up to $867.0 million. In addition, we are eligible to receive tiered royalties in the low to mid-single digits on product sales. GSK
bears all responsibility and costs associated with research, development and commercialization of products generated using the Azymetric platform. The
agreement contains customary termination rights for GSK and us, including the right for GSK to terminate the agreement in its sole discretion with advance
notice to us. Termination provisions allow for GSK to terminate the agreement or specific antibody sequence pairs due to an incurable material breach by
us, and under specific conditions, GSK shall have certain rights to continue the research, development, and commercialization of products with their license
payment, milestone, and royalty obligations reduced by 50%.
Daiichi Sankyo
2016 Agreement
In September 2016, we entered into a collaboration and cross-license agreement (“Collaboration and Cross License Agreement”) with Daiichi Sankyo to
research, develop and commercialize one bispecific antibody generated through the use of our Azymetric and EFECT platforms. As of December 31, 2023,
we have received an upfront technology access fee payment of $2.0 million and research and commercial option related payments totaling $4.5 million.
Under this agreement, we also gained non-exclusive rights to develop and commercialize up to three products (revised to up to six products pursuant to a
June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology antibodies, with royalties in the low single digits to be paid to Daiichi
Sankyo on sales of such products.
In March 2023, we entered into a termination and license agreement (the “Termination and License Agreement”) relating to the Collaboration and Cross
License Agreement. Pursuant to the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in
effect, except that the termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that have accrued
prior to the termination or were expressly intended to survive. Among the rights to survive the termination of the Collaboration and Cross License
Agreement are Zymeworks’ non-exclusive royalty-bearing rights to develop and commercialize products using Daiichi Sankyo’s proprietary immune-
oncology antibodies. Under the Termination and License Agreement, we granted to Daiichi Sankyo a non-exclusive, worldwide, royalty-free right and
license, with the right to sublicense, to certain intellectual property to perform additional research in accordance with the terms of the Termination and
License Agreement during the term of the Termination and License Agreement, which is from February 28, 2023 until the earlier of (i) the day that we
receive written notice from Daiichi Sankyo confirming that Daiichi Sankyo has completed such additional research and (ii) August 27, 2025, unless earlier
terminated (including by advance written notice to us from Daiichi Sankyo). The Termination and License Agreement has no impact on our separate
license agreement with Daiichi Sankyo, which we entered into in 2018, as described below.
2018 Agreement
In May 2018, we entered into a license agreement with Daiichi Sankyo to research, develop and commercialize two bispecific antibodies generated through
the use of our Azymetric and EFECT platforms. This agreement did not alter or amend the initial 2016 agreement. Under the terms of this 2018 agreement,
we granted Daiichi Sankyo a worldwide, royalty-bearing, antibody sequence pair-specific, exclusive license to research, develop and commercialize certain
products, and we were eligible to receive up to $484.7 million in various milestone and other payments. As of December 31, 2023, we have received an
upfront technology access fee payment of $18.0 million. We remain eligible to receive development milestone payments totaling up to $63.4 million and
commercial milestone payments of up to $170.0 million. In addition, we are eligible to receive tiered royalties ranging from the low single digits up to 10%
on product sales. Daiichi Sankyo is solely responsible for the research, development, manufacturing and commercialization of the products. The agreement
contains customary termination rights for Daiichi Sankyo and us, including the right for Daiichi Sankyo to terminate the rights to our therapeutic platforms
in its sole
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discretion with advance notice to us. The agreement shall terminate, with respect to Daiichi Sankyo’s licenses, on a product-by-product basis, with the last
payment obligation for the respective product.
Janssen
In November 2017, we entered into a collaboration and license agreement with Janssen to research, develop and commercialize up to six bispecific
antibodies generated through the use of our Azymetric and EFECT platforms. Under the terms of the agreement, we granted Janssen a worldwide, royalty-
bearing, antibody sequence group-specific exclusive license to research, develop and commercialize certain products, and we were eligible to receive up to
$1.45 billion in various license and milestone payments. As of December 31, 2023, we have received an upfront payment of $50.0 million and
development milestones totaling $8.0 million in connection with the initiation of clinical trials of two bispecific antibodies. Janssen has deprioritized the
development of one of those two bispecific antibodies, and in 2023 the research program term under the agreement ended with respect to the remaining
four bispecific antibodies. As a result, we remain eligible to receive development milestone payments of up to $86.0 million and commercial milestone
payments of up to $373.0 million ($43.0 million and $186.5 million, respectively, not including the bispecific antibody that Janssen has deprioritized). In
addition, we are eligible to receive tiered royalties in the mid-single digits on product sales, with the royalty term being, on a product-by-product and
country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years, beginning from the first
commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be potentially reduced. Janssen has
the right, prior to the first dosing of a patient in a Phase 3 clinical trial for a product, to buy down the royalty relating to such product by one percentage
point with a payment of $10.0 million. The Company determined that, the events and conditions resulting in payments for research, development and
commercial milestones solely depend on Janssen’s performance. Janssen is solely responsible for the research, development, manufacturing and
commercialization of the products. The agreement contains customary termination rights for Janssen and us, including the right for Janssen to terminate the
agreement in its sole discretion with advance notice to us. The agreement will terminate, on a product-by-product basis, on the expiry of the royalty term
for the product.
Other Collaborations
Merck
We have collaborated with Merck since 2011. In July 2020, we entered into a new licensing agreement with Merck granting Merck a worldwide, royalty-
bearing license to research, develop and commercialize up to three new multispecific antibodies toward Merck’s therapeutic targets in the human health
field and up to three new multispecific antibodies toward Merck’s therapeutic targets in the animal health field using our Azymetric and EFECT platforms.
We are eligible to receive up to $419.3 million in option exercise fees and clinical development and regulatory approval milestone payments and up to
$502.5 million in commercial milestone payments, as well as tiered royalties on worldwide sales.
Iconic / Exelixis
In May 2019, we entered into a license agreement with Iconic Therapeutics, Inc. (“Iconic”) to develop and commercialize its ADC (ICON-2) targeting
Tissue Factor, generated through the use of our ZymeLink platform. Under the terms of this agreement, we granted Iconic a worldwide, royalty-bearing,
antibody sequence-specific, exclusive license to develop and commercialize certain products. In December 2020, Iconic licensed ICON-2 (also known as
XB002) to Exelixis, and under our agreement with Iconic, we received $4.0 million, a share of the $20.0 million option fee paid to Iconic by Exelixis.
Under a December 2021 amendment to the license agreement between Iconic and Exelixis, we received a share of the one-time fee received by Iconic in
exchange for all future milestones owing to Iconic from Exelixis. We continue to be eligible to receive future royalties on the ICON-2 program pursuant to
the agreement with Iconic. Iconic and its partners are responsible for the development, manufacturing, and commercialization of the products.
Intellectual Property
Our business success will depend significantly on our ability to:
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secure, maintain and enforce patent and other proprietary protection for our core technologies, inventions and know-how;
obtain and maintain licenses to key third-party intellectual property owned by such third parties;
preserve the confidentiality of our trade secrets; and
operate without infringing upon valid, enforceable third-party patents and other rights.
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We seek to secure and maintain patent protection for the composition of matter, manufacturing processes and methods of use for our drug candidates and
for our underlying protein engineering capabilities and therapeutic platforms including Azymetric, EFECT, ZymeLink, ZymeCAD and ProTECT. We also
utilize trade secrets, careful monitoring and limited disclosure of our proprietary information where patent protection is not appropriate. We also protect our
proprietary information by ensuring that our employees, consultants, contractors and other advisors execute agreements requiring non-disclosure and
assignment of inventions prior to their engagement. We intend to continue to expand our intellectual property holdings by seeking patent protection for new
compositions of matter, new features and applications of our core therapeutic platforms, and innovative new therapeutic platforms, in the United States and
other jurisdictions. We also intend to supplement internal innovation through in-licensing of new technologies and compositions of matter as appropriate.
We intend to take advantage of any available data exclusivity, market exclusivity, patent term adjustment and patent term extensions.
We routinely monitor the status of existing and emerging intellectual property disclosed by third parties that may impact our business, and to the extent we
identify any such disclosures, by evaluating them and taking appropriate courses of action.
As of December 31, 2023, our patent portfolio consists of 75 active patent families. Of these, 32 families relate to our key product candidates (zanidatamab
and zanidatamab zovodotin), our preclinical product candidates (including our lead preclinical product candidates ZW191, ZW171, ZW220 and ZW251),
and our therapeutic platform technology. The remaining 43 patent families relate to other earlier stage potential product candidates or platforms that we do
not consider material to our business at this time. One of our patent families is exclusively licensed from a third party. Two of our patent families are co-
owned with VAR2 Pharmaceuticals ApS, and one patent family is co-owned with the Provincial Health Services Authority and University of Victoria
Industry Partnerships. None of the licensed or co-owned patent families relate to our lead product candidates, zanidatamab and zanidatamab zovodotin. As
of December 31, 2023, we have 237 issued patents, 56 of which are U.S. patents.
Therapeutic Antibody Portfolio
Our therapeutic antibody patent portfolio is directed to specific compositions of matter and methods of treatment for our product candidates, including
target-specific interactions and immunomodulatory mechanisms. We own the zanidatamab and zanidatamab zovodotin patent portfolio.
• Zanidatamab: Zanidatamab is covered by five patent families. The first is an international patent application filed under the Patent Cooperation
Treaty (“PCT”) that is in the national phase with applications pending or issued in Australia, Brazil, Canada, China, Europe, Hong Kong, India,
Japan, Korea, Macao, Mexico, Russia and the United States. This application relates to the composition of matter, methods of making and uses
of zanidatamab, and if issued, is expected to expire in 2034, absent any adjustments or extensions. Three U.S. patents have issued in this
family. Three additional PCT applications relate to treatment methods using zanidatamab. Two of these PCT applications are in the national
phase, one with applications issued or pending in Australia, Canada, Europe, Japan and the United States, and the other with applications
pending in Australia, Brazil, Canada, Chile, China, Europe, Hong Kong, Japan, Korea, Mexico, Russia and the United States. Any patents that
issue from these national phase filings are expected to expire between 2035 and 2039, absent any adjustments or extensions. Any patents
issuing from national phase filings based on the third PCT application are expected to expire in 2042, absent any adjustments or extensions.
Another patent family is pending in Canada and the United States and is also directed to treatment methods using zanidatamab. Any patents
that issue from this patent family are expected to expire in 2040, absent any adjustments or extensions.
• Zanidatamab Zovodotin: Zanidatamab zovodotin is covered by two patent families. The first is a PCT application covering zanidatamab
zovodotin composition of matter and methods of making and using zanidatamab zovodotin, which is in the national phase with applications
pending or issued in Australia, Brazil, Canada, China, Europe, Hong Kong, Israel, India, Japan, Korea, Mexico, New Zealand, Russia,
Singapore and the United States. One U.S. patent has issued from this family. Corresponding applications were filed in Argentina and Taiwan
that are not part of the PCT. Any patents that issue from these national phase filings and the Argentina and Taiwan applications are expected to
expire in 2039, absent any adjustments or extensions. The second patent family is a PCT application that relates to treatment methods using
zanidatamab zovodotin. Any patents that issue from national phase filings based on this PCT application are expected to expire in 2043, absent
any adjustments or extensions.
Both zanidatamab and zanidatamab zovodotin are also protected by our two patent families relating to the Azymetric Fc, as described below. Zanidatamab
zovodotin is also protected by two of the ZymeLink patent families, as described below.
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Lead Preclinical Candidate Portfolio
Our lead preclinical candidate patent portfolio is directed to specific compositions of matter and methods of treatment for our lead preclinical candidates.
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ZW191: We have filed a PCT application covering ZW191 compositions of matter and methods of making and using ZW191. Any patents that
issue from national phase filings based on this PCT application are expected to expire in 2043, absent any adjustments or extensions. ZW191 is
also protected by our patent family relating to our TOPO1i technology, as described below, as well as a patent family that covers the antibody
component of ZW191.
ZW171: We have filed a PCT application covering ZW171 composition of matter and methods of making and using ZW171. Any patents that
issue from national phase filings based on this PCT application are expected to expire in 2043. ZW171 is also protected by our two patent
families relating to the Azymetric Fc, as described below.
ZW220: We have filed a PCT application covering ZW220 compositions of matter and methods of making and using ZW220. Corresponding
applications were filed in Argentina and Taiwan that are not part of the PCT. Any patents that issue from national phase filings based on this
PCT application and from the Argentina and Taiwan applications are expected to expire in 2043, absent any adjustments or extensions. In
addition, we have filed a U.S. provisional application covering additional aspects of ZW220 compositions of matter. ZW220 is also protected
by our patent family relating to our TOPO1i platform, as described below, as well as a patent family that covers the antibody component of
ZW220.
ZW251: We have filed a PCT application covering ZW251 compositions of matter and methods of making and using ZW251. Corresponding
applications were filed in Argentina and Taiwan that are not part of the PCT. Any patents that issue from national phase filings based on this
PCT application and from the Argentina and Taiwan applications are expected to expire in 2043, absent any adjustments or extensions. In
addition, we have filed a U.S. provisional application covering additional aspects of ZW251 compositions of matter. ZW251 is also protected
by our patent family relating to our TOPO1i platform, as described below. The antibody component of ZW251 is also protected by a patent
family exclusively in-licensed from a third party.
Therapeutic Platform Technology Portfolio
The therapeutic platform technology portfolio includes biological formats and variants thereof, including the Azymetric platform, our Drug Conjugate
Platforms (including ZymeLink and our TOPO1i technology), the EFECT platform, and specific applications, manufacturing methods and assays related to
the platform constructs and underlying computational chemistry.
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Azymetric: We own a portfolio of seven patent families relating to the Azymetric platform for engineering Fc and Fab constructs for the
development of bispecific antibodies.
Azymetric Fc: Two of the patent families relate to engineered antibody Fc region polypeptides having amino acid substitutions that
preferentially form heterodimers. One patent family has PCT national phase applications pending or issued in Australia, Brazil, Canada, China,
Europe, Hong Kong, India, Japan, Korea, Macao, Mexico, Russia and the United States. The second patent family has PCT national phase
applications pending or issued in Australia, Brazil, Canada, China, Europe, Hong Kong, India, Japan, Korea, Mexico, Russia and the United
States. One U.S. patent has issued with 1,102 days of patent term adjustment and is expected to expire on November 10, 2034. A second U.S.
patent has issued with 372 days of patent term adjustment and is expected to expire on November 9, 2033. Two additional U.S. patents have
issued. If issued, the remaining patents in these families are expected to expire between 2031 and 2032, absent any adjustments or extensions.
A third patent family relates to engineered IgA Fc region polypeptides having amino acid substitutions that preferentially form heterodimers,
with PCT national phase applications pending in Australia, Brazil, Canada, China, Europe, Hong Kong, India, Japan, Korea, Mexico,
Singapore and the United States. Any patents that issue from these national phase filings are expected to expire in 2041, absent any
adjustments or extensions. Two additional issued U.S. patents cover methods of expressing antibodies containing heterodimeric Fc regions in
cells.
Azymetric Fab: Four patent families in the PCT national phase are pending or issued in Australia, Brazil, Canada, China, Europe, Hong Kong,
India, Japan, Korea, Mexico, Russia and the United States and relate to antibodies having amino acid substitutions in Fab-region heavy and
light chains for making correctly paired bispecific antibodies. Seven U.S. patents have issued. These patent families are directed to
compositions, methods of producing and uses of heterodimeric antibodies. Any patents that issue in these families are expected to expire
between 2031 and 2038, absent any adjustments or extensions.
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• Drug Conjugate Platforms: Our Drug Conjugate Platforms are a suite of proprietary cytotoxins (including both topoisomerase 1 and
microtubulin inhibiting toxins), stable linkers, and conjugation technologies that are compatible with and complementary to our product
candidates and enable delivery of cytotoxins directly to target cells.
ZymeLink: We own the ZymeLink patent portfolio, consisting of three patent families relating to novel toxin molecules and novel linkers by
means of which these toxins can be conjugated to antibodies and other protein scaffolds. One patent family in the PCT national phase is
pending or issued in Australia, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, Korea, Malaysia, Mexico, Singapore, South
Africa and the United States, and is directed to novel hemiasterlin toxin derivatives, hemiasterlin-linker compositions, and antibody-
hemiasterlin conjugate compositions. Three U.S. patents have issued from this patent family. A second patent family in the PCT national phase
is pending or issued in Australia, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, Korea, Mexico and the United States, and is
directed to novel linker compositions, including the one used in zanidatamab zovodotin. One U.S. patent has issued from this patent family. A
third patent family in the PCT national phase is directed to novel auristatin derivatives, auristatin-linker compositions and antibody-auristatin
conjugates, including the one used in zanidatamab zovodotin, and is pending or issued in Australia, Brazil, Canada, China, Europe, Hong
Kong, India, Israel, Japan, Korea, Mexico, Russia, Singapore and the United States. Four U.S. patents have issued from this patent family. Any
patents that may issue from these families are expected to expire between 2034 and 2037, absent any adjustments or extensions.
TOPO1i Platform: Our TOPO1i technology is covered by one patent family relating to novel TOPO1i compounds, TOPO1i-linker
compositions and antibody-TOPO1i conjugates. This patent family is in the PCT national phase and is pending in Australia, Brazil, Canada,
Europe, India, Israel, Japan, Korea, Mexico, Russia, Singapore and the United States. Any patents that issue from these national phase filings
are expected to expire in 2042, absent any adjustments or extensions.
EFECT: The EFECT platform for engineering Fc constructs with modulated FcgR-binding and Fc effector function is protected by four patent
families. One patent family in the PCT national stage has issued in Australia, Canada, Mexico and the United States. A second patent family in
the PCT national stage is pending or issued in Australia, Brazil, Canada, Europe, Hong Kong, India, Japan, Russia and the United States. Two
U.S. patents have issued from these families. These patent families are directed to compositions of matter and methods of making Fc constructs
with altered FcgR-binding and Fc effector function. Any patents that issue from these families are expected to expire between 2031 and 2034,
absent any adjustments or extensions. The third patent family is in the PCT national stage and is pending in Australia, Brazil, Canada, China,
Europe, Hong-Kong, India, Japan, Korea, Mexico and the United States. This patent family relates to Fc modifications that modulate other
aspects of Fc effector function. Any patents that issue from this third patent family are expected to expire in 2041, absent any adjustments or
extensions. The fourth patent family is a PCT application filed on September 2, 2022, and relates to compositions of matter and methods of
making Fc constructs that lack FcgR-binding. Any patents that issue from this patent family are expected to expire in 2042, absent any
adjustments or extensions.
ProTECT: The ProTECT platform is protected by one patent family that covers the composition of matter of polypeptide constructs
comprising immunomodulatory ligands and their cognate receptors derived from the immunoglobulin superfamily (such as PDL1 and PD1)
fused to antibody variable heavy and light chain region termini respectively via protease-cleavable linkers. This patent family is in the PCT
national phase and is pending in Australia, Brazil, Canada, China, Europe, Hong Kong, India, Japan, Korea, Mexico, Russia and the United
States. Any patents that issue from this patent family are expected to expire in 2041, absent any adjustments or extensions.
Computational Chemistry: We own a portfolio of 15 families of computational chemistry patents and patent applications that relate to the
computational and algorithmic advances incorporated into the ZymeCAD suite of applications, including advances in general molecular
modeling, conformational dynamics, docking, distal mutations, and molecular packing, as well as parallelization and graphical data analysis.
Twelve U.S. patents have issued from these families. Any patents that issue from these families are expected to expire between 2027 and 2042,
absent any adjustments or extensions.
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Technology Licensing and In-Licensed Intellectual Property
CVI / Kairos
We identify and, from time to time, selectively enter into technology licensing agreements and intellectual property in-licensing agreements to support
pipeline advancement. For example, in March 2016, we entered into an assignment agreement with
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CDRD Ventures Inc. (“CVI”), as part of our acquisition of Kairos Therapeutics Inc. (“Kairos”), pursuant to which all of CVI’s interests in Kairos’ patents
and intellectual property were assigned to us. Under the assignment agreement, we may be required to make future payments of up to an aggregate of
C$8.5 million, consisting of (i) a C$2.5 million payment when the first patient is dosed in the first Phase 2 trial and (ii) a C$6.0 million payment when the
first patient is dosed in the first Phase 3 trial, to CVI for zanidatamab zovodotin or other product candidates upon the direct achievement of certain clinical
development milestones for products incorporating certain Kairos intellectual property. In addition, CVI is eligible to receive low single-digit royalty
payments from us on the net sales of such products, pending receipt of regulatory approval. Royalties are payable on a product-by-product and country-by-
country basis until the expiration, revocation, invalidation or abandonment of the last valid claim within the patents covering such products in the country
of sale. For out-licensed products and technologies incorporating certain Kairos intellectual property, we also may be required to pay CVI a mid-single-
digit percentage of certain future revenue.
Daiichi Sankyo
As noted above under “Strategic Partnerships and Collaborations - Platform Partnerships - Daiichi Sankyo - 2016 Agreement,” in September 2016, we
entered into the Collaboration and Cross License Agreement with Daiichi Sankyo under which we gained non-exclusive rights to develop and
commercialize up to three products (up to six products pursuant to a June 2022 amendment) using Daiichi Sankyo’s proprietary immune-oncology
antibodies. In March 2023, we entered into the Termination and License Agreement relating to the Collaboration and Cross License Agreement. Pursuant to
the Termination and License Agreement, the Collaboration and Cross License Agreement is terminated and is no longer in effect, except that the
termination does not relieve the parties from obligations under the Collaboration and Cross License Agreement that accrued prior to the termination or were
expressly intended to survive. Among the rights to survive the termination of the Collaboration and Cross License Agreement are Zymeworks’ non-
exclusive royalty-bearing rights to develop and commercialize products, such as ZW171, using Daiichi Sankyo’s proprietary immune-oncology antibodies.
Under the Termination and License Agreement, pending receipt of regulatory approval, we may be required to make future low single-digit royalty
payments on the net sales of such products.
Phanes
In addition, in November 2021, we entered into a license agreement with Phanes Therapeutics, Inc. (“Phanes”). Phanes granted Zymeworks an exclusive,
worldwide, non-transferable (except in connection with an assignment of the agreement), sublicensable, royalty-bearing license to research, develop,
commercialize, and otherwise exploit certain antibody products incorporating proprietary Phanes binders in the field of oncology. In December 2023, this
license agreement was partially terminated only with respect to a specific set of such products. All other rights and obligations under this license agreement
remain in full force and effect.
Under the license agreement, we may be required to make future payments to Phanes upon the direct achievement of certain clinical development
milestones for products, such as ZW251, that incorporate certain Phanes intellectual property. In addition, subject to receipt of regulatory approval, we may
be required to make future payments to Phanes upon direct achievement of certain commercial milestones and certain sales milestones, as well as up to low
single-digit royalty payments on net sales of such products.
Manufacturing
We rely on third-party contract manufacturing organizations to provide manufacturing, linker-toxin conjugation, and fill-finish services in order to generate
all of the therapeutic antibody supply required for our clinical studies and other research and development activities. To retain focus on our expertise in
developing new product candidates, we do not currently plan to develop or operate in-house manufacturing capacity. Our bispecific therapeutic antibody
candidates require standard chemistry, manufacturing and control (“CMC”) processes typical of those required for monoclonal antibody manufacturing. We
therefore expect to continue to be able to develop product candidates that can be manufactured in a cost-effective fashion by our network of qualified third-
party contract manufacturing organizations.
Through our contract manufacturing organizations, we currently have sufficient supply of our product candidates to carry out ongoing and planned
preclinical studies. For zanidatamab, we also have sufficient current good manufacturing practices (“cGMP”)-grade supply, together with planned
additional manufacturing runs, to complete ongoing clinical trials. For zanidatamab zovodotin, we have sufficient cGMP-grade supply, together with
planned additional manufacturing runs, to complete our ongoing clinical trial and anticipated clinical trials.
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Competition
The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products.
While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential
competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions
and governmental agencies, and public and private research institutions. Any product candidates that we successfully develop and commercialize will
compete with existing therapies and new therapies that may become available in the future.
With respect to target discovery activities, competitors and other third parties, including academic and clinical researchers, may be able to access rare
families and identify targets before we do.
Many of the companies against which we compete or against which we may compete in the future have significantly greater financial resources and
expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved
products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated
among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through
collaboration arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific
and management personnel, establishing clinical trial sites, recruiting patients for clinical trials, and by acquiring technologies complementary to, or
necessary for, our programs.
The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience and price,
the effectiveness of alternative products, the level of competition and the availability of coverage, and adequate reimbursement from government and other
third-party payors.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products or therapies that are safer, more
effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also
may obtain FDA, European Medicines Agency (“EMA”) or other regulatory approval for their products more rapidly than we may obtain approval for ours,
which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may
be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic or biosimilar products.
Zanidatamab and zanidatamab zovodotin are being developed for patients with solid tumors that express HER2, including patients with tumors expressing
low levels of HER2. Competing approved HER2-targeted therapies include F. Hoffmann-La Roche Ltd.’s Herceptin, Perjeta, Phesgo, and Kadcyla as well
as Novartis Pharmaceuticals Corporation’s Tykerb, Puma Biotechnology, Inc.’s Nerlynx, AstraZeneca PLC / Daiichi Sankyo’s Enhertu, Seagen Inc.’s
Tukysa, MacroGenics, Inc.’s Margenza, Jiangsu HengRui Medicine Co., Ltd.’s Pyrotinib, and various trastuzumab biosimilars.
The FDA and corresponding regulatory authorities will ultimately review our clinical results and determine whether our product candidates are effective.
No regulatory agency has made any such determination that any of our product candidates are effective for use by the general public for any indication.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the
research, development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution,
post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. Our ADC product candidates are
comprised of both a drug product and a biologic product, and will therefore be subject to regulation in the United States as combination products. If
marketed individually, each component would be subject to different regulatory pathways and would require approval of independent marketing
applications by the FDA. A combination product, however, is assigned to an FDA center that will have primary jurisdiction over its regulation based on a
determination of the combination product’s primary mode of action, which is the single mode of action that provides the most important therapeutic action.
In the case of our ADCs, we believe that the primary mode of action is attributable to the biologic component of the product. Thus, our product candidates
are regulated as therapeutic biologics, with the FDA’s Center for Drug Evaluation and Research having primary jurisdiction over premarket development.
Biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and other federal, state, local
and foreign statutes and regulations. Our product candidates must be approved by the FDA before
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they may be legally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign
countries.
U.S. Biological Products Development Process
The process required by the FDA before a biologic may be marketed in the United States generally involves the following:
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completion of extensive nonclinical, sometimes referred to as preclinical, laboratory tests and preclinical animal trials and applicable
requirements for the humane use of laboratory animals and formulation studies in accordance with applicable regulations, including good
laboratory practices (“GLP”);
submission to the FDA of an IND application, which must become effective before human clinical trials may begin;
performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as current good
clinical practice (“cGCP”) regulations and any additional requirements for the protection of human research subjects and their health
information, to establish the safety and efficacy of the proposed biological product for its intended use. The FDA may also impose clinical
holds on a biological product candidate at any time before or during clinical trials due to safety concerns or noncompliance. If the FDA
imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA.
submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from results of
nonclinical testing and clinical trials;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess
compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biological product’s
identity, strength, quality and purity;
potential FDA audit of the nonclinical and clinical study sites that generated the data in support of the BLA; and
FDA review and approval, or licensure, of the BLA.
Human clinical trials are typically conducted in sequential phases that may overlap or be combined:
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Phase 1. The biological product candidate is initially introduced into healthy human volunteers and tested for safety. In the case of some
products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy
volunteers, the initial human testing is often conducted in patients.
Phase 2. The biological product candidate is evaluated in a limited patient population to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing
schedule.
Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at
geographically dispersed clinical study sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and
provide an adequate basis for product labelling.
During all phases of clinical development, regulatory agencies require extensive reporting, monitoring and auditing of all clinical activities, clinical data,
and clinical study investigators.
A sponsor, an institutional review board (“IRB”) or independent ethics committee, the FDA or other regulatory or monitoring authorities may suspend a
clinical study at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk,
failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols, failure to demonstrate a benefit from using the
investigational drug, changes in government regulations or administrative actions.
Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is
publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and
other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after
completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved.
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U.S. Review and Approval Processes
After the completion of clinical trials of a biological product candidate, FDA approval of a BLA must be obtained before commercial marketing of the
biological product. When a BLA is submitted, the FDA conducts a preliminary review to determine whether the application is sufficiently complete to be
accepted for filing. If it is not, the FDA may refuse to file the application and request additional information, in which case the application must be
resubmitted with the supplemental information, and review of the application is delayed. Upon accepting the BLA for filing, the FDA will conduct an in-
depth review the BLA and may hold a public hearing where an independent advisory committee of expert advisors considers key questions regarding the
product candidate. This advisory committee makes a recommendation to the FDA, which is not binding on the FDA, but is generally followed.
The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a
serious or life-threatening disease or condition. In particular, the FDA may designate a product for Fast Track review if it is intended, whether alone or in
combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to
address unmet medical needs for such a disease or condition. For Fast Track designated products, sponsors may have a higher number of interactions with
the FDA and the FDA may initiate review of sections of a Fast Track product’s New Drug Application or BLA before the application is complete. The
FDA has granted two Fast Track designations to zanidatamab for the first-line treatment of patients with HER2-overexpressing GEA in combination with
standard of care chemotherapy and for previously treated or recurrent gene-amplified BTC.
The FDA also may designate a product as a Breakthrough Therapy if it is intended, alone or in combination with one or more other products, to treat a
serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over
existing therapies on one or more clinically important endpoints, such as substantial treatment effects observed early in clinical development. For products
that have been designated as a Breakthrough Therapy, interaction and communication between the FDA and the sponsor of the trial can help to identify the
most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Products designated as a
Breakthrough Therapy by the FDA can also be eligible for accelerated approval. The FDA has granted Breakthrough Therapy designation for zanidatamab
in HER2 gene-amplified BTC patients who have received prior systemic chemotherapy. In December 2022, the Consolidated Appropriations Act, 2023,
including the Food and Drug Omnibus Reform Act (“FDORA”), was signed into law. FDORA made several changes to the FDA’s authorities and its
regulatory framework, including, among other changes, reforms to the accelerated approval pathway, such as requiring the FDA to specify conditions for
post-approval study requirements and setting forth procedures for the FDA to withdraw a product on an expedited basis for non-compliance with post-
approval requirements.
Under the Pediatric Research Equity Act, certain applications for approval must include an assessment, generally based on clinical study data, of the safety
and effectiveness of the subject drug in relevant pediatric populations. The FDA may waive or defer the requirement for a pediatric assessment, either at the
company’s request or by the FDA’s initiative. The FDA may determine that a Risk Evaluation and Mitigation Strategy (“REMS”) is necessary to ensure
that the benefits of a new product outweigh its risks. A REMS may include various elements, ranging from a medication guide or patient package insert to
limitations on who may prescribe or dispense the drug or other elements to assure safe use, depending on what the FDA considers necessary for the safe
use of the drug.
Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it
determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the
product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the
clinical trials were conducted in compliance with IND study requirements and cGCP requirements.
Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for
approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than the applicant
interprets the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually
describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor (for example, requiring labeling
changes) or major (for example, requiring additional clinical trials). Additionally, the complete response letter may include recommended actions that the
applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA,
addressing all of the deficiencies identified in the letter, or withdraw the application.
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If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may
otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or
precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the
form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-marketing clinical trials, sometimes referred to as
Phase 4 clinical trials, designed to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety
of approved products that have been commercialized.
Orphan Drug Designation
The Orphan Drug Act established incentives for the development of drugs intended to treat rare diseases or conditions, which generally are diseases or
conditions affecting less than 200,000 individuals in the United States at the time of the request for orphan designation. If a sponsor demonstrates that a
drug is intended to treat a rare disease or condition and meets other applicable requirements, the FDA grants Orphan Drug Designation to the product for
that use. The FDA has granted zanidatamab Orphan Drug Designation for the treatment of BTC and GEA.
The benefits of Orphan Drug Designation include tax credits for clinical testing expenses and exemption from user fees. A drug candidate that is approved
for the orphan drug designated use typically is granted seven years of orphan drug exclusivity. During that period, the FDA generally may not approve any
other application for the same product for the same indication, although there are exceptions, most notably when the later product is shown to be clinically
superior to the product with exclusivity. However, the FDA Reauthorization Act, which was enacted in 2017, requires, among other things, that certain
orphan drugs for cancer be tested for children. The government has also increased focus on the potential misuse of the orphan drug approval process to
increase the price of orphan drugs.
In Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021), the court disagreed with the FDA’s longstanding position that the orphan drug
exclusivity only applies to the approved use or indication within an eligible disease, and not to all uses or indications within the entire disease or condition.
In particular, the circuit court held that the orphan drug exclusivity for Catalyst’s drug blocked the FDA’s approval of another drug for all uses or
indications within the same orphan-designated disease, Lambert-Eaton myasthenic syndrome (LEMS), even though Catalyst’s drug was approved at that
time only for use in the treatment of LEMS in adults. Accordingly, the court ordered the FDA to set aside the approval of a drug indicated for LEMS in
children. This decision created uncertainty in the application of the orphan drug exclusivity. On January 24, 2023, the FDA published a notice in the
Federal Register to clarify that while the agency complies with the court’s order in Catalyst, the FDA intends to continue to apply its longstanding
interpretation of the regulations to matters outside of the scope of the Catalyst order – that is, the agency will continue tying the scope of orphan drug
exclusivity to the uses or indications for which a drug is approved, which permits other sponsors to obtain approval of a drug for new uses or indications
within the same orphan designated disease or condition that have not yet been approved. It is unclear how future litigation, legislation, agency decisions,
and administrative actions will impact the scope of the orphan drug exclusivity.
Post-Approval Requirements
Even if regulatory approval is granted, a marketed product is subject to continuing comprehensive requirements under federal, state and foreign laws and
regulations, including requirements and restrictions regarding adverse event reporting, recordkeeping, marketing, and compliance with cGMP. Adverse
events reported after approval of a drug can result in additional restrictions on the use of a marketed product or requirements for additional post-marketing
studies or clinical trials.
Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and
financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP
requirements. Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products are required
to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state
agencies for compliance with cGMP requirements and other laws. We will rely, and expect to continue to rely, on third parties for the production of clinical
and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements
in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements
applicable to biological products include record-keeping requirements, reporting of adverse effects and reporting updated safety and efficacy information.
Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements relating to the manufacture or promotion
of an approved product may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as significant
administrative, civil or criminal sanctions.
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Biosimilars and Exclusivity
The 2010 Patient Protection and Affordable Care Act (“PPACA”) includes a subtitle called the Biologics Price Competition and Innovation Act of 2009
(“BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed
reference biological product.
Under the BPCIA, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product
was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA
approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to
demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as the first
interchangeable for biologic products.
Canadian Review and Approval Process
In Canada, our biologic product candidates and our research and development activities are primarily regulated by the Food and Drugs Act and the rules
and regulations thereunder, which are enforced by Health Canada. Health Canada regulates, among other things, the research, development, testing,
manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, post-approval monitoring, marketing and import and export
of pharmaceutical products. Drug approval laws require licensing of manufacturing facilities, carefully controlled research and testing of products, and
government review and approval of experimental results prior to giving approval to sell drug products, including biologic drug products. Regulators also
typically require that rigorous and specific standards such as cGMP, GLP and cGCP are followed in the manufacture, testing and clinical development,
respectively, of any drug product. The processes for obtaining regulatory approvals in Canada, along with subsequent compliance with applicable statutes
and regulations, require the expenditure of substantial time and financial resources.
The principal steps required for drug approval in Canada are as follows:
Preclinical Toxicology Studies and Clinical Trials
Non-clinical studies are conducted in vitro and in animals to evaluate pharmacokinetics, metabolism and possible toxic effects to provide evidence of the
safety of the drug candidate prior to its administration to humans in clinical studies and throughout development. Such studies are conducted in accordance
with applicable laws and GLP.
In Canada, the process of conducting clinical trials with a new drug cannot begin until a Clinical Trial Application (“CTA”) is submitted and the required
number of days has lapsed without objection from Health Canada. Biological drugs carry additional risks, as compared to traditional small-molecule drugs,
associated with complexity and variability in manufacturing that can contribute to increased lot-to-lot variation of the final product, and with the potential
for adventitious agents. Therefore, the content requirements for the quality information for biological drugs to be used in clinical trials are different from
those for standard small-molecule pharmaceutical drugs (for example, the inclusion of information on manufacturing facilities is required for biological
drugs). In addition, it is necessary to have more stringent controls on the release of biologic drug lots used in authorized clinical trials.
Similar regulations apply in Canada regarding clinical trials as in the United States. In Canada, Research Ethics Boards (“REBs”), instead of IRBs, are used
to review and approve clinical trial plans. Human clinical trials are typically conducted in three sequential phases, as discussed above in the context of
government regulation in the United States.
The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and active
pharmaceutical ingredients imported into Canada are also subject to regulation by Health Canada relating to their labeling and distribution. Progress reports
detailing the results of the clinical trials must generally be submitted at least annually to Health Canada and/or the applicable REBs, and more frequently if
serious adverse events occur.
New Drug Submission
Upon successful completion of Phase 3 clinical trials, the company sponsoring a new drug then assembles all the preclinical and clinical data and other
testing relating to the product’s pharmacology, chemistry, manufacture, and controls, and submits it to Health Canada as part of a New Drug Submission
(“NDS”). The NDS is then reviewed by Health Canada for approval to market the drug.
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The testing and approval process for an NDS requires substantial time, effort and financial resources, and may take several years to complete. Biologic
drugs, such as our candidates, differ from standard small-molecule drugs in that applicants must include more detailed chemistry and manufacturing
information. This is necessary to help ensure the purity and quality of the product, for example to help ensure that it is not contaminated by an undesired
microorganism. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which
could delay, limit or prevent regulatory approval. Health Canada may not grant approval of an NDS on a timely basis, or at all.
Even if Health Canada approves a product candidate, it may limit the approved indications for use of the product candidate, require that contraindications,
warnings or precautions be included in the product labeling, require that post-approval studies be conducted to further assess a drug’s safety after approval,
require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or
other risk management mechanisms.
Biologic products in particular are monitored post-approval by being placed on a lot-release schedule tailored to their potential risk, manufacturing, testing
and inspection history as of the date of this report. With higher-risk biologics, each lot is tested before being released for sale in Canada. Moderate-risk
biologics are periodically tested at the discretion of Health Canada while manufacturers of low-risk biologics usually only need to contact Health Canada
regarding lots being sold or for providing certification of complete and satisfactory testing. Products are carefully scrutinized before they are placed in any
level of the lot-release process, and the testing regime for a biologic may be altered at any time. On December 17, 2022, the Minister of Health in Canada
published proposed amendments to the Food and Drug Regulations, and several of the amendments relate to biologic drugs. The purpose of the
amendments is to modernize the biologics regulatory regime by repealing outdated requirements and replacing them with those that reflect current safety
practices. Proposed amendments include enabling Health Canada to require certain labelling statements for safety reasons on a case-by-case basis, and
clarifying the Minister’s authority to consider information or material obtained during on-site evaluations. Other proposed amendments include clarifying
the record retention expectations for market authorization holders, and providing a general framework to minimize the potential for contamination of drugs,
active ingredients and biological source material between processes. The proposed amendments are still in draft form.
Health Canada may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval,
some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to
further testing requirements, notification, and regulatory authority review and approval. Further, should new safety information arise, additional testing,
product labeling or regulatory notification may be required.
Canadian Biosimilars and Exclusivity
The term biosimilar is used by Health Canada to describe a biologic drug that enters the market subsequent to a version previously authorized in Canada
and with demonstrated similarity to a reference biologic drug. Accordingly, a biosimilar (previously known in Canada as a subsequent entry biologic or
SEB) will in all instances be a subsequent entrant onto the Canadian market.
Based on Health Canada guidance documents, a biosimilar can rely in part on prior information regarding safety and efficacy that is deemed relevant due to
the demonstration of similarity to the reference biologic drug and which influences the amount and type of original data required. Generic drugs are
chemically derived products that are pharmaceutically equivalent to innovative drugs, whereas biosimilars are products of a biologic nature that are similar
to innovative biologics. According to Health Canada, it is not currently possible to demonstrate that two biologic drugs are pharmaceutically equivalent,
and therefore the regulatory approval process for generics and biosimilars is different: biosimilars are approved using the standard NDS pathway with some
allowances made for reduced safety and efficacy information set out in guidance documents, while generic drugs are approved using an abbreviated new
drug submission pathway set out in guidance and law. In part because it continues to be set out only in guidance and not law, the pathway for receiving
biosimilar approval is somewhat in flux and subject to some uncertainty.
As discussed above, all biosimilars enter the market subsequent to a biologic drug product previously approved in Canada and to which the biosimilar is
considered similar. As such, biosimilars are subject to existing laws and regulations outlined in the Patented Medicines (Notice of Compliance) Regulations
and the Food and Drug Regulations, and related guidance documents.
Similar to the Hatch-Waxman Amendments in the United States, Canada has the Patented Medicines (Notice of Compliance) Regulations, which require a
company that files a drug submission that references a patented product to address any relevant
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patents listed on the Patent Register prior to being able to receive approval from Health Canada. The Canadian regime is similar to the U.S. regime, but a
number of distinctions do exist.
Like the United States, Canada also has data protection in addition to patent protection, but again differences exist between the two jurisdictions. For
example, Canada’s data protection applies to “innovative drugs” (i.e., a drug that contains a medicinal ingredient not previously approved in a drug by the
Minister of Health and that is not a variation of a previously approved medicinal ingredient such as a salt, ester, enantiomer, solvate or polymorph) and,
where it exists, lasts for eight years in most (but not all) circumstances. In general biologics can be considered innovative drugs but biosimilars are not.
Additional Regulation
In addition to the foregoing, provincial, state and federal U.S. and Canadian laws regarding environmental protection and hazardous substances affect our
business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes
generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable
for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance
therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.
Government Regulation Outside of the United States and Canada
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical
studies and any commercial sales and distribution of our products.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the
commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar process that
requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies. In the EU, for example, a
CTA must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and the IRB, respectively.
Once the CTA is approved in accordance with a country’s requirements, clinical study development may proceed.
The requirements and process governing the conduct of clinical studies, product licensing, coverage, pricing and reimbursement vary from country to
country. In all cases, the clinical studies are conducted in accordance with cGCP and the applicable regulatory requirements and the ethical principles that
have their origin in the Declaration of Helsinki.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may obtain regulatory approval. In the
United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on
pricing and the availability of coverage and adequate reimbursement from third-party payors. These third-party payors may deny coverage or
reimbursement for a product or therapy in whole or in part if they determine that the product or therapy was not medically appropriate or necessary. Third-
party payors may attempt to control costs by limiting coverage to specific drug products on an approved list, or formulary, which might not include all of
the FDA-approved drug products for a particular indication, requiring pre-approval of coverage for new or innovative drug therapies before they will
reimburse healthcare providers who use such therapies, and by limiting the amount of reimbursement for particular procedures or drug treatments.
Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. The Medicare and Medicaid programs are often
used as models by private payors and other governmental payors to develop their coverage and reimbursement policies for drugs and biologics. However,
one third-party payor’s decision to cover a particular drug product does not ensure that other payors will also provide coverage for the product, or will
provide coverage at an adequate reimbursement rate.
The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will
experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative
proposals. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and
services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical
necessity and cost-effectiveness of our products to obtain third-party payor coverage, in addition to the costs required to obtain the FDA approvals.
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Our product candidates may not be considered medically necessary or cost effective. A payor’s decision to provide coverage for a drug product does not
imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels
sufficient to realize an appropriate return on our investment in product development.
While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, these requirements or
any announcement or adoption of such proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates
and to operate profitably.
In international markets, pricing, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price
ceilings on specific products and therapies. There can be no assurance that our products will be considered medically reasonable and necessary for a
specific indication, that our products will be considered cost effective by third-party payors, that coverage or an adequate level of reimbursement will be
available or that third-party payors’ reimbursement policies will not adversely affect our ability to sell our products profitably.
Healthcare Reform
The United States and some other jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare
system in ways that could affect our ability to sell our future products profitably. Among policy makers and payors in the United States and elsewhere,
there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding
access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative
initiatives. For example, in August 2022, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have
significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair
price for certain high-priced single-source Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price
negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster
than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription drug costs for beneficiaries, among other changes. The impact of these
legislative, executive, and administrative actions and any future healthcare measures and agency rules implemented by the Biden administration on us and
the pharmaceutical industry as a whole is unclear.
We expect that the PPACA, as well as reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower
reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from
Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost
containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs,
once regulatory approval is obtained.
Other Healthcare Laws and Compliance Requirements
In the United States, the research, manufacturing, distribution, sale and promotion of drug products are subject to regulation by various federal, state and
local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the U.S. Department of Health and
Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, state attorneys general, and other state and local government
agencies.
If our operations are found to be in violation of any of the U.S. federal and state laws described above or any other governmental regulations that apply to
us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, disgorgement, imprisonment, exclusion
from participation in government healthcare programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or
withdrawal of pre-marketing product approvals, private qui tam actions brought by individual whistleblowers in the name of the government or refusal to
allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate our business and our results of operations. We may also be subject to additional reporting requirements and oversight if we
become subject to a corporate integrity agreement or similar agreement with a governmental entity to resolve allegations that we have violated these laws.
To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws and regulations,
which may include, for instance, applicable post-approval requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of
corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
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Sales and Marketing
As a clinical-stage biopharmaceutical company, we do not currently possess the commercial infrastructure required to launch and market our product
candidates. For zanidatamab, we have entered into a development and commercialization agreement with BeiGene whereby BeiGene is responsible for
certain clinical development activities and all commercial activities in Asia (excluding Japan but including the People’s Republic of China, South Korea
and other countries), Australia and New Zealand. For zanidatamab, under the Amended Jazz Collaboration Agreement, Jazz is responsible for all
development and commercial activities with respect to the Licensed Products in the Territory. There are no other agreements granting commercialization
rights to zanidatamab, zanidatamab zovodotin or any of our other product candidates. To access the sales, marketing and distribution capacity required to
market our drug candidates, we plan to selectively establish additional partnerships with biotechnology and pharmaceutical companies having established
commercial capabilities in relevant indications. The timing and nature of such agreements will be determined by market size and complexity, access to pre-
commercial and commercial infrastructure and our resource availability for developing a commercial organization. For product candidates targeting patient
populations that can be serviced by a small, specialized commercial effort, we may seek out co-development and co-promotion agreements granting
commercialization rights to an established commercial partner in some jurisdictions while allowing us to build these capabilities in other jurisdictions.
Human Capital Resources
As of December 31, 2023, we had 277 employees, including 272 full-time employees, 189 of whom were primarily engaged in research and development
activities and 49 of whom hold an M.D. or Ph.D. degree. 186 of our full-time employees were based in Canada, 74 were based in the United States, and 12
were based in Singapore, Ireland and United Kingdom combined.
Our ability to achieve our mission is dependent upon attracting and retaining the right talent. We seek to provide what we consider to be a competitive mix
of compensation and benefits for all our employees, including participation in our equity programs.
We believe everyone belongs at Zymeworks and we are committed to providing equal opportunities for our employees. This means ensuring we have good
representation in our workforce from within the communities in which we operate, conducting training to remove biases in our processes and activities, and
respecting all employees’ rights, cultures, diversity, and dignity.
We consider our employees to be an essential driver of our business and key to our future prospects and believe that we have a good relationship with our
employees. None of our employees are represented by a labor organization or covered by a collective bargaining arrangement.
Corporate History
Effective October 13, 2022, we became a Delaware corporation, following receipt of necessary shareholder, stock exchange, and court approvals (the
“Redomicile Transactions”). Zymeworks Inc. was incorporated under the laws of the State of Delaware in June 2022. Our principal executive offices are
located at 108 Patriot Drive, Suite A, Middletown, Delaware 19709, and our telephone number is (302) 274-8744. Our predecessor, now named
Zymeworks BC Inc., was originally incorporated on September 8, 2003 under the Canada Business Corporations Act under the name “Zymeworks Inc.”
On October 22, 2003, our predecessor was registered as an extra-provincial company under the Company Act (British Columbia), the predecessor to the
Business Corporations Act (British Columbia) (“BCBCA”). Our predecessor continued to British Columbia under the BCBCA on May 2, 2017.
Available Information
This Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to these reports are filed, or
will be filed, as appropriate, with the SEC and the Canadian Securities Administrators (“CSA”). These reports are available free of charge on our website,
www.zymeworks.com, as soon as reasonably practicable after we electronically file such reports with or furnish such reports to the SEC and the Canadian
regulatory authorities. Information contained on, or accessible through, our website is not a part of this Annual Report on Form 10-K, and the inclusion of
our website address in this document is an inactive textual reference.
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Additionally, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov and our filings with the CSA may be accessed through
the Canadian System for Electronic Document Analysis and Retrieval (“SEDAR+”) at www.sedarplus.ca.
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Item 1A. Risk Factors.
You should carefully consider the following risk factors, in addition to the other information contained in this Annual Report on Form 10-K, including our
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 Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K 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.
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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.
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 December 31, 2023, 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.
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• 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.
If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.
• Our effective tax rate may change in the future.
• Our stock price is likely to be volatile and the market price of our common stock may drop below the price paid by stockholders.
• Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws might delay, discourage or
prevent a change in control of Zymeworks or changes in our management, thereby depressing the market price of our common stock.
Risk Factors
Risks Related to Our Business and the Development and Commercialization of Our Product Candidates
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.
We currently have no products approved for sale or marketing in any country, and may never be able to obtain regulatory approval for any of our product
candidates. As a result, we are not currently permitted to market any of our product candidates in the United States or in any other country until we obtain
regulatory approval from the FDA or comparable regulatory authorities outside the United States. Our product candidates are in preclinical or clinical
development and we have not submitted an application, or received marketing approval, for any of our product candidates. Obtaining regulatory approval
of our product candidates will depend on many factors, including:
•
•
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•
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completing clinical trials that demonstrate the efficacy and safety of our product candidates;
preparation and submission to the appropriate regulatory authorities of an application for marketing approval that includes substantial evidence of
safety, purity and potency from results of nonclinical testing and clinical trials;
establishing and maintaining adequate commercial manufacturing arrangements or establishing our own commercial manufacturing capabilities or
reliable arrangements with third-party contract manufacturers;
potential pre-approval audits of nonclinical sites, clinical trial sites, and third-party manufacturing sites that generated the data and product in
support of the marketing application; and
launching commercial sales, marketing and distribution operations.
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Many of these factors are wholly or partially beyond our control, including clinical advancement, the regulatory submission process and changes in the
competitive landscape. If we do not achieve one or more of these factors in a timely manner, we could experience significant delays or an inability to
develop our product candidates at all.
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.
We have not previously submitted a BLA to the FDA or similar marketing applications to foreign health authorities. A BLA must include extensive
preclinical and clinical data and supporting information to establish the product candidate’s safety, purity and efficacy for each desired indication. The BLA
must also include significant information regarding the manufacturing controls for the product. The novel nature of our product candidates may introduce
uncertain, complex, expensive and lengthy challenges that could impact regulatory approval. Even if we eventually complete clinical testing and receive
approval of any regulatory filing for our product candidates, the FDA or foreign health authorities may approve our product candidates for a more limited
indication or a narrower patient population than we originally requested.
There is typically an extremely high rate of attrition from the failure of product candidates proceeding through preclinical studies and clinical trials.
Positive or timely results from preclinical or early-stage trials do not ensure positive or timely results in late-stage clinical trials or product approval by the
FDA or comparable regulatory authorities outside the United States. We will be required to demonstrate with substantial evidence through well-controlled
clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial
sale. Our clinical trials may produce negative or inconclusive results, and we or any of our current and future strategic partners may decide, or regulators
may require us, to conduct additional clinical or preclinical testing. In some instances, there can be significant variability in safety or efficacy results
between different preclinical studies and clinical trials of the same product candidate due to numerous factors, including changes in clinical trial procedures
set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of
dropout among clinical trial participants. Moreover, success in preclinical studies or early-stage clinical trials does not mean that future clinical trials or
registrational clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy
to the satisfaction of the FDA and comparable regulatory authorities outside the United States, despite having progressed through preclinical studies and
initial clinical trials. Product candidates that have shown promising results in early clinical trials may suffer significant setbacks in subsequent clinical trials
or registrational clinical trials. For example, a number of companies in the pharmaceutical industry have suffered significant setbacks in late-stage clinical
trials, even after obtaining promising results in earlier-stage clinical trials. Similarly, interim results of a clinical trial do not necessarily predict final results.
There is a high failure rate for biopharmaceutical products proceeding through clinical trials. A number of companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in later stage clinical trials even after achieving promising results in earlier stage clinical trials.
Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In
addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product
development. For example, the FDA’s Oncology Center of Excellence initiated Project Optimus to reform the dose optimization and dose selection
paradigm in oncology drug development and Project FrontRunner to help develop and implement strategies to support approvals in the early clinical
setting, among other goals. How the FDA plans to implement those goals and their impact on specific clinical programs and the industry are unclear.
Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:
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the FDA or foreign health authorities may disagree with the design, implementation or data analyses of our clinical trials;
the FDA or foreign health authorities may determine that our product candidate(s) do not have adequate risk-benefit ratio or have undesirable or
unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use;
the population studied in the clinical program may not be sufficiently broad or representative to assure efficacy and safety in the full population for
which we seek approval;
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•
•
•
•
the FDA or foreign health authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA or other submission or to
obtain regulatory approval in the United States or elsewhere;
the FDA or foreign health authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-
party manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA or foreign health authorities may significantly change in a manner rendering our clinical data
insufficient for approval.
Additionally, we have conducted, and may in the future conduct, clinical trials outside the United States. Although the FDA may accept data from clinical
trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA and its determination that the trials
also complied with all applicable U.S. laws and regulations. If the FDA does not accept the data from any clinical trials we conduct outside the United
States, it would likely result in the need for additional trials, which would be costly and time-consuming and delay or halt our development of any future
product candidates.
If clinical trials for our product candidates are prolonged, delayed or stopped, we may be unable to obtain regulatory approval and commercialize our
product candidates on a timely basis, or at all, which would require us to incur additional costs and delay our receipt of any product revenue.
We currently have two clinical-stage lead product candidates, zanidatamab and zanidatamab zovodotin. Our partner Jazz has been responsible for the
conduct of ongoing and future zanidatamab trials since May 2023, and is currently evaluating this product candidate in Phase 1, Phase 2, and Phase 3
clinical trials, including certain ongoing pivotal clinical trials. Following the transfer of certain of our personnel to Jazz in May 2023, we have been focused
on the clinical development of zanidatamab zovodotin and our preclinical product candidates and general discovery efforts. We are currently evaluating
zanidatamab zovodotin in a Phase 1 clinical trial in patients with recurrent or metastatic HER2-expressing solid tumors.
We may experience delays in our ongoing or future preclinical studies or clinical trials, and we do not know whether future preclinical studies or clinical
trials will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical testing is
expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during clinical development, and,
because our product candidates are in an early stage of development, there is a high risk of failure and we may never succeed in developing marketable
products. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials,
particularly because early trials have smaller numbers of subjects tested. In addition, it is not uncommon for product candidates to exhibit unforeseen safety
or efficacy issues, such as immunogenicity, when tested in humans despite promising results in preclinical animal models.
Any clinical trials that we may conduct may not demonstrate the safety and efficacy profiles necessary to obtain regulatory approval to market our product
candidates. As we continue developing our product candidates, serious adverse events, undesirable side effects, or unexpected characteristics may emerge,
causing us to abandon these product candidates or limit their development to more narrow uses or subpopulations in which the risk-benefit ratio is more
acceptable.
Patients treated with our product candidates may experience side effects or adverse events that are unrelated to our product candidates but may still impact
the success of our clinical trials. The inclusion of patients with significant co-morbidities in our clinical trials may result in deaths or other adverse medical
events due to an underlying condition or other therapies or medications that such patients may be using. Any of these events could prevent us from
obtaining regulatory approval or achieving or maintaining market acceptance and impair our ability to commercialize our product candidates. In some
instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product candidate due to a variety of
factors, including, but not limited to, changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in
and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants.
The commencement or completion of these planned clinical trials could be substantially delayed or prevented by many factors, including:
•
further discussions with the FDA or other regulatory agencies regarding the scope or design of our clinical trials;
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•
the limited number of, and competition for, suitable sites to conduct our clinical trials, many of which may already be engaged in other clinical
trial programs, including some that may be for the same indication as our product candidates;
any delay or failure to obtain approval or agreement to commence a clinical trial in any of the countries where enrollment is planned;
inability to obtain sufficient funds required for a clinical trial;
inability to recruit clinical operations personnel and other personnel with later-stage development experience;
clinical holds on, or other regulatory objections to, a new or ongoing clinical trial;
delay or failure to manufacture sufficient supplies of the product candidate for our clinical trials;
delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or CROs, the terms
of which can be subject to extensive negotiation and may vary significantly among different sites or CROs;
delay or failure to obtain institutional review board (“IRB”) approval to conduct a clinical trial at a prospective site;
slower than expected rates of patient recruitment and enrollment;
failure of patients to complete the clinical trial;
the inability to enroll a sufficient number of patients in studies to ensure adequate statistical power to detect statistically significant treatment
effects;
unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by patients, including possible deaths;
lack of efficacy during clinical trials;
termination of our clinical trials by one or more clinical trial sites;
inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols;
inability to monitor patients adequately during or after treatment by us or our CROs;
our CROs or clinical study sites failing to comply with the trial protocol or regulatory requirements or meet their contractual obligations to us in a
timely manner, or at all, deviating from the protocol or dropping out of a study;
the inability to address any noncompliance with regulatory requirements or safety concerns that arise during the course of a clinical trial;
third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or foreign health authorities for violations of
applicable regulatory requirements;
delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical trial sites, including due to a facility
manufacturing any of our product candidates or any of their components being ordered by the FDA or foreign health authorities to temporarily or
permanently shut down due to violations of current good manufacturing practices (“cGMP”) regulations or other applicable requirements, or
cross-contaminations of product candidates in the manufacturing process;
the need to repeat or terminate clinical trials as a result of inconclusive or negative results or unforeseen complications in testing;
our clinical trials may be suspended or terminated upon a breach or pursuant to the terms of any agreement with, or for any other reason by,
current or future strategic partners that have responsibility for the clinical development of any of our product candidates; and
receiving untimely or unfavorable feedback from applicable regulatory authorities regarding the trial or requests from regulatory authorities to
modify the design of a trial.
We could also experience delays in physicians enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments or
other clinical trials. Furthermore, a clinical trial may be suspended or terminated by us, the IRBs for the institutions in which such trials are being
conducted, the Data Monitoring Committee for such trial, or by the FDA or foreign health authorities due to a number of factors, including failure to
conduct the clinical trial in accordance with regulatory
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requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or foreign health authorities resulting in the
imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in
governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience termination of, or delays in
the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to
generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product
development and approval process and jeopardize our ability to commence product sales and generate revenue.
Securing regulatory approval also requires the submission of information about the manufacturing processes and inspection of manufacturing facilities by
the relevant regulatory authority. The FDA or foreign health authorities may fail to approve our manufacturing processes or facilities, whether run by us or
our contract manufacturing organizations. In addition, if we make manufacturing changes to our product candidates in the future, we may need to conduct
additional preclinical and/or clinical studies to bridge our modified product candidates to earlier versions.
Changes in regulatory requirements, policies and guidelines may also occur and we may need to significantly amend clinical trial protocols to reflect these
changes with appropriate regulatory authorities. These changes may require us to renegotiate terms with CROs or resubmit clinical trial protocols to IRBs
for re-examination, which may impact the costs, timing or successful completion of a clinical trial. Our clinical trials may be suspended or terminated at
any time by the FDA, other regulatory authorities, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or us.
Any failure or significant delay in commencing or completing clinical trials for our product candidates would adversely affect our ability to obtain
regulatory approval, and our commercial prospects and ability to generate product revenue will be diminished.
In addition, even if the trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and we cannot guarantee
that the FDA or foreign health authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for
approval. We cannot guarantee that the FDA or foreign health authorities will view any of our product candidates as having adequate safety and efficacy
profiles even if favorable results are observed in these clinical trials, and we may receive unexpected or unfavorable feedback from the FDA or foreign
health authorities regarding satisfaction of safety, purity and potency (including clinical efficacy), amongst other factors. To the extent that the results of the
trials are not satisfactory to the FDA or foreign health authorities for support of a marketing application, approval of our product candidates may be
significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in
support of potential approval of our product candidates.
Our long-term prospects depend in part upon discovering, developing and commercializing additional product candidates, which may fail in
development or suffer delays that adversely affect their commercial viability.
Our future operating results are dependent in part on our ability to successfully discover, develop, obtain regulatory approval for and commercialize
product candidates beyond those we currently have in clinical development. A product candidate can unexpectedly fail at any stage of preclinical and
clinical development. Our investments in our early-stage research and development efforts may not yield any promising product candidates. Even if our
research and development efforts yield product candidates that advance into clinical studies, the historical failure rate for product candidates is high due to
risks relating to safety, efficacy, clinical execution, changing standards of medical care and other unpredictable variables. The results from preclinical
testing or early clinical trials of a product candidate may not be predictive of the results that will be obtained in later stage clinical trials of the product
candidate.
The success of other product candidates we may develop will depend on many factors, including the following:
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•
•
•
•
•
generating sufficient data to support the initiation or continuation of clinical trials;
obtaining regulatory permission to initiate clinical trials;
contracting with the necessary parties to conduct clinical trials;
successful enrollment of patients in, and the completion of, clinical trials on a timely basis;
the timely manufacture of sufficient quantities of the product candidate for use in clinical trials; and
adverse events in the clinical trials.
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Even if we successfully advance any other product candidates into clinical development, their success will be subject to all of the clinical, regulatory and
commercial risks described elsewhere in this “Risk Factors” section. Accordingly, we cannot assure you that we will ever be able to discover, develop,
obtain regulatory approval of, commercialize or generate significant revenue from our other product candidates.
If we, or any of our partners, are unable to enroll patients in clinical trials, we will be unable to complete these trials on a timely basis or at all.
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the
proximity of subjects to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, ability to obtain and maintain patient consents, risk
that enrolled subjects will drop out before completion, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of
the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. In
particular, we are developing certain of our product candidates for the treatment of rare diseases, which have limited pools of patients from which to draw
for clinical testing. If we, or any of our strategic partners that perform clinical tests for our product candidates, are unable to enroll a sufficient number of
patients to complete clinical testing, we will be unable to gain marketing approval for such product candidates and our business will be harmed.
In addition, the U.S. federal Right to Try Act, among other things, provides a federal framework for patients to access certain investigational new drug
products that have completed a Phase 1 clinical trial. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials
and without obtaining FDA approval under the FDA expanded access program. While there is no obligation to make product candidates available to
eligible patients as a result of the Right to Try Act, new and emerging legislation regarding expanded access to unapproved drugs could negatively impact
enrollment in our clinical trials and our business in the future.
The design or our execution of clinical trials may not support regulatory approval.
The design or execution of a clinical trial can determine whether its results will support regulatory approval, and flaws in the design or execution of a
clinical trial may not become apparent until the clinical trial is well advanced. In some instances, there can be significant variability in safety or efficacy
results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of
the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know
whether any Phase 2, Phase 3 or other clinical trials we or any of our strategic partners may conduct will demonstrate consistent or adequate efficacy and
safety to obtain regulatory approval to market our product candidates.
Further, the FDA and comparable foreign regulatory authorities have substantial discretion in the approval process and in determining when or whether
regulatory approval will be obtained for any of our product candidates. Our product candidates may not be approved even if they achieve their primary
endpoints in any Phase 3 clinical trials or registration trials. The FDA or other non-U.S. regulatory authorities may disagree with our trial design and our
interpretation of data from preclinical studies and clinical trials. In addition, any of these regulatory authorities may change requirements for the approval
of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3 clinical trial that has the potential to
result in FDA or other agencies’ approval. In addition, any of these regulatory authorities may also approve a product candidate for fewer or more limited
indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. The FDA or other non-U.S.
regulatory authorities may not approve the labeling claims that we believe would be necessary or desirable for the successful commercialization of our
product candidates.
Interim, preliminary or top-line data from our clinical trials that we announce or publish from time to time may change as more patient data become
available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim, preliminary or top-line data from clinical trials. Interim data from clinical trials that we may complete are
subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data becomes
available. Preliminary or top-line data also remain subject to audit and verification procedures that may result in the final data being materially different
from the preliminary or top-line data previously published. As a result, interim, preliminary and top-line data should be viewed with caution until the final
data is available. Adverse differences between interim, preliminary or top-line data and final data could significantly harm our reputation and business
prospects. Moreover, preliminary, interim and top-line data are subject to the risk that one or more of the clinical outcomes may materially change as more
patient data become available when patients mature on study, patient enrollment continues or as
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other ongoing or future clinical trials with a product candidate further develop. Past results of clinical trials may not be predictive of future results.
In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically more extensive
information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure. Any
information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise
regarding a particular product candidate or our business. Similarly, even if we are able to complete our planned and ongoing preclinical studies and clinical
trials of our product candidates according to our current development timeline, the positive results from such preclinical studies and clinical trials of our
product candidates may not be replicated in subsequent preclinical studies or clinical trial results.
Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive
results in early-stage development and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things,
preclinical and other nonclinical findings made while clinical trials were underway or safety or efficacy observations made in preclinical studies and
clinical trials, including previously unreported adverse events. Moreover, preclinical, nonclinical and clinical data are often susceptible to varying
interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials
nonetheless failed to obtain FDA or other regulatory approval.
The Fast Track and Breakthrough Therapy designations we have received for zanidatamab may not result in faster development, regulatory review or
approval process.
The FDA has granted Fast Track designations to zanidatamab for the first-line treatment of patients with HER2-overexpressing GEA in combination with
standard of care chemotherapy and for previously treated or recurrent gene-amplified BTC. These Fast Track designations do not ensure that zanidatamab
will experience a faster development, regulatory review or approval process compared to conventional FDA procedures or that zanidatamab will ultimately
obtain regulatory approval. Additionally, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data
from the zanidatamab clinical development program. The FDA also granted Breakthrough Therapy designation for zanidatamab for treatment of patients
with previously treated HER2 gene-amplified locally advanced/unresectable or metastatic BTC. Although Jazz and we have met with the FDA to discuss
the data readout from the HERIZON-BTC-01 study in support of submitting a BLA for zanidatamab in patients with previously treated HER2 gene-
amplified BTC, the receipt of a Breakthrough Therapy designation for a product candidate may not ultimately result in a faster development process or
review, and it does not in any way assure approval of a product candidate by the FDA. In addition, designation as a Breakthrough Therapy is within the
discretion of the FDA and the FDA may decide to rescind a Breakthrough Therapy designation if it believes that a designated product candidate no longer
meets the conditions for qualification of this program. If the zanidatamab clinical development program is suspended, terminated, or put on clinical hold
due to unexpected adverse events or other issues, including clinical supply issues, the benefits associated with the Fast Track designation may not be
realized by us or our strategic partners. Furthermore, Fast Track designation does not change the standards for approval, and the designation alone does not
guarantee qualification for the FDA’s priority review procedures.
Zanidatamab has also been granted Breakthrough Therapy designation from the Center for Drug Evaluation in China for treating patients with BTC who
have failed prior systemic therapies. This designation alone does not guarantee faster approval of zanidatamab in China.
Development of product candidates in combination with other therapies could expose us to additional risks.
Even if any of our product candidates were to receive marketing approval or be commercialized for use in combination with other existing therapies, we
would continue to be subject to the risks that the FDA, the European Medicines Agency (“EMA”) or other comparable foreign regulatory authorities could
revoke approval of the therapy used in combination with any of our product candidates, or safety, efficacy, manufacturing or supply issues could arise with
these existing therapies. In addition, it is possible that existing therapies with which our product candidates are approved for use could themselves fall out
of favor or be relegated to later lines of treatment. This could result in the need to identify other combination therapies for our product candidates or our
own products being removed from the market or being less successful commercially. We may also evaluate our product candidates in combination with one
or more other cancer therapies that have not yet been approved for marketing by the FDA, EMA or comparable foreign regulatory authorities. We will not
be able to market and sell any product candidate in combination with any such unapproved cancer therapies that do not ultimately obtain marketing
approval. If the FDA, EMA or other comparable foreign regulatory authorities do not approve or revoke their approval of these other therapies, or if safety,
efficacy, commercial adoption, manufacturing or supply issues arise with the therapies we choose to evaluate in combination
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with any other product candidate, we may be unable to obtain approval of or successfully market any one or all of the product candidates we develop.
Additionally, if the third-party providers of therapies or therapies in development used in combination with our product candidates are unable to produce
sufficient quantities for clinical trials or for commercialization of our product candidates, or if the cost of combination therapies are prohibitive, our
development and commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of
operations and growth prospects.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain
or deploy key leadership and other personnel, or otherwise prevent new or modified product candidates from being developed, or approved or
commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA to review and clear or approve new product candidates can be affected by a variety of factors, including government budget and
funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other
events that may otherwise affect the FDA’s ability to perform routine functions. In addition, government funding of other government agencies that fund
research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other
agencies, including delays or disruptions due to pandemics or other health crises, travel restrictions, staffing shortages, government shutdowns and
furloughs, may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would
adversely affect our business.
Successful development of our current and future product candidates is uncertain and we may discontinue or reprioritize the development of any of our
product candidates at any time, at our discretion.
Before obtaining regulatory approval for the commercial distribution of our product candidates, we must conduct, at our own expense, extensive preclinical
tests and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Preclinical and clinical testing is expensive, difficult to
design and implement, can take many years to complete and is uncertain as to outcome. Additionally, the results from nonclinical testing or early clinical
trials of a product candidate may not predict the results that will be obtained in subsequent human clinical trials of that product candidate. There is a high
failure rate for drugs proceeding through clinical studies. A number of companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in any future clinical
development could have a material adverse effect on our business and operating results. Alternatively, management may elect to discontinue development
of certain product candidates to accommodate a shift in corporate strategy, despite positive clinical results. Based on our operating results and business
strategy, among other factors, we may discontinue the development of any of our product candidates under development or reprioritize our focus on other
product candidates at any time and at our discretion.
Additionally, because we have limited financial and managerial resources, we focus on research programs, therapeutic platforms and product candidates
that we identify for specific indications. As a result, we may forgo or delay pursuit of opportunities with other therapeutic platforms or product candidates
or for other indications that later prove to have greater commercial potential. If we do not accurately evaluate the commercial potential or target market for
a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in
cases in which it would have been more advantageous for us to retain sole development and commercialization rights.
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.
All of our product candidates are still in preclinical or clinical development. Consequently, all of our product candidates are required to undergo ongoing
safety testing in humans as part of clinical trials. Unforeseen side effects from any of our product candidates could arise either during clinical development
or, if approved by regulatory authorities, after the approved product has been marketed. Zanidatamab and zanidatamab zovodotin continue to be evaluated
in clinical trials, and the results of these and future clinical trials may show that zanidatamab, zanidatamab zovodotin or our other product candidates cause
undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval
from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label
warnings, limited patient populations or potential product liability claims. Even if
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we believe that our clinical trials and preclinical studies demonstrate the safety and efficacy of our product candidates, only the FDA and other comparable
regulatory agencies may ultimately make such determination. No regulatory agency has made any such determination that any of our product candidates
are safe or effective for use by the general public for any indication.
If any of our product candidates receive marketing approval and we or others later identify undesirable or unacceptable side effects caused by such
products:
•
•
regulatory authorities may require us to take our approved product off the market;
regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and
pharmacies, or impose a risk evaluation and mitigation strategy that includes restrictions and conditions on product distribution, prescribing and/or
dispensing;
• we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;
• we may be subject to limitations on how we may promote the product;
•
sales of the product may decrease significantly;
• we may be subject to litigation or product liability claims; and
•
our reputation may suffer.
Any of these events could prevent us or our current or future strategic partners from achieving or maintaining market acceptance of the affected product or
could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating revenue from the sale of any
future products.
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.
The life sciences industry is highly competitive and subject to rapid and significant technological change. We are currently developing biotherapeutics that
will compete with other drugs and therapies that currently exist or are being developed. Products we may develop in the future are also likely to face
competition from other drugs and therapies, some of which we may not currently be aware. We have competitors both in the United States and
internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies,
universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, drug development,
technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining
regulatory approvals, recruiting patients and in manufacturing pharmaceutical products. These companies also have significantly greater research and
marketing capabilities than we do and may also have products that have been approved or are in late stages of development and collaborative arrangements
in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate
discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a
result of all of these factors, our competitors may succeed in obtaining patent protection or FDA approval or discovering, developing and commercializing
products in our field before we do.
Specifically, there are a large number of companies developing or marketing treatments for cancer, including many major pharmaceutical and
biotechnology companies. These treatments consist both of small-molecule drug products, as well as biologics that work by using various antibody
therapeutic platforms to address specific cancer targets.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, more
convenient or less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products
more rapidly than we may obtain approval for our product candidates, which could result in our competitors establishing a strong market position before
we are able to enter the market.
Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and
established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, the
biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to
compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less
competitive or not economical.
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In addition, we expect to compete with biosimilar versions of already approved products, and even if our product candidates achieve marketing approval,
they may be challenged to achieve a price premium over competitive biosimilar products and will compete for market share with them.
The Biologics Price Competition and Innovation Act of 2009, which is included in the 2010 Patient Protection and Affordable Care Act (“PPACA”),
authorized the FDA to approve similar versions of innovative biologics, commonly known as biosimilars. Under the PPACA, a manufacturer may submit
an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biologic product or “reference
product.” Manufacturers may not submit an application for a biosimilar to the FDA until four years following approval of the reference product, and the
FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if our product candidates, if
approved, are deemed to be reference products eligible for exclusivity, another company could market a competing version of that product if the FDA
approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to
demonstrate the safety, purity and potency of their product. Additionally, from time to time, there are proposals to repeal or modify the PPACA, including
proposals that could significantly shorten the exclusivity period for biologics.
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.
The commercial success of our product candidates will depend upon their acceptance among physicians, patients and the medical community. The degree
of market acceptance of our product candidates will depend on a number of factors, including:
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limitations or warnings contained in the approved labeling for a product candidate;
changes in the standard of care for the targeted indications for any of our product candidates;
limitations in the approved clinical indications for our product candidates;
demonstrated clinical safety and efficacy compared to other products;
sales, marketing and distribution support;
availability of coverage and extent of reimbursement from managed care plans and other third-party payors;
timing of market introduction and perceived effectiveness of competitive products;
availability of alternative therapies at similar or lower cost, including generic, biosimilar and over-the-counter products;
the extent to which the product candidate is approved for inclusion on formularies of hospitals and managed care organizations;
• whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular
diseases;
• whether the product can be used effectively with other therapies to achieve higher response rates;
•
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adverse publicity about our product candidates or favorable publicity about competitive products;
convenience and ease of administration of our products; and
potential product liability claims.
If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients and the medical community, we
may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, efforts to educate the medical
community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
We or our strategic partners may be unable to obtain orphan drug exclusivity in specific indications for zanidatamab or in future product candidates
that we may develop. If our competitors are able to obtain orphan product exclusivity for their products in specific indications, we may not be able to
have competing products approved in those indications by the applicable regulatory authority for a significant period of time.
The FDA has granted Orphan Drug Designation to zanidatamab for the treatment of BTC and gastric cancer, including cancer of the gastroesophageal
junction, the EMA has granted Orphan Drug Designation to zanidatamab for the treatment of gastric
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cancer and BTC, and we or our strategic partners may seek Orphan Drug Designation for zanidatamab or other product candidates for additional
indications in the future. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any
advantage in the regulatory review or approval process.
Generally, if a product candidate with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has
such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing
application for the same drug for the same indication for that time period. The applicable period is seven years in the United States and ten years in Europe.
The European exclusivity period can be reduced to six years if a product no longer meets the criteria for Orphan Drug Designation or if the product is
sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request
for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the
rare disease or condition. The loss of Orphan Drug Designation could have a negative effect on our ability to successfully commercialize our product
candidates, earn revenues and achieve profitability.
Even if orphan drug exclusivity for zanidatamab is obtained, or is obtained for any other product candidates that receive an Orphan Drug Designation in the
future, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for
the same condition. Further, in the United States, even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same
condition submitted by a competitor if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a
major contribution to patient care. If we or our strategic partners are unable to manufacture sufficient supply of a product to meet the needs of patients, the
FDA can withdraw orphan exclusive marketing rights or approve another marketing application for the same drug product before the expiration of the
exclusivity period.
Further, in Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021), the court disagreed with the FDA’s longstanding position that the orphan drug
exclusivity only applies to the approved use or indication within an eligible disease, and not to all uses or indications within the entire disease or condition.
On January 24, 2023, the FDA published a notice in the Federal Register to clarify that while the agency complies with the court’s order in Catalyst, the
FDA intends to continue to apply its longstanding interpretation of the regulations to matters outside of the scope of the Catalyst order – that is, the agency
will continue tying the scope of orphan drug exclusivity to the uses or indications for which a drug is approved, which permits other sponsors to obtain
approval of a drug for new uses or indications within the same orphan designated disease or condition that have not yet been approved. It is unclear how
future litigation, legislation, agency decisions, and administrative actions will impact the scope of the orphan drug exclusivity.
Even if we obtain FDA approval of any of our product candidates, we may never obtain approval or commercialize such products outside of the United
States, which would limit our ability to realize their full market potential.
In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other
countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and
regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among
countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals
could result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials, which would be costly and
time consuming. Regulatory requirements can vary widely from country to country and region to region and could delay or prevent the introduction of our
products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In
addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other
countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in
obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain
required approvals, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.
Our ability to eventually generate significant revenues from product sales will depend on a number of factors, including:
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successful completion of preclinical studies;
submission of IND or foreign equivalent applications, or other regulatory applications, for our planned clinical trials or future clinical trials and
authorizations from regulators to initiate clinical studies;
successful enrollment in, and completion of, clinical trials;
achieving favorable results from clinical trials;
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receipt of marketing approvals from applicable regulatory authorities;
establishing and maintaining sufficient manufacturing capabilities, whether internally or with third parties, for clinical and commercial supply;
obtaining pricing, reimbursement, and hospital formulary access;
establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or
in combination with other products;
sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials and commercialization activities;
effectively competing with other therapies;
developing and implementing successful marketing and reimbursement strategies;
obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates; and
• maintaining a continued acceptable safety profile of any product following approval, if any.
If we do not achieve one or more of these requirements in a timely manner, we could experience significant delays or an inability to successfully
commercialize our product candidates, which would materially harm our business.
We cannot be certain that our clinical trials will be initiated and completed on time, if at all, or whether our planned clinical strategy will be acceptable to
the FDA or foreign health authorities. To become and remain profitable, we must develop, obtain approval for and eventually commercialize products, if
approved, that generate significant revenue. In addition, it is not uncommon for product candidates to exhibit unforeseen safety issues or inadequate
efficacy when tested in humans despite promising results in preclinical animal models or earlier trials, and we may ultimately be unable to demonstrate
adequate safety and efficacy of our product candidates to obtain marketing approval. Even if we obtain approval and begin commercializing one or more of
our product candidates, we may never generate revenue that is significant or large enough to achieve profitability.
Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development,
manufacturing and other expenditures to develop and market additional product candidates. Our failure to become or remain profitable would decrease the
value of the company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our
operations.
Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement
for our products, it is less likely that our products will be widely used.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs vary widely from country to country. Many countries
require approval of the sale price of a drug before it can be marketed. The pricing review period begins after marketing or product licensing approval is
granted in most cases. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial
approval is granted. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay
our commercial launch of the product and negatively impact the revenues we are able to generate from the sale of the product in that country.
Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for these
products and related treatments will be available from government health administration authorities, private health insurers and other third-party payors. In
many jurisdictions, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. Obtaining coverage and
reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide
to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. If we are not currently capturing the scientific and clinical
data that will be required for reimbursement approval, we may be required to conduct additional trials, which may delay or suspend reimbursement
approval. Additionally, in the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore,
coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-
consuming and costly process that will require us to provide scientific and clinical support for the use of a product candidate that receives regulatory
approval to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.
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Even if our product candidates are approved for sale by the appropriate regulatory authorities, market acceptance and sales of these products will depend on
reimbursement policies and may be affected by future healthcare reform measures. Government authorities and third-party payors, such as private health
insurers and health maintenance organizations, decide which drugs they will reimburse and establish payment levels. We cannot be certain that
reimbursement will be available for any products that we develop. If reimbursement is not available or is available on a limited basis, we may not be able to
successfully commercialize any of our approved products.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act
(“MMA”), changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded
Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in
any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. We
expect to experience pricing pressures in connection with the sale of any products that we develop, due to the trend toward managed healthcare, the
increasing influence of health maintenance organizations and additional legislative proposals. In August 2022, Congress passed the Inflation Reduction Act
of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries,
including allowing the federal government to negotiate a maximum fair price for certain high-priced single-source Medicare drugs, imposing penalties and
excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D
drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription drug
costs for beneficiaries, among other changes. Various industry stakeholders, including pharmaceutical companies, the U.S. Chamber of Commerce, the
National Infusion Center Association, the Global Colon Cancer Association, and the Pharmaceutical Research and Manufacturers of America, have
initiated lawsuits against the federal government asserting that the price negotiation provisions of the Inflation Reduction Act are unconstitutional. The
impact of these judicial challenges, legislative, executive, and administrative actions and any future healthcare measures and agency rules implemented by
the government on us and the pharmaceutical industry as a whole is unclear. The implementation of cost containment measures or other healthcare reforms
may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates if approved.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes
for which the drug is approved by the FDA, EMA or other regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that
a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses. Interim
reimbursement levels for new drugs, if applicable, may also be insufficient to cover our and any collaborator’s costs and may not be made permanent.
Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already
set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or
rebates required by government healthcare programs or private payors and by any future relaxation of laws that currently restrict imports of drugs from
countries where they may be sold at lower prices than in the United States. Our or any collaborator’s inability to promptly obtain coverage and profitable
payment rates from both government-funded and private payors for any approved products that we or our strategic partners develop could have a material
adverse effect on our operating results, our ability to raise capital needed to commercialize product candidates and our overall financial condition.
If the market opportunities for any product that we or our strategic partners develop are smaller than we believe they are, our revenue may be adversely
affected and our business may suffer.
We intend to initially focus our independent product candidate development on treatments for oncology. Our projections of addressable patient populations
that have the potential to benefit from treatment with our product candidates are based on estimates. If our projections are inaccurate, the market
opportunities for any of our product candidates could be significantly diminished and have an adverse material impact on our business.
We may not be successful in our efforts to use our therapeutic platforms to build a pipeline of product candidates.
We intend to use our therapeutic platforms to build a pipeline of product candidates and progress these product candidates through clinical development for
the treatment of a variety of diseases. Although our research and development efforts as of the date of this report have resulted in a pipeline of product
candidates directed at various cancers, we may not be able to develop product candidates that are safe and effective. In addition, although we expect that
our therapeutic platforms will allow us to develop further product candidates, they may not prove to be successful at doing so. Even if we are successful in
continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of
being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and
achieve market acceptance. If we do not continue to successfully develop and begin to
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commercialize product candidates, we will face difficulty in obtaining product revenue in future periods, which could result in significant harm to our
financial position and adversely affect our stock price.
Even if we receive regulatory approval to commercialize any of the product candidates that we develop, we will be subject to ongoing regulatory
obligations and continued regulatory review, which may result in significant additional expense.
Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product
may be marketed or subject to certain conditions of approval, and may contain requirements for potentially costly post-approval trials, including Phase 4
clinical trials, and surveillance to monitor the safety and efficacy of the marketed product.
For any approved product, we will be subject to ongoing regulatory obligations and extensive oversight by regulatory authorities, including with respect to
manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product.
These requirements include submissions of safety and other post-approval information and reports, as well as continued compliance with cGMP and good
clinical practice (“GCP”), for any clinical trials that we or our strategic partners conduct after approval. Later discovery of previously unknown problems
with a product, including adverse events of unanticipated severity or frequency, or with third-party manufacturers or manufacturing processes, or failure to
comply with regulatory requirements, may result in, among other things:
•
restrictions on the marketing or manufacturing of the product;
• withdrawal of the product from the market or voluntary or mandatory product recalls;
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fines, warning letters or holds on clinical trials;
refusal by the FDA, EMA or another applicable regulatory authority to approve pending applications or supplements to approved applications
filed by us or our strategic partners, or suspension or revocation of product license approvals;
product seizure or detention, or refusal to permit the import or export of products; and
injunctions or the imposition of civil or criminal penalties.
Occurrence of any of the foregoing could have a material and adverse effect on our business and results of operations. Further, the FDA’s or other ex-U.S.
regulators’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product
candidates. For example, if the Supreme Court reverses or curtails the Chevron doctrine, which gives deference to regulatory agencies in litigation against
FDA and other agencies, more companies may bring lawsuits against the FDA to challenge longstanding decisions and policies of the FDA, which could
undermine the FDA’s authority, lead to uncertainties in the industry, and disrupt the FDA’s normal operations, which could delay the FDA’s review of our
marketing applications. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are
not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business,
prospects and ability to achieve or sustain profitability.
The FDA strictly regulates manufacturers’ promotional claims of drug products. In particular, a drug product may not be promoted by manufacturers for
uses that are not approved by the FDA, as reflected in the FDA-approved labeling, although healthcare professionals are permitted to use drug products for
off-label uses. The FDA, the Department of Justice, the Inspector General of the Department of Health and Human Services, among other government
agencies, actively enforce the laws and regulations prohibiting manufacturers’ promotion of off-label uses, and a company that is found to have improperly
promoted off-label uses may be subject to significant liability, including large civil and criminal fines, penalties, and enforcement actions. The FDA has
also imposed consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed for companies that engaged in
such prohibited activities. If we cannot successfully manage the promotion of our approved product candidates, we could become subject to significant
liability, which would materially adversely affect our business and financial condition.
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.
We face an inherent risk of product liability lawsuits related to the testing of our product candidates in seriously ill patients, and will face an even greater
risk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be brought against us or our
strategic partners by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling any of our future
approved products. If we cannot successfully defend
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ourselves against any such claims, we may incur substantial liabilities. Regardless of their merit or eventual outcome, liability claims may result in:
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decreased demand for any future approved products;
injury to our reputation;
• withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
increased regulatory scrutiny;
significant litigation costs;
substantial monetary awards to, or costly settlement with, patients or other claimants;
product recalls or a change in the indications for which they may be used;
loss of revenue;
diversion of management and scientific resources from our business operations; and
the inability to commercialize our product candidates.
We may need to have in place increased product liability coverage when we begin the commercialization of our product candidates. Insurance coverage is
becoming increasingly expensive. As a result, we may be unable to maintain or obtain sufficient insurance at a reasonable cost to protect us against losses
that could have a material adverse effect on our business. A successful product liability claim or series of claims brought against us, particularly if
judgments exceed any insurance coverage we may have, could decrease our cash resources and adversely affect our business, financial condition and
results of operation.
Patients with cancer and other diseases targeted by our product candidates are often already in severe and advanced stages of disease and have both known
and unknown significant pre-existing and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events,
including death, for reasons that may be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial
amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our product
candidates, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is
related to our product candidates, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt our
sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates receive or
maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial
condition or results of operations.
If we or any of our third-party manufacturers encounter manufacturing difficulties, our ability to provide supply of our product candidates for clinical
trials or our products for patients, if approved, could be delayed or prevented.
The manufacture of biological drug products is complex and requires significant expertise and capital investment, including the development of advanced
manufacturing techniques, process and quality controls. Manufacturers of biologic products often encounter difficulties in production and sourcing,
particularly in scaling up or out, validating the production process and assuring high reliability of the manufacturing processes (including the absence of
contamination), in light of variations and supply constraints of key components. These problems include logistics and shipping, difficulties with production
costs and yields, quality control, including consistency, stability, purity and efficacy of the product, product testing, operator error and availability of
qualified personnel, as well as compliance with applicable federal, state and foreign regulations. If contaminants are discovered in our supply of our
product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and
remedy the contamination. We cannot assure you that any stability, purity, and efficacy failures, deficiencies, or other issues relating to the manufacture of
our product candidates will not occur in the future. Our research and development activities also involve the controlled use of potentially hazardous
substances, including chemical and biological materials, by our third-party manufacturers. While we currently outsource all manufacturing to third parties,
we and our manufacturers are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of
medical and hazardous materials. Although we believe that our manufacturers’ procedures for using, handling, storing and disposing of these materials
comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury, and any related liability, resulting from
medical or hazardous materials.
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Material modifications in methods of product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates are developed through preclinical to late-stage clinical trials towards approval and commercialization, it is common that various
aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize processes and
results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to
perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay
completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay
approval of our product candidates and jeopardize our ability, or our strategic partners’ ability, to commence product sales and generate revenue.
Strategic transactions could disrupt our business, cause dilution to our stockholders and otherwise harm our business.
We actively evaluate various strategic transactions on an ongoing basis. For example, we may acquire other businesses, products or technologies as well as
pursue strategic alliances, joint ventures, investments in complementary businesses, out-licensing and in-licensing agreements, divestitures or other
transactions. Any of these transactions could be material to our financial condition and operating results and expose us to many risks, including:
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disruption in our relationships with existing strategic partners or suppliers as a result of such a transaction;
unanticipated liabilities related to acquired companies;
difficulties integrating acquired personnel, technologies and operations into our existing business;
retention of key employees;
diversion of management time and focus from operating our business to management of strategic alliances or joint ventures or acquisition
integration challenges;
risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or
product candidates and marketing approvals;
increases in our expenses and reductions in our cash available for operations and other uses; and
possible write-offs or impairment charges relating to acquired businesses.
Also, the anticipated benefit of any strategic transaction may not materialize or such strategic transaction may be prohibited. Additionally, future
acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or
amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing or size of any
future strategic alliances, joint ventures, investments, acquisitions, divestitures or other strategic transactions, or the effect that any such transactions might
have on our operating results.
Many governments impose strict price controls, which may adversely affect our future profitability.
In many countries, particularly those in the European Union (“EU”), prescription drug pricing and reimbursement is subject to governmental control. In
those countries that impose price controls, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing
approval for a product. To obtain reimbursement or pricing approval in some countries, we or our strategic partners may be required to conduct a clinical
trial that compares the cost-effectiveness of our product candidates to other available therapies.
Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing
or product licensing approval is granted. In some markets, prescription pharmaceutical pricing remains subject to continuing governmental control even
after initial approval is granted. As a result, we or our strategic partners might obtain marketing approval for a product candidate in a particular country, but
then be subject to price regulations that delay commercial launch of the product candidate, possibly for lengthy time periods, and negatively impact the
revenue that is generated from the sale of the product in that country. If reimbursement of such product candidates is unavailable or limited in scope or
amount, if pricing is set at unsatisfactory levels, or if there is competition from lower priced cross-border sales, our profitability will be negatively affected.
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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.
In the ordinary course of our business, we and our CROs and other service providers collect, store and otherwise process petabytes of sensitive data,
including legally protected health information, personal information, intellectual property and proprietary business information owned or controlled by
ourselves or our strategic partners. We manage and maintain our applications and data by utilizing a combination of on-site systems, managed data center
systems and cloud-based data center systems. These applications and data encompass a wide variety of business-critical information, including research
and development information, commercial information and business and financial information. We face four primary risks relative to protecting this critical
information: loss of access risk, inappropriate disclosure risk, inappropriate modification risk and the risk of being unable to adequately monitor our
controls over the first three risks.
Although we take measures designed to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure
and those that our CROs and our other third-party service providers may utilize in the past have been subject to, and may be vulnerable to, attacks by
hackers or other third parties, viruses, ransomware or other malicious code, or other breaches, incidents, outages, interruptions, compromises or
vulnerabilities due to inadvertent or intentional actions by our employees, contractors, business partners, and/or other third parties, or from cyber-attacks by
malicious third parties (including supply chain cyber-attacks or the deployment of harmful malware, ransomware, denial-of-service attacks, social
engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of systems or information). The risks of
these types of incidents and other matters occurring may be heightened in connection with geopolitical events such as the conflict between Russia and
Ukraine. Any such breach, incident, outage, interruption, compromise or vulnerability could compromise systems and networks used in our business and
lead to system and other operational outages, interruptions and disruptions and the loss, destruction, alteration, prevention of access to, disclosure, or
dissemination of, or damage or unauthorized access to, our data (including trade secrets or other confidential information, intellectual property, proprietary
business information, and personal information) or data that is processed or maintained on our behalf, or other assets, which could result in financial, legal,
business and reputational harm to us. Any such event could result in legal claims, demands and litigation or governmental investigations or other
proceedings, liability under laws that protect the privacy of personal information, such as the Health Insurance Portability and Accountability Act of 1996
(“HIPAA”), and regulatory penalties and other liabilities. Although we have implemented security measures and a formal enterprise security program
designed to prevent unauthorized access to sensitive data, and make use of third-party service providers to perform certain operational and security
functions on our behalf, there is no guarantee that we or our third-party service providers can, or have been able to, protect our systems or networks or other
systems or networks used in our business from security breaches, incidents, outages, interruptions, compromises, or vulnerabilities, or that we or they have
been or will be able to identify, identify the cause of or otherwise respond to any actual or potential security breach, incident, outages, interruptions,
compromise or vulnerabilities. We have engaged in efforts to improve our security measures, and we expect to continue to incur additional expenses in
further efforts to do so, whether in response to actual or perceived security breaches or incidents, compromises, outages, interruptions, vulnerabilities or
otherwise. Any loss, destruction, alteration, prevention of access to, disclosure, or dissemination of, or damage or unauthorized access to, our data or other
data that is processed or maintained on our behalf could also disrupt our operations (including our ability to conduct our analyses, pay providers, conduct
research and development activities, collect, process and prepare company financial information, provide information about any future products, and
manage the administrative aspects of our business) and damage our reputation, any of which could adversely affect our business.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, impose
certain requirements relating to the privacy, security, transmission and breach reporting of individually identifiable health information upon entities subject
to the law, such as health plans, healthcare clearinghouses and healthcare providers and their respective business associates and subcontractors that perform
services for them that involve individually identifiable health information. Mandatory penalties for HIPAA violations can be significant, and criminal and
monetary penalties, as well as injunctive relief, may be imposed for HIPAA violations. Although most drug manufacturers are not directly subject to
HIPAA, prosecutors are increasingly using HIPAA-related theories of liability against drug manufacturers and their agents and we also could be subject to
criminal penalties if we knowingly obtain individually identifiable health information from a HIPAA-covered entity in a manner that is not authorized or
permitted by HIPAA.
Furthermore, in the event of a breach as defined by HIPAA, HIPAA regulations impose specific reporting requirements to regulators, individuals impacted
by the breach and, in some cases, the media. Issuing such notifications can be costly, time and resource intensive, and can generate significant negative
publicity. Breaches of HIPAA may also constitute contractual violations that could lead to contractual damages or terminations. In addition to HIPAA, other
applicable data privacy and security obligations, including U.S. state data breach notification laws, may require us to notify relevant stakeholders of any
security breaches or incidents that result in the unauthorized disclosure, or dissemination of, personal information. Such disclosures are costly, and the
disclosures or the failure to comply with such requirements, could lead to adverse impacts.
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Furthermore, the loss, corruption, or unavailability of clinical trial data from completed or future clinical trials could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on other third parties for the manufacture of our
product candidates and to conduct clinical trials, and similar events relating to their computer systems or otherwise relating to their collection, storage, or
processing of data could also have a material adverse effect on our business.
In addition, we may face increased cybersecurity risks due to our reliance on internet technology given that we have employees at five office locations
(Vancouver, British Columbia; Bellevue, Washington; Dublin, Ireland; Singapore; and Redwood City, California) and a significant number of employees
who work remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.
We are subject to stringent and changing obligations related to privacy and security. Our actual or perceived failure to comply with such obligations
could lead to regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, reputational harm and other
adverse business consequences.
U.S. states have enacted and are considering enacting laws relating to the protection of personal information (including health and other data of patients,
research subjects, and other individuals), which may be more rigorous than, or impose additional requirements beyond those required by, HIPAA. For
example, the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020, gives California consumers expanded rights to
access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal
information is used. The CCPA allows for statutory fines for noncompliance (up to $7,500 per violation) as well as a limited private right of action for data
breaches, which may increase the volume of data breach litigation. In addition, the California Privacy Rights Act of 2020, which went into effect on
January 1, 2023, expanded the CCPA by, among other things, giving California residents the ability to limit use of certain sensitive personal information,
establishing restrictions on personal information retention, expanding the types of data breaches subject to the CCPA’s private right of action, and
establishing a new California Privacy Protection Agency to implement and enforce the new law. Many other privacy and security laws have been proposed
at the federal level and in other states, certain of which impose obligations similar to the CCPA, including such laws in Colorado, Connecticut, Delaware,
Florida, Indiana, Iowa, Montana, New Jersey, Oregon, Tennessee, Texas, Utah, and Virginia. Further, Washington also has enacted the My Health, My Data
Act, which, among other things, provides for a private right of action. While limited exemptions to some of these laws may apply to portions of our
business, the recency of these laws’ enactment and evolving interpretations of these laws may increase our compliance costs and potential liability. These
or other proposed or enacted laws relating to privacy and security could similarly increase our compliance obligations and costs in the future.
We may also become subject to laws and regulations in non-U.S. countries covering privacy and security and the protection of health-related and other
personal information. In particular, the European Economic Area (“EEA”) has adopted privacy and security protection laws and regulations that impose
significant compliance obligations. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, processing and
security of information that identifies or may be used to identify an individual, such as names, contact information, and sensitive personal information such
as health data. These laws and regulations are subject to frequent revisions and differing interpretations, and have generally become more stringent over
time.
The General Data Protection Regulation 2016/679 (“GDPR”) applies to the processing of personal information and imposes many requirements for
controllers and processors of personal information, including, for example, higher standards for obtaining consent from individuals to process their
personal information, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach
notifications, limitations on retention and secondary use of information, increased requirements pertaining to health data and pseudonymized (i.e., key-
coded) data and additional obligations when contracting third-party processors in connection with the processing of the personal information. The GDPR
allows EEA countries to make additional laws and regulations further limiting the processing of genetic, biometric or health data. Failure to comply with
the requirements of the GDPR and the applicable national privacy and security laws of EEA countries may result in fines of up to €20,000,000 or up to 4%
of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties; we may also be liable should
any individual who has suffered financial or non-financial damage arising from our infringement of the GDPR exercise their right to receive compensation
against us. Furthermore, adverse publicity relating to our failure to comply with the GDPR could cause a loss of goodwill, which could have an adverse
effect on our reputation, brand, business and financial condition. Additionally, the United Kingdom (“UK”) has implemented legislation similar to the
GDPR, referred to as the UK GDPR, which provides for fines of up to the greater of £17.5 million or 4% of global turnover.
Certain jurisdictions, including the EEA, have enacted data localization laws and cross-border personal information transfer laws. For example, absent
appropriate safeguards or other circumstances, the GDPR generally restricts the transfer of personal information to countries outside the EEA, such as the
United States, which the European Commission does not consider to provide an adequate level of personal information protection. On July 16, 2020, the
Court of Justice of the European Union
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(“CJEU”) invalidated the European Union-U.S. Privacy Shield (“Privacy Shield”) as a data transfer mechanism for transferring personal information from
the EEA to the United States. While the EU standard contractual clauses (“EU SCCs”) remain a valid mechanism to transfer personal information to third
countries outside the EEA, the CJEU’s ruling has also imposed enhanced due diligence obligations on data exporters and importers to ensure that the laws
of the country to which the personal information is transferred offer a level of data protection that is essentially equivalent to the EEA. Also, the EU has
issued updated EU SCCs, and the UK has issued its own standard contractual clauses (the “UK SCCs”), which each are required to be implemented. To the
extent we transfer personal information from other jurisdictions to the United States, we may not be able to implement or maintain an appropriate data
transfer mechanism to continue such international transfers of data. Additionally, the CJEU’s invalidation of the Privacy Shield, the revised EU SCCs and
new UK SCCs, regulatory guidance and opinions, and other developments relating to cross-border data transfer may require us to implement additional
contractual and technical safeguards for any personal information transferred out of the EEA, UK, or other regions, which may increase compliance costs,
lead to increased regulatory scrutiny or liability, and may require additional contractual negotiations, which may adversely impact our business, financial
condition, and operating results.
Separate from, and in addition to, requirements under the GDPR and UK GDPR, certification requirements for the hosting of health data will vary by
jurisdiction. To the extent we operate in various EEA countries or the UK, there might be other national healthcare regulations or regulatory requirements
with which we will be required to comply. For example, France requires hosts of health data to obtain a prior certification with the competent certification
body.
The interpretation and application of consumer, health-related and privacy and security laws in the United States, the EEA, and elsewhere are often
uncertain, contradictory and in flux. Any failure or perceived failure to comply with federal, state or foreign laws or regulations, contractual or other legal
obligations related to privacy or security may result in claims, warnings, communications, requests or investigations from individuals, supervisory
authorities or other legal or regulatory authorities in relation to our processing of personal information, and regulatory investigations or other proceedings.
It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-
imposed fines or orders requiring that we change our practices, which could adversely affect our business. In addition, these privacy regulations vary
between states, may differ from country to country, and may vary based on whether testing is performed in the United States or in the local country.
Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a
manner adverse to our business.
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.
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change healthcare
systems in ways that could affect our ability to sell any of our product candidates profitably, if such product candidates are approved for sale. Among
policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals
of containing healthcare costs, improving quality and expanding access. In the United States, the pharmaceutical industry has been a particular focus of
these efforts and has been significantly affected by major legislative initiatives.
In March 2010, the PPACA became law in the United States. The PPACA may affect the operational results of companies in the pharmaceutical industry,
including us, by imposing on them additional costs. For example, effective January 1, 2010, PPACA increased the minimum Medicaid drug rebates for
pharmaceutical companies and imposed an annual fee on certain branded prescription drugs and biologics. Since the enactment of PPACA, there have been
executive, judicial and Congressional challenges to certain aspects of the PPACA, including judicial challenges in the Fifth Circuit Court and the United
States Supreme Court. In June 2021, the United States Supreme Court held that Texas and other challengers had no legal standing to challenge the PPACA,
dismissing the case without specifically ruling on the constitutionality of the PPACA. Accordingly, the PPACA remains in effect in its current form. It is
unclear how future litigation or healthcare measures promulgated by the Biden administration will impact our business, financial condition and results of
operations. Complying with any new legislation or changes in healthcare regulation could be time-intensive and expensive, resulting in a material adverse
effect on our business.
Other legislative changes have been proposed and adopted since the PPACA was enacted. For example, the Bipartisan Budget Act of 2018, among other
things, amended the PPACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans. The Budget Control Act of 2011, which
calls for aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, began in 2013 and, due to subsequent legislative amendments,
will remain in effect through 2032, with the exception of a temporary suspension implemented under various COVID-19 relief legislation. The American
Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment
centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may
result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on potential customers for our product
candidates, if approved, and, accordingly, our future financial
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operations. We are unable to predict the future course of federal or state health care legislation or foreign regulations relating to the marketing, pricing and
reimbursement of pharmaceutical products.
There have been U.S. Congressional inquiries, presidential executive orders, and proposed federal and state legislation designed to, among other things,
bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer
patient programs, and reform government program reimbursement methodologies for drugs. For example, under the American Rescue Plan Act of 2021,
effective January 1, 2024, Medicaid statutory rebates will no longer be capped at 100% of AMP (average manufacturer price). Elimination of this cap may
require pharmaceutical manufacturers to pay more in rebates than it receives on the sale of products, which could have a material impact on our business.
Additionally, in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple
provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, the Department of Health and Human Services
(“HHS”) released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential
legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. As discussed above,
Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical
industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single-source
Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation
rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D
to reduce out-of-pocket prescription drug costs for beneficiaries, among other changes. Various industry stakeholders have initiated lawsuits against the
federal government asserting that the price negotiation provisions of the Inflation Reduction Act are unconstitutional. The impact of these judicial
challenges as well as future actions and agency rules implemented by the government on us and the pharmaceutical industry as a whole is unclear. The
implementation of cost containment measures, including the prescription drug provisions under the Inflation Reduction Act, as well as other healthcare
reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates if approved. Complying with any
new legislation and regulatory changes could be time-intensive and expensive, resulting in a material adverse effect on our business.
Further, many states have proposed or enacted legislation and administrative actions that seek to indirectly or directly regulate pharmaceutical drug pricing,
such as by requiring biopharmaceutical manufacturers to publicly report proprietary pricing information or to place a maximum price ceiling on
pharmaceutical products purchased by state agencies. For example, the FDA recently authorized the state of Florida to import certain prescription drugs
from Canada for a period of two years to help reduce drug costs, provided that Florida’s Agency for Health Care Administration meets the requirements set
forth by the FDA. Other states may follow Florida. Additionally, a number of states are considering or have enacted state drug price transparency and
reporting laws that could substantially increase our compliance burdens and expose us to greater liability under such state laws once we begin
commercialization after obtaining regulatory approval for any of our products candidates. We cannot be sure to what extent these and future legislative and
regulatory efforts, whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of
our product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent
marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. These measures could
reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare
reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and
services, which could affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with
which any such product candidate, if approved, is prescribed or used.
In the EU similar political, economic and regulatory developments may affect our ability to profitably commercialize any future products. In addition to
continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional
requirements or obstacles that may increase our operating costs. In international markets, reimbursement and healthcare payment systems vary significantly
by country, and many countries have instituted price ceilings on specific products and therapies. Our future products, if any, might not be considered
medically reasonable and necessary for a specific indication or cost-effective by third-party payors, an adequate level of reimbursement might not be
available for such products, and third-party payors’ reimbursement policies might adversely affect our or our strategic partners’ ability to sell any future
products profitably.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical
products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be
changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the
U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product
labeling and post-approval testing and other requirements.
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We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the
United States or elsewhere. If we or our strategic partners are slow or unable to adapt to changes in existing requirements or the adoption of new
requirements or policies, or if we or our strategic partners are not able to maintain regulatory compliance, our product candidates may lose any marketing
approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.
Unstable or unfavorable global market and economic conditions may have adverse consequences on our business, financial condition and stock price.
Global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity
and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in the rate of inflation
and uncertainty about economic stability. We cannot assure you that further deterioration in credit and financial markets and confidence in economic
conditions will not occur. Our business, financial condition, and stock price may be adversely affected by any such economic downturn, volatile business
environment, or large-scale unpredictable or unstable market conditions, including a prolonged government shutdown, geopolitical events such as the
conflict between Russia and Ukraine and the conflict in Israel and the Gaza Strip, or a global pandemic such as the COVID-19 pandemic.
If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive.
Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial
performance and stock price and could require us to delay or abandon development plans. In addition, there is a risk that one or more of our current service
providers, manufacturers and other partners may not survive difficult economic times, which could directly affect our ability to attain our operating goals
on schedule and on budget.
Our business may become subject to economic, political, regulatory and other risks associated with international operations.
Our business is subject to risks associated with conducting business internationally. We have physical operations and personnel in Canada, the United
States, Ireland and Singapore, and maintain offices in these four countries. In addition, some of our suppliers and collaborative and clinical trial
relationships are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:
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economic instability or weakness, including inflation, reduced growth, diminished credit availability, weakened consumer confidence or increased
unemployment;
instability in the international geopolitical environment, including as a result of the Russian invasion of Ukraine and the conflict in Israel and the
Gaza Strip;
sociopolitical instability in particular foreign economies and markets;
differing regulatory requirements for drug approvals in foreign countries;
potentially reduced protection for intellectual property rights;
difficulties in compliance with non-U.S. laws and regulations;
changes in non-U.S. regulations and customs, tariffs and trade barriers, including any changes that China may impose as a result of political
tensions between Canada and China or the United States and China;
regulatory changes and economic conditions following the UK’s withdrawal from the EU and uncertainty related to the terms of the withdrawal;
changes in non-U.S. currency exchange rates and currency controls;
trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;
differing reimbursement regimes, including price controls;
negative consequences from changes in tax laws;
• workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities outside the United States;
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods
and fires; and
supply and other disruptions resulting from the impact of public health epidemics, including the COVID-19 pandemic, on our strategic partners,
third-party manufacturers, suppliers and other third parties upon which we rely.
In particular, there is currently significant uncertainty about the future relationship between the United States and various other countries, most
significantly China, with respect to trade policies, treaties, tariffs, taxes, and other limitations on cross-border operations. The U.S. government
has made and continues to make significant additional changes in U.S. trade policy and may continue to take future actions that could negatively
impact U.S. trade. For example, legislation has been introduced in Congress to limit certain U.S. biotechnology companies from using equipment
or services produced or provided by select Chinese biotechnology companies, and others in Congress have advocated for the use of existing
executive branch authorities to limit those Chinese service providers’ ability to engage in business in the U.S. We cannot predict what actions may
ultimately be taken with respect to trade relations between the United States and China or other countries, including countries which the U.S.
government has identified as a foreign adversary that poses national security risks to the United States, and what products and services may be
subject to such actions or what actions may be taken by the other countries in retaliation. If we are unable to obtain or use services from existing
service providers or become unable to export or sell our products to any of our customers or service providers, our business, liquidity, financial
condition, and/or results of operations would be materially and adversely affected.
Our business has been and may continue to be adversely affected by public health outbreaks and pandemics.
Our business has been and may continue to be adversely affected by public health outbreaks and pandemics, including the COVID-19 pandemic. The
COVID-19 pandemic has had a broad adverse impact on the global economy across many industries and has resulted in significant governmental measures
being implemented to control the spread of the virus, including quarantines, travel restrictions and business shutdowns, as well as significant volatility in
global financial markets. On May 11, 2023, the federal government ended the COVID-19 public health emergency, which ended a number of temporary
changes made to federally funded programs while some continue to be in effect. The full impact of this termination of the public health emergencies on the
FDA and other regulatory policies and operations are unclear.
If a public health outbreak, pandemic, or a resurgence of COVID-19 cases and related disruptions were to occur, particularly in regions where we or our
strategic partners and suppliers do business, we could experience disruptions that could significantly impact our current and planned clinical trials,
preclinical research and other business activities, including:
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disruption to and delays in preclinical research activities due to extended closure or reduced capacity of lab facilities;
further delays or difficulties in enrolling patients in our ongoing and planned clinical trials;
patients discontinuing their treatment or follow-up visits;
further delays or difficulties in clinical site initiation, including limitations on access to sites, limitations to site initiation activities that can be
carried out remotely, and limitations on the number of clinical site staff on site from time to time;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or
state governments, employers and others;
shortages, disruptions in supply, logistics or other activities related to the procurement of materials and other supplies, which could have a
negative impact on our ability to conduct preclinical research, initiate or complete our clinical trials or commercialize our product candidates;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and
hospital staff supporting the conduct of clinical trials;
interruption of key business activities due to illness and/or quarantine of key individuals and delays associated with recruiting, hiring and training
new temporary or permanent replacements for such key individuals, both internally and at our third-party service providers and strategic partners;
limitations in resources that would otherwise be focused on the conduct of our business or our current or planned clinical trials or preclinical
research, including because of sickness, the desire to avoid contact with large groups of people, restrictions on travel, or prolonged stay-at-home or
similar working arrangements;
delays in receiving approvals from regulatory authorities to initiate our planned clinical trials;
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changes in regulations as part of a response to public health outbreaks, pandemics, or a resurgence of COVID-19 cases and related disruptions,
which may require us to change the ways in which our clinical trials are conducted and incur unexpected costs, or require us to discontinue clinical
trials altogether;
delays in necessary interactions with regulators (including the FDA), ethics committees and other important agencies and contractors due to
limitations in employee resources or furlough of government or contractor personnel;
disruptions to our strategic partners’ operations, which could delay the development of our product candidates in certain geographical regions and
thereby affect the timing of development and commercial milestone payments and royalties on potential future product sales we may receive; and
limitations on our ability to recruit any necessary preclinical research, clinical, regulatory and other professional staff on the timeframe required to
support our research and development programs.
The impact of such disruptions would be highly uncertain and would depend on factors such as the location, duration and severity, travel restrictions and
social distancing, business closures or disruptions, and the effectiveness of actions taken to contain and treat the disease and to address its impact, including
on financial markets. In addition, public health outbreaks, pandemics, or a resurgence of COVID-19 cases and related disruptions could disrupt the global
financial markets, reducing our ability to access capital, which could negatively affect our liquidity and could heighten the volatility of the financial
markets, which could adversely impact the value of our common stock.
Our business and current and future relationships with customers and third-party payors in the United States and elsewhere will be subject, directly or
indirectly, to applicable federal and state anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other
healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative
burdens, and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of
any product candidates for which we obtain marketing approval.
Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers, and third-party payors and other entities
may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including the federal Anti-Kickback Statute and the federal
False Claims Act, that may constrain the business or financial arrangements and relationships through which we conduct clinical research on product
candidates and market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and
patient privacy regulation by the federal government and by the U.S. states and foreign jurisdictions in which we conduct our business. The applicable
federal, state and foreign healthcare laws and regulations that may affect our ability to operate include the following:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or
providing remuneration (including any kickback, bribe or rebate), directly or indirectly, in cash or in kind, to induce or reward either the referral of
an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal and state
healthcare programs such as Medicare and Medicaid;
federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, impose criminal or civil
penalties, as applicable, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government (including
the Medicare and Medicaid programs) or other third-party payor claims for payment that are false or fraudulent or making a false statement to
avoid, decrease or conceal an obligation to pay money to the federal government;
• HIPAA established the federal offense of health care fraud, which among other things, imposes criminal liability for knowingly and willfully
executing, or attempting to execute, a scheme to defraud any healthcare benefit program or to obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program,
regardless of the payor (e.g. public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material
fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items or services relating to
healthcare matters;
• HIPAA, as amended by HITECH, and its implementing regulations, which imposes certain obligations, including mandatory contractual terms,
with respect to safeguarding the privacy, security and transmission of individually identifiable health information without the appropriate
authorization by entities subject to the law, such as health plans,
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healthcare clearinghouses and healthcare providers and their respective business associates and their covered subcontractors;
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the federal Open Payments program under the Physician Payments Sunshine Act, created under Section 6002 of the PPACA and its implementing
regulations, requires applicable group purchasing organizations and manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to HHS
information related to “payments or other transfers of value” made in the previous year to covered recipients, including physicians (defined to
include doctors, dentists, optometrists, podiatrists and chiropractors, other health care professionals (such as nurse practitioners and physician
assistants) and teaching hospitals, and information regarding ownership and investment interests held by physicians (as defined above) or their
immediate family members; and
analogous and similar state and foreign laws and regulations, including: state anti-kickback and false claims laws that may apply to our business
practices (including research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by state
governmental and non-governmental third-party payors, including private insurers); state laws that require pharmaceutical companies to comply
with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal
government; state laws that require drug manufacturers to track gifts and other remuneration and items of value provided to healthcare
professionals and entities and file reports relating to pricing and marketing information; and state and foreign laws that govern the privacy and
security of health information in specified circumstances, many of which differ from each other in significant ways and often are not preempted by
HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of any available statutory exceptions and safe harbors, it is possible that some of our current and
future business activities could be subject to challenge under one or more of such laws.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial
costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or
case law involving applicable fraud and abuse or other healthcare laws and regulations. Any failure or perceived failure by us to comply with such laws,
regulations, or case law may result in governmental investigations or enforcement actions, litigation, claims and other proceedings, harm our reputation,
and could result in significant liability. Additionally, if our operations are found to be in violation of any of these laws or any other governmental
regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including damages, fines, imprisonment,
exclusion from participation in government healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we
become subject to a corporate integrity agreement or similar agreement to resolve allegations of noncompliance with these laws and the curtailment or
restructuring of our operations, which could have a material adverse effect on our business. If any of the physicians or other providers or entities with
whom we expect to do business, including our strategic partners, is found not to be in compliance with applicable laws, it may be subject to criminal, civil
or administrative sanctions, including exclusions from participation in government healthcare programs, which could also materially affect our business.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and
regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal
liability and other serious consequences for violations that can harm our business.
In addition to potential risks discussed above at the risk factor entitled “Our business may become subject to economic, political, regulatory and other risks
associated with international operations”, we are subject to export control and import laws and regulations, including the U.S. Export Administration
Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of
Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the
U.S. Travel Act, the USA PATRIOT Act, the United Kingdom Bribery Act 2010, the Proceeds of Crime Act 2002, and other state and national anti-bribery
and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and
their employees, agents, contractors, and other partners from authorizing, promising, offering, or providing, directly or indirectly, improper payments or
anything else of value to recipients in the public or private sector. We currently engage third parties for clinical trials outside of the United States and we
may in the future engage third parties to sell our products outside of the United States once we enter a commercialization phase, or to obtain necessary
permits, licenses, patent registrations, and other regulatory approvals. We may have direct or indirect interactions with officials and employees of
government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities
of our employees, agents, contractors, and other partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violation
of the laws and regulations described
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above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments,
breach of contract and fraud litigation, reputational harm, and other consequences.
Third-party manufacturers may not be able to comply with U.S. export control regulations, cGMP regulations or similar regulatory requirements outside
the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in a necessity to replace
current third parties, resulting in the possibility of supply delays, clinical holds on our trials, sanctions being imposed on us, including fines, injunctions,
civil penalties, delays, suspension or withdrawal of approvals, license revocations, seizures or recalls of product candidates or medicines, operating
restrictions, and criminal prosecutions, any of which could significantly and adversely affect supplies of our medicines and harm our business, financial
condition, results of operations and growth prospects.
Risks Related to Our Financial Position and Need for Additional Capital
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 December 31, 2023, we have not generated any revenue or profit from product sales. We may never achieve or
sustain profitability.
We are a clinical-stage biopharmaceutical company. We have incurred significant losses since our inception. Our net loss for the years ended December 31,
2023 and 2021 was $118.7 million and $211.8 million, respectively, while net income for the year ended December 31, 2022 was $124.3 million, which
was driven in large part by our entry into the Original Jazz Collaboration Agreement (as defined below) and the receipt of certain payments thereunder, and
we do not anticipate being net income positive on a regular basis for the foreseeable future. As of December 31, 2023, our accumulated deficit was
$677.4 million. We expect to continue to incur losses for the foreseeable future as we continue our research and development of, and seek regulatory
approvals for, our product candidates, prepare for and begin to commercialize any approved product candidates and add infrastructure, which may include
personnel, to support our product development efforts. In addition, inflationary pressure could adversely impact our financial results. The net losses and
negative cash flows incurred as of December 31, 2023, together with expected future losses, have had, and likely will continue to have, an adverse effect on
our stockholders’ deficit and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our
ability to generate revenue.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or
amount of increased expenses or when, or if, we will be able to achieve profitability.
To become and remain profitable, we must succeed in developing and commercializing product candidates with significant market potential. This will
require us to be successful in a range of challenging activities for which we are only in the preliminary stages, including developing product candidates,
obtaining regulatory approval for such product candidates, and manufacturing, marketing and selling those product candidates for which we may obtain
regulatory approval. We may never succeed in these activities and may never generate revenue from product sales that is significant enough to achieve
profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or
remain profitable would depress our market value and could impair our ability to raise capital, expand our business, develop other product candidates, or
continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. We have never generated
any revenue from product sales and may never be profitable.
We have devoted substantially all of our financial resources and efforts to developing our proprietary therapeutic platforms, identifying potential product
candidates and conducting preclinical studies and clinical trials. We and our partners are still developing our product candidates, and we have not
completed development of any products. Our revenue as of December 31, 2023 has been primarily revenue from the license of our proprietary therapeutic
platforms for the development of product candidates by others or revenue from our strategic partners. Our ability to generate revenue and achieve
profitability depends in large part on our ability, alone or with our strategic partners, to achieve milestones and to successfully complete the development
of, obtain the necessary regulatory approvals for, and commercialize, product candidates. We do not anticipate generating revenue from sales of products in
the near term.
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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 currently have two clinical-stage lead product candidates, zanidatamab and zanidatamab zovodotin. Our partner Jazz has been responsible for the
conduct of ongoing and future zanidatamab trials since May 2023, and is currently evaluating this product candidate in Phase 1, Phase 2, and Phase 3
clinical trials, including certain ongoing pivotal clinical trials. Following the transfer of certain of our personnel to Jazz in May 2023, we have been focused
on the clinical development of zanidatamab zovodotin and our preclinical product candidates and general discovery efforts. We are currently evaluating
zanidatamab zovodotin in a Phase 1 clinical trial in patients with recurrent or metastatic HER2-expressing solid tumors. Developing pharmaceutical
products, including conducting preclinical studies and clinical trials, is expensive. In order to obtain regulatory approval, we will be required to conduct
clinical trials for each indication for each of our product candidates. Although our collaboration agreements with Jazz and BeiGene provide for additional
future funding for zanidatamab, we will continue to require additional funding to complete the development and commercialization of zanidatamab
zovodotin, and to continue to advance the development of our other product candidates, and such funding may not be available on acceptable terms or at
all. If sufficient funds on acceptable terms are not available when needed, or at all, we could be forced to significantly reduce operating expenses and delay,
scale back or eliminate one or more of our development programs or our business operations.
Our future funding requirements will depend on many factors, including:
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the number and characteristics of other product candidates that we pursue;
the scope, progress, timing, cost and results of research, preclinical development, and clinical trials;
the costs, timing and outcome of seeking and obtaining FDA and non-U.S. regulatory approvals;
the costs associated with manufacturing our product candidates and establishing sales, marketing and distribution capabilities;
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we
may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights;
our ability to hire when needed additional management, scientific and medical personnel;
the effect of competing products that may limit market penetration of our product candidates;
our need to implement additional internal systems and infrastructure, including financial and reporting systems; and
the economic and other terms, timing of and success of our existing strategic partnerships, and any collaboration, asset monetization, licensing, or
other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these
agreements.
Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash
needs primarily through a combination of public and private equity offerings, debt financings, asset monetization, strategic partnerships and grant funding.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish substantial rights.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted,
and the terms of these new securities may include liquidation or other preferences that adversely affect our stockholders’ rights as common stockholders.
On November 9, 2022, we entered into the Sales Agreement with Cantor to sell shares of our common stock having an aggregate offering price of up to
$150.0 million, 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 under the Sales Agreement for net proceeds of $26.2 million, after underwriting commissions
and offering expenses. In addition, on December 23, 2023, we entered in a securities purchase agreement for a private placement with certain institutional
accredited investors affiliated with EcoR1 Capital, LLC of 5,086,521 pre-funded warrants to purchase 5,086,521 shares of our common stock for an
aggregate purchase price of approximately $50.0 million. Debt financing, if available at all, may involve agreements that include covenants limiting or
restricting our ability to take specific actions such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional
funds through partnerships, collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our
technologies, product candidates, or future revenue streams, or grant licenses on terms that are not favorable to us. We cannot assure that we will be able to
obtain additional funding if and when necessary. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, scale back
or
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eliminate one or more of our development programs or grant rights to develop and market product candidates that we would otherwise prefer to develop
and market ourselves.
Our effective tax rate may change in the future.
We are subject to U.S. federal income taxes on our earnings and the earnings of our non-U.S. subsidiaries in a manner that may adversely impact our
effective tax rate. For example, we may have to include additional amounts in income under the so-called “global intangible low-taxed income” regime or
as a result of the application of “controlled foreign corporation” rules. In addition, the United States has enacted the Inflation Reduction Act, which, among
other changes, imposes a 1% excise tax on certain stock buybacks and an alternative minimum tax on adjusted financial statement income. In addition, our
Canadian tax attributes (including net operating loss and tax credit carryforwards and deductible Scientific Research and Experimental Development
Expenditure carryforwards) will generally not be available to offset U.S. income and may be subject to limitation.
Further, our future operations and business structure may result in increased tax burden. For example, changes in our clinical development plans and
business or commercialization strategies may result in an increased effective tax rate. Taxation of international business operations and intercompany
transactions, including transactions between us and non-U.S. subsidiaries, is complicated. Any changes in the U.S. or non-U.S. taxation of such activities
may increase our worldwide effective tax rate and harm our business, financial condition, and results of operations.
Risks Related to Our Dependence on Third Parties
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.
In October 2022, Zymeworks BC entered into a License and Collaboration Agreement (the “Original Jazz Collaboration Agreement”) with Jazz, under
which Jazz obtained development and commercialization rights of zanidatamab throughout the world, but excluding certain territories already covered by
Zymeworks BC’s agreement with BeiGene. Pursuant to the terms of the agreement, we received a $50 million upfront payment following receipt of HSR
Clearance and delivery of licenses and technology transfer to Jazz and a further payment of $325 million following Jazz’s decision to continue the
collaboration after readout of the top-line clinical data from HERIZON-BTC-01. We were also eligible to receive additional milestone payments upon
achievement of certain regulatory and commercial milestones, as well as tiered royalties on Jazz’s net sales of licensed products.
In April 2023, certain of our subsidiaries entered into the Transfer Agreement with Jazz Inc., an affiliate of Jazz. Pursuant to the terms of the Transfer
Agreement, we took a series of steps designed to simplify, focus, and potentially expedite the clinical development and commercialization of zanidatamab
in partnership with Jazz by transferring certain assets, contracts and employees associated with our zanidatamab development program to Jazz and its
affiliates. As part of the transactions contemplated by the Transfer Agreement, at the Closing in May 2023, Zymeworks BC and Jazz amended and restated
the Original Jazz Collaboration Agreement to reflect the transfer of responsibility for the Program (as amended, the “Amended Jazz Collaboration
Agreement”). Under the Amended Jazz Collaboration Agreement, the financial terms of the Original Jazz Collaboration Agreement, as previously
disclosed, are unchanged, except that the costs of the Program (including ongoing costs related to the service providers transferred to Jazz Inc. pursuant to
the Transfer Agreement) incurred following the Closing are directly borne by Jazz instead of being incurred by us and charged back to Jazz for
reimbursement, though Zymeworks BC will remain eligible for reimbursement of certain costs for activities where Zymeworks BC maintains responsibility
under the Amended Jazz Collaboration Agreement. Other material terms in the Amended Jazz Collaboration Agreement also remain substantially similar to
the terms of the Original Jazz Collaboration Agreement, including commercialization, term and termination, and certain other customary terms and
conditions, including mutual representations and warranties, indemnification, and confidentiality provisions. We cannot be certain that our amended
arrangement with Jazz will simplify, focus, or potentially expedite the clinical development and commercialization of zanidatamab in partnership with Jazz.
We continue to depend on Jazz to collaborate with us to develop and commercialize zanidatamab in the territories covered by the Amended Jazz
Collaboration Agreement and, as a result, the eventual success or commercial viability of zanidatamab is largely beyond our control. Any future financial
returns to us depend in large part on achievement of regulatory and commercialization milestones, plus a share of any revenue from sales. Therefore, our
success, and any associated financial returns to us and our investors, will depend in significant part on Jazz’s performance under the Amended Jazz
Collaboration Agreement.
We are subject to a number of additional specific risks associated with our dependence on our collaborative relationship with Jazz, including:
•
adverse decisions by Jazz regarding the development and commercialization of zanidatamab;
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•
•
•
•
possible disagreements as to the timing, nature and extent of development plans, including clinical trials or regulatory approval strategy;
loss of significant rights if we fail to meet our obligations under the agreement;
changes in key management personnel at Jazz; and
possible disagreements with Jazz regarding the agreement, for example, with regard to ownership of intellectual property rights or program costs
and reimbursement matters.
If either we or Jazz fail to perform our respective obligations, any clinical trial, regulatory approval or development progress could be significantly delayed
or halted, could result in costly or time-consuming litigation or arbitration and could have a material adverse effect on our business.
Decisions by Jazz to emphasize other drug candidates currently in its portfolio ahead of zanidatamab, or to add competitive agents to its portfolio could
result in a decision to terminate the agreement, in which event, among other things, we may be responsible for paying any remaining costs of ongoing or
future clinical trials. If Jazz decides to terminate the Amended Jazz Collaboration Agreement, we may be delayed in or unable to effectively develop and/or
commercialize zanidatamab, which could have a material adverse effect on our business.
Any of the above discussed scenarios could adversely affect the timing and extent of the development and commercialization activities related to
zanidatamab, which could materially and adversely impact 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 have limited capabilities for drug development and commercialization of our product candidates, if approved. Accordingly, we have entered into
strategic partnerships with other companies that we believe can provide such capabilities, including our collaboration and license agreements with Jazz,
BeiGene, BMS, GSK, Daiichi Sankyo, Janssen, Iconic and Merck. These relationships also have provided us with non-dilutive funding for our wholly
owned pipeline and therapeutic platforms and we expect to receive additional funding under these strategic partnerships in the future. Our existing strategic
partnerships, and any future strategic partnerships we enter into, may pose a number of risks, including the following:
•
•
•
•
•
•
•
•
strategic partners have significant discretion in determining the efforts and resources that they will apply to these partnerships;
strategic partners may not perform their obligations as expected;
strategic partners may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not
to continue or renew development or commercialization programs based on clinical trial results, changes in the partners’ strategic focus or
available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
strategic partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
strategic partners could independently develop, or develop with third parties, products that compete directly or indirectly with our product
candidates if the strategic partners believe that competitive products are more likely to be successfully developed or can be commercialized under
terms that are more economically attractive than our product candidates;
product candidates discovered in collaboration with us may be viewed by our strategic partners as competitive with their own product candidates
or products, which may cause strategic partners to cease to devote resources to the commercialization of our product candidates;
a strategic partner with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not
commit sufficient resources to the marketing and distribution of such product candidates;
disagreements with strategic partners, including disagreements over proprietary rights, contract interpretation or the preferred course of
development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional
responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and
expensive;
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•
•
•
strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
strategic partners may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
strategic partnerships may be terminated for the convenience of the partner and, if terminated, we could be required to raise additional capital to
pursue further development or commercialization of the applicable product candidates. For example, each of our collaboration and license
agreements with Jazz, BeiGene, BMS, GSK, Daiichi Sankyo, Janssen, Iconic and Merck may be terminated for convenience upon the completion
of a specified notice period;
• we may elect to enter into additional licensing or collaboration agreements to partner our product candidates in territories we currently retain, and
in the event we grant exclusive rights to such partners, we would be precluded from potential commercialization of our product candidates within
the territories in which we have a partner; and
•
strategic partners may not have the ability or the development capabilities to perform their obligations as expected, including as a result of the
impact of a pandemic or epidemic on our strategic partners’ operations or business.
If our strategic partnerships do not result in the successful development and commercialization of product candidates or if one of our partners terminates its
agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the
funding we expect under our strategic partnership agreements, our development of our therapeutic platforms and product candidates could be delayed and
we may need additional resources to develop product candidates and our therapeutic platforms.
We face significant competition in seeking new strategic partners.
For some of our product candidates, we may in the future determine to collaborate with additional pharmaceutical and biotechnology companies for
development and potential commercialization of therapeutic products. Our ability to reach a definitive agreement for a collaboration will depend, among
other things, upon our assessment of the strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and the
proposed strategic partner’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval
by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of
manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our
ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market
conditions generally. The strategic partner may also consider alternative product candidates or technologies for similar indications that may be available to
collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate.
Strategic partnerships are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business
combinations among large pharmaceutical companies that have resulted in a reduced number of potential future strategic partners. If we are unable to reach
agreements with suitable strategic partners on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate,
reduce or delay one or more of our other development programs, delay potential commercialization or reduce the scope of any sales or marketing activities,
or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development
or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on
acceptable terms or at all. If we fail to enter into strategic partnerships and do not have sufficient funds or expertise to undertake the necessary development
and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our
therapeutic platforms and our business may be materially and 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 products.
We do not currently own or operate any manufacturing facilities. We rely on our strategic partners to manufacture product candidates licensed to them or
work with multiple third-party contract manufacturers to produce sufficient quantities of materials required for the manufacture of our product candidates
for preclinical testing and clinical trials, in compliance with applicable regulatory and quality standards, and intend to do so for the commercial
manufacture of our products. If we are
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unable to arrange for such third-party manufacturing sources, or fail to do so on commercially reasonable terms, we may not be able to successfully
produce sufficient supply of product candidate or we may be delayed in doing so. Such failure or substantial delay could materially harm our business.
The manufacture of biopharmaceutical products is complex and requires significant expertise and capital investment, including the development of
advanced manufacturing techniques and process controls. The process of manufacturing our product candidates is susceptible to product loss due to
contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product
characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced
production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in
the third-party manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended
period of time to investigate and remedy the contamination. All of our engineered antibodies are manufactured in accordance with cGMP by utilizing cells
that are stored in a cell bank. We have one master cell bank and one working cell bank for zanidatamab (also used for zanidatamab zovodotin) and one
master cell bank for each of ZW191 and ZW171. Should any cell bank be lost in a catastrophic event, it is possible that we could lose part of a cell bank
and have our manufacturing potentially impacted by the need to replace the cell bank. Any adverse developments affecting manufacturing operations for
our product candidates, if any are approved, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other
interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to
meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.
Furthermore, reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves,
including reliance on the third party for regulatory compliance and quality control and assurance, volume production, the possibility of breach of the
manufacturing agreement by the third party because of factors beyond our control (including a failure to manufacture our product candidates in accordance
with our product specifications) and the possibility of termination or nonrenewal of the agreement by the third party at a time that is costly or damaging to
us. In addition, the FDA, EMA and other regulatory authorities require that our product candidates be manufactured according to cGMP and similar foreign
standards. Pharmaceutical manufacturers and their subcontractors are required to register their facilities or products manufactured at the time of submission
of the marketing application and then annually thereafter with the FDA and certain state and foreign agencies. They are also subject to periodic
unannounced inspections by the FDA, state and other foreign authorities. Any subsequent discovery of problems with a product, or a manufacturing or
laboratory facility used by us or our strategic partners, may result in restrictions on the product or on the manufacturing or laboratory facility, including
marketed product recall, suspension of manufacturing, product seizure, or a voluntary withdrawal of the drug from the market. We may have little to no
control regarding the occurrence of third-party manufacturer incidents. Any failure by our third-party manufacturers to comply with cGMP or failure to
scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or
failure to obtain, regulatory approval of any of our product candidates.
In addition to third-party manufacturers, we rely on other third parties to store, monitor and transport bulk drug substance and drug product. If we are
unable to arrange for such third-party sources, or fail to do so on commercially reasonable terms, we may not be able to successfully supply sufficient
product candidate or we may be delayed in doing so. Such failure or substantial delay could materially harm our business.
In addition, disruptions to ports and other shipping infrastructure, as were experienced during the COVID-19 pandemic, may result in shortages or delays
impacting the availability of materials and other supplies, which could negatively impact our manufacturers, suppliers and other third parties on whom we
rely. While we have not yet suffered any direct, material negative impacts from these ongoing supply chain disruptions, we cannot be certain that we will
not be impacted, which could increase our costs or negatively impact our development timelines.
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.
We rely on entities outside of our control, which may include academic institutions, CROs, hospitals, clinics and other third-party strategic partners, to
monitor, support, conduct and oversee preclinical studies and clinical trials of our current and future product candidates. We also rely on third parties to
perform clinical trials on our current and future product candidates when
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they reach that stage. As a result, we have less control over the timing and cost of these studies and the ability to recruit trial subjects than if we conducted
these trials with our own personnel.
If we are unable to maintain or enter into agreements with these third parties on acceptable terms, or if any such engagement is terminated prematurely, we
may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner we anticipate. In addition, there is no guarantee that these
third parties will devote adequate time and resources to our studies or perform as required by our contract or in accordance with regulatory requirements,
including maintenance of clinical trial information regarding our product candidates. These third parties, in turn, may face their own constraints in
obtaining the resources and personnel needed to perform the work for which we engage them. If these third parties fail to meet expected deadlines, fail to
transfer to us any regulatory information in a timely manner, fail to adhere to protocols or fail to act in accordance with regulatory requirements or our
agreements with them, or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the
data they obtain, then clinical trials of our product candidates may be extended or delayed with additional costs incurred, or our data may be rejected by the
FDA, EMA or other regulatory agencies.
Ultimately, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and
scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities.
We and our CROs are required to comply with GCP regulations and guidelines enforced by the FDA, the competent authorities of the member states of the
EU and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these GCP regulations through
periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or any of our CROs fail to comply with applicable GCP
regulations, the clinical data generated in our clinical trials may be deemed unreliable and our submission of marketing applications may be delayed or the
FDA may require us to perform additional clinical trials before approving our marketing applications. Upon inspection, the FDA could determine that any
of our clinical trials fail or have failed to comply with applicable GCP regulations. In addition, our clinical trials must be conducted with product produced
under the cGMP regulations enforced by the FDA, and our clinical trials may require a large number of test subjects. Our failure to comply with these
regulations may require us to repeat clinical trials, which would delay the regulatory approval process and increase our costs. Moreover, our business may
be implicated if any of our CROs violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
If any of our clinical trial sites terminate for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical
trials unless we are able to transfer the care of those patients to another qualified clinical trial site. Further, if our relationship with any of our CROs is
terminated, we may be unable to enter into arrangements with alternative CROs on commercially reasonable terms, or at all.
Switching or adding CROs or other suppliers can involve substantial cost and require extensive management time and focus. In addition, there is a natural
transition period when a new CRO or supplier commences work. As a result, delays may occur, which can materially impact our ability to meet our desired
clinical development timelines. If we are required to seek alternative supply arrangements, the resulting delays and potential inability to find a suitable
replacement could materially and adversely impact our business.
We rely on third parties for various operational and administrative aspects of our business, including for certain cloud-based software platforms, which
impact our financial, operational and research activities. If any of these third parties fail to provide timely, accurate and ongoing service or if the
cloud-based platforms suffer outages that we are unable to mitigate, our business may be adversely affected.
We currently rely upon third-party consultants and contractors to provide certain operational and administrative services, including external financial, legal,
information technology, clinical and research consultation. The failure of any of these third parties to provide accurate and timely service may adversely
impact our business operations. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial
distress or other business disruption, or increase their fees, or if our relationships with these providers deteriorate, we could suffer increased costs until an
equivalent provider could be found, if at all, or we could develop internal capabilities, if ever.
In addition, if we are unsuccessful in choosing or finding high-quality partners, if we fail to negotiate cost-effective relationships with them, or if we
ineffectively manage these relationships, it could have an adverse impact on our business and financial performance.
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Further, our operations depend on the continuing and efficient operation of our information technology and communications systems and infrastructure, and
specifically on “cloud-based” platforms. These platforms are vulnerable to damage or interruption from earthquakes, vandalism, sabotage, terrorist attacks,
floods, fires, power outages, telecommunications failures, and computer viruses or other deliberate attempts to harm the systems. The occurrence of a
natural or intentional disaster, any decision to close a facility we are using without adequate notice, or particularly an unanticipated problem at our cloud-
based virtual server facility, could result in harmful interruptions in our service, resulting in adverse effects to our business.
Risks Related to Our Intellectual Property
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents
or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position.
For example, certain patents and patent applications held by third parties cover Fab and Fc region engineering methods for bispecific antibodies, and
antibodies having mutations in Fab heavy and light chain regions and Fc regions to generate correctly paired bispecific antibodies. If our products or our
strategic partners’ products incorporate any Fab or Fc region mutations covered by any claims of these patents or patents that may issue from these
applications, and if licenses for them are not available on commercially reasonable terms or at all, and we are unable to invalidate or render unenforceable
those patents, our business could be materially harmed.
We are also aware of third-party patents and patent applications containing claims directed to compositions and methods for treating various forms of
cancer with antibodies targeting HER2, alone or in combination with other anti-cancer agents, which patents and applications could potentially be
construed to cover our product candidates and the use thereof to treat cancer. If our products or our strategic partners’ products were found to infringe any
such patents, and if licenses for them are not available on commercially reasonable terms, or at all, and we were unable to invalidate or render
unenforceable those patents, our business could be materially harmed. These patents may not expire before we receive marketing authorization for our
product candidates, and could delay the commercial launch of one or more future products. There is also no assurance that there are not third-party patents
or patent applications of which we are aware, but which we do not believe are relevant to our business, which may, nonetheless, ultimately be found to limit
our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position.
Patents that we may ultimately be found to infringe could be issued to third parties. Third parties may have or obtain valid and enforceable patents or
proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain a license to any patent covering any
technology that we require may materially harm our business, financial condition and results of operations. Moreover, our failure to maintain a license to
any patent covering any technology that we require may also materially harm our business, financial condition and results of operations. Furthermore, we
would be exposed to a threat of litigation.
In the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual property
rights are commonplace. Any such lawsuits and proceedings could be costly and could affect our results of operations and divert the attention of our
management and scientific personnel. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we
can because of their substantially greater resources. There is a risk that a court would decide that we or our strategic partners are infringing a third party’s
patents and would order us or our strategic partners to stop the activities or stop the manufacture, use, or sale of any product covered by the patents. In that
event, we or our strategic partners may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected
product candidate or cease commercialization of an approved product. In addition, there is a risk that a court would order us or our strategic partners to pay
third-party damages or some other monetary award, depending upon the jurisdiction. An adverse outcome in any litigation or other proceeding could
subject us to significant liabilities to third parties, potentially including treble damages and attorneys’ fees if we are found to have willfully infringed, and
we may be required to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required
licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.
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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.
Our strategy depends on our ability to identify and seek patent protection for our discoveries. This process is expensive and time consuming, and we may
not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where
protection may be commercially advantageous. It is also possible that we will fail to identify patentable aspects of our research and development output
before it is too late to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and
prosecution of patent applications, or to maintain the patents, covering technology that we have licensed from third parties. Therefore, our owned or in-
licensed patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Our patent
applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, patents issue from such
applications, and then only to the extent the issued claims cover the technology. The patent applications that we own or in-license may fail to result in
issued patents with claims that cover our current and future product candidates in the United States or in other countries.
Moreover, the patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has been the
subject of much litigation. The issuance of a patent does not ensure that it is valid or enforceable. Third parties may challenge the validity, enforceability or
scope of our issued patents, and such patents may be narrowed, invalidated, circumvented, or deemed unenforceable. In addition, changes in law may
introduce uncertainty in the enforceability or scope of patents owned by biotechnology companies. If our patents are narrowed, invalidated or held
unenforceable, third parties may be able to commercialize our technology or products and compete directly with us without payment to us. There is no
assurance that all potentially relevant prior art relating to our patents and patent applications has been found, and such prior art could potentially invalidate
one or more of our patents or prevent a patent from issuing from one or more of our pending patent applications. There is also no assurance that there is not
prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim in our patents and patent applications, which
may, nonetheless, ultimately be found to affect the validity or enforceability of a claim.
Furthermore, even if our patents are unchallenged, they may not adequately protect our intellectual property, provide exclusivity for our product candidates,
prevent others from designing around our claims or provide us with a competitive advantage. The legal systems of certain countries do not favor the
aggressive enforcement of patents, and the laws of other countries may not allow us to protect our inventions with patents to the same extent as the laws of
the United States. Because patent applications in the United States and many other jurisdictions are typically not published until 18 months after filing, or
in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the
first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set
forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the issuance,
validity, enforceability, scope and commercial value of our patents in the United States and in other countries cannot be predicted with certainty and, as a
result, any patents that we own or license may not provide sufficient protection against competitors. We may not be able to obtain or maintain patent
protection from our pending patent applications, from those we may file in the future, or from those we may license from third parties. Moreover, even if
we are able to obtain patent protection, such patent protection may be of insufficient scope to achieve our business objectives. In addition, the issuance of a
patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own
patented product and practicing our own patented technology.
Our patents covering one or more of our products or product candidates could be found invalid or unenforceable if challenged.
Any of our intellectual property rights could be challenged or invalidated despite measures we take to obtain patent and other intellectual property
protection with respect to our product candidates and proprietary technology. For example, if we were to initiate legal proceedings against a third party to
enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent
litigation in the United States and in some other jurisdictions, defendant counterclaims alleging invalidity and/or unenforceability are commonplace.
Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-
enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld material
information from the U.S. Patent and Trademark Office (“USPTO”) or the applicable foreign counterpart, or made a misleading statement, during
prosecution. A litigant or the USPTO itself could challenge our patents on this basis even if we believe that we have conducted our patent prosecution in
accordance with the duty of candor and in good faith. The outcome following such a challenge is unpredictable.
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With respect to challenges to the validity of our patents, for example, there might be invalidating prior art, of which we and the patent examiner were
unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and
perhaps all, of the patent protection on a product candidate. Even if a defendant does not prevail on a legal assertion of invalidity and/or unenforceability,
our patent claims may be construed in a manner that would limit our ability to enforce such claims against the defendant and others. The cost of defending
such a challenge, and any resulting loss of patent protection, could have a material adverse impact on one or more of our product candidates and our
business.
Enforcing our intellectual property rights against third parties may also cause such third parties to file other counterclaims against us, which could be costly
to defend and could require us to pay substantial damages, cease the use, manufacture, or sale of certain products or enter into a license agreement and pay
royalties (which may not be possible on commercially reasonable terms or at all). Any efforts to enforce our intellectual property rights are also likely to be
costly and may divert the efforts of our scientific and management personnel.
Our intellectual property rights will not necessarily provide us with competitive advantages.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not
adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
•
•
•
others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we or
our strategic partners own or have exclusively licensed;
others may independently develop similar or alternative technologies without infringing our intellectual property rights;
issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or
unenforceable, as a result of legal challenges by our competitors;
• we may obtain patents for certain compounds many years before we obtain marketing approval for products containing such compounds, and
because patents have a limited life, which may begin to run prior to the commercial sale of the related product, the commercial value of our
patents may be limited;
•
our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information
learned from such activities to develop competitive products for sale in our major commercial markets;
• we may fail to develop additional proprietary technologies that are patentable;
•
•
the laws of certain countries may not protect our intellectual property rights to the same extent as the laws of the United States, or we may fail to
apply for or obtain adequate intellectual property protection in all the jurisdictions in which we operate; and
the patents of others may have an adverse effect on our business, for example by preventing us from marketing one or more of our product
candidates for one or more indications.
Any of the aforementioned threats to our competitive advantage could have a material adverse effect on our business.
We may become involved in lawsuits to protect or enforce our patents and trade secrets, which could be expensive, time consuming and unsuccessful.
Third parties may seek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market their own products
similar to or otherwise competitive with our product candidates. In these circumstances, we may need to defend or assert our patents, including by filing
lawsuits alleging patent infringement. The outcome following legal assertions of invalidity and unenforceability is unpredictable. In any of these types of
proceedings, a court or agency with jurisdiction may find our patents invalid or unenforceable. Even if we have valid and enforceable patents, these patents
still may not provide protection against competing products or processes sufficient to achieve our business objectives.
Even after they have issued, our patents and any patents that we license may be challenged, narrowed, invalidated or circumvented. If our patents are
invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other companies may be better able to develop
products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition. In addition, if
the breadth or strength of protection
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provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize
current or future product candidates.
The following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents or patents
licensed to us:
• we or our strategic partners may initiate litigation or other proceedings against third parties to enforce our patent or trade secret rights;
•
•
•
•
•
third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory
judgment that their product or technology does not infringe our patents or patents licensed to us;
third parties may initiate opposition or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or our
strategic partners and/or licensors to participate in such proceedings to defend the validity and scope of our patents;
there may be a challenge or dispute regarding inventorship or ownership of patents or trade secrets currently identified as being solely or co-
owned by us or by a licensor who has granted a license to us;
the USPTO may initiate an interference between patents or patent applications owned by or licensed to us and those of our competitors, requiring
us or our strategic partners and/or licensors to participate in an interference proceeding to determine the priority of invention, which could
jeopardize our patent rights; or
third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents owned by or
licensed to us, requiring us to defend our patents, including by filing lawsuits alleging patent infringement.
These lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial and scientific
personnel. Adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or
our licensors can. There is a risk that a court or administrative body would decide that our patents are invalid, unenforceable or not infringed or trade
secrets not misappropriated by a third party’s activities, or that the scope of certain issued claims must be further limited. An adverse outcome in a litigation
or proceeding involving our own patents or trade secrets could limit our ability to assert our patents or trade secrets against these or other competitors,
affect our ability to receive royalties or other licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties
from making, using and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position,
business prospects and financial condition.
We may not be able to prevent, alone or with our licensors or licensees, infringement or misappropriation of our intellectual property rights, particularly in
countries where the laws may not protect those rights as fully as in the United States. Any litigation or other proceedings to enforce our intellectual
property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our
confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of
hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an
adverse effect on the price of our common stock.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect
our rights or permit us to gain or keep our competitive advantage. For example:
•
•
others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents;
others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents;
• we might not have been the first to make the inventions covered by patents or pending patent applications;
• we might not have been the first to file patent applications for these inventions;
•
any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or
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• we may not develop additional proprietary technologies that are patentable or that afford meaningful trade secret protection.
Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the expiration of a patent is generally 20 years from its earliest
U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents
covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including
biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such
candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us
with sufficient rights to exclude others from commercializing products similar or identical to ours. Further, recent judicial decisions in the U.S. raised
questions regarding the award of patent term adjustment (PTA) for patents in families where related patents have issued without PTA. Thus, it cannot be
said with certainty how PTA will be viewed in the future and whether patent expiration dates may be impacted.
If we do not obtain protection under the Hatch-Waxman Amendments and similar legislation in other countries for extending the term of patents
covering each of our product candidates, our business may be materially harmed.
Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible
for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five
years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review
process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or
otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term
extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be
shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be
reduced, possibly materially. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our
clinical and preclinical data and launch their product earlier than might otherwise be the case.
If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.
In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information. For
example, we treat our confidential and proprietary computational technologies, including unpatented know-how and other proprietary information, as trade
secrets. We enter into confidentiality agreements with our employees, consultants, strategic partners and others upon the commencement of their
relationships with us. These agreements provide that all confidential information developed by the individual or made known to the individual by us during
the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel
policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we
may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. We cannot
guarantee that we have entered into such agreements with each party that has or may have had access to, or houses or hosts, our trade secrets or proprietary
information or that has been involved in the development of intellectual property. Further, despite such agreements, such inventions or confidential
information may become disclosed or assigned to third parties. Monitoring unauthorized uses and disclosures is difficult and we do not know whether the
steps we have taken to protect our proprietary technologies will be effective. In the event of unauthorized use or disclosure of our trade secrets or
proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential
information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes
may arise between us and those third parties as to the rights in such technology or know-how or in related inventions. To the extent that an individual who
is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a
license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available
on commercially reasonable terms or at all.
We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and
electronic security of our information technology systems and cloud storage sources, but such
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security measures may be breached, including through cyber-hacking or cyberattacks, and we may not have adequate remedies for any breach.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming and the outcome is
unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. The disclosure of our trade
secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time-
consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could
adversely affect our competitive business position. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a
competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that
technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, or if we
otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced and our business and
competitive position could be harmed. Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information.
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed at research
institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that
these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that
patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully
owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Such trade secrets or other proprietary
information could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or
products. Such license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against these claims,
litigation could result in substantial costs and be a distraction to management.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements
imposed by regulations and governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these
requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents or applications will be due to the USPTO and various
foreign patent offices at various points over the lifetime of our patents or applications. We have systems in place to remind us to pay these fees, and we rely
on our outside patent annuity service to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a
number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and
other professionals to help us comply, and in many cases an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with
rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or
patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material
adverse effect on our business.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
Although we are not currently experiencing any claims challenging the inventorship or ownership of our patents, we may in the future be subject to claims
that former employees, strategic partners or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor.
While it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute
agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or
develops intellectual property that we regard as our own. For example, the assignment of intellectual property rights may not be self-executing or the
assignment agreements may be breached, or we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved
in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use,
valuable intellectual property. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to
management and other employees.
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Patent protection and patent prosecution for some of our product candidates may be dependent on, and the ability to assert patents and defend them
against claims of invalidity may be maintained by, third parties.
There may be times when certain patents that relate to our product candidates or any approved products are controlled by our licensees or licensors.
Although we may, under such arrangements, have rights to consult with our strategic partners on actions taken as well as back-up rights of prosecution and
enforcement, we have in the past and may in the future relinquish rights to prosecute and maintain patents and patent applications within our portfolio as
well as the ability to assert such patents against infringers.
If any current or future licensee or licensor with rights to prosecute, assert or defend patents related to our product candidates fails to appropriately
prosecute and maintain patent protection for patents covering any of our product candidates, or if patents covering any of our product candidates are
asserted against infringers or defended against claims of invalidity or unenforceability in a manner that adversely affects such coverage, our ability to
develop and commercialize any such product candidate may be adversely affected and we may not be able to prevent competitors from making, using and
selling competing products.
Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which
important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other
countries may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or found to be enforceable in our
patents, in our strategic partners’ patents or in third-party patents. Recent U.S. Supreme Court rulings have either narrowed the scope of patent protection
available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our
ability to obtain patents in the future, this has created uncertainty with respect to the validity, scope and value of patents, once obtained.
For our U.S. patent applications containing a priority claim after March 16, 2013, there is a greater level of uncertainty in the patent law. In September
2011, the Leahy-Smith America Invents Act, also known as the America Invents Act (“AIA”), was signed into law. The AIA includes a number of
significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation.
The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or
defense of our issued patents, all of which could have an adverse effect on our business. An important change introduced by the AIA is that, as of
March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent
applications are filed by different parties disclosing or claiming the same invention. A third party that has filed, or files a patent application in the USPTO
after March 16, 2013, but before us, could be awarded a patent covering a given invention, even if we had made the invention before it was made by the
third party. This requires us to be cognizant of the time from invention to filing of a patent application.
Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing
opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16,
2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a
patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the
same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the
USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district
court action.
Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations
governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents
we and our licensors or partners may obtain in the future. For example, the U.S. Supreme Court held in Amgen v. Sanofi (2023) that a functionally claimed
genus was invalid for failing to comply with the enablement requirement of the Patent Act. As such, any of our patent rights with functional claims may be
vulnerable to third party challenges seeking to invalidate these claims for lacking enablement or adequate support in the specification.
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We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual
property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some countries do
not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from
practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United
States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own
products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the
United States. These products may compete with our current or future products, if any, and our patents or other intellectual property rights may not be
effective or sufficient to prevent them from competing. Recent U.S. Supreme Court cases have narrowed the scope of what is considered patentable subject
matter, for example, in the areas of software and diagnostic methods involving the association between treatment outcome and biomarkers. This could
impact our ability to patent certain aspects of our technology in the United States.
Many companies have encountered significant problems in protecting and defending intellectual property rights in jurisdictions other than the United
States. The legal systems of certain countries do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly
those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in
violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent
applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the
damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights
around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Additionally, the requirements for patentability may differ in certain countries. For example, China has a heightened requirement for patentability, and
specifically requires a detailed description of medical uses of a claimed drug. In India, unlike the United States, there is no link between regulatory
approval of a drug and its patent status. In addition to India, certain countries in Europe and developing countries, including China, have compulsory
licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited
remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of
those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce intellectual property rights around the world may be
inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.
Geo-political actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or maintenance of
our patent applications or those of any current or future licensors or licensees and the maintenance, enforcement or defense of our issued patents or those of
any current or future licensors or licensees. For example, the United States, Canadian, and foreign government actions related to Russia’s invasion of
Ukraine may limit or prevent filing, prosecution and maintenance of patent applications in Russia. Government actions may also prevent maintenance of
issued patents in Russia. These actions could result in abandonment or lapse of our patents or patent applications, resulting in partial or complete loss of
patent rights in Russia. If such an event were to occur, it could have a material adverse effect on our business. In addition, a decree was adopted by the
Russian government in March 2022, allowing Russian companies and individuals to exploit inventions owned by patentees that have citizenship or
nationality in, are registered in, or have a predominately primary place of business or profit-making activities in the United States and other countries that
Russia has deemed unfriendly without consent or compensation. Consequently, we would not be able to prevent third parties from practicing our inventions
in Russia or from selling or importing products made using our inventions in and into Russia. Accordingly, our competitive position may be impaired, and
our business, financial condition, results of operations and prospects may be adversely affected.
As another example, the complexity and uncertainty of European patent laws have increased in recent years. In Europe, a new unitary patent system was
introduced on June 1, 2023, which will significantly impact European patents, including those granted before the introduction of this system. Under the
unitary patent system, European applications have the option, upon grant of a patent, of becoming a Unitary Patent which is subject to the jurisdiction of
the Unitary Patent Court (UPC). As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation. Patents
granted before the implementation of the UPC have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC
countries. Patents that remain under the jurisdiction of the UPC are potentially vulnerable to a single UPC-
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based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty
the long-term effects of any potential changes.
We use open source software in connection with our internal research and development programs, which could negatively affect our ability to develop
products and subject us to litigation or other actions.
We use open source software in connection with our internal research and development programs. The terms of many open source licenses have not been
interpreted by U.S. courts or courts outside of the U.S., and there is a risk that these licenses could be construed in a way that could impose unanticipated
conditions or restrictions on our ability to use this software. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe
to be open source software, or claiming that software we developed using such open source software is a derivative work of open source software and
demanding the release of portions of our source code, or otherwise seeking to enforce the terms of the applicable open source license. Litigation could be
costly for us to defend, have a negative effect on our financial condition and results of operations or require us to devote additional research and
development resources to change our platform and offerings.
If we were to combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to
release the source code of our proprietary software to the public. While we monitor our use of open source software and try to ensure that none is used in a
manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could
inadvertently occur, or could be claimed to have occurred, in part because open source license terms are often ambiguous. If we inappropriately use open
source software, or if the license terms for open source software that we use change, we may be required to re-engineer our platform, incur additional costs,
discontinue the use of some or all of our platform or take other remedial actions.
In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software,
because open source licensors generally do not provide warranties or assurance of title or controls on origin of the software. In addition, many of the risks
associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated, and could, if not properly
addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for the use of open source
software, but we cannot be sure that all of our use of open source software is in a manner that is consistent with our current policies and procedures, or will
not subject us to liability. Any of these risks could be difficult to eliminate or manage and, if not addressed, could have an adverse effect on our business,
financial condition and results of operations.
We will need to obtain FDA approval for any proposed product candidate names, and any failure or delay associated with such approval may adversely
affect our business.
Any proprietary name or trademark we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured
a formal trademark registration from the USPTO. The FDA typically conducts a review of proposed product candidate names, including an evaluation of
the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies certain
medical claims or contributes to an overstatement of efficacy. If the FDA objects to any product candidate names we propose, we may be required to adopt
an alternative name for our product candidates. If we adopt an alternative name, we would lose the benefit of any existing trademark applications for such
product candidate and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under
applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand
identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.
Risks Related to Additional Legal and Compliance Matters
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, insider
trading, and noncompliance with our policies and procedures.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA
regulations, to provide accurate information to the FDA, to comply with federal and state health care fraud and abuse laws and regulations, to report
financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health
care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive
programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained
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in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Conduct and
Business Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may
not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits
stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending
ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other
sanctions. In addition, employees may become subject of allegations of gender discrimination and other misconduct that are not in compliance with our
policies and procedures, which, regardless of the ultimate outcome, may result in adverse publicity that could materially harm our brand, reputation and
business.
If we or our contractors or agents market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price
reporting laws and transparency laws, we may be subject to civil or criminal penalties.
In addition to FDA restrictions on the marketing of pharmaceutical products, federal and state healthcare laws restrict certain business practices in the
biopharmaceutical industry. Although we currently do not have any products on the market, we may be subject, and if our product candidates are approved
and we begin commercialization will be subject, to additional healthcare laws and regulations enforced by the federal government and by authorities in the
states and foreign jurisdictions in which we conduct our business. These state and federal healthcare laws, commonly referred to as “fraud and abuse” laws,
have been applied to restrict certain marketing practices in the pharmaceutical industry, and include anti-kickback, false claims, data privacy and security
and transparency statutes and regulations.
Federal false claims laws prohibit, among other things, any person from knowingly presenting, or causing to be presented, a false claim for payment to the
federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcare program anti-kickback
statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing,
leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally
financed healthcare programs. Most states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which
may apply to items such as pharmaceutical products and services reimbursed by private insurers. Administrative, civil and criminal sanctions may be
imposed under these federal and state laws.
The federal civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or
caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed
or is false or fraudulent.
HIPAA created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or obtain, by
means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any
healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or
making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services.
In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business.
HIPAA, as amended by HITECH, and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of
individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business associates-
independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of
a covered entity. HITECH also created four new tiers of civil monetary penalties, and newly empowered state attorneys general with the authority to
enforce HIPAA. In January 2013, the Office for Civil Rights of the U.S. Department of Health and Human Services issued the Final Omnibus Rule under
HIPAA pursuant to HITECH that makes significant changes to the privacy, security and breach notification requirements and penalties. The Final Omnibus
Rule generally took effect in September 2013 and enhances certain privacy and security protections, and strengthens the government’s ability to enforce
HIPAA. The Final Omnibus Rule also enhanced requirements for both covered entities and business associates regarding notification of breaches of
unsecured protected health information. In addition, state laws govern the privacy and security of health information in certain circumstances, many of
which differ from each other in significant ways. These state laws may not have the same effect and often are not preempted by HIPAA, thus complicating
compliance efforts.
Additionally, the PPACA also included the federal Physician Payments Sunshine Act, which requires applicable group purchasing organizations and
manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health
Insurance Program (with certain exceptions) to report annually information
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related to certain payments or other transfers of value made in the previous year to covered recipients, including physicians, as defined by law, and teaching
hospitals and, effective for data reported in 2022, expanded to include nurse practitioners, physician assistants, clinical nurse specialists, certified registered
nurse anesthetists and anesthesiologist assistants, and certified nurse-midwives, including certain ownership and investment interests held by physicians or
their immediate family members. Failure to comply with the required reporting requirements could subject applicable reporting entities such as
manufacturers to substantial civil monetary penalties.
Also, many states have similar healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or,
in several states, apply regardless of the payor. Certain states require pharmaceutical companies to implement a comprehensive compliance program that
includes a limit or outright ban on expenditures for, or payments to, individual medical or health professionals and/or require pharmaceutical companies to
track and report gifts and other payments made to physicians and other healthcare providers.
If our operations are found to be in violation of any of the healthcare laws or regulations described above or any other laws that apply to us, we may be
subject to penalties, including potentially significant criminal, civil or administrative penalties, damages, fines, disgorgement, individual imprisonment,
exclusion of products from reimbursement under government programs, contractual damages, reputational harm, administrative burdens, diminished profits
and future earnings or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our
results of operations. To the extent that any of our products will be sold in a foreign country, we may be subject to similar foreign laws and regulations,
which may include, for instance, applicable post-marketing requirements, including safety surveillance, fraud and abuse laws, and implementation of
corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
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 research and development involves, and may in the future involve, the use of potentially hazardous materials and chemicals. Our operations may
produce hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards
mandated by local, state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an
accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and
workplace safety laws and regulations and fire and building codes, including those governing laboratory procedures, exposure to blood-borne pathogens,
use and storage of flammable agents and the handling of biohazardous materials. Although we maintain workers’ compensation insurance as prescribed by
certain jurisdictions in which we operate to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of these
materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic
tort claims that may be asserted against us. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future.
We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.
We may be subject to certain costs and inefficiencies as a result of our 2022 Redomicile Transactions.
As a result of the Redomicile Transactions, we became a Delaware corporation on October 13, 2022 following the completion of an arrangement under the
Business Corporations Act (British Columbia). Pursuant to the agreements governing the Redomicile Transactions, we agreed to use reasonable efforts to
take certain corporate steps and actions, as may be necessary or desirable, to effect and implement certain post-arrangement transactions, including the
internal reorganization of certain subsidiaries (the “Post-Arrangement Transactions”). Following the entry into the Original Jazz Collaboration Agreement
subsequent to the Redomicile Transactions, we determined that completing the Post-Arrangement Transactions as originally contemplated would result in
negative tax consequences. As a result, we do not currently intend to complete the Post-Arrangement Transactions. While we expect to manage any tax and
operational inefficiencies that may result under our current organizational structure, and we may pursue additional internal reorganizations in the future,
certain tax and operational inefficiencies may persist notwithstanding our management and/or additional reorganization that could adversely affect our
business, financial condition and results of operations.
In addition, we incurred a number of non-recurring costs associated with the Redomicile Transactions, including legal fees, accountants’ fees, proxy
solicitor fees, filing fees, mailing expenses and financial printing expenses. The completion of the Redomicile Transactions and the associated
reorganization of our corporate structure may result in additional and unforeseen expenses in the future. While it is expected that benefits of the Redomicile
Transactions will offset these transaction costs over
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time, this net benefit may not be achieved in the short-term or at all. These combined factors could adversely affect our business and overall financial
condition. The success of the Redomicile Transactions will depend, in part, on our ability to realize the anticipated benefits associated with the Redomicile
Transactions and associated reorganization of our corporate structure, and we may not be able to realize such benefits on a timely basis or at all.
Risks Related to Employee Matters and Managing Growth
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on key members of our senior management team, including Kenneth Galbraith, the Chair of our board of directors, President and
Chief Executive Officer, Christopher Astle, our Chief Financial Officer, Paul Moore, our Chief Scientific Officer, Jeffrey Smith, our Chief Medical Officer,
and other key members of our senior management, scientific and clinical teams. Although we have entered into employment agreements with our executive
officers, each of them may terminate their employment with us at any time. The loss of the services of our key senior managers and employees could
impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our
business strategy.
Retention and any future recruitment of qualified scientific, technical, clinical, manufacturing and sales and marketing personnel will also be critical to our
success. In connection with the transactions contemplated by the Transfer Agreement in May 2023, certain of our clinical operations personnel and other
personnel with later-stage development experience were transferred to Jazz. If we are successful in advancing the development of zanidatamab zovodotin
and our preclinical candidates, we will need to evaluate any organizational hiring needs. In addition, we will need to effectively manage our managerial,
operational, financial, development and other resources in order to successfully pursue our research, development and commercialization efforts for our
existing and future product candidates. Furthermore, replacing key senior managers and employees may be difficult and may take an extended period of
time because of the limited talent pool in our industry due to the breadth of skills and experience required to successfully develop, gain regulatory approval
of and commercialize products. Intense competition for attracting key skill-sets and the impact of inflationary pressure on wages may limit our ability to
attract, retain and motivate key personnel on acceptable terms. We also experience competition for the hiring of scientific and clinical personnel from
universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating
our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have
commitments under consulting or advisory contracts with other entities that may limit their availability. If we are unable to continue to attract and retain
high quality personnel, our ability to pursue our business strategy will be limited.
As we advance our development and commercialization plans and strategies, we may need to grow or modify our organization, and we may experience
difficulty in managing such change, which could disrupt our operations.
As of December 31, 2023, we had 272 full-time employees, which reflects the reduction in the number of our employees as a result of the transfer to Jazz
Inc. or a Jazz affiliate of certain employees in connection with the Closing of the Transfer Agreement transactions. As we advance our development and
commercialization plans and strategies in the future, we anticipate that we may need to expand or modify our employee base. Additionally, as our product
candidates enter and advance through preclinical studies and any clinical trials, we may need to expand our development, manufacturing, regulatory sales
and marketing capabilities or contract with other organizations to provide these capabilities for us. We believe the need for future expansion in these areas
will increase as our product candidates reach later stages of preclinical and clinical development. Future growth would impose significant added
responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our
management may need to divert a disproportionate amount of their attention away from our day-to-day activities and devote a substantial amount of time to
managing any necessary growth activities. We may not be able to effectively manage an expansion of our operations, which may result in weaknesses in
our infrastructure, give rise to operational errors, loss of business opportunities, loss of employees and reduced productivity amongst remaining employees.
Any growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of existing and
additional product candidates. If our management is unable to effectively manage any needed growth, our expenses may increase more than expected, our
ability to generate or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our
ability to commercialize our product candidates and compete effectively with others in our industry will depend on our ability to effectively manage any
future growth.
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Risks Related to Our Common Stock
Our stock price is likely to be volatile and the market price of our common stock may drop below the price paid by stockholders.
Investors should consider an investment in our common stock as risky and invest only if they can withstand a significant loss and wide fluctuations in the
market value of their investment. Investors may be unable to sell their common stock at or above the price they paid for such stock due to fluctuations in
the market price of our common stock arising from changes in our operating performance or prospects. Some of the factors that may cause the market price
of our common stock to fluctuate or decrease include:
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results and timing of our clinical trials and clinical trials of our competitors’ products;
failure or discontinuation of any of our development programs;
the success of our partnerships, including our and Jazz’s ability and efforts to collaborate to develop and commercialize zanidatamab in the
territories covered by the Amended Jazz Collaboration Agreement;
our ability to achieve milestones and receive associated milestone payments pursuant to the terms of our collaboration agreements;
issues in manufacturing our product candidates or future approved products;
regulatory developments or enforcement in the United States and foreign countries with respect to our product candidates or our competitors’
products;
competition from existing products or new products that may emerge;
developments or disputes concerning patents or other proprietary rights;
introduction of technological innovations or new commercial products by us or our competitors;
announcements by us, our strategic partners or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital
commitments;
changes in estimates or recommendations by securities analysts that cover our common stock;
fluctuations in the valuation of companies in the biotechnology industry or otherwise perceived by investors to be comparable to us;
additional instances of stockholder activism, including unsolicited takeover proposals or proxy contests;
claims or litigation related to our stockholder rights plan;
public concern over our product candidates or any future approved products;
litigation;
future sales of our common stock;
stock price and volume fluctuations attributable to inconsistent trading volume levels of our common stock;
additions or departures of key personnel;
our ability to execute on our key strategic priorities;
changes in the structure of health care payment systems in the United States or other countries;
failure of any of our product candidates, if approved, to achieve commercial success;
economic and other external factors or other disasters or crises, including pandemics;
period-to-period fluctuations in our financial condition and results of operations, including the timing of receipt of any milestone or other
payments under commercialization or licensing agreements;
general market conditions and market conditions for biopharmaceutical stocks;
potential disagreements or disputes with certain of our stockholders;
overall fluctuations in U.S. equity markets; and
other factors that may be unanticipated or out of our control.
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In addition, the stock market in general, and the stock of biopharmaceutical companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating performance of the relevant companies, which has resulted in increased
volatility and decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or
prospects. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments, may
negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of
a broad range of other risks, including those described in this “Risk Factors” section, could have a material adverse effect on the market price of our
common stock.
An active trading market for our common stock may not be sustained.
Our common stock was first listed on the New York Stock Exchange (the “NYSE”) in connection with the completion of the Redomicile Transactions on
October 13, 2022. In December 2022, we moved our listing to The Nasdaq Stock Market LLC (“Nasdaq”). If an active market for our common stock does
not continue, it may be difficult for our stockholders to sell their stock without depressing the market price for the common stock or sell their common
stock at or above the prices at which they acquired their common stock or sell their common stock at the time they would like to sell. Any inactive trading
market for our common stock may also impair our ability to raise capital to continue to fund our operations by selling common stock and may impair our
ability to acquire other companies or technologies by using our common stock as consideration.
We may fail to meet the continued listing requirements of Nasdaq. If Nasdaq delists our shares of common stock from trading on its exchange, we could
face significant material adverse consequences, including:
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significant impairment of the liquidity for our common stock, which may substantially decrease the market price of our common stock;
a limited availability of market quotations for our securities;
a determination that our common stock qualifies as a “penny stock” which will require brokers trading in our common stock to adhere to more
stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;
a limited amount of news and analyst coverage for our company; and
a decreased ability to issue additional securities or obtain additional financing in the future.
Substantial future sales of our common stock, or the perception that these sales could occur, may cause the price of our common stock to drop
significantly, even if our business is performing well.
A large volume of sales of our common stock could decrease the prevailing market price of our common stock and could impair our ability to raise
additional capital through the sale of equity securities in the future. Even if a substantial number of sales of our common stock does not occur, the mere
perception of the possibility of these sales could depress the market price of our common stock and have a negative effect on our ability to raise capital in
the future.
Our management team has broad discretion to use the net proceeds from our financing activities as well as funds received pursuant to our strategic
collaborations, and its investment of these proceeds may not yield a favorable return. They may invest the proceeds in ways with which our stockholders
disagree.
Our management team has broad discretion in the application of the proceeds we receive from our financing activities and from our strategic
collaborations, including proceeds received from our strategic collaboration with Jazz and pursuant to any “at-the-market” equity offering programs we
may use from time to time, and we could spend or invest the proceeds in ways with which our stockholders disagree. Accordingly, stockholders will need
to rely on our management team’s judgment with respect to the use of these proceeds. However, the failure by management to apply these funds effectively
could negatively affect our ability to operate and grow our business.
We cannot specify with certainty all of the particular uses for the net proceeds to be received from our fundraising efforts or for the funds received from
time to time pursuant to our strategic collaborations. In addition, the amount, allocation and timing of our actual expenditures will depend upon numerous
factors, including additional milestone payments received from our strategic partnerships and royalties received on sale of any future approved product.
Accordingly, we will have broad discretion in using these proceeds. Until the net proceeds are used, they may be placed in investments that do not produce
significant income or that may lose value.
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We do not anticipate paying cash dividends for the foreseeable future, and accordingly, stockholders must rely on stock appreciation for any return on
their investment.
We have never paid any dividends on our common stock. We currently intend to retain our future earnings, if any, to fund the development and growth of
our business and do not anticipate that we will declare or pay any cash dividends on our common stock in the foreseeable future. As a result, capital
appreciation, if any, of our common stock will be the sole source of gain on investment in our common stock for the foreseeable future. Investors seeking
cash dividends should not invest in our common stock.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon many factors, including our results of
operations, financial position, capital requirements, distributable reserves, credit terms, general economic conditions and other factors as our board of
directors may deem relevant from time to time. Consequently, future dividends payable to investors are not guaranteed.
Our principal stockholders, in aggregate, could exert substantial influence over us which could delay or prevent a change in corporate control or result
in the entrenchment of management or the board of directors.
Our principal stockholders, being our stockholders that beneficially own 5% or more of our common stock, together with their affiliates and related
persons, in aggregate, beneficially own approximately 47.2% of our outstanding common stock as of December 31, 2023. Our directors and executive
officers beneficially own, in the aggregate, approximately 1.4% of our outstanding common stock as of December 31, 2023. Our principal stockholders, if
acting together (with or without our directors and executive officers), may have the ability to exert substantial influence over the outcome of matters
submitted to our stockholders for approval, including the election and removal of directors and any merger or sale of all or substantially all of our assets. In
addition, our principal stockholders, if acting together (with or without our directors and executive officers), may have the ability to exert substantial
influence over the management and affairs of our company. Accordingly, this concentration of ownership could harm the market price of our common
stock by:
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delaying, deferring, or preventing a change in control;
entrenching our management or the board of directors;
impeding a merger, takeover, or other business combination involving us; or
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
We are an accelerated filer and may no longer provide scaled disclosures as a smaller reporting company beginning with our Quarterly Report on
Form 10-Q for the quarter ending March 31, 2024, which will increase our costs and demands on management.
We are an accelerated filer and beginning with our Quarterly Report on Form 10-Q for the quarter ending March 31, 2024, we may no longer provide
scaled disclosure as a “smaller reporting company” as defined under the Exchange Act.
As a smaller reporting company, we had the option to take advantage of certain exemptions from various reporting requirements that are applicable to other
public companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements.
In addition, as a non-accelerated filer and smaller reporting company, we previously availed ourselves of the exemption from the requirement that our
independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. As an
accelerated filer, we may no longer avail ourselves of this exemption.
Because our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost
of our compliance with Section 404 has correspondingly increased. For so long as we are an accelerated filer, we expect to incur significant expense and
devote substantial management effort toward ensuring compliance with Section 404. We may need to hire additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge, and it may be difficult to recruit and maintain such personnel. Implementing
any appropriate changes to our internal control over financial reporting may require specific compliance training for our directors, officers and employees
and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal control over
financial reporting, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements or other reports on a timely
basis, could increase our operating costs and could materially impair our ability to operate our business.
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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or
prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the
trading price of our common stock.
Under the Sarbanes-Oxley Act of 2002, we are required to establish and maintain effective internal control over financial reporting and adequate disclosure
controls and procedures. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, are designed to prevent fraud. Even if our management concludes that our internal control over financial
reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal
controls or the level at which our internal controls are documented, designed, implemented or reviewed. Undetected material weaknesses in our internal
controls could lead to financial statement restatements and require us to incur the expense of remediation.
In 2022, we transitioned to a new enterprise resource planning system, which we believe will lead to improvements in our internal control over financial
reporting. Although we have completed this transition to a new enterprise resource planning system, the full impact of this transition is not yet known. If,
during the evaluation and testing process of our internal controls, we identify one or more material weaknesses in our internal control over financial
reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material
weaknesses in our internal controls over financial reporting in the future. If we are unable to conclude that our internal control over financial reporting is
effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting,
we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we
could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control
over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to
the capital markets. Furthermore, if we cannot provide reliable financial reports or prevent fraud, including as a result of remote working by our employees,
our business and results of operations would likely be materially and adversely affected.
Holders of our Exchangeable Shares are subject to additional risks.
Pursuant to the Redomicile Transactions, certain holders of common shares of our predecessor company exchanged their common shares for exchangeable
shares (the “Exchangeable Shares”) in the capital of our subsidiary ExchangeCo. (as defined below) Exchangeable Shares are exchangeable at the option of
the holder for shares of our common stock.
Exchangeable Shares are subject to additional risks, including:
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The Exchangeable Shares are not and will not be listed on any stock exchange. There is no market through which the Exchangeable Shares may be
sold, and holders may not be able to sell their Exchangeable Shares.
• Holders of Exchangeable Shares who request an exchange may not receive shares of our common stock until a period of time after the applicable
request is received. During this period, the market price of our common stock may increase or decrease. Any such increase or decrease would
affect the value of the consideration to be received by such a holder of Exchangeable Shares upon a subsequent sale of shares of our common
stock received in the exchange.
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Exchangeable Shares may be subject to different tax consequences under Canadian law depending on whether the exchangeable shares are
disposed of in a redemption or an acquisition by one of our subsidiaries, and such transaction may not be within the control of the holder.
The tax treatment of Exchangeable Shares for non-Canadian tax purposes, including U.S. federal income tax purposes, is uncertain.
Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws might delay, discourage or
prevent a change in control of Zymeworks or changes in our management, thereby depressing the market price of our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of Zymeworks
more difficult or delay or prevent changes in control of its management. Among other things, these provisions:
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authorize our board of directors to issue shares of preferred stock and determine the price and other terms of those shares, including preferences
and voting rights, without stockholder approval;
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permit only the board of directors to establish the number of directors and fill vacancies and newly created directorships on the board, provided
that the board of directors’ ability to increase the size of the board and fill vacancies and newly created directorships will be subject to the
restrictions in our amended and restated certificate of incorporation and amended and restated bylaws;
establish that members of our board of directors serve in one of three staggered terms of three years each;
provide that our directors may only be removed by the affirmative vote of at least 66 2/3% of the voting power of the shares cast on such proposal;
permit stockholders to only take actions at a duly called annual or special meeting and not by written consent;
require that stockholders give advance notice to nominate directors or submit proposals for consideration at stockholder meetings;
not provide for cumulative voting rights in the election of directors;
provide that special meetings of Zymeworks’ stockholders may be called only by the board of directors, the chairperson of the board of directors,
Zymeworks’ chief executive officer, president or the secretary upon request from holders of no less than 20% of our outstanding voting stock,
subject to the limitations and requirements set forth in our amended and restated bylaws; and
require a super-majority vote of stockholders to amend some of the provisions described above.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which generally prohibits a
Delaware corporation from engaging in any of a broad range of business combinations with any “interested stockholder” for a period of three years
following the date on which the stockholder became an “interested stockholder” unless certain conditions are met.
These provisions, alone or together, could delay, discourage or prevent a transaction involving a change in control of Zymeworks. These provisions could
also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause Zymeworks to take other
corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their
shares of common stock, and could also affect the price that some investors are willing to pay for our common stock.
Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all
disputes between Zymeworks and its stockholders, and also provide that the federal district courts are the exclusive forum for resolving any complaint
asserting a cause of action arising under the Securities Act, each of which could limit our stockholders’ ability to choose the judicial forum for disputes
with Zymeworks or its directors, officers, stockholders or employees.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1)
any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors,
stockholders, officers or other employees to Zymeworks or our stockholders, (3) any action arising pursuant to any provision of the DGCL, our amended
and restated certificate of incorporation or our amended and restated bylaws or (4) any other action asserting a claim that is governed by the internal affairs
doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or
the federal district court for the District of Delaware), except for any claim as to which such court determines that there is an indispensable party not
subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten days following
such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject
matter jurisdiction. This provision does not apply to any action brought to enforce a duty or liability created by the Exchange Act and the rules and
regulations thereunder.
Section 22 of the Securities Act establishes concurrent jurisdiction for federal and state courts over Securities Act claims. Accordingly, both state and
federal courts have jurisdiction to hear such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary
rulings by different courts, among other considerations, our amended and restated bylaws provides that, unless we consent in writing to the selection of an
alternative forum, the federal district courts of the United States will be the sole and exclusive forum for resolving any complaint asserting a cause of action
arising under the Securities Act.
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Any person or entity purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in any of our securities shall be
deemed to have notice of and consented to the foregoing bylaw provisions. Although we believe these exclusive forum provisions benefit us by providing
increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the exclusive forum
provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our current or former directors,
officers, stockholders or other employees, which may discourage such lawsuits against us and our current and former directors, officers, stockholders and
other employees. Our stockholders will not be deemed to have waived its compliance with the federal securities laws and the rules and regulations
thereunder as a result of our exclusive forum provisions.
The enforceability of similar exclusive forum provisions in other companies’ organizational documents have been challenged in legal proceedings, and,
while certain courts have determined these provisions are enforceable, it is possible that a court of law could rule that these types of provisions are
inapplicable or unenforceable if they are challenged in a proceeding or otherwise. If a court were to find either exclusive forum provision contained in our
amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur significant additional costs associated with resolving such
action in other jurisdictions, which could harm our financial condition and results of operations.
General Risk Factors
We are at risk of securities class action litigation.
Securities class action litigation has often been brought against companies following a decline in the market price of their securities. This risk is especially
relevant for us because biotechnology companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result
in substantial costs and a diversion of management’s attention and resources, which could materially harm our business.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading
volume could decline.
The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We
do not have any control over these analysts. We cannot assure that analysts will cover us or provide accurate or favorable coverage. If one or more of the
analysts who cover us downgrade our stock or change their opinion of our common stock negatively, our stock price would likely decline. If one or more of
these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause
our stock price or trading volume to decline. Moreover, the research and reports that analysts publish may suggest a price for our common stock that does
not fully or accurately reflect the true value of our company. Furthermore, even if such analyst publications are favorable, these reports could have negative
consequences for us.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity.
Our board of directors is responsible for overseeing our risk management program, and cybersecurity is a critical element that has been integrated into our
overall risk management program. Management is responsible for the day-to-day administration of our risk management program and our cybersecurity
policies, processes, and practices.
We aim to incorporate industry practices throughout our cybersecurity program. Our cybersecurity strategy focuses on implementing effective and efficient
controls, technologies, and other processes to assess, identify, and manage cybersecurity risks. Our cybersecurity program is informed by applicable
industry standards and is assessed regularly by independent third-party auditors.
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Cybersecurity Risk Management and Strategy
Our cybersecurity risk management strategy focuses on several areas:
•
•
•
•
•
Identification and Escalation: We have implemented a cross-functional approach to assessing, identifying and managing cybersecurity threats
and incidents. Our program includes controls and procedures to identify, classify and escalate certain cybersecurity incidents to provide
management visibility and obtain direction from management.
Technical Safeguards: We implement technical safeguards that are designed to protect our information systems from cybersecurity threats, which
are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence, as well as outside audits and certifications.
Incident Response and Recovery Planning: We have established and maintain incident response, business continuity, and disaster recovery plans
designed to address our response to a cybersecurity incident. We conduct periodic tabletop exercises to test these plans and ensure personnel are
familiar with their roles in a response scenario.
Third-Party Risk Management: We maintain a risk-based approach to identifying and overseeing cybersecurity threats presented by third parties,
including vendors, service providers, and other external users of our systems, as well as the systems of third parties that could adversely impact
our business in the event of a cybersecurity incident affecting those third-party systems, including any outside auditors or consultants who advise
on our cybersecurity systems.
Education and Awareness: We provide regular, mandatory training for all employees regarding cybersecurity threats as a means to equip our
employees with tools to make employees aware of and to address cybersecurity threats, and to communicate our evolving information security
policies, standards, processes, and practices.
We conduct periodic assessments and testing of our policies, standards, processes, and practices in a manner intended to address cybersecurity threats and
events. We adjust our cybersecurity policies, standards, processes, and practices as necessary based on the information provided by these assessments,
audits, and reviews. We, like any company operating in the current environment, have experienced cybersecurity incidents in the past. However, we have
not experienced a cybersecurity event that was determined to be material. For additional information regarding whether any risks from cybersecurity threats
are reasonably likely to materially affect our company, including our business strategy, results of operations, or financial condition, see Item 1A, “Risk
Factors”, of this Annual Report on Form 10-K, including the risk factor titled “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.”
Governance
Our board of directors, in coordination with the audit committee of our board of directors, oversees our risk management program, including the
management of cybersecurity threats. Our board of directors and our audit committee receive prompt and timely information regarding cybersecurity risks,
as well as ongoing updates regarding any such risk, from senior management.
Our Senior Director, IT who has over 20 years’ experience with cybersecurity at public companies, in coordination with senior management including our
Chief Executive Officer, works collaboratively across our company to implement a program designed to protect our information systems from
cybersecurity threats and to promptly respond to cybersecurity incidents in accordance with our incident response and recovery plans. To facilitate the
success of our cybersecurity program, a cross-functional team throughout our company addresses cybersecurity threats and responds to cybersecurity
incidents. Through ongoing communications with this team, the Senior Director, IT and senior management are informed about and monitor the prevention,
detection, mitigation and remediation of cybersecurity threats and incidents in real time and report such threats and incidents to the Audit Committee when
appropriate.
Item 2. Properties.
Our principal executive offices are located at 108 Patriot Drive, Suite A, Middletown, Delaware 19709. We maintain physical operations and personnel in
Canada, the United States, Ireland and Singapore.
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Our Vancouver offices are located in a single building containing office and laboratory space at 114 East 4th Avenue, Suite 800 Vancouver, British
Columbia, Canada, V5T 1G4. 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.
Our former U.S. office was located in Seattle, Washington at 1215 4th Avenue, Suite 2100, Seattle, Washington, 98181. The lease for this location, which
we entered into in February 2019, has an expiration date in May 2027. We are in the process of terminating this lease as we moved our primary office in the
United States to Bellevue in 2023.
Our primary U.S. office is located in Bellevue, Washington at 777 108th Avenue NE, Bellevue, Suite 1700, Washington 98004. We entered into a sublease
for this location in August 2023, which expires in December 2024. We entered into a direct lease for this location in November 2023 that has a term
starting upon expiration of the sublease and expiring in June 2026.
We also have an office in Redwood City, California at 555 Twin Dolphin Drive, Suite 360, Redwood City, California 94065. The lease for this location,
which we entered into in November 2023, has an expiration date in December 2026.
Our Ireland office is located in Dublin at Digital Office Centre - Dublin Airport, Office 104, Balheary Demense, Balheary Road, Swords, Dublin, Ireland.
The license to occupy this space, which we entered into in December 2022, had an original expiration date in November 2023, but automatically renews for
subsequent 12-month terms unless we provide two months’ prior written notice that we do not want to renew.
Our Singapore office is located at #01-08 Science Park 1, 2 Science Park Drive, Singapore 112888. The license to occupy this space, which we entered into
in March 2023, expires in April 2025.
In addition, a significant number of employees work remotely. Our executive officers and directors are located in several jurisdictions, including the United
States, Canada, Ireland and the United Kingdom.
We believe that our existing facilities are adequate for our immediate needs and our anticipated growth. We believe that, should it be needed, additional
space can be leased to accommodate any future growth.
Item 3. 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 December 31,
2023, 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 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock, $0.00001 par value per share, is traded on Nasdaq under the symbol “ZYME.” Prior to December 16, 2022, our common stock was
traded on the NYSE under the symbol “ZYME”.
Holders
As of March 4, 2024, we had 82 stockholders of record holding our common stock. A substantially greater number of holders of Zymeworks’ common
stock are “street name” or beneficial holders whose shares of record are held by banks, brokers, and other financial institutions.
Dividends
We have never paid any dividends on our common stock or any of our other securities. We currently intend to retain any future earnings to finance the
growth and development of our business, and we do not anticipate that we will declare or pay any cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of
operations, capital requirements, restrictions under any future indebtedness and other factors the board of directors deems relevant.
Performance Graph
We previously qualified as a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, and have been permitted to rely, and have
relied, on the reduced disclosure requirements available to smaller reporting companies, including not being required to provide information required by
this item pursuant to Item 201(e) of Regulation S-K. Our ability to rely on the reduced disclosure requirements available to smaller reporting companies
will cease after the filing of our Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Sales of Unregistered Securities
Except as disclosed on our Current Report on Form 8-K filed with the SEC on December 26, 2023, we did not sell securities without registration under the
Securities Act during the fiscal year ended December 31, 2023.
Issuer Repurchases of Equity Securities
None.
Item 6. Reserved
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Item 7. 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. This Annual Report on Form 10-K,
including the following sections, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and
the Exchange Act. 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. For a detailed discussion of these risks and uncertainties, see Item 1A, “Risk Factors” of this
Annual Report on Form 10-K. 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 Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or
circumstances occurring after the date of this Annual Report on Form 10-K. The discussion regarding our financial condition and results of operations for
fiscal 2022 as compared to fiscal 2021 has been omitted from this Annual Report on Form 10-K and is incorporated by reference from our Annual Report
on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC and with the securities commissions in all provinces and territories of
Canada on March 7, 2023, under the section titled “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Unless the context otherwise requires or otherwise expressly states, all references in this Annual Report on Form 10-K 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. 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 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 December 31, 2023, 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 December 31, 2023, we received $993.2 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 December 31, 2023, we had $456.3 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 December 31, 2023, combined with certain anticipated milestone payments from our existing collaborations, will enable
us to fund our operating expenditures and capital expenditure requirements for at least the next twelve months from the date of this Annual Report on Form
10-K is filed with the SEC.
We reported a net loss of $118.7 million for the year ended December 31, 2023, and through December 31, 2023, we had an accumulated deficit of $677.4
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.
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Recent Developments
Zanidatamab Clinical Program
In November 2023, our partner Jazz and The University of Texas MD Anderson Cancer Center announced a five-year strategic research collaboration
agreement to evaluate zanidatamab, an investigational HER2-targeted bispecific antibody, in multiple HER2-expressing cancers.
In December 2023, response rates in the HERIZON-BTC-01 Asian subgroup cohort were presented at ESMO Asia, highlighting consistency across
subgroups with durable tumor responses (overall response rate of 42% [95% CI: 28, 57], median duration of response 7.4 [3.9- Not Estimable] months) and
a tolerable safety profile (no patients in the Asia subgroup experienced grade 4 or 5 treatment related adverse events).
In December 2023, progression-free survival (“PFS”) for zanidatamab in combination as chemotherapy-free regime was presented at SABCS. Data from
51 patients with heavily pretreated HER2+/HR+ metastatic breast cancer (“mBC”) who were treated with zanidatamab plus palbociclib and fulvestrant
demonstrated a PFS at six months of 67% (n=34) [95% CI: 52, 79]. Secondary endpoint findings included a median PFS of 12 months [95% CI: 8, 15] and
a confirmed objective response rate of 35% [95% CI: 21, 50] with a median duration of response of 15 months. The combination regimen was well
tolerated with a manageable safety profile.
In January 2024, at ASCO GI, Patient-Reported Outcomes from HERIZON-BTC-01 demonstrate patients who responded to zanidatamab had less pain and
pain interference compared to their baseline levels.
In January 2024, our partner Jazz highlighted that for the HERIZON-GEA-01 trial, enrollment will be increased from 714 to 918 patients to improve the
statistical power, for the OS endpoint only. This update allows Jazz to maintain the previously guided top-line readout, targeted for late 2024, which will
continue to be based on the original enrollment numbers. Discussions with FDA and other regulatory agencies were held in advance of the decision to
increase enrollment for the OS endpoint analysis. Jazz also announced that the rolling submission of the BLA submission for zanidatamab in second-line
BTC has been initiated, with the intention of completing the BLA submission in the first half of 2024.
In February 2024, our partner Jazz disclosed that they have initiated a Phase 3 confirmatory trial to evaluate zanidatamab as first-line treatment for patients
with metastatic BTC.
In February 2024, our partner BeiGene updated guidance on the expected timing of the BLA filing with the NMPA in China for treatment of HER2-
amplified inoperable and advanced or metastatic BTC during the second half of 2024.
Zanidatamab Zovodotin Clinical Program
In January 2024, we confirmed our intention to initiate a Phase 2 clinical trial for zanidatamab zovodotin, with data from the Phase 1 clinical trial providing
further support for the RP2D of 2.5 mg/kg every three weeks. Zanidatamab zovodotin remains ready for a Phase 2 clinical trial in combination with
pembrolizumab, however, the initiation of the planned Phase 2 study has been deprioritized, pending more clarity from the evolving clinical landscape. We
continue to explore potential development and commercial collaborations prior to undertaking any registrational studies of zanidatamab zovodotin.
Preclinical Programs
In October 2023, as part of the 14th Annual World ADC San Diego, we presented additional preclinical data on our preclinical product candidates ZW251,
a novel GPC3-targeting ADC bearing a TOPO1i payload, and ZW220, a potential first-in-class TOPO1i ADC for the treatment of NaPi2b-expressing solid
tumors.
In November 2023, as part of the Society for Immunotherapy of Cancer (“SITC”) annual meeting, we presented additional preclinical data on our
preclinical TriTCE programs.
In November 2023, we selected ZW251 as our next IND candidate, a potential first-in-class ADC molecule designed for the treatment of GPC3-expressing
HCC, with IND or foreign equivalent filing anticipated in the second half of 2025. GPC3, a 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. The GPC3-targeting antibody
incorporated in ZW251 was selected based on key ADC attributes including its binding profile, efficient internalization and payload delivery across a range
of GPC3-expressing models of HCC. ZW251 incorporates the same Zymeworks’ proprietary bystander-active TOPO1i payload utilized in two additional
pipeline ADC programs, ZW191 (anti-FRa) 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. We are encouraged by published
research demonstrating the potential of GPC3 antibody targeting in HCC patients as evidenced by tumor localization of iodine radiolabeled condrituzumab,
a prior
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clinical stage anti-GPC3 monoclonal antibody, and believe that antibody drug conjugate-based targeting of GPC3 could enable a novel and effective
approach to treatment of HCC.
In February 2024, we published a manuscript in the American Association for Cancer Research Molecular Cancer Therapeutics Journal on the screening
and selection process for our novel TOPO1i payload. Herein, we presented the development of our novel camptothecin ZD06519, which has been
specifically designed for its application as an ADC payload. A panel of camptothecin analogs with different substituents at the C-7 and C-10 positions of
the camptothecin core were prepared and tested in vitro. Selected compounds spanning a range of potency and hydrophilicity were elaborated into drug-
linkers, conjugated to trastuzumab, and evaluated in vitro and in vivo. ZD06519 was selected based on its favorable properties as a free molecule and as an
antibody conjugate, which include moderate free payload potency (~1 nM), low hydrophobicity, strong bystander activity, robust plasma stability, and high-
monomeric ADC content. When conjugated to different antibodies using a clinically validated MC-GGFG-based linker, ZD06519 demonstrated impressive
efficacy in multiple CDX models and noteworthy tolerability in healthy mice, rats, and non-human primates.
In March 2024, we announced our participation at AACR with the acceptance of five abstracts. Abstracts accepted include two presentations from our
MSAT program:
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(1) “DLL3 TriTCE Co-Stim: A next generation trispecific T-cell engager with integrated CD28 costimulation for the treatment of DLL3-
expressing cancers”;
(2) “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,”
and three presentations from our ADC program:
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(1) “ZW191 - a FRα-targeting antibody drug conjugate with strong preclinical activity across multiple FRα-expressing indications”;
(2) “Screening novel format antibodies to design bispecific ADCs that address target heterogeneity”;
(3) “Development of three-dimensional cancer cell line spheroid models for the in vitro functional characterization of cytotoxic antibody-
drug conjugates”.
Licensing and Collaboration Agreements
Termination of BeiGene License and Collaboration Agreement Regarding Zanidatamab Zovodotin
On September 18, 2023, Zymeworks BC Inc. (“Zymeworks BC”), a subsidiary of Zymeworks Inc., and BeiGene entered into a Termination Agreement
(the “Termination Agreement”) relating to the License and Collaboration Agreement between Zymeworks BC and BeiGene, relating to the research,
development and commercialization of zanidatamab zovodotin, dated November 26, 2018, as amended on May 25, 2020 and June 2, 2021 (collectively, the
“Zanidatamab Zovodotin License and Collaboration Agreement”). The Termination Agreement does not terminate the Zanidatamab License and
Collaboration Agreement (as defined below).
Previously, Zymeworks BC and BeiGene entered into the Zanidatamab Zovodotin License and Collaboration Agreement, pursuant to which Zymeworks
BC granted BeiGene a royalty-bearing exclusive license for the research, development and commercialization of zanidatamab zovodotin in Asia (excluding
Japan but including the People’s Republic of China, South Korea and other countries), Australia and New Zealand (collectively, the “BeiGene Territory”).
Pursuant to the Zanidatamab Zovodotin License and Collaboration Agreement, Zymeworks BC was eligible to receive up to $195 million in development
and commercial milestone payments and royalties ranging from the high single digit percentages up to 20% on product sales.
Pursuant to the Termination Agreement, the Zanidatamab Zovodotin License and Collaboration Agreement is terminated, effective as of September 18,
2023, and is no longer in effect, except that the termination does not relieve the parties from obligations under the Zanidatamab Zovodotin License and
Collaboration Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the termination, including certain
licenses to BeiGene intellectual property with respect to zanidatamab zovodotin.
Amendment of BeiGene License and Collaboration Agreement Regarding Zanidatamab
In connection with the entry into the Termination Agreement, on September 18, 2023, Zymeworks BC and BeiGene also entered into the Third
Amendment to License and Collaboration Agreement (the “Amendment”) relating to the License and Collaboration Agreement between Zymeworks BC
and BeiGene relating to the research, development and commercialization of zanidatamab, dated November 26, 2018, as amended on March 29, 2021 and
August 10, 2021 (collectively, the “Zanidatamab License and Collaboration Agreement”). Pursuant to the Zanidatamab License and Collaboration
Agreement, Zymeworks BC granted BeiGene a royalty-bearing exclusive license for the research, development and commercialization of zanidatamab in
the
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BeiGene Territory. Pursuant to the Amendment, Zymeworks BC is eligible to receive tiered royalties ranging from the high single digit percentages up to
19.5% on net sales of zanidatamab, which amends the previous provision to uniformly reduce all such royalty rates by one-half of one percent (0.5%)
(“Royalty Reduction”). The Royalty Reduction will apply until the cumulative reduction in royalties owed to Zymeworks BC as a result of the Royalty
Reduction, relative to the royalties that would have been owed to Zymeworks BC absent the Royalty Reduction, reaches a dollar cap in the low double-
digit millions of dollars. Thereafter, the Royalty Reduction will no longer apply to reduce any royalties owed to Zymeworks under the Zanidatamab
License and Collaboration Agreement. Pursuant to the Amendment, the remaining provisions of the Zanidatamab License and Collaboration Agreement
remain unchanged.
Termination of LEO Research and License Agreement
On October 27, 2023, Zymeworks BC received written notice from LEO Pharma A/S (“LEO”), stating that LEO elected to terminate, in its entirety, the
Research and License Agreement, by and between Zymeworks BC and LEO, dated October 23, 2018 (the “Research and License Agreement”). In
accordance with the terms of the Research and License Agreement, the termination of such agreement was effective on January 25, 2024 (the “Termination
Date”). LEO’s written notice stated that its decision to terminate was due to the closure of its bispecific antibody program, and, as a result, the Research and
License Agreement was terminated for convenience in accordance with the terms of such agreement without modifications or amendment thereto. Pursuant
to the terms of the Research and License Agreement, Zymeworks BC granted LEO a non-exclusive, worldwide, royalty-free, research and development
license under Zymeworks BC’s Azymetric and EFECT platforms to perform preclinical research and development of antibodies pursuant to a research
program, under which Zymeworks BC and LEO were jointly responsible for certain research activities, with Zymeworks BC’s costs to be fully reimbursed
by LEO. Upon LEO selecting certain sequence pairs identified pursuant to the research program (each, a “Collaboration Sequence Pair”), Zymeworks BC
would grant to LEO an exclusive license under Zymeworks BC’s Azymetric and EFECT platforms to make, use, sell, and import antibodies derived and
generated from such Collaboration Sequence Pairs to incorporate into products, and to develop, make, use, sell, and import such products for dermatologic
indications. LEO granted Zymeworks BC a non-exclusive license under LEO’s intellectual property to develop and commercialize antibodies resulting
from the research program in all therapeutic areas other than dermatologic indications.
In connection with entry into the Research and License Agreement, Zymeworks BC received an upfront payment of $5.0 million. In addition, (i) for the
first product that incorporated a Collaboration Sequence Pair, Zymeworks BC was eligible to receive preclinical and development milestone payments of
up to $74.0 million and commercial milestone payments of up to $157.0 million together with tiered royalties on future sales of up to 20% in the United
States and up to high single digit percentages elsewhere, and (ii) for the second product that incorporated a Collaboration Sequence Pair, Zymeworks BC
was eligible to receive preclinical and development milestone payments of up to $86.5 million and commercial milestone payments of up to $157.0 million
together with tiered royalties on future sales of up to low double digit percentages globally. For products developed by Zymeworks BC that include a
Collaboration Sequence Pair and are sold outside of the field of dermatology, LEO was eligible to receive commercial milestone payments and up to single-
digit percentage royalties on future sales. No development or commercial milestone payments or royalties were received by Zymeworks BC.
Effective as of the Termination Date, the Research and License Agreement was terminated and was longer in effect, except that such termination does not
relieve the parties from any obligation under the Research and License Agreement that accrued prior to the termination or affect the survival of any other
right, duty or obligation of the parties under the Research and License Agreement, including certain other provisions expressly indicated to survive the
termination.
As a result of termination, LEO will reimburse Zymeworks BC for all non-cancellable costs incurred by Zymeworks BC or its affiliates in connection with
the research program. In addition, LEO must (i) cease all research, development and commercialization of the antibodies and products developed under the
Research and License Agreement and (ii) effective as of the Termination Date, assign to Zymeworks BC all rights, title and interest in and to LEO’s
intellectual property, including patent rights generated in the performance of the research program. In addition, the license granted to Zymeworks BC under
LEO’s intellectual property to make, use, sell and import products that incorporate sequences developed pursuant to the research program outside of the
field of dermatology will survive and become fully-paid, perpetual, irrevocable and royalty-free effective as of the Termination Date, and Zymeworks BC
will not be restricted from using Zymeworks BC’s Azymetric and EFECT platforms to develop products in the field of dermatology.
Other Matters
On December 15, 2023, Zymeworks announced that the Company was added to the Nasdaq Biotechnology Index (Nasdaq: NBI) (the “NBI”). Zymeworks’
addition to the NBI became effective prior to the market open on Monday, December 18, 2023.
On December 26, 2023, Zymeworks announced that it had entered into a securities purchase agreement with funds affiliated with EcoR1 Capital, LLC
(“EcoR1 Capital”), for the sale of an aggregate of 5,086,521 pre-funded warrants to purchase
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5,086,521 shares of common stock, $0.00001 par value per share, in a private placement. Each pre-funded warrant will be exercisable at an exercise price
equal to $0.0001 per share, subject to adjustments as provided under the terms of the pre-funded warrant and will be exercisable at any time on or after the
closing date, subject to a post-exercise beneficial ownership limitation of 19.99%. The aggregate gross proceeds from the offering were approximately $50
million, before deducting estimated offering expenses. The purchase price of $9.8299 for each pre-funded warrant was based on the closing price of $9.83
per share of Company’s common stock on Nasdaq on December 22, 2023.
On January 4, 2024, Zymeworks announced significant additions to its leadership team. Dr. Jeffrey Smith was named Executive Vice President and Chief
Medical Officer, one new Senior Vice President was appointed and seven new Vice Presidents were appointed. An eighth Vice President was added later in
January. These additions to the leadership team highlight Zymeworks’ commitment to nurturing and advancing internal talent to key leadership roles while
strengthening the capabilities and experience of the organization.
On February 8, 2024, Zymeworks announced the appointment of Dr. Alessandra Cesano to its board of directors effective February 8, 2024. Dr. Cesano
succeeds Dr. Kenneth Hillan, who stepped down effective February 8, 2024 after a successful seven-year tenure as a director of Zymeworks.
On February 22, 2024, Zymeworks announced the appointment of Mr. Scott Platshon to its board of directors effective February 22, 2024. Scott Platshon is
a Partner at EcoR1 Capital.
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.
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:
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•
•
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.
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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. Excluding research and development expenses related to our zanidatamab program, 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 management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have
been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and
assumptions that are inherently uncertain that affect the amounts reported in the 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 consolidated financial statements prospectively from the date of the change in estimate.
For a summary of our significant accounting policies, see Note 2 to the Consolidated Financial Statements in Part II, Item 8, “Consolidated Financial
Statements and Supplementary Data.” We consider the following accounting policies to be critical to an understanding of our financial condition and results
of operations because these policies require the most subjective or complex judgments on the part of management in their application. There have been no
material changes to our critical accounting policies during the year ended December 31, 2023.
Revenue Recognition
Our revenue consists of amounts earned under research and development license and collaboration agreements with our strategic partners. Promised
deliverables within these agreements may include grants of licenses, or options to obtain licenses, to our intellectual property, research and development
services, and participation on joint research and/or development committees.
In accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), we recognize revenue when our
customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those
goods or services. For collaborative arrangements that fall within the scope of ASC 808, Collaborative Arrangements (“ASC 808”), we apply the revenue
recognition model under ASC 606 to part or all of the arrangements, when deemed appropriate. For collaboration arrangements within the scope of ASC
808 that contain multiple elements, we determine which elements of the arrangement are within the scope of ASC 808 and which elements are within the
scope of ASC 606, which may require application of judgment. To determine revenue recognition for arrangements that we determine are within the scope
of Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price; (iv)
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allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy a performance obligation and
when collectability is probable. If the expectation at contract inception is such that the period between payment by the licensee and the completion of
related performance obligations will be one year or less, we assume that the contract does not have a significant financing component.
When applying the revenue recognition criteria of ASC 606 to license and collaboration agreements, management may be required to apply significant
judgment when evaluating whether contractual obligations represent distinct performance obligations including understanding the nature and significance
of the contractual obligations and their standalone selling prices, determining when performance obligations have been met, assessing the recognition and
future reversal of variable consideration, and determining and applying appropriate methods of measuring progress for performance obligations satisfied
over time. The accounting for the modification to existing contracts with customers arising from licensing and collaboration arrangements requires
management to apply significant judgment when evaluating whether the modification to financial terms is related to distinct performance obligations
remaining in the amended collaboration agreement. These judgments are discussed in more detail in the following paragraphs for each type of payment
received by us under the terms of the license and collaborations agreements.
Licenses of intellectual property including platform technology access: If the license to our intellectual property is determined to be distinct from the other
performance obligations identified in the arrangement, we recognize revenues from non-refundable, upfront fees allocated to the license when the license is
transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are not distinct from other promises, we apply
judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or
at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees.
We evaluate the measure of progress each reporting period and, if necessary, adjust the related revenue recognition accordingly.
Milestone payments: At the inception of each arrangement that includes research, development or regulatory milestone payments, we evaluate whether the
milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method.
If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments
that are not within our control or that of the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are
received. The transaction price is then allocated to each performance obligation on a relative stand- alone selling price basis, for which we recognize
revenue as or when the performance obligations under the contract are satisfied.
At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint,
and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect
license, collaboration and other revenues and earnings in the period of adjustment. The process of successfully achieving the criteria for the milestone
payments is highly uncertain. Consequently, there is a significant risk that we may not earn all of the milestone payments from each of our strategic
partners. We apply significant judgment when assessing the likelihood of whether milestones are considered probable of being achieved and when
allocating the transaction price to each performance obligation for revenue recognition purposes.
Royalties and commercial milestones: For arrangements that include sales-based royalties, including commercial milestone payments based on pre-
specified level of sales, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of
the royalty has been allocated has been satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon
performance of the licensee. Since inception to date, we have not recognized any royalty revenue or commercial milestone from any of our out-licensing
arrangements.
Research support and other payments: Payments by the licensees in exchange for research activities performed by us on behalf of the licensee are
recognized as revenue upon performance of such activities at rates consistent with prevailing market rates. Payments for research supplies provided are
recognized as revenue upon delivery of the supplies.
Contract assets and liabilities
Contract assets are mainly comprised of trade receivables net of expected credit losses, which includes amounts billed and currently due from customers.
Contract liabilities are mainly comprised of deferred revenues. Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred
revenue in the Company’s consolidated financial statements. Amounts not expected to be
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recognized as revenue within the next twelve months of the consolidated balance sheet date are classified as long-term deferred revenue.
Modifications of contracts with customers
We account for a modification to a contract with a customer as a separate contract if both the scope of the contract increases because of the addition of
promised goods or services that are distinct, and the price of the contract increases by an amount of consideration that reflects the our stand-alone selling
price of the additional promised goods or services. A modification that does not meet this criteria is accounted for as an adjustment to the existing contract,
either prospectively or through a cumulative catch-up adjustment. We account for a contract modification prospectively if the remaining goods or services
are distinct from the goods or services transferred before the modification, but the consideration for those goods or services does not reflect their stand-
alone selling prices. Any changes in the transaction price that arise as a result of a contract modification that are not allocated to remaining goods or
services are recognized as a cumulative catch-up adjustment
Research and Development Costs and Related Accrued Expenses
Research and development costs are expensed as incurred and include costs that we incur for our own and for our strategic partners’ research and
development activities. These costs primarily consist of employee-related expenses, including salaries and benefits, expenses incurred under agreements
with CROs on our behalf, costs associated with investigative sites and consultants that conduct our clinical trials, the cost of acquiring and manufacturing
clinical trial materials and other allocated expenses, share-based compensation expense, and costs associated with nonclinical activities and regulatory
approvals.
Clinical trial expenses represent a significant component of research and development expenses and we outsource a significant portion of these activities to
third-party CROs. Third-party clinical trial expenses include investigator fees, site costs, clinical research organization costs and other trial-related vendor
costs. As part of preparing the consolidated financial statements, we estimate accrued liabilities for services that have been performed by clinical research
organizations or investigator sites but have not yet been invoiced to us. When making these estimates, we use operational and contractual information from
third party service providers and operational data from internal personnel.
Impairment of Long-Lived Assets
Goodwill and IPR&D assets classified as indefinite-lived are not amortized, but are evaluated for impairment annually or more frequently if impairment
indicators arise. IPR&D becomes definite-lived upon the completion or abandonment of the associated research and development efforts. For definite-lived
intangible assets, if there is a major event indicating that the carrying value may be impaired, then management will perform an impairment test.
Impairment tests for goodwill and intangibles assets involve considerable use of judgment and require management to make estimates and assumptions.
The fair values of reporting units are derived from valuation models, which consider various factors such as discount rates, future earnings and growth
rates. Changes in estimates and assumptions can affect the reported value of goodwill and intangible assets.
As at December 31, 2023, we performed a qualitative assessment for our 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, the quantitative impairment test was not required. We
concluded that there were no impairment indicators related to goodwill or other intangible assets as of December 31, 2023.
Stock-Based Compensation
We recognize stock-based compensation expense on certain stock-based awards granted to employees and members of the board of directors based on their
estimated fair values using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires assumptions for various inputs to
measure fair value, including expected term of the awards, underlying share price volatility, forfeiture rates, risk-free interest rate and expected dividend
yields of our common stock. Management uses judgement to determine the inputs to the Black-Scholes option pricing model and changes in these
assumptions could have a material impact to the fair value calculations and the amount and timing of stock-based compensation expense recognized in
earnings.
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Recent Accounting Pronouncements
A summary of recent accounting pronouncements is presented in Note 3 of our Annual Consolidated Financial Statements for the year ended December 31,
2023 within this Annual Report on Form 10-K.
Results of Operations for the Years Ended December 31, 2023, 2022 and 2021
Revenue
(dollars in millions)
Year Ended December 31,
2023
2022
2021
Change 2023 – 2022
Revenue from research and development collaborations $
76.0 $
412.5 $
26.7 $
(336.5)
(82 %)
Our revenue relates primarily to non-recurring upfront fees, expansion payments or milestone payments from our licensing and collaboration agreements.
Total revenue decreased by $336.5 million in 2023 compared to 2022 primarily due to a non-recurring upfront fee from Jazz in 2022. This was partially
offset by higher development support and drug supply revenue from Jazz in 2023 due to the impact of the Original and Amended Jazz Collaboration
Agreements.
Revenue for 2023 included $91.6 million for development support and drug supply revenue from Jazz, which was partially offset by a $20.1 million credit
issued to Jazz for contractual amendments to our collaboration arrangement, and $4.5 million from our partners for research support and other payments.
Revenue for 2022 included $375.0 million in upfront fees and $24.3 million in development support payments from Jazz, and a $5.0 million upfront fee
from Atreca, Inc. as well as $8.2 million from our other partners for research and development support under cost sharing arrangements.
In connection with the Closing of the transactions contemplated by the Transfer Agreement and our entry into the Amended Jazz Collaboration Agreement,
we expect that revenue in future periods for development support from Jazz will decrease significantly compared to revenue for the year ended
December 31, 2023, although we will remain eligible for reimbursement of certain costs for activities where we maintain responsibility under the Amended
Jazz Collaboration Agreement. The expected decrease in revenue reflects the transfer of responsibility for the Program to Jazz pursuant to 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
(dollars in millions)
2023
2022
2021
Change 2023 – 2022
Year Ended December 31,
Third-party research and development program
expenses:
Clinical development programs:
Zanidatamab
Zanidatamab zovodotin
Preclinical and other research programs:
ZW171
ZW191
Other preclinical and research programs
Unallocated departmental research and development
expenses:
Salaries and benefits
Stock-based compensation expense
Other unallocated expenses
Research and development expense
(1)
$
$
44.8 $
8.0
117.4 $
4.8
86.8 $
12.7
10.7
11.7
10.1
85.3
33.3
2.4
22.6
143.6 $
1.9
0.9
7.5
132.5
53.0
2.4
20.7
208.6 $
—
—
13.9
113.4
50.3
15.5
20.6
199.8 $
(72.6)
3.2
8.8
10.8
2.6
(47.2)
(19.7)
—
1.9
(65.0)
(62)%
67 %
463 %
1,200 %
35 %
(36)%
(37)%
— %
9 %
(31)%
________________________
(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 $65.0 million in 2023 compared to 2022. In 2023, research and development expense included a non-cash
stock-based compensation expense of $2.4 million comprised of a $2.1 million expense from equity classified awards (2022 – $3.2 million expense) and a
$0.3 million expense from the non-cash mark-to-market revaluation of certain historical liability classified awards (2022 - $0.8 million recovery). The
decrease in research and development expense was primarily due to a decrease in expenses for zanidatamab as a result of transfer of this program to Jazz
per our Transfer Agreement and the Amended Jazz Collaboration Agreement. This decrease, compared to 2022, was partially offset by an increase in
preclinical expenses, primarily with respect to preclinical product candidates ZW171 and ZW191, and in higher zanidatamab zovodotin program costs. In
addition, salaries and benefits expenses decreased compared to the same period in 2022, due to lower headcount in 2023 and lower non-recurring severance
expenses.
Our research and development expenses relating to zanidatamab following the Closing of the transactions contemplated by the Transfer Agreement and the
Amended Jazz Collaboration Agreement have decreased significantly compared to the year ended December 31, 2022. We remain eligible for
reimbursement of certain costs for activities where we maintain responsibility under the Amended Jazz Collaboration Agreement and are also eligible for
reimbursement of costs for third party services or other expenses under certain contracts being transferred to Jazz pursuant to the Transfer Agreement.
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General and Administrative Expense
(dollars in millions)
Year Ended December 31,
2023
2022
2021
Change 2023 – 2022
Salaries and benefits
Stock-based compensation expense (recovery)
Professional fees, consulting and business insurance
Other general and administrative expenses
General and administrative expense
$
$
17.0 $
5.3
29.1
19.0
70.4 $
22.6 $
1.2
35.6
14.0
73.4 $
23.5 $
(5.6)
15.2
9.5
42.6 $
(5.6)
4.1
(6.5)
5.0
(3.0)
(25)%
342 %
(18)%
36 %
(4)%
General and administrative expense decreased by $3.0 million in 2023 compared to 2022. In 2023, general and administrative expense included a non-cash
stock-based compensation expense of $5.3 million comprised of a $6.6 million expense from equity-classified awards (2022 – $4.1 million expense) and a
$1.3 million recovery from the non-cash mark-to-market revaluation of certain historical liability-classified awards (2022 – $2.9 million recovery). The
decrease in general and administrative expense was primarily due to a decrease in salaries and benefits expenses due to lower headcount and due to lower
non-recurring severance expenses in 2023, as well as due to a decrease in expenses for professional services. This was partially offset by an increase in
other expenses related to higher depreciation on facilities and higher technology spend in 2023.
Other Income, net
(dollars in millions)
Other income, net
Year Ended December 31,
2023
2022
2021
Change 2023 – 2022
$
18.8 $
4.7 $
3.3 $
14.1
300 %
Other income, net increased by $14.1 million in 2023 compared to 2022. Other income, net for 2023 included $19.7 million of interest income partially
offset by a $0.9 million in other expenses which includes foreign exchange losses partially offset by other miscellaneous income. Higher interest income in
2023 was due to income earned on higher cash resources and at higher rates of return in 2023. Other income, net for 2022 included $3.6 million interest
income and a net foreign exchange gain of $1.2 million primarily due to the revaluation of certain cash, cash equivalents and investments as well as, lease
and stock option liabilities denominated in Canadian dollars.
Income Tax
(dollars in millions)
Year Ended December 31,
2023
2022
2021
Change 2023 – 2022
Current income tax expense
Deferred income tax recovery (expense)
Income tax recovery (expense)
$
$
(0.2) $
0.8
0.6 $
(9.0) $
(1.9)
(10.9) $
(0.4) $
1.0
0.5 $
8.8
2.7
11.5
(98)%
(142)%
(106)%
Income tax expense decreased by $11.5 million in 2023 compared to 2022, primarily due to a reduction in U.S. taxes under the global intangible low-taxed
income rules, in 2023. In 2023 we incurred a net loss compared to a net income in 2022, primarily due to the Jazz partnership.
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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.
On January 31, 2022, we completed a public offering pursuant to which we sold (i) 11,035,000 common shares (including the sale of 1,875,000 common
shares to the underwriters upon their full exercise of their over-allotment option) at $8.00 per common share and (ii) 3,340,000 pre-funded warrants in lieu
of common shares at $7.9999 per pre-funded warrant. We received gross proceeds of $115.0 million and net proceeds were $107.6 million, after
underwriting discounts, commissions and estimated offering expenses.
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 having an aggregate offering price of up to $150.0 million, 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 were $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 December 31, 2023, we had $456.3 million of cash, cash equivalents, and marketable securities, comprised of $157.6 million in cash and cash
equivalents and $298.7 million in marketable securities.
Cash Flows
The following table represents a summary of our cash flows for the years ended December 31, 2023, 2022 and 2021:
(dollars in millions)
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Operating Activities
2023
Year Ended
December 31,
2022
2021
$
$
(118.3) $
(207.3)
81.8
0.4
(243.4) $
144.1 $
(53.8)
108.6
0.2
199.0 $
(192.5)
144.6
8.0
(0.3)
(40.2)
In 2023, cash used in operating activities was $118.3 million as opposed to $144.1 million cash provided by operating activities in 2022. The difference
between 2023 and 2022 was primarily due to the receipt in 2022 of $375.0 million in upfront payments under the Jazz Collaboration Agreement.
Furthermore, our cash used in operations in 2023 was negatively impacted by working capital movements, primarily due to a reduction in accounts payable
and accrued liabilities, goods and services taxes payable and employee benefit accruals as of December 31, 2023 compared to 2022.
Investing Activities
Net cash used in investing activities in 2023 was primarily related to net purchases of investments in marketable securities of $203.2 million and cash
outflows of $4.1 million for the acquisition of property and equipment in our office and laboratory spaces in Canada and software. Net cash used in
investing activities in 2022 is primarily related to purchases, net of redemptions of short-term investments in marketable securities of $40.7 million, cash
outflows of $8.2 million for the
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acquisition of property and equipment as well as leasehold improvement expenses for our new office and lab spaces and $5.0 million for acquisitions of
intangible assets, primarily consisting of our new computer system implementation in 2022.
Financing Activities
Net cash provided by financing activities in 2023 included net proceeds of $49.9 million from issuance of pre-funded warrants pursuant to a private
placement, $26.2 million from our share issuance pursuant to the Sales Agreement, $5.0 million from stock option exercises and $0.8 million from the
issuance of shares of common stock in relation to our employee stock purchase plan. Net cash provided by financing activities in 2022 included $107.5
million relating to net proceeds from our January 2022 public offering of equity securities, $0.3 million from stock option exercises and $1.4 million from
the issuance 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 December 31, 2023 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 15 and other commitments and contingencies as
presented in note 16 to the annual 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 short-term investments combined with certain anticipated milestone payments from our existing collaborations will enable us to fund our operating
expenses and capital expenditure requirements for at least the next twelve months from the date this Annual Report on Form 10-K 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. These estimates include future milestone payments which are dependent upon the successful completion of
specified research and development activities by us and our strategic partners and are therefore uncertain at this time. 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 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
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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.
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 March 4, 2024, 70,568,222 shares of common stock were issued and
outstanding. In addition, as of March 4, 2024, we had 5,086,521 shares of common stock issuable pursuant to 5,086,521 pre-funded warrants, 4,474,784
shares of common stock issuable pursuant to 4,474,784 exercisable outstanding stock options, 4,574,783 shares of common stock issuable pursuant to
4,574,783 outstanding options that were not exercisable at that date, and 1,464,368 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 annual consolidated financial statements as of and for the year ended December 31,
2023 within this Annual Report on Form 10-K), 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 March 4, 2024, 778,110 Exchangeable Shares have been exchanged on a one-to-one basis for 778,110 shares of our common stock and 646,423
Exchangeable Shares are held by former Zymeworks BC shareholders and are exchangeable on a one-to-one basis, subject to adjustment, for up to 646,423
shares of our common stock.
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Item 7A. Quantitative and Qualitative Disclosure About Market Risk
We previously qualified as a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, and have been permitted to rely, and have
relied, on the reduced disclosure requirements available to smaller reporting companies, including not being required to provide information required by
this item pursuant to Item 305 of Regulation S-K. Our ability to rely on the reduced disclosure requirements available to smaller reporting companies will
cease after the filing of our Annual Report on Form 10-K for the year ended December 31, 2023.
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Item 8. Financial Statements and Supplementary Data
Zymeworks Inc.
Index to Consolidated Financial Statements
Year ended December 31, 2023
Report of Independent Registered Public Accounting Firm (PCAOB ID 85)
Consolidated Balance Sheets as at December 31, 2023 and 2022
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to the Consolidated Financial Statements
Page
105
108
109
110
111
112
104
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Zymeworks Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Zymeworks Inc. (the Company) as of December 31, 2023 and 2022, the related
consolidated statements of (loss) income and comprehensive (loss) income, changes in stockholders’ equity, and cash flows for each of the years in the
three‑year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its
operations and its cash flows for each of the years in the three‑year period ended December 31, 2023, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 6, 2024 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the contract modification related to the amended collaboration agreement with Jazz Pharmaceuticals Ireland Limited (“Jazz”)
As discussed in Note 12 to the consolidated financial statements, the Company and Jazz amended the license and collaboration agreement (amended
collaboration agreement). As part of the amended collaboration agreement, the Company agreed to provide a credit note to Jazz of $20,100 thousand,
which has been recognized as a reduction to revenue for the year ended December 31, 2023. As discussed in Note 2 to the consolidated financial
statements, the accounting for the Company’s modification to existing contracts with customers arising from licensing and collaboration arrangements
requires the Company to apply significant judgment when evaluating whether the modification to financial terms is related to distinct performance
obligations remaining in the amended collaboration agreement.
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We identified the evaluation of the contract modification related to the amended collaboration agreement with Jazz as a critical audit matter. Subjective and
complex auditor judgment was required to assess the Company’s evaluation of the contract modification, including determining the rights and obligations
described in the amended collaboration agreement and whether the remaining goods and services are distinct from the goods and services transferred before
the modification.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness
of an internal control over the Company’s revenue recognition process. This included a control over the Company’s accounting analysis of amendments to
licensing and collaboration agreements. We read the amended collaboration agreement to gain an understanding of the contractual terms and conditions and
the commitments being made in the agreement. We evaluated management’s accounting analysis and assessed the reasonableness of management’s
judgments, including assumptions relating to the level of interdependence between the promised goods and services in the original and amended
collaboration agreements.
/s/ KPMG LLP
Chartered Professional Accountants
We have served as the Company’s auditor since 2015.
Vancouver, Canada
March 6, 2024
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Zymeworks Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Zymeworks Inc.’s (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of (loss) income and comprehensive (loss) income,
changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively,
the consolidated financial statements), and our report dated March 6, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Chartered Professional Accountants
Vancouver, Canada
March 6, 2024
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ZYMEWORKS INC.
Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars except share data)
Assets
Current assets:
Cash and cash equivalents
Short-term investments (note 5)
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Deferred financing fees
Long-term investments (note 5)
Long-term prepaid assets
Deferred tax asset (note 14)
Property and equipment, net (note 7)
Operating lease right-of-use assets (note 15)
Intangible assets, net (note 8)
Acquired in-process research and development (note 6)
Goodwill (note 6)
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (note 9)
Income tax payable (note 14)
Fair value of liability-classified stock options
Current portion of operating lease liability (note 15)
Deferred revenue and other consideration (note 12)
Total current liabilities
Long-term portion of operating lease liability (note 15)
Deferred revenue (note 12)
Other long-term liabilities (note 9)
Deferred tax liability (note 14)
Total liabilities
Stockholders’ equity:
Common shares, $0.00001 par value; 900,000,000 authorized shares of common stock at December 31, 2023 and
December 31, 2022 (70,115,997 and 63,059,501 shares issued and outstanding at December 31, 2023 and 2022,
respectively (note 10b).
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 December 31, 2023 and December 31, 2022 (note
10b).
Exchangeable shares, no par value, 651,219 issued and outstanding shares at December 31, 2023 (December 31, 2022:
1,424,533) (note 10b).
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
Research collaboration and licensing agreements (note 12)
Commitments and contingencies (note 16)
The accompanying notes are an integral part of these financial statements
108
December 31,
2023
2022
157,557 $
216,770
19,477
19,122
412,926
108
82,148
7,240
3,615
19,847
17,696
7,656
17,628
12,016
580,880 $
45,032 $
1,811
960
4,261
3,699
55,763
22,369
32,941
1,701
3,300
116,074
400,912
91,320
33,400
19,074
544,706
10
886
15,729
1,345
24,713
22,937
8,755
17,628
12,016
648,725
87,468
840
1,642
3,322
2,353
95,625
24,667
30,588
3,101
1,788
155,769
997,227
886,322
—
9,345
142,274
(6,603)
(677,437)
464,806
580,880 $
—
20,442
151,614
(6,659)
(558,763)
492,956
648,725
$
$
$
$
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ZYMEWORKS INC.
Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income
(Expressed in thousands of U.S. dollars except share and per share data)
Revenue:
Research and development collaborations (note 12)
$
76,012 $
412,482 $
26,680
Year Ended December 31,
2023
2022
2021
Operating expenses:
Research and development
General and administrative
Total operating expenses
(Loss) income from operations
Other income:
Interest income
Other (expense) income, net (note 13)
Total other income, net
(Loss) income before income taxes
Income tax recovery (expense), net (note 14)
Net (loss) income
Other comprehensive income:
Unrealized income on available for sale securities, net of tax of nil (note 5)
Total other comprehensive income
Comprehensive (loss) income
Net (loss) income per common share (note 4):
Basic
Diluted
Weighted-average common stock outstanding (note 4):
Basic
Diluted
143,619
70,446
214,065
(138,053)
19,705
(894)
18,811
(119,242)
568
(118,674) $
56
56
(118,618) $
208,596
73,358
281,954
130,528
3,596
1,110
4,706
135,234
(10,893)
124,341 $
—
—
124,341 $
199,752
42,561
242,313
(215,633)
1,965
1,309
3,274
(212,359)
516
(211,843)
—
—
(211,843)
(1.72) $
(1.72) $
1.91 $
1.90 $
(4.11)
(4.61)
$
$
$
$
68,863,010
68,863,010
65,194,775
65,249,184
51,553,869
52,131,596
The accompanying notes are an integral part of these financial statements
109
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ZYMEWORKS INC.
Consolidated Statements of Changes in Stockholders’ Equity (Note 1)
(Expressed in thousands of U.S. dollars except share data)
Preferred stock
Exchangeable shares
Common stock
Shares Amount
Shares
Amount
Shares
Amount
Balance at December 31, 2020
— $ —
— $
46,035,389 $ 724,219 $
Issuance of common stock on exercise of stock
options (note 10e)
Issuance of common stock through employee
stock purchase plan (note 10f)
Issuance of common stock upon vesting of
restricted stock units ("RSUs") (note 10e)
Stock-based compensation
Net loss
Balance at December 31, 2021
Issuance of common stock on exercise stock
options (note 10e)
Issuance of common stock through employee
stock purchase plan (note 10f)
Issuance of common stock upon vesting of RSUs
(note 10e)
Issuance of common stock upon exercise of pre-
funded warrants (note 10c)
The Redomicile Transactions (note 1, note 10b)
Issuance of common stock and pre-funded
warrants in connection with public offering, net of
offering costs (note 10a and 10c)
Stock-based compensation
Net income
Balance at December 31, 2022
Issuance of common stock on exercise of stock
options (note 10e)
Issuance of common stock through employee
share purchase plan (note 10f)
Issuance of common stock upon vesting of RSUs
(note 10e)
Issuance of common stock upon exercise of pre-
funded warrants (note 10c)
Issuance of common stock for retracted
exchangeable shares
Issuance of common stock in connection with At-
The-Market ("ATM") sale (note 10a)
Private placement (note 10a)
Stock-based compensation
Net loss
Other comprehensive income
Balance at December 31, 2023
Accumulated
other
comprehensive
loss
Additional
paid-in
capital
Total
stockholders'
equity
Accumulated
deficit
(471,261) $
(6,659) $ 163,623 $
409,922
—
—
—
—
—
(3,218)
9,660
—
3,080
(970)
38,275
—
—
38,275
(211,843)
46,633,935 $ 741,147 $
(683,104) $
(6,659) $ 197,710 $
249,094
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $ —
— $
502,019
12,878
68,964
3,080
—
—
27,563
—
—
970
—
—
—
—
(211,843)
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
39,220
359
179,238
2,191
93,966
2,350
—
1,424,533
—
20,442
6,502,675
(1,424,533)
78,168
(20,442)
—
—
—
—
—
—
—
—
—
—
—
11,035,000
—
—
82,549
—
—
—
—
124,341
—
—
—
—
—
—
—
—
(79)
—
(2,350)
(78,168)
—
24,985
9,516
—
1 $ —
1,424,533 $ 20,442
63,059,501 $ 886,322 $
(558,763) $
(6,659) $ 151,614 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
641,129
6,958
111,911
955
100,949
1,887
2,079,193
63,775
(773,314)
(11,097)
773,314
11,097
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,350,000
—
—
—
—
26,233
—
—
—
—
—
—
—
(118,674)
—
—
—
—
—
—
—
—
—
—
56
(1,736)
—
(1,887)
(63,775)
—
—
49,862
8,196
—
—
1 $ —
651,219 $
9,345
70,115,997 $ 997,227 $
(677,437) $
(6,603) $ 142,274 $
464,806
The accompanying notes are an integral part of these financial statements
110
280
2,191
—
—
—
107,534
9,516
124,341
492,956
5,222
955
—
—
—
26,233
49,862
8,196
(118,674)
56
Table of Contents
ZYMEWORKS INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
Cash flows from operating activities:
Net (loss) income
Items not involving cash:
Depreciation of property and equipment (note 7)
Amortization of intangible assets (note 8)
Stock-based compensation (note 10e)
Amortization and impairment of operating lease right-of-use assets
Deferred income tax (recovery) expense (note 14)
Change in fair value of contingent consideration liability (note 16)
Change in fair value of investments in equity instruments
Unrealized foreign exchange gain
Changes in non-cash operating working capital:
Accounts receivable
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Operating lease liabilities
Deferred revenue and other consideration
Income taxes payable
Year Ended December 31,
2023
2022
2021
$
(118,674)
$
124,341
$
(211,843)
7,462
2,702
8,102
7,141
(757)
630
667
(31)
13,922
4,295
(44,768)
(3,663)
3,699
970
6,220
1,015
4,015
4,769
1,940
(250)
—
(1,956)
(17,509)
(2,059)
26,479
(3,736)
—
840
3,739
2,793
10,756
3,051
(953)
213
(167)
(433)
(266)
(15,792)
16,477
(26)
—
—
Net cash (used in) / provided by operating activities
$
(118,303)
$
144,109
$
(192,451)
Cash flows from financing activities:
Proceeds from issuance of common stock under at-the-market program and from public offerings, net of issuance
costs (notes 10a)
Private placement (note 10a)
Issuance of common stock on exercise of stock options (note 10e)
Issuance of common stock through employee stock purchase plan (note 10f)
Deferred financing fees
Finance lease payments
Net cash provided by financing activities
Cash flows from investing activities:
Purchases of marketable securities
Proceeds from marketable securities
Acquisition of property and equipment
Acquisition of intangible assets
Net cash (used in) / provided by investing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of non-cash investing and finance items:
Leased assets obtained in exchange for operating lease liabilities
Acquisition of property and equipment and intangible assets in accounts payable and accrued liabilities
26,233
49,862
5,006
820
(53)
(21)
107,534
—
255
1,403
(596)
(14)
81,847
$
108,582
$
(553,249)
350,073
(2,474)
(1,603)
(113,005)
72,281
(8,150)
(4,975)
(207,253)
$
(53,849)
$
354
(243,355)
400,912
157,557
1,900
122
$
$
203
199,045
201,867
400,912
72
957
$
$
$
$
$
$
—
—
6,428
2,070
(470)
(17)
8,011
(35,081)
192,962
(12,404)
(881)
144,596
(325)
(40,169)
242,036
201,867
24,609
1,933
The accompanying notes are an integral part of these financial statements
111
Table of Contents
ZYMEWORKS INC.
Notes to the Consolidated Financial Statements
(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 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”). The consolidated financial statements include the accounts of Zymeworks Inc. and its wholly owned subsidiaries, Zymeworks
BC Inc., Zymeworks Biopharmaceuticals Inc., Zymeworks Pharmaceuticals Limited (Ireland), Zymeworks Lifesciences Pte. Ltd. (Singapore), Zymeworks
CallCo ULC, Zymeworks ExchangeCo Ltd., Zymeworks Management Inc. (including this entity's branch in the United Kingdom) and Zymeworks
Zanidatamab Inc. (refer to note 12). All inter-company accounts and transactions have been eliminated on consolidation.
All amounts expressed in the 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 year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the
reported results of operations.
Foreign Currency
The functional currency of the Company is the U.S. dollar. Transactions denominated in foreign currencies are translated at the approximate exchange rate
prevailing on the date of the transaction. At period end, monetary assets and liabilities denominated
112
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in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Resulting foreign exchange gains and losses
are reflected in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
Use of Estimates
The preparation of 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.
Revenue Recognition
Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) applies to all contracts with customers, except for
contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. In accordance with
ASC 606, the Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount that reflects the
consideration which the Company expects to receive in exchange for those goods or services.
The Company applied ASC 606 to all revenue arrangements to date. For collaborative arrangements that fall within the scope of ASC 808, Collaborative
Arrangements (“ASC 808”), the Company applies the revenue recognition model under ASC 606 to part or all of the arrangements, when deemed
appropriate.
In accordance with ASC 606, the Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount
that reflects the consideration that the Company expects to receive in exchange for those goods or services. In determining the appropriate amount of
revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the
promised deliverables in the contract; (ii) determination of whether the promised deliverables are performance obligations including whether they are
distinct; (iii) measurement of the transaction price, including uncertainties related to variable consideration; (iv) allocation of the transaction price to the
performance obligations based on the stand-alone selling prices; and (v) recognition of revenue when or as the Company satisfies each performance
obligation.
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration that it is entitled to in
exchange for the goods and services transferred to the customer. At contract inception, the Company assesses the goods or services promised within each
contract that falls under the scope of Topic 606, to identify distinct performance obligations. The Company then recognizes as revenue the amount of the
transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied.
The Company has entered into a number of collaboration and licensing agreements. Promised deliverables within these agreements may include: (i) grants
of licenses, or options to obtain licenses, to the Company’s intellectual property, (ii) research and development services, (iii) drug product manufacturing,
and (iv) participation on joint research and/or development committees. The terms of these agreements typically include one or more of the following types
of payments to the Company:
•
•
•
•
non-refundable, upfront license and platform technology access fees;
research, development and regulatory milestone payments;
research support, development and other payments; and
royalties and commercial milestone payments.
If the expectation at contract inception is such that the period between payment by the licensee and the completion of related performance obligations will
be one year or less, the Company assumes that the contract does not have a significant financing component.
When applying the revenue recognition criteria of ASC 606 to license and collaboration agreements, the Company may be required to apply significant
judgment when evaluating whether contractual obligations represent distinct performance obligations including understanding the nature and significance
of the contractual obligations and their standalone selling
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prices, determining when performance obligations have been met, assessing the recognition and future reversal of variable consideration, and determining
and applying appropriate methods of measuring progress for performance obligations satisfied over time. The accounting for the modification to existing
contracts with customers arising from licensing and collaboration arrangements requires management to apply significant judgment when evaluating
whether the modification to financial terms is related to distinct performance obligations remaining in the amended collaboration agreement. These
judgments are discussed in more detail in the following paragraphs for each type of payment received by the Company under the terms of the license and
collaborations agreements.
Non-refundable, upfront license and platform technology access fees
If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the
Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is
able to use and benefit from the license. For licenses that are not distinct from other promises, the Company uses judgment to assess the nature of the
combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time,
the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure
of progress each reporting period and, if necessary, adjusts the related revenue recognition accordingly.
Research, development and regulatory milestone payments
At the inception of each arrangement that includes research, development or regulatory milestone payments, the Company evaluates whether the milestones
are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. When it is
probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are
not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are
received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company
recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company
re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall
transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and
earnings in the period of adjustment. The probability of successfully achieving the criteria for the milestone payments is highly uncertain. Consequently,
there is a significant risk that the Company may not earn all of the milestone payments from each of its strategic partners.
Research and development milestones in the Company’s collaboration agreements may include some, but not necessarily all, of the following types of
events:
• completion of preclinical research and development work leading to selection of product candidates;
• initiation of Phase 1, Phase 2 and Phase 3 clinical trials; and
• achievement of certain other technical, scientific or development criteria.
Regulatory milestone payments may include the following types of events:
• filing of regulatory applications for marketing approval in the United States, Europe or Japan, including Investigational New Drug (“IND”)
applications and Biologics License Application (“BLA”); and
• marketing approval in major markets, such as the United States, Europe or Japan.
Research support, development and other payments
Payments by the licensees in exchange for research and development activities performed by the Company on behalf of the licensee are recognized as
revenue upon performance of such activities at rates consistent with prevailing market rates. Payments for research and development supplies provided are
recognized as revenue upon delivery of the supplies.
Supply of clinical trial drugs and comparator drugs
Amounts receivable by the Company for the provision of drugs to licensee or to clinical trials on behalf of licensee are recognized in revenue at a point in
time when title to drugs has transferred to the licensee, which generally occurs upon shipment.
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Royalties and commercial milestone payments
For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified level of sales, the Company
recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been
allocated has been satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon performance of the
licensee.
Contract assets and liabilities
Contract assets are mainly comprised of trade receivables net of expected credit losses, which includes amounts billed and currently due from customers.
Contract liabilities are mainly comprised of deferred revenues. Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred
revenue in the Company’s consolidated financial statements. Amounts not expected to be recognized as revenue within the next twelve months of the
consolidated balance sheet date are classified as long-term deferred revenue.
Modifications of contracts with customers
The Company accounts for a modification to a contract with a customer as a separate contract if both the scope of the contract increases because of the
addition of promised goods or services that are distinct, and the price of the contract increases by an amount of consideration that reflects the Company’s
stand-alone selling price of the additional promised goods or services. A modification that does not meet this criteria is accounted for as an adjustment to
the existing contract, either prospectively or through a cumulative catch-up adjustment. The Company accounts for a contract modification prospectively if
the remaining goods or services are distinct from the goods or services transferred before the modification, but the consideration for those goods or services
does not reflect their stand-alone selling prices. Any changes in the transaction price that arise as a result of a contract modification that are not allocated to
remaining goods or services are recognized as a cumulative catch-up adjustment.
Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of 90 days or less at the date of acquisition to be cash equivalents.
Cash equivalents include guaranteed investment certificates (“GICs”) acquired from financial institutions and money market funds which are recorded at
cost plus accrued interest.
Investments
Marketable Securities
The Company's investments include high credit quality investment grade debt securities which comprise investments in U.S. Treasury notes and corporate
debt securities. The Company classifies all of its investment grade debt securities as available-for-sale (note 5). Marketable securities also include GICs
with original maturities of greater than 90 days. These investments are recorded at cost plus accrued interest, which approximates their fair value.
Unrealized fair value gains and losses for investments classified as available-for-sale are recorded through other comprehensive income (loss) in
stockholders' equity. When the fair value of an available-for-sale security falls below the amortized cost basis it is evaluated to determine if any of the
decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss are recorded directly to the consolidated statement of (loss)
income with a corresponding allowance for credit losses, limited to the amount that the fair value is below the amortized cost basis. If the credit quality
subsequently improves the allowance is reversed up to a maximum of the previously recorded credit losses. When the Company intends to sell an impaired
available-for-sale security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis,
the entire fair value adjustment will immediately be recognized in the consolidated statement of (loss) income with no corresponding allowance for credit
losses. Realized gains and losses and credit losses, if any, on available-for-sale securities are included in interest income (expense), based on the specific
identification method. Available-for-sale securities are also adjusted for amortization of premiums and accretion of discounts to maturity, with such
amortization and accretion included within interest income.
Marketable securities with remaining maturities of less than one year from the balance sheet date are classified as short-term investments and greater than
one year from the balance sheet date are classified as long-term investments.
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Equity Securities
The Company’s long-term investments include equity securities acquired for strategic purposes or in connection with licensing and collaboration
agreements. As the Company's investments in equity securities do not have readily determinable fair value, they are carried at cost, less any impairment,
including any adjustments resulting from observable price changes (note 5).
Accounts Receivable and Expected Credit Losses
Accounts receivable are recorded at invoiced amounts, net of any allowance for expected credit losses. The allowance for expected credit losses is the
Company’s best estimate of the amount of probable credit losses in existing accounts receivable.
The Company evaluates the collectability of accounts receivable on a regular basis based upon various factors including the financial condition and
payment history of customers, an overall review of collections experience on other accounts and economic factors or events expected to affect future
collections experience. Expected credit losses on our accounts receivable were immaterial as at December 31, 2023 and 2022.
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
December 31, 2023, 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 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
investments, long-term investments 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
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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 December 31, 2023, the maximum exposure to credit risk for accounts receivable was $19,477, 85% of which was from Jazz Pharmaceuticals Ireland
Limited or Jazz Pharmaceuticals, Inc. (subsidiaries of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”) (December 31, 2022: $33,400 73% of
which was from Jazz Pharmaceuticals Ireland Limited) and all accounts receivable are due within the next 12 months. As at December 31, 2023 and
December 31, 2022, 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 December 31, 2023, the Company’s net monetary assets denominated in
Canadian dollars were $1,392 (C$1,844).
The operating results and financial position of the Company are reported in U.S. dollars in the Company’s 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 consolidated financial statements.
Deferred Financing Fees
Deferred financing fees consist of amounts charged by underwriters, attorneys, accountants and printers that are directly attributable to future financing
transactions that are probable to occur. These costs are deferred and subsequently charged against the gross proceeds of the related financing transaction
upon closing of such transaction.
Segment Information
The Company operates and manages its business in one segment, which is the discovery, development and commercialization of next-generation
multifunctional biotherapeutics. Operating segments are defined as components of an enterprise about which separate discrete information is available for
the chief operating decision maker, or decision making group, in deciding how to allocate resources and assessing performance.
Property and Equipment
Property and equipment are recorded at cost net of accumulated depreciation. Upon retirement or sale, the cost of assets disposed of and the related
accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in earnings. Repairs and maintenance costs are
expensed as incurred.
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The Company records depreciation using the straight-line method over the estimated useful lives of the property and equipment as follows:
Asset Class
Computer hardware
Office equipment
Furniture and fixtures
Laboratory equipment
Leasehold improvements
Rate
3 years
3 years
5 years
7 years
Shorter of the lease term or useful life
Property and equipment acquired or disposed of during the year are depreciated proportionately for the period they are in use.
Leases
The Company accounts for leases in accordance with ASC 842 Leases (“ASC 842”). The Company determines if an arrangement contains a lease at
inception. Right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the
Company's obligation to make lease payments arising from that lease. For leases with a term greater than 12 months, ROU assets and liabilities are
recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The lease term includes the option
to extend the lease when it is reasonably certain the Company will exercise that option. When available, the Company uses the rate implicit in the lease to
discount lease payments to present value. In the case the implicit rate is not available, the Company uses its incremental borrowing rate based on
information available at the lease commencement date, to determine the present value of lease payments.
Patents and Intellectual Property Costs
Costs incurred to acquire patents and to prosecute and maintain intellectual property rights are expensed as incurred to general and administrative expense
due to the uncertainty surrounding the drug development process and the uncertainty of future benefits. Patents and intellectual property acquired from
third parties are capitalized and amortized over the remaining life of the patent, if related to approved products or if there are alternative future uses for the
underlying technology. No patent or intellectual property costs have been capitalized to date.
Impairment of Long-Lived Assets
The Company assesses the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net
cash flows expected to be generated by the asset or group of assets. If carrying value exceeds the sum of undiscounted cash flows, the Company then
determines the fair value of the underlying asset. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset
group exceeds the estimated fair value of the asset or asset group. As of December 31, 2023 and 2022, the Company determined that there were no
indicators of impairment of long-lived assets.
Government Grants and Credits
Government grants are recognized where there is reasonable assurance that the grant will be received and all associated conditions will be complied with.
Reimbursements of eligible research and development expenditures pursuant to government assistance programs are recorded as reductions of research and
development costs when the related costs have been incurred and there is reasonable assurance regarding collection of the claim.
Grant claims not settled by the balance sheet date are recorded as receivables, provided their receipt is probable. The determination of the amount of the
claim, and hence the receivable amount, requires management to make calculations based on its interpretation of eligible expenditures in accordance with
the terms of the programs. The reimbursement claims submitted by the Company are subject to review by the relevant government agencies. The Company
has used its best judgment and understanding of the related program agreements in determining the receivable amount.
The Company participates in SR&ED and Research Tax Credit Programs, two federal tax incentive programs that encourage Canadian and U.S. businesses
to conduct research and development in Canada and in United States, respectively. The benefits of investment tax credits for scientific research and
development expenditures are recognized in the year the qualifying
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expenditure is made provided there is reasonable assurance of recoverability. The refundable portion of investment tax credits are recorded as reductions to
research and development expenditures.
The Company also participated in the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) programs announced
by the Government of Canada in April 2020, in order to help employers keep and/or return Canadian-based employees to payrolls in response to challenges
posed by the COVID-19 pandemic. The Company recognized CEWS and CERS grants when it is probable that it complied with relevant eligibility
requirements and conditions of the grant and that the grant would be received. These grants are recorded as reductions to wage and rent expenditures in
2022 and 2021.
Both CEWS and CERS programs ended in 2021, with application deadlines in 2022.
Research and Development Costs
Research and development costs are expensed as incurred and include costs that the Company incurs for its own and for the Company’s strategic partners’
research and development activities. These costs primarily consist of expenses incurred under agreements with contract research organizations on the
Company’s behalf, investigative sites and consultants that conduct the Company’s clinical trials, the cost of acquiring and manufacturing clinical trial
materials and other allocated expenses, the cost of acquired research patents and intellectual property that do not meet the requirements for capitalization,
employee related expenses, including salaries and benefits, stock-based compensation expense, and costs associated with nonclinical activities and
regulatory approvals.
Clinical Trial Expense Accruals
Clinical trial expenses represent a significant component of research and development expenses and the Company outsources a significant portion of these
activities to third party contract research organizations. Third-party clinical trial expenses include investigator fees, site costs, clinical research organization
costs and other trial-related vendor costs. As part of preparing the consolidated financial statements, the Company estimates accrued liabilities for services
that have been performed by clinical research organizations or investigator sites but have not yet been invoiced to the Company. When making these
estimates, the Company uses operational and contractual information from third party service providers and operational data from internal personnel.
Income Taxes
The Company accounts for income taxes using an asset and liability method. Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse. The measurement of deferred tax assets is reduced, if necessary, by the extent of a valuation allowance. The recognition of uncertain tax positions
is evaluated based on whether it is considered more likely than not that the position taken, or expected to be taken, on a tax return will be sustained upon
examination through litigation or appeal. For those positions that meet the recognition criteria, they are measured as the largest amount that is more than
50% likely to be realized upon ultimate settlement.
Stock-Based Compensation
The Company recognizes stock-based compensation expense on equity and liability classified stock-based awards granted to employees, directors, and
certain consultants. The Company measures the cost of such awards based on the fair value of the award, net of estimated forfeitures, and recognizes stock-
based compensation expense in the consolidated statements of income (loss) and comprehensive income (loss) on a straight-line basis over the requisite
service period. The requisite service period generally equals the vesting period of the awards. The fair values of stock option awards are estimated using the
Black-Scholes option pricing model which uses various inputs including estimated fair value of the Company’s underlying common stock at the grant date,
expected term, estimated volatility, risk-free interest rate and expected dividend yields of the Company’s common stock. The Company applies an
estimated forfeiture rate derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by
management, adjustments to compensation expense may be required in future periods. The fair value of restricted stock units (“RSU”) is measured using
the per share fair value of the Company’s common stock on the dates of grant.
Equity classified awards are measured using their grant date fair value. Liability classified awards are initially measured using their grant date fair value
and are subsequently remeasured at fair value at each balance sheet date until exercised or cancelled, with changes in fair value recognized as compensation
cost (ASC 718 awards) or other (expense) income (ASC 815 awards) for
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the period, while fair value changes below the grant date fair value of the original awards are recorded in additional paid-in capital.
Under ASC 718 Compensation—Stock Options (“ASC 718”), warrants or stock options with exercise price which is not denominated in: (a) the currency of
a market in which a substantial portion of the Company’s equity securities trades, (b) the currency in which the individual’s pay is denominated, or (c) the
Company’s functional currency, are required to be classified as liabilities. For awards accounted for under ASC 815 Derivatives and Hedging (“ASC 815”),
any warrant or option that provides for an exercise price which is not denominated in the Company’s functional currency is required to be classified as a
liability.
The Company has an employee stock purchase plan which is considered compensatory. Accordingly, the Company recognizes compensation expense on
these awards based on their estimated grant date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense
in the consolidated statements of loss and comprehensive loss on a straight-line basis over the requisite service period.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The fair value of total purchase consideration is allocated to the fair values of
identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount being classified as goodwill. All assets, liabilities
and contingent liabilities acquired or assumed in a business combination are recorded at their fair values at the date of acquisition. If the Company’s interest
in the fair value of the acquiree’s net identifiable assets exceeds the cost of the acquisition, the excess is recognized in earnings or loss immediately.
Transaction costs that are incurred in connection with a business combination, other than costs associated with the issuance of debt or equity securities, are
expensed as incurred.
Goodwill is evaluated for impairment on an annual basis or more frequently if an indicator of impairment is present (note 6). As part of the impairment
evaluation, the Company may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not
that the fair value of the reporting unit that includes the goodwill is less than its carrying value, then a quantitative impairment test would be prepared to
compare the fair value to the carrying value and record an impairment charge if the carrying value exceeds the fair value.
Acquired In-Process Research and Development (IPR&D) and Definite-lived Intangible Assets
Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. IPR&D is classified
as an indefinite-lived intangible asset and is not amortized. IPR&D becomes definite-lived upon the completion or abandonment of the associated research
and development efforts. All research and development costs incurred subsequent to the acquisition of IPR&D are expensed as incurred. Indefinite-lived
intangible assets are reviewed for impairment on an annual basis or more frequently if an indicator of impairment is present. The Company may first
perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test.
Definite-lived intangible assets include computer software and a research license and are amortized on a basis which reflects the pattern in which the
economic benefits are consumed. Amortization begins when the assets are put into use. If there is an event indicating that the carrying value of a definite-
lived intangible asset may be impaired, then the Company will perform an impairment test. When an impairment test is performed, if the carrying value
exceeds the recoverable value, based on the sum of undiscounted future cash flows, then such asset is written down to its fair value.
The Company records amortization using the straight-line method over the estimated useful lives of the definite-lived intangible assets as follows:
Asset Class
Software
Licensing agreements
Net income (loss) per share
Rate
3 years
Shorter of the licensing term or useful life
Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders
by the weighted average number of shares of common stock outstanding for the year. Diluted net income (loss) per share attributable to common
stockholders is computed by adjusting net income (loss) attributable
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to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding stock options and
warrants. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to
common stockholders by the weighted-average number of shares of common stock outstanding for the year, including potential dilutive shares of common
stock assuming the dilutive effect of outstanding instruments. The treasury stock method is used to determine the dilutive effect of the Company’s stock
option grants and warrants. ASC 260 Earnings Per Share requires an adjustment to the numerator for any income or loss related to liability classified
warrants and stock options, if dilutive, if they are presumed to be share settled.
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, or that no material impact is expected on
the consolidated financial statements as a result of future adoption.
4. Net (Loss) Income per Share
Net (loss) income per share for the years ended December 31, 2023, 2022 and 2021 was as follows:
Numerator:
Net (loss) income attributable to common stockholders:
Basic
Adjustment for change in fair value of liability classified stock options
Diluted
Denominator:
Weighted-average common stock outstanding:
Basic
Adjustment for dilutive effect of equity classified stock options and RSUs
Adjustment for dilutive effect of liability classified stock options
Diluted
Net (loss) income per common share – basic
Net (loss) income per common share – diluted
Year Ended December 31,
2023
2022
2021
(118,674) $
—
(118,674) $
124,341 $
(231)
124,110 $
(211,843)
(28,534)
(240,377)
68,863,010
—
—
68,863,010
65,194,775
53,535
874
65,249,184
51,553,869
—
577,727
52,131,596
(1.72) $
(1.72) $
1.91 $
1.90 $
(4.11)
(4.61)
$
$
$
$
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, January 2020 and January 2022 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 year ended December 31, 2023 as the effect would be to reduce the net
loss per share.
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5. Cash, Cash Equivalents and Investments
The following table summarizes the Company's investments as of December 31, 2023:
Short-term investments:
Contractual maturity of one year or less:
GICs
U.S. Treasury notes
Corporate debt securities
Long-term investments:
Contractual maturity of one to three years:
Corporate debt securities
Contractual maturity of three to four years:
Corporate debt securities
Equity securities
The following table summarizes the Company's investments as of December 31, 2022:
Short-term investments:
Contractual maturity of one year or less:
GICs
Long-term investments:
Equity securities
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Amortized Cost
December 31, 2023
Unrealized Gain
(Loss)
Fair Value
$
75,066 $
46,416
94,900
216,382
70,181
12,081
218
82,480
— $
136
252
388
(321)
(11)
—
(332)
75,066
46,552
95,152
216,770
69,860
12,070
218
82,148
$
298,862 $
56 $
298,918
Amortized Cost
December 31, 2022
Unrealized Gain
(Loss)
Fair Value
$
$
91,320 $
91,320
886
886
— $
—
—
—
91,320
91,320
886
886
92,206 $
— $
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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:
Cash and cash equivalents:
Cash
Cash equivalents:
Money market funds
GICs
Investments:
GICs
U.S. Treasury notes
Corporate debt securities
December 31,
2023
December 31,
2022
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$
23,126
$
200,623
$
64,247 $
70,184
134,431
— $
—
—
— $
—
—
64,247
70,184
157,557
$
— $
200,289
200,289
— $
—
—
— $
—
—
—
200,289
400,912
75,066
46,552
—
121,618
—
—
177,082
177,082
—
—
—
—
75,066
46,552
177,082
298,700
91,320
—
—
91,320
—
—
—
—
—
—
—
—
91,320
—
—
91,320
Total
$
256,049 $
177,082 $
— $
456,257
$
291,609 $
— $
— $
492,232
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 following table summarizes the carrying value of IPR&D, net of impairment:
Balance at December 31, 2020
Change during the period
Balance at December 31, 2021
Change during the period
Balance at December 31, 2022
Change during the period
Balance at December 31, 2023
Acquired
IPR&D
Accumulated
Impairment
Net
$
$
$
$
20,700 $
—
20,700 $
—
20,700 $
—
20,700 $
(3,072) $
—
(3,072) $
—
(3,072) $
—
(3,072) $
17,628
—
17,628
—
17,628
—
17,628
For the years ended December 31, 2023, December 31, 2022 and December 31, 2021, the Company did not record any impairment charge related to the fair
value of IPR&D. The Company performed a quantitative test and concluded that IPR&D was not impaired as of December 31, 2023.
Goodwill
The Company performed its annual impairment test of goodwill as of December 31, 2023 and concluded that no impairment existed. 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.
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7. Property and Equipment
Property and equipment consist of the following:
Computer hardware
Furniture and fixtures
Office equipment
Laboratory equipment
Leasehold improvements
Construction in progress
Property and equipment
Less accumulated depreciation
Property and equipment, net
December 31,
2023
2022
2,464 $
2,976
2,142
11,807
20,992
122
40,503 $
(20,656)
19,847 $
2,235
2,976
2,067
9,698
20,960
76
38,012
(13,299)
24,713
$
$
$
Depreciation expense on property and equipment for the years ended December 31, 2023, 2022 and 2021 was $7,462, $6,220 and $3,739, respectively.
8. Intangible Assets
Intangible assets consist of the following:
Research licenses
Computer software
Costs for in-progress software implementations
Intangible assets
Less accumulated amortization
Intangible assets, net
December 31,
2023
2022
14,936 $
7,878
1,717
24,531
(16,875)
7,656 $
14,936
7,522
469
22,927
(14,172)
8,755
$
$
Amortization expense on intangible assets for the years ended December 31, 2023, 2022 and 2021 was $2,702, $1,015 and $2,793, respectively.
At December 31, 2023, amortization expense on capitalized intangible assets is estimated to be as follows for each of the next five years:
2024
2025
2026
2027
2028
Amortization expense
2,802
$
2,378
545
213
—
5,938
$
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9. Liabilities
Accounts payable and accrued liabilities consisted of the following:
Trade payables
Accrued research and development expenses
Goods and services tax payable
Employee compensation and vacation accruals
Accrued legal and professional fees
Liability for contingent consideration (note 16)
Other
Total
Other long-term liabilities consisted of the following:
Liability for contingent consideration (note 16)
Liability from in-licensing agreements
Finance lease liability
Other
Total
10. Stockholders’ Equity
a.
Equity Offerings
2023 Private Placement
December 31,
2023
2022
6,212 $
26,661
—
6,153
3,707
1,570
729
45,032 $
7,863
39,358
16,244
14,365
7,799
—
1,839
87,468
December 31,
2023
2022
308 $
747
92
554
1,701 $
1,248
1,047
124
682
3,101
$
$
$
$
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.
2022 Public Offering
On January 31, 2022, the Company closed a public offering pursuant to which the Company sold 11,035,000 common shares, including the sale of
1,875,000 common shares to the underwriters upon their full exercise of their over-allotment option, at $8.00 per common share and 3,340,000 pre-funded
warrants (note 10c) in lieu of common shares at $7.9999 per pre-funded warrant. Net proceeds were $107,534, after underwriting discounts, 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.
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Immediately prior to the completion of the Redomicile Transactions, there were 61,699,387 Zymeworks BC Inc. 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 December 31, 2023, there were 651,219 Exchangeable Shares held by former Zymeworks BC shareholders
(December 31, 2022: 1,424,533). 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
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 and January 31, 2022 and private placement completed on
December 28, 2023 (note 10a), the Company issued a total of 13,668,482 pre-funded warrants which granted holders of warrants the right to purchase up to
13,668,482 common shares or shares of common stock 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 December 31, 2023, there were 5,086,521 pre-funded
warrants outstanding (December 31, 2022: 2,079,224).
d.
Adoption of a Shareholder Rights Plan
On June 9, 2022, the board of directors authorized and declared a dividend distribution of one right (each, a “Right”) for each outstanding common share of
the Company to shareholders of record as of the close of business on June 21, 2022. Each Right entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series A Participating Preferred Share, of the Company, at an exercise price of $74.00, subject to adjustment.
The complete terms of the Rights are set forth in a Preferred Shares Rights Agreement (the “Rights Plan”), dated as of June 9, 2022, between the Company
and Computershare Trust Company, N.A., as rights agent.
In general terms, the Rights Plan works by imposing a significant penalty upon any person or group that acquires 10 percent or more (or 20 percent or more
in the case of certain institutional investors who report their holdings on Schedule 13G) of the common shares without the approval of the board of
directors. As a result, the overall effect of the Rights Plan and the issuance of the Rights may be to render more difficult or discourage a merger,
amalgamation, arrangement, take-over bid, tender or exchange offer or other business combination involving the Company that is not approved by the
board of directors. However, neither the Rights Plan nor the Rights should interfere with any merger, amalgamation, arrangement, take-over bid, tender or
exchange offer or other business combination approved by the board of directors. The issuance of Rights does not affect reported earnings per share.
On October 12, 2022, Zymeworks Inc. (a Delaware corporation) and Computershare Trust Company, N.A., as rights agent, entered into a Preferred Stock
Rights Agreement (the “New Rights Plan”) and on October 13, 2022, the board of directors of Zymeworks Inc. (a Delaware corporation) declared a
dividend distribution of one right (each, a “Right”) for each share of common stock outstanding at 12:01 a.m. (Pacific Time) on October 13, 2022 (the
“Record Date”) and for each share of common stock that becomes outstanding, including any shares of common stock issued in connection with the
Redomicile Transactions and as consideration for the Exchangeable Shares, as applicable, between the Record Date and the earlier of the Distribution Date
(as defined in the New Rights Plan) and the expiration of the Rights. Each Right entitles the registered holder to purchase from the Company one one-
thousandth of a share of Series B Participating Preferred Stock, par value $0.00001 per share, of the Company (“ Series B Preferred Stock”) at an exercise
price of $74.00 per one one-thousandth of a share of Series
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B Preferred Stock, subject to adjustment. On October 13, 2022, the Rights Plan expired. The New Rights Plan has substantively similar terms as the Rights
Plan.
On June 8, 2023 the New Rights Plan expired by its terms. Upon effectiveness of the Company's filing of a Certificate of Elimination with the Secretary of
State of the State of Delaware on June 12, 2023, the shares that were previously designated as Series B Preferred Stock resumed the status of authorized but
unissued shares of preferred stock of the Company.
e.
Stock-Based Compensation
In connection with redomicile transactions in 2022, Zymeworks BC. assigned to the Company, and the Company assumed, all of Zymeworks BC’s rights
and obligations under each of the stock-based compensation plans, as described below, and such plans became the Company’s stock-based compensation
plans, with each outstanding award assumed by the Company and deemed exchanged for equivalent awards of the Company, except that the security
issuable upon exercise or settlement, as applicable, will be shares of common stock of the Company rather than common shares of Zymeworks BC.
Original Stock Option Plan
On July 14, 2006, the shareholders of the Company approved an employee stock option plan (the “Original Plan”). The total number of options outstanding
is not to exceed 20% of the issued common shares of the Company. Options granted under the Original Plan are exercisable at various dates over their 10-
year life. The exercise prices of the Company’s stock options under the Original Plan are denominated in Canadian dollars. Upon the effectiveness of the
Company’s New Plan described below, no further options were issuable under the Original Plan. However, all outstanding options granted under the
Original Plan remain outstanding, subject to the terms of the Original Plan and the applicable grant documents, until such outstanding options are exercised
or they terminate or expire by their terms.
New Plan and Inducement Plan
On April 10, 2017, the Company’s shareholders approved a new stock option plan, which became effective immediately prior to the consummation of the
Company’s initial public offering (“IPO”). This plan allows for the grant of options, and also permitted the Company to grant incentive stock options
(“ISOs”), within the meaning of Section 422 of the Internal Revenue Code, to its employees, until the shares reserved for issuance of ISOs were depleted.
On June 7, 2018, the Company’s shareholders approved an amendment and restatement of this plan (this plan, as amended and restated, the “New Plan”),
which includes an article that allows the Company to grant restricted shares, RSU and other share-based awards, in addition to stock options. As of
December 31, 2023, 4,594,639 shares of common stock were available for future award grants under the New Plan (December 31, 2022: 3,205,132 shares
of common stock).
On January 5, 2022, 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 December 31, 2023, 50,000
shares of common stock were available for future award grants under this plan (December 31, 2022: 50,000).
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RSUs
The following table summarizes the Company's RSU activity under the New Plan:
Outstanding, December 31, 2021
Granted
Vested and settled
Forfeited
Outstanding, December 31, 2022
Granted
Vested and settled
Forfeited
Outstanding, December 31, 2023
Number of RSUs
Weighted-
average grant
date fair value
($)
354,269
110,400
(93,966)
(143,480)
227,223
864,100
(100,949)
(218,961)
771,413
25.85
8.67
25.01
26.63
17.36
8.03
18.69
10.65
8.63
As of December 31, 2023, there was $2,236 of unamortized RSU expense that will be recognized over a weighted average period of 1.62 years.
Stock Options
The following table summarizes the Company’s stock options granted in Canadian dollars under the Original Plan and the New Plan:
Outstanding, December 31, 2021
Granted
Expired
Exercised
Forfeited
Outstanding, December 31, 2022
Granted
Expired
Exercised
Forfeited
Outstanding, December 31, 2023
December 31, 2023
Exercisable
Vested and expected to vest
Number
of Options
2,488,655
917,035
(54,221)
(30,163)
(1,174,165)
2,147,141
—
(29,158)
(339,230)
(289,275)
1,489,478
1,286,234
1,463,464
Weighted-
Average
Exercise Price
(C$)
Weighted-
Average
Exercise Price
($)
Weighted-
Average
Contractual
Term
(years)
Aggregate
intrinsic value
(C$)
Aggregate
intrinsic value
($)
20.70
6.76
13.08
5.79
20.60
14.03
—
13.55
8.44
18.76
14.39
15.45
14.87
6.24
7,919
6,224
6.29
1,460
1,078
5.50
4.77
5.46
2,987
1,814
2,867
2,255
1,369
2,165
26.15
8.67
17.30
7.60
26.43
19.02
—
18.29
11.31
25.20
19.59
20.46
19.70
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The following table summarizes the Company’s stock options granted in U.S. dollars under the New Plan and the Inducement Plan:
Weighted-
Average
Contractual
Term
(years)
Weighted-
Average
Exercise Price
($)
Number
of Options
Aggregate
intrinsic value
($)
Outstanding, December 31, 2021
Granted
Expired
Exercised
Forfeited
Outstanding, December 31, 2022
Granted
Expired
Exercised
Forfeited
Outstanding, December 31, 2023
December 31, 2023
Exercisable
Vested and expected to vest
4,916,914
2,996,898
—
(9,057)
(2,339,610)
5,565,145
2,691,325
—
(302,052)
(1,885,176)
6,069,242
2,925,788
5,720,112
26.59
8.32
—
7.17
25.84
17.10
8.25
—
7.39
19.39
12.97
17.09
13.24
7.93
5,555
7.86
1,928
7.67
6.23
7.49
9,213
2,377
8,451
During the year ended December 31, 2023, the Company received cash proceeds of $5,006 (2022: $255 and 2021: $6,428) from stock options exercised.
The stock options outstanding at December 31, 2023 expire at various dates from January 1, 2024 to December 10, 2033.
A summary of the non-vested stock option activity and related information of the Company’s stock options granted in Canadian dollars is as follows:
Non-vested, December 31, 2022
Options granted
Options vested
Options forfeited and cancelled
Non-vested, December 31, 2023
Number of
options
772,540
—
(362,479)
(130,306)
279,755
Weighted-
average grant
date fair value
(C$)
Weighted-
average grant
date fair value
(US$)
11.40
—
11.61
12.51
10.65
8.41
—
8.76
9.44
8.04
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A summary of the non-vested stock option activity and related information of the Company’s stock options granted in U.S. dollars is as follows:
Non-vested, December 31, 2022
Options granted
Options vested
Options forfeited and cancelled
Non-vested, December 31, 2023
Number of
options
3,011,283
2,691,325
(1,507,708)
(1,057,317)
3,137,583
Weighted-
average grant
date fair value
(US$)
9.41
5.23
8.89
9.83
5.93
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, as well as the financial statement impact of the amortization and periodic revaluation of liability
classified instruments (note 2), are recorded in research and development expense, general and administration expense and finance expense as follows:
Research and development expense:
Stock-based compensation expense for equity classified instruments
Change in fair value of liability classified instruments
General and administrative expense:
Stock-based compensation expense for equity classified instruments
Change in fair value of liability classified instruments
Finance income:
Change in fair value of liability classified instruments
Year Ended December 31,
2023
2022
2021
$
$
$
$
$
2,112 $
292
2,404 $
6,621 $
(1,305)
5,316 $
(5)
(5) $
3,174 $
(781)
2,393 $
4,102 $
(2,893)
1,209 $
(11)
(11) $
20,090
(4,646)
15,444
18,184
(23,758)
(5,574)
(129)
(129)
Amounts for equity classified instruments above include stock-based compensation expense relating to RSUs of $3,369 for the year ended December 31,
2023 (2022: $913 and 2020: $3,101).
For the year ended December 31, 2023, stock-based compensation expense of $8,196 was recorded in additional paid-in capital and recovery of $630 was
recorded in the liability classified stock options and ESPP liability accounts (2022: $9,516 in additional paid-in capital and recovery of $3,261 in liability
classified stock options and ESPP liability accounts, 2021: $38,275 in additional paid-in capital and recovery of $27,517 in liability classified stock options
and ESPP liability accounts).
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:
Dividend yield
Expected volatility
Risk-free interest rate
Expected average life of options
Year ended December 31,
2023
2022
2021
0 %
68.1 %
3.94 %
5.89 years
0 %
77.2 %
2.12 %
5.93 years
0 %
80.3 %
1.02 %
6.05 years
Expected Volatility — Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is
expected to fluctuate (expected volatility) during a period. The Company has calculated the expected volatility using the volatility of its own stock and that
of several public entities of similar complexity and stage of development and calculates historical volatility using the volatility of these companies.
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Risk-Free Interest Rate — This rate is from the Government of Canada and U.S. Federal Reserve marketable bonds for the month prior to each option grant
during the year, having a term that most closely resembles the expected life of the option.
Expected Term — This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten
years. The Company uses the simplified method to calculate the average expected term, which represents the average of the vesting period and the
contractual term.
The weighted-average Black-Scholes option pricing assumptions for liability classified stock options outstanding at December 31, 2023 and 2022 are as
follows:
Dividend yield
Expected volatility
Risk-free interest rate
Expected average option term
Number of liability classified stock options outstanding
December 31,
2023
December 31,
2022
0 %
50.6 %
3.80 %
0.91 years
442,198
0 %
78.6 %
4.00 %
1.90 years
721,985
The total intrinsic value of stock options exercised during the years ended December 31, 2023, 2022 and 2021 was $758, $53 and $10,998 respectively. At
December 31, 2023, the unamortized compensation expense related to unvested options was $8,424. The remaining unamortized compensation expense as
of December 31, 2023 will be recognized over a weighted-average period of 1.6 years.
f.
Employee Stock Purchase Plan ("ESPP")
The ESPP, as amended, allows eligible employees to acquire common shares at a discounted purchase price of the lesser of (i) 85% of the market price of a
common share on the first day of the applicable purchase period and (ii) 85% of the market price of a common share on the purchase date. The ESPP
qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code for employees who are United States taxpayers.
As this plan is considered compensatory, the Company recognizes compensation expense on these awards based on their estimated grant date fair value
using the Black-Scholes option pricing model. The Company recognizes compensation expense in the consolidated statements of (loss) income and
comprehensive (loss) income on a straight-line basis over the requisite service period. For the year ended December 31, 2023, the Company recorded
compensation expense of $387 (2022: $424, 2020: 803) in research and development expense and general and administrative expense accounts. As of
December 31, 2023, the total amount contributed by ESPP participants and not yet settled is $384 (December 31, 2022: $287).
11. Government Grants and Credits
CEWS and CERS subsidies
SR&ED credits, net
Total
Year Ended December 31,
2023
2022
2021
$
$
— $
99
99 $
130 $
—
130 $
3,402
78
3,480
For the year ended December 31, 2023, the Company recognized refundable investment tax credits of $99 as a reduction of research and development
expense. In April 2020, the Government of Canada announced the CEWS and CERS programs for Canadian employers whose businesses were affected by
the COVID-19 pandemic. The CEWS and CERS provide a subsidy of up to a certain percentage of eligible employees’ eligible remuneration and eligible
rent payments, subject to certain criteria. The Company applied for the CEWS and CERS to the extent it met the requirements to receive the subsidy and
recognized nil (2022: $130 and 2021: $2,805) and nil (2022: nil and 2021: $597) in total CEWS and CERS subsidies respectively, as a reduction to salaries
and benefits expense and rent expense in research and development expense and general administrative expense in the consolidated statement of (loss)
income. Both CEWS and CERS programs ended at the end of 2021 with submission deadlines in 2022.
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12. Research, Collaboration and Licensing Agreements
Revenue recognized from the Company’s strategic partnerships is summarized as follows:
Jazz:
Recognition of licensing and technology transfer fee
Development support payments
Drug supply for ongoing studies
Credit note for amendment of program
Other drug supply
Atreca:
Recognition of licensing fee
BeiGene:
Milestone revenue
Janssen:
Milestone revenue
Iconic:
Partner revenue
Research and development support and other payments
Year ended December 31,
2023
2022
2021
$
— $
52,619
25,662
(20,100)
13,350
—
—
—
375,000 $
20,671
3,610
—
—
5,000
—
—
—
4,481
76,012 $
—
8,201
412,482 $
$
—
—
—
—
—
—
8,000
8,000
5,000
5,680
26,680
Contract Assets and Liabilities
As at December 31, 2023, contract assets from research, collaboration and licensing agreements were nil, which is presented within accounts receivable
(December 31, 2022: $3,000 which is presented within accounts receivable) and contract liabilities were $36,640 (December 31, 2022: $32,941). As at
December 31, 2023 and 2022, $3,699 and $2,353 respectively, of the contract liabilities is classified as short term. Contract liabilities relate to deferred
revenue from the BeiGene and Jazz agreements described below.
Jazz Collaboration Agreement
Original Jazz Collaboration Agreement:
On October 18, 2022, the Zymeworks BC entered into a License and Collaboration Agreement (the "Jazz Collaboration Agreement") with Jazz
Pharmaceuticals Ireland Limited ("Jazz"), under which Jazz will have development and commercialization rights of zanidatamab throughout the world, but
excluding the People’s Republic of China, Australia, New Zealand, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, Hong Kong, Taiwan,
Macau, Mongolia, South Korea, Brunei Darussalam, Cambodia, Indonesia, Papua New Guinea, Lao People’s Democratic Republic, Malaysia, Myanmar,
Philippines, Singapore, Thailand, Timor-Leste, and Vietnam.
Under the Jazz Collaboration Agreement, the Company received a $50.0 million upfront payment upon delivery of licenses and technology transfer to Jazz
as well as the receipt of United States Hart-Scott Rodino Antitrust Improvements Act of 1976 (“HSR”) Clearance (“Initial Technology Transfer”). A
further payment of $325.0 million was received following Jazz's decision to continue the collaboration after readout of the top-line clinical data from
HERIZON-BTC-01 (“BTC Data Transfer”). The Company considered the fair value of performance obligations based on the Company’s best estimate of
their relative stand-alone selling prices, and allocated $375.0 million of the transaction price to the Company’s performance obligations in relation to the
delivery of licenses, the Initial Technology Transfer and BTC Data Transfer under the Jazz Collaboration Agreement.
Development and commercial licenses, the Initial Technology and BTC Data Transfers were considered to be a single performance obligation. The
consideration of $50.0 million allocated to this performance obligation was recognized as revenue in November 2022, upon delivery of these performance
obligations and receipt of the HSR Clearance. Remaining consideration of $325.0 million was recognized as revenue upon completion of BTC Data
Transfer to Jazz and Jazz’s decision to continue the Jazz Collaboration agreement, in December 2022.
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Deliverables of development work performed by the Company, continuing technology transfer, participation in the Joint Steering Committee (“JSC”), and
transfer of first BLA together were considered to be a single performance obligation and the consideration allocated to this performance obligation will be
recognized as revenue over time as these activities are completed.
Remaining deliverables of Manufacturing Technology Transfer, Development Drug Supply, Commercial Drug Supply were considered individually distinct
and the revenue related to these deliveries are to be recognized upon completion of future deliveries to Jazz.
Amendment of Jazz Collaboration Agreement:
On April 25, 2023, Zymeworks BC, a subsidiary of the Company, Zymeworks Biopharmaceuticals Inc. (“ZBI”), a subsidiary of Zymeworks BC,
Zymeworks Zanidatamab Inc. (“ZZI”), a subsidiary of ZBI formed in December 2022 focused on the Company’s development program for zanidatamab,
and Jazz Pharmaceuticals, Inc. (“Jazz Inc.”), entered into a Stock and Asset Purchase Agreement (the “Transfer Agreement”). Under the Transfer
Agreement, (i) Jazz Inc. acquired from ZBI 100% of the issued and outstanding capital stock of ZZI, (ii) Jazz Inc. engaged certain Zymeworks BC and ZZI
employees associated with the development of zanidatamab, and (iii) Zymeworks BC and ZBI transferred to Jazz Inc. or one of its affiliates contracts with
respect to the engagement of certain independent contractors of Zymeworks BC and ZBI that work on the Program (as defined below). In addition, Jazz
Inc. acquired from Zymeworks BC and ZBI certain contracts related to the Program, organizational documents and other records of ZZI, certain regulatory
filings related to the Program, certain other books, records and other files, documents and information related to the Program, and certain employment
records of service providers to be employed by Jazz Inc. and its affiliates following the Closing (as defined below). Subject to the terms and conditions of
the Transfer Agreement, Jazz Inc. assumed certain liabilities that arise following the Closing related to the acquired assets and the Program, including with
respect to transferred service providers.
Zymeworks BC and Jazz Pharmaceuticals Ireland Limited (an affiliate of Jazz Inc.) (a subsidiary of Jazz Pharmaceuticals plc, collectively referred to as
“Jazz”) amended and restated the license and collaboration agreement dated October 18, 2022 by and between Zymeworks BC and Jazz (the “Original Jazz
Collaboration Agreement”) (as amended the “Amended Jazz Collaboration Agreement”) to reflect the transfer of responsibility for the Program. Under the
Amended Jazz Collaboration Agreement, the financial terms of the Original Jazz Collaboration Agreement, as previously disclosed, was unchanged, except
that the costs of the Program (including ongoing costs related to the transferred service providers) incurred following the Closing was directly borne by
Jazz instead of being incurred by Zymeworks BC and charged back to Jazz for reimbursement, though Zymeworks BC will remain eligible for
reimbursement of certain costs for activities where Zymeworks BC maintains responsibility under the Amended Jazz Collaboration Agreement. As part of
the amendments to the Amended Collaboration Agreement, the Company agreed to provide a credit note to Jazz of $20.1 million, which has been
recognized as a reduction to revenue for the year ended December 31, 2023. “Program” refers to (i) ongoing clinical trials in certain sites in South Korea
that are the responsibility of Zymeworks BC under the Original Jazz Collaboration Agreement and (ii) clinical trials for zanidatamab, other than the studies
referenced in (i), initiated by Zymeworks BC in the Territory (as defined in the Original Jazz Collaboration Agreement) prior to the execution of the
Original Jazz Collaboration Agreement.
The consummation of the transactions contemplated by the Transfer Agreement, including the execution of the Amended Jazz Collaboration Agreement,
occurred in May 2023 (the “Closing”). In connection with the Closing, the parties entered into a transition services agreement pursuant to which
Zymeworks BC and ZBI provide to Jazz Inc. and Jazz Inc. provides to Zymeworks BC and ZBI certain services to support the transfer of the acquired
assets and the Program on a transitional basis.
The Company will be also eligible to receive up to $525.0 million in certain regulatory milestones payments and up to $862.5 million in potential
commercial milestone payments. Pending approval, the Company is eligible to receive tiered royalties between 10% and 20% on Jazz’s annual net sales,
with customary reductions in specified circumstances. No development or commercial milestone payments or royalties have been received to date.
As at December 31, 2023, contract liabilities under the Amended Jazz Collaboration Agreement include $3,699 received in relation to drug supply provided
to Jazz.
Collaboration and License Agreements with BeiGene, Ltd. (“BeiGene”)
On November 26, 2018, the Company entered into three concurrent agreements with BeiGene whereby the Company granted BeiGene royalty-bearing
exclusive licenses for the research, development and commercialization of its bispecific therapeutic candidates, zanidatamab (formerly known as “ZW25”)
(as amended on March 29, 2021 and August 10, 2021, collectively “Zanidatamab Agreement”) and zanidatamab zovodotin (formerly known as “ZW49”)
(as amended on May 25, 2020 and June 2, 2021, collectively “Zanidatamab Zovodotin Agreement”) in Asia (excluding Japan but including the People’s
Republic of China, South Korea and other countries), Australia and New Zealand. In addition, the Company also granted BeiGene a worldwide, royalty-
bearing, antibody sequence pair-specific license to research, develop and commercialize globally three
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bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms, which agreement expired in November 2023.
Pursuant to these agreements, the Company received an upfront payment of $60.0 million for the totality of the rights described. The Company considered
the fair value of performance obligations based on the Company’s best estimate of their relative stand-alone selling prices, and allocated $40.0 million of
the transaction price to the license and collaboration agreements for zanidatamab and zanidatamab zovodotin and $20.0 million to the Company’s
performance obligations under the research and licensing agreement for Azymetric and EFECT Platforms.
Original License and Collaboration Agreements for Zanidatamab and Zanidatamab Zovodotin
In relation to the Zanidatamab Agreement, the Company identified the following promised goods and services at the inception of the BeiGene agreement
that are material: development and commercial licenses, initial transfer of the Company’s technologies and relevant know-how, continuing technology
transfer, participation in the Joint Steering Committee (“JSC”) and other sub-committees, manufacturing technology transfer, provision of development
supply, provision of commercial supply, and transfer of future rights related to the development and commercial license. The Company concluded that the
licenses and initial technology transfer are distinct together and the continuing technology transfer and the Company’s participation to the JSC and other
sub-committees’ activities are also distinct together. Remaining deliverables were individually determined to be distinct.
Development and commercial licenses as well as initial transfer of technologies and relevant know-how were considered to be a single performance
obligation. The consideration of $7.1 million allocated to this performance obligation was recognized as revenue over a two-month period during which the
delivery of the license and transfer of the relevant technology occurred. Deliverables of continuing technology transfer and participation in the JSC and
other sub-committees together were considered to be a single performance obligation and the consideration allocated to this performance obligation will be
recognized as revenue over time as these activities are completed. Remaining deliverables are considered individually distinct and the revenue will be
recognized as delivery or transfer of future rights to BeiGene occurs.
In March 2020, BeiGene dosed the first patient in a two-arm Phase 1b/2 trial evaluating zanidatamab in combination with chemotherapy as a first-line
treatment for patients with metastatic HER2-positive breast cancer and in combination with chemotherapy and BeiGene’s PD-1-targeted antibody
tislelizumab as a first-line treatment for patients with metastatic HER2-positive GEA. The Company recognized revenue of $5.0 million in relation to this
milestone. In November 2020, BeiGene dosed the first patient in South Korea in the pivotal HERIZON-BTC-01 study. The Company recognized revenue
of $10.0 million in relation to this milestone. In December 2021, BeiGene dosed the first patient in South Korea in the pivotal HERIZON-GEA-01 study
and the Company recognized revenue of $8.0 million in relation to this milestone.
In relation to the Zanidatamab Zovodotin Agreement, the Company identified the following promised goods and services at the inception of the BeiGene
agreement that are material: development and commercial licenses, initial transfer of the Company’s technologies and relevant know-how, continuing
technology transfer, participation in the JSC and other sub-committees, manufacturing technology transfer, provision of development supply, provision of
commercial supply, and transfer of future rights related to the development and commercial license. The Company concluded that the licenses and initial
technology transfer together were distinct together and the continuing technology transfer and the Company’s participation to the JSC and other sub-
committees’ activities were also distinct together. Manufacturing technology transfer, provision of development supply and provision of commercial supply
were individually determined to be distinct.
Development and commercial licenses as well as initial transfer of technologies and relevant know-how were considered to be a single performance
obligation while continuing technology transfer and participation in the JSC and other sub-committees together were considered as a single performance
obligation. Remaining deliverables were considered individually distinct.
Termination of BeiGene License and Collaboration Agreement Regarding Zanidatamab Zovodotin and Amendment of BeiGene License and Collaboration
Agreement Regarding Zanidatamab:
On September 18, 2023, Zymeworks BC and BeiGene entered into a Termination Agreement (the “Termination Agreement”) relating to the Zanidatamab
Zovodotin Agreement. The Termination Agreement does not terminate the Zanidatamab Agreement (as defined below).
Pursuant to the Termination Agreement, the Zanidatamab Zovodotin Agreement is terminated, effective as of September 18, 2023, and is no longer in
effect, except that the termination does not relieve the parties from obligations under the Zanidatamab
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Zovodotin Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the termination, including certain
licenses to BeiGene intellectual property with respect to zanidatamab zovodotin.
Under the Zanidatamab Zovodotin Agreement, no performance obligations were completed by the Company as of December 31, 2023 as the initial transfer
of technologies and relevant know-how was not going to start until the earlier of completion of the Company’s Phase-1 clinical studies for zanidatamab
zovodotin or completion of dose escalation studies. Accordingly, no revenue was recognized from the Zanidatamab Zovodotin Agreement to date.
In connection with the entry into the Termination Agreement, on September 18, 2023, Zymeworks BC and BeiGene also entered into the Third
Amendment to License and Collaboration Agreement (the “Amendment”) relating to the Zanidatamab Agreement. Pursuant to the Amendment,
Zymeworks BC is eligible to receive development and commercial milestone payments of up to $172.0 million, together with tiered royalties up to 19.5%
of net sales in BeiGene territories increasing up to 20% when cumulative amounts forgone as a result of a royalty reduction of 0.5% reaches a cap in the
low double-digit millions of dollars. Pursuant to the Amendment, the remaining provisions of the Zanidatamab Agreement remain unchanged.
The Termination Agreement and the Amendment did not have any financial impact on the Company's financial statements as of and for the year ended
December 31, 2023, other than allocation of consideration and performance obligations under the Zanidatamab Zovodotin Agreement to Zanidatamab
Agreement. As of December 31, 2023, the Company has $32,941 of the upfront fees from the Zanidatamab Agreement as deferred revenue on the
Company’s consolidated balance sheet (December 31, 2022: $32,941 from the Zanidatamab Agreement and Zanidatamab Zovodotin Agreement). Amounts
not expected to be recognized as revenue within the next twelve months of the consolidated balance sheet date are classified as long-term deferred revenue.
Research and Licensing Agreement for Azymetric and EFECT Platforms
For the development and commercialization licenses of up to three bispecific antibody therapeutics using the Company’s Azymetric and EFECT platforms,
the Company received an upfront payment of $20.0 million. The Company was also eligible to receive development and commercial milestone payments
of up to $702.0 million. In addition, the Company was eligible to receive tiered royalties in the mid-single digits on product sales. No development or
commercial milestone payments or royalties have been received to date. Under this agreement, BeiGene was solely responsible for the research,
development, manufacturing, and commercialization of the products. This agreement expired in November 2023.
2020 Research and License Agreement with Merck
In July 2020, the Company entered into a new licensing agreement with Merck granting Merck a worldwide, royalty-bearing license to research, develop
and commercialize up to three new multispecific antibodies toward Merck’s therapeutic targets in the human health field and up to three new multispecific
antibodies toward Merck’s therapeutic targets in the animal health field using the Company’s Azymetric and EFECT platforms. The Company is eligible to
receive up to $419.3 million in option exercise fees and clinical development and regulatory approval milestone payments and up to $502.5 million in
commercial milestone payments, as well as tiered royalties on worldwide sales.
Licensing and Collaboration Agreement with Celgene Corporation & Celgene Alpine Investment Co. LLC (formerly “Celgene” and now a Bristol-
Myers Squibb company, “BMS”)
On December 23, 2014, the Company entered into an agreement with Celgene (now “BMS”) to research, develop and commercialize bispecific antibodies
generated through the use of the Company’s Azymetric platform. The Company will apply its Azymetric platform in combination with BMS’s proprietary
targets to create novel bispecific antibodies for which BMS has an option to develop and commercialize a certain number of products (“Commercial
License Option”).
Upon the execution of the Agreement, the Company received an upfront payment of $8.0 million and an expansion fee of $4.0 million. This agreement was
expanded in 2018 to increase the number of programs from eight to ten and to extend BMS’s research period. BMS has the right to exercise options on up
to ten programs, but in 2023 BMS stopped further development of one of the ten programs. If BMS opts in on a program, the Company is eligible to
receive up to $164.0 million per product candidate (up to $1.64 billion for all ten programs, or $1.48 billion not including the one program for which BMS
has stopped development), comprised of a commercial license option payment of $7.5 million, development milestone payments of up to $101.5 million
and commercial milestone payments of up to $55.0 million. From contract inception to December 31, 2023, BMS has exercised one commercial license
option and the Company has received a total of $7.5 million in product candidate-specific payments. After conclusion of BMS’s research period, BMS will
be solely responsible for the research, development, manufacturing and commercialization of the products. In addition, the Company is eligible to receive
tiered royalties calculated upon the global net sales of the resulting products. BMS will have exclusive worldwide commercialization rights to products
derived from the agreement if BMS elects to exercise a commercial license option for each product. The Company determined
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that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on BMS’s performance.
In June 2020, the Company’s existing collaboration agreement with BMS was amended to expand the license grant to include the use of the Company’s
EFECT platform for the development of therapeutic candidates and to extend the research term. The amendment included an upfront expansion fee of
$12.0 million paid to the Company and all other financial terms were unchanged. The Company’s performance obligations in relation to the upfront fee
were met on the date of amendment. Accordingly, the upfront payment was recognized as revenue during the year ended December 31, 2020.
2015 Collaboration and License Agreement with GlaxoSmithKline Intellectual Property Development Ltd. (“GSK”)
On December 1, 2015, the Company entered into a collaboration and license agreement with GSK for the research, development, and commercialization of
up to ten Fc-engineered monoclonal and bispecific antibodies generated through the use of the Company’s EFECT and Azymetric platforms. The Company
and GSK will collaborate to further develop the Company’s EFECT platform through the design, engineering, and testing of novel engineered Fc domains
tailored to induce specific antibody-mediated immune responses.
At the conclusion of the research collaboration, both GSK and the Company will have the right to develop and commercialize monoclonal and bispecific
antibody candidates that incorporate the Company’s optimized immune-modulating Fc domains.
Under the terms of the agreement, GSK will have the right to develop a minimum of four products across multiple disease areas, and the Company will be
eligible to receive up to $1.1 billion, including research, development, and commercial milestones of up to $110.0 million for each product. In addition, the
Company is eligible to receive tiered sales royalties in the low single digits on net sales of products. Under this agreement, the Company is sharing certain
research and development responsibilities with GSK to generate new Fc-engineered antibodies. Each party will bear its own costs for the responsibilities
assigned to it during the research period. Furthermore, the Company will have the right to develop up to four products, free of royalties, using the new
intellectual property arising from the collaboration and after a period of time, to grant licenses to such
intellectual property for development of additional products by third parties without any royalty or milestone payment to GSK. The Company determined
that, the events and conditions resulting in payments for research, development and commercial milestones solely depend on GSK’s performance.
No development or commercial milestone payments or royalties have been received to date.
2016 Platform Technology Transfer and License Agreement with GSK
On April 21, 2016, the Company entered into a platform technology transfer and license agreement with GSK for the research, development, and
commercialization of up to six bispecific antibodies enabled using the Company’s Azymetric platform. Each of the two agreements with GSK were
negotiated independently and the deliverables covered by the respective contracts utilize different therapeutic platforms and are unrelated to one another.
Accordingly, the Platform Technology and License Agreement with GSK has been accounted for as a new arrangement. In May 2019, this agreement was
expanded to provide GSK access to the Company’s unique heavy-light chain pairing technology under the Azymetric platform. This may include bispecific
antibodies incorporating new engineered Fc regions generated under the 2015 GSK agreement.
The Company is eligible to receive up to $1.1 billion in milestone and other payments. From contract inception to December 31, 2023, the Company has
received an upfront technology access fee payment of $6.0 million. The Company is also eligible to receive research milestone payments of up to $37.5
million, development milestone payments of up to $183.5 million and commercial milestone payments of up to $867.0 million. In addition, the Company is
entitled to receive tiered royalties in the low to mid-single digits on product sales. The Company determined that, the events and conditions resulting in
payments for research, development and commercial milestones solely depend on GSK’s performance.
No research, development or commercial milestone payments or royalties have been received to date.
2016 Collaboration Agreement with Daiichi Sankyo, Co., Ltd. (“Daiichi Sankyo”)
On September 26, 2016, the Company and Daiichi Sankyo entered into a collaboration and cross license agreement which was amended on September 25,
2018, July 2, 2021, and June 6, 2022 (collectively, the “2016 Daiichi Collaboration Agreement”) for the research, development, and commercialization of
one bispecific antibody enabled using the Company’s Azymetric and EFECT platforms. Additionally, the Company was able to license immuno-oncology
antibodies from Daiichi Sankyo, with the
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right to research, develop and commercialize multiple products globally in exchange for royalties on product sales. Under the agreement, Daiichi Sankyo
had the option to develop and commercialize a single bispecific immuno-oncology therapeutic.
From contract inception to the termination of 2016 Daiichi Collaboration agreement as defined below, the Company has received an upfront technology
access fee payment of $2.0 million and research and commercial option related payments totaling $4.5 million.
Termination of the 2016 Daiichi Sankyo Collaboration Agreement
In March 2023, Zymeworks BC and Daiichi Sankyo terminated the Daiichi Collaboration Agreement and is no longer in effect, except that the termination
does not relieve the parties from obligations under the Daiichi Collaboration Agreement that have accrued prior to the termination or provisions of the
Daiichi Collaboration Agreement expressly indicated in the Daiichi Collaboration Agreement or the Termination and License Agreement to survive the
termination. The termination of the 2016 Daiichi Collaboration Agreement did not have any financial impact during the year ended December 31, 2023.
2018 Licensing Agreement with Daiichi Sankyo
In May 2018, the Company entered into a second license agreement with Daiichi Sankyo to research, develop and commercialize two bispecific antibodies
generated through the use of the Company’s Azymetric and EFECT platforms. Under the terms of the agreement, the Company granted Daiichi Sankyo a
worldwide, royalty-bearing, antibody sequence pair-specific, exclusive license to research, develop and commercialize certain products. Under the
agreement, Daiichi Sankyo will be solely responsible for the research, development, manufacturing and commercialization of the products.
Under the terms of the agreement, the Company was eligible to receive up to $484.7 million in various milestone and other payments. From contract
inception to December 31, 2023, the Company has received an upfront technology access fee payment of $18.0 million. The Company remains eligible to
receive development milestone payments totaling up to $63.4 million and commercial milestone payments of up to $170.0 million. In addition, the
Company is eligible to receive tiered royalties ranging from the low single digits up to 10% on product sales, with the royalty term being, on a product-by-
product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent coverage on products, or (ii) for 10 years beginning from
the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage on products, royalty rates may be reduced.
No development or commercial milestone payments or royalties have been received to date.
Collaboration and License Agreement with Janssen Biotech, Inc. (“Janssen”)
On November 13, 2017, the Company entered into a collaboration and license agreement with Janssen to research, develop and commercialize up to six
bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms. Under the terms of the agreement, the Company
granted Janssen a worldwide, royalty-bearing, antibody group-specific exclusive license to research, develop and commercialize certain products. Janssen
also has the option to develop two additional bispecific antibodies under this agreement subject to a future option payment. Under the agreement, Janssen
will be solely responsible for the research, development, manufacturing and commercialization of the products.
The Company was originally eligible to receive up to $1.45 billion in various license and milestone payments. From contract inception to December 31,
2023, the Company has received an upfront payment of $50.0 million and development milestones totaling $8.0 million with two bispecific antibodies
initiating clinical trials. Janssen has deprioritized the development of one of those two bispecific antibodies, and in 2023 the research program term under
the agreement ended with respect to the remaining four bispecific antibodies. As a result, the Company remains eligible to receive development milestone
payments of up to $86.0 million and commercial milestone payments of up to $373.0 million ($43.0 million and $186.5 million, respectively, not including
the bispecific antibody that Janssen has deprioritized). In addition, the Company is eligible to receive tiered royalties in the mid-single digits on product
sales, with the royalty term being, on a product-by-product and country-by-country basis, either (i) for as long as there is Zymeworks platform patent
coverage on products, or (ii) for 10 years, beginning from the first commercial sale, whichever period is longer. If there is no Zymeworks patent coverage
on products, royalty rates may be potentially reduced. Janssen has the right, prior to the first dosing of a patient in a Phase 3 clinical trial for a product, to
buy down the royalty relating to such product by one percentage point with a payment of $10.0 million. The Company determined that, the events and
conditions resulting in payments for research, development and commercial milestones solely depend on Janssen’s performance.
No commercial milestone payments or royalties have been received to date.
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Research and License Agreement with LEO Pharma A/S (“LEO”)
On October 23, 2018, the Company entered into a research and license agreement with LEO. The Company granted LEO a worldwide, royalty-bearing,
antibody sequence pair-specific exclusive license to research, develop and commercialize two bispecific antibodies, generated through the use of the
Company’s Azymetric and EFECT platforms, for dermatologic indications. The Company will retain rights to develop antibodies resulting from this
collaboration in all other therapeutic areas. The Company and LEO are jointly responsible for certain research activities, with the Company’s cost to be
fully reimbursed by LEO. Each party is solely responsible for the development, manufacturing, and commercialization of their own products.
Pursuant to this agreement, the Company received an upfront payment of $5.0 million. No development or commercial milestone payments or royalties
have been received to date.
Termination of LEO Research and License Agreement
On October 27, 2023, Zymeworks BC received written notice from LEO Pharma A/S (“LEO”), stating that LEO elected to terminate, in its entirety, the
Research and License Agreement. In accordance with the terms of the Research and License Agreement, the termination of such agreement was effective
on January 25, 2024. The termination of the LEO Research and License Agreement did not have any financial impact during the year ended December 31,
2023.
License Agreement with Iconic Therapeutics, Inc. (“Iconic”)
On May 13, 2019, the Company entered into a license agreement with Iconic to develop and commercialize an antibody-drug conjugate (ICON-2) targeting
tissue factor generated through the use of the Company’s ZymeLink platform. Under the terms of this agreement, the Company granted Iconic a worldwide,
royalty-bearing, antibody sequence-specific, exclusive license to develop and commercialize certain products. Iconic is responsible for the development,
manufacturing, and commercialization of the products.
Pursuant to this agreement, the Company was initially eligible to receive development and commercial milestone payments and tiered royalties on
worldwide net sales. From contract inception to December 31, 2023, the Company has received $1.0 million in milestone payments.
In December 2020, Exelixis, Inc. (“Exelixis”) exercised an option under an existing agreement with Iconic to license ICON-2 (also known as XB002) and
under the Company’s agreement with Iconic, the Company received $4.0 million accordingly, a share of the $20.0 million option fee paid to Iconic by
Exelixis. In December 2021, under an amendment between Iconic and Exelixis, the Company recognized $5.0 million as a share of the one-time fee
received by Iconic in exchange for all future milestones owing to Iconic from Exelixis. The Company will continue to be eligible to receive future royalties
on the ICON-2 program pursuant to the agreement with Iconic. Iconic and its partners are responsible for the development, manufacturing, and
commercialization of the products.
Atreca
In April 2022, the Company entered into a licensing agreement with Atreca, Inc. (“Atreca”), granting Atreca a worldwide, royalty-bearing license to
research, develop and commercialize novel ADCs. The Company is eligible to receive up to $210.0 million in option exercise fees and clinical
development and regulatory approval milestone payments and up to $540.0 million in commercial milestone payments, as well as tiered royalties on
worldwide sales. The Company's performance obligations in relation to the research license fee of $5.0 million were met in April 2022. Accordingly, the
research license fee was recognized as revenue during the year ended December 31, 2022. There are no active programs under development pursuant to this
agreement.
13. Other (Expense) Income, net
Other (expense) income, net consists of the following:
Foreign exchange (loss) gain
Other
Year ended December 31,
2023
2022
2021
$
$
(1,185) $
291
(894) $
1,152 $
(42)
1,110 $
1,191
118
1,309
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14. Income Taxes
a. Income tax recovery (expense) is comprised of the following:
Current income tax expense
Deferred income tax recovery (expense)
Income tax recovery (expense)
Year Ended December 31,
2023
2022
2021
$
$
(189) $
757
568 $
(8,953) $
(1,940)
(10,893) $
(437)
953
516
Current income tax recovery (expense) for the years ended December 31, 2023, 2022 and 2021 arose from the operations of the Company as well as its
wholly owned subsidiaries in Canada, in the United States, in Ireland and in Singapore, as well as withholding taxes paid by the Company abroad in 2023,
2022 and 2021.
b. Income tax recovery (expense) varies from the amounts that would be computed by applying the expected U.S. statutory income tax rate of 21% (2022:
21% and 2021: 21%) to income (loss) before income taxes as shown in the following table:
Computed taxes at United States statutory income tax rate
Non-deductible expenses
Difference between domestic and foreign tax rate
Adjustments to prior year
Change in valuation allowance
Share issuance costs in equity
Change in recognition and measurement of tax positions
Changes due to SR&ED and research credits
Other
Income tax recovery (expense)
Year Ended December 31,
2023
2022
2021
$
$
25,041 $
(2,696)
5,976
48,724
(78,668)
—
(14)
2,661
(456)
568 $
(28,429) $
(9,745)
(8,365)
(826)
33,526
—
—
3,238
(292)
(10,893) $
44,620
(798)
12,175
(33)
(60,260)
2
—
5,096
(286)
516
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c. Deferred income tax assets and liabilities result from the temporary differences between the amounts of assets and liabilities recognized for financial
statement and income tax purposes. The significant components of the deferred income tax assets and liabilities are as follows:
Deferred tax assets:
Non-capital losses carried forward
Deferred revenue
Share issuance costs
Property and equipment
Intangible assets
Research and development deductions and credits
Contingent consideration
Stock options
Operating lease liability
Other
Deferred tax liabilities:
Property and equipment
IPR&D
Operating lease right-of-use assets
Outside basis difference in foreign subsidiary
Stock options
Other
Less: valuation allowance
Net deferred tax (liabilities) assets
Deferred tax assets
Deferred tax liabilities
Net deferred tax (liabilities) assets
December 31,
2023
December 31,
2022
$
$
$
$
$
$
162,545 $
9,893
2,972
291
1,902
44,635
111
5,936
6,596
465
235,346 $
(231)
(4,760)
(4,531)
(2,125)
(1,177)
(186)
(13,010) $
222,336
(222,021)
315 $
3,615 $
(3,300)
315 $
84,948
8,893
4,549
565
5,930
39,957
404
4,344
7,008
302
156,900
(967)
(4,759)
(5,758)
(1,788)
—
—
(13,272)
143,628
(144,071)
(443)
1,345
(1,788)
(443)
The realization of deferred income tax assets is dependent upon the generation of sufficient taxable income during future periods in which the temporary
differences are expected to reverse. The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not” criterion
changes, the valuation allowance is adjusted accordingly.
d. At December 31, 2023, the Company has net operating losses carried forward for tax purposes in Canada, which are available to reduce taxable income
of future years of approximately $597.2 million (December 31, 2022: $314.7 million) expiring commencing 2035 through 2043.
At December 31, 2023, the Company also has unclaimed tax deductions for scientific research and experimental development expenditures of
approximately $99.1 million (December 31, 2022: $89.0 million) available to reduce taxable income of future years in Canada, with no expiry. At
December 31, 2023, the Company has approximately $21.7 million (December 31, 2022: $18.5 million) of investment tax credits available to offset
Canadian federal and provincial taxes payable expiring commencing in 2029 through 2043, and has approximately $0.4 million (December 31, 2022: $1.2
million) of research tax credits available to offset U.S. federal taxes payable expiring commencing in 2042 through 2043.
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e. The investment tax credits and non-capital losses for income tax purposes expire as follows:
Expiry date
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
Investment tax credits
$
Research tax
credits
— $
—
—
—
—
—
—
—
—
—
—
—
—
19
343
362 $
Non-capital losses
—
—
—
—
—
—
3,961
24,578
10,625
—
81,253
146,611
192,924
39,632
97,644
597,228
1,169 $
1,242
1,424
1,357
1,277
229
1,068
862
1,586
1,485
1,818
1,903
2,222
2,126
1,934
21,702 $
$
f. A reconciliation of total unrecognized tax benefits for the years ended December 31, 2023, 2022, and 2021 are as follows:
Balance, beginning of year
Increases related to prior year tax positions
Increases related to current year tax positions
Balance, end of year
Year Ended December 31,
2023
2022
2021
$
$
3,063 $
—
14
3,077 $
3,063 $
—
—
3,063 $
3,063
—
—
3,063
Included in the balance of unrecognized tax benefits at December 31, 2023, 2022 and 2021 are potential benefits of nil that, if recognized, would affect the
effective tax rate on income from continuing operations. Recognition of these potential benefits would result in a deferred tax asset in the form of net
operating loss carry-forward, which would be subject to a valuation allowance based on conditions existing at the reporting date.
The Company recognizes interest expense and penalties related to unrecognized tax benefits within the provision for income tax expense on the
consolidated statements of (loss) income and comprehensive (loss) income.
The Company currently files income tax returns in Canada, the United States, the United Kingdom, Ireland and Singapore, the jurisdictions in which the
Company believes that it is subject to tax. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally
limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the
loss carry-forwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company has claimed, management is
not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2006 to 2023 remain
subject to Canadian income tax examinations. Tax years ranging from 2020 to 2023 remain subject to U.S. income tax examinations. Tax years ranging
from 2022 to 2023 remain subject to United Kingdom and Ireland income tax examinations. Tax year 2023 remains subject to Singapore income tax
examinations.
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15. Leases
The lease for the Company's office and laboratory spaces in Vancouver, British Columbia, which was 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. The Company also leases office equipment under capital lease agreements.
The balance sheet classification of the Company’s lease liabilities was as follows:
Operating lease liabilities:
Current portion
Long-term portion
Total operating lease liabilities
Finance lease liabilities:
Current portion included in other current liabilities
Long-term portion included in other long-term liabilities
Total finance lease liabilities
Total lease liabilities
Weighted average remaining lease term:
Operating leases
Weighted average discount rate:
Operating leases in U.S. dollars
Operating leases in Canadian dollars
December 31,
2023
December 31,
2022
$
$
$
4,261
22,369
26,630
30
92
122
26,752
$
$
$
3,322
24,667
27,989
16
124
140
28,129
6.7 years
7.8 years
3.6 %
4.8 %
2.8 %
4.8 %
Cash paid for amounts included in the measurement of operating lease liabilities for fixed lease payments for the year ended December 31, 2023 was
$4,896 and was included in net cash used in operating activities in the consolidated statement of cash flows.
As of December 31, 2023, the maturities of the Company’s operating lease liabilities were as follows:
Within 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
Thereafter
Total operating lease payments
Less:
Imputed interest
Operating lease liabilities
142
Operating
leases
5,542
5,113
5,021
3,811
3,174
8,730
31,391
(4,761)
26,630
$
$
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The cost components of the operating leases were as follows:
Lease expenses:
Operating lease expense
Variable lease expense
Year Ended December 31,
2023
2022
2021
$
$
7,292
1,637
8,929 $
6,609 $
1,186
7,795 $
5,323
335
5,658
During the year ended December 31, 2023, the Company did not recognize any impairment losses on its right-of-use assets (2022: nil and 2021: nil ).
16. 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 consolidated financial statements.
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 December 31, 2023, the contingent consideration had an estimated fair value of $1,878, which has been recorded in accounts payable
and accrued liabilities and in other long-term liabilities on the Company’s consolidated balance sheet (December 31, 2022: $1,248) (note 9). 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
consolidated statement of loss (income).
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The following table presents the changes in fair value of the Company’s liability for contingent consideration:
Year ended December 31, 2023
Year ended December 31, 2022
Liability at
the beginning
of the period
$
$
1,248
1,498
Increase in
fair value of
liability for
contingent
consideration
Amounts paid or
transferred to
payables
Liability at end
of the period
630
—
— $
(250) $
1,878
1,248
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:
Liability for contingent consideration
Total
Liability for contingent consideration
Total
December 31,
2023
Level 1
Level 2
Level 3
1,878
1,878 $
—
— $
— $
— $
1,878
1,878
December 31,
2022
Level 1
Level 2
Level 3
1,248
1,248 $
—
— $
— $
— $
1,248
1,248
$
$
$
$
The Company used the following assumptions to estimate fair value of contingent consideration liability as of December 31, 2023 and 2022:
Weighted assessment of the likelihood of the milestones
Weighted average estimated period for achievement of milestones
Discount rate
Contingencies
December 31,
2023
December 31,
2022
33.5 %
0.92 years
17.0 %
16.3 %
1.36 years
12.0 %
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.
17. Restructuring
During the year ended December 31, 2022, the Company completed a restructuring program (the “Restructuring”) to focus on achieving its key strategic
priorities and to help create a more cost-efficient organization. In connection with the Restructuring, the Company made changes to its management team
and reduced headcount by approximately 25% by the completion of the Restructuring. During the year ended December 31, 2022, the Company recorded
the following costs for the Restructuring:
•
•
employee severance and termination benefits of $5,214;
an offsetting non-cash reversal of previously recognized stock-based compensation expenses for unvested stock and RSU awards of $10,381; and
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•
other restructuring charges primarily related to accelerated depreciation and accelerated recognition of rent expense in relation to the shutdown of
certain facilities of $2,435 and early termination of certain service contracts of $1,275.
Of the net charges, $5,659 expense and $5,516 recovery of stock-based compensation were recorded in research and development expenses, and $3,265
expense and $4,865 stock-based compensation recovery were recorded in general and administrative expenses in the accompanying statements of (loss)
income and comprehensive (loss) income for the year ended December 31, 2022. As of December 31, 2023, the net outstanding liability related to
employee severance termination benefits and other contract liabilities was nil (December 31, 2022: $678). No costs for the Restructuring were recognized
during the year ended December 31, 2023.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, our management, with the participation of our Chief Executive Officer and 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 December 31, 2023, our Chief Executive Officer and our 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.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, is responsible for establishing and maintaining
adequate internal control over our financial reporting, as defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act.
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of
judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely.
Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide
reasonable, not absolute, assurances. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the
effectiveness of our internal control over financial reporting as at December 31, 2023. In making its assessment, management used the criteria set forth in
the internal control – integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO framework)
to evaluate the effectiveness of our internal control over financial reporting. Based on this evaluation, management has concluded that our internal control
over financial reporting was effective as of December 31, 2023.
Attestation Report of Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by KPMG LLP, an independent registered
public accounting firm, as stated in their report included elsewhere in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
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Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors
The following table sets forth the names, ages and positions of the members of our board of directors as of February 29, 2024.
Name
(2)(4)
(1)
Kenneth Galbraith
(1)(2)
Carlos Campoy
Alessandra Cesano
Troy M. Cox
Nancy Davidson
(3)
Susan Mahony
Derek J. Miller
Kelvin Neu
Scott Platshon
Hollings C. Renton
(1)(2)
(4)
(3)(4)
(3)
Age
61
59
63
59
70
59
53
50
32
77
Position(s)
Chief Executive Officer, President and Chair of the Board of Directors
Director
Director
Director
Director
Director
Director
Director
Director
Director
________________________
(1) Member of the audit committee.
(2) Member of the nominating and corporate governance committee.
(3) Member of the compensation committee.
(4) Member of the research and development committee.
There are no family relationships among any of the directors or executive officers.
Kenneth Galbraith
Mr. Galbraith is 61 years old and has served as our Chief Executive Officer and Chair of our board of directors since January 2022. In addition, Mr.
Galbraith has served as our President since June 2023 and previously served as our President from January 2022 to August 2022. Mr. Galbraith was a
Managing Director at Five Corners Capital, Inc., which he founded in 2013, from February 2021 until January 2022. He served as Executive in Residence
at Syncona Limited from April 2021 until January 2022, and has served as an advisor to Syncona since May 2023. He served as Chief Executive Officer of
Liminal BioSciences Inc. (formerly Prometic Life Sciences Inc.), a publicly held company, from April 2019 to November 2020, continuing as an advisor to
that company from November 2020 to February 2021. He also served as Chief Executive Officer of Fairhaven Pharmaceuticals Inc. from June 2017 to
April 2019. Mr. Galbraith has served as a director of several publicly held companies, including MacroGenics, Inc. from July 2008 until January 2022,
Profound Medical Corp. from January 2017 to May 2023, and Celator Pharmaceuticals, Inc. from July 2008 to October 2013. He has also served as a
director of several privately held companies. Previously, he joined Ventures West Capital in 2007 and founded Five Corners Capital Inc. in 2013 to manage
the continued operations of the Ventures West Investment Funds. Mr. Galbraith has over 35 years of experience serving as an executive, director, investor
and adviser to companies in the biotechnology, medical device, pharmaceutical and healthcare sectors. Mr. Galbraith received his B.Comm. from the
University of British Columbia.
Based on Mr. Galbraith’s depth of experience in the biotechnology industry, ranging from executive officer to director roles, the board of directors believes
Mr. Galbraith has the appropriate set of skills to serve as a member of our board of directors.
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Carlos Campoy
Mr. Campoy is 59 years old and has served as a member of our board of directors since June 2023. Mr. Campoy served as Chief Financial Officer of
CytomX Therapeutics, Inc. from March 2020 through September 2022. Prior to CytomX Therapeutics, Mr. Campoy served as the Chief Financial Officer
of Alder BioPharmaceuticals, Inc., a public biopharmaceutical company acquired in October 2019 by Lundbeck A/S, from December 2018 to November
2019. During his time at Alder BioPharmaceuticals, Mr. Campoy led the finance organization and readied the company for commercial launch of its lead
program, eptinezumab. Prior to Alder BioPharmaceuticals, Mr. Campoy was a partner at Think Forwards, a boutique financial consulting firm, from
September 2017 to December 2018. Prior to his position at Think Forwards, Mr. Campoy held the role of vice president of finance at Allergan plc from
July 2014 to November 2016. Prior to joining Allergan, Mr. Campoy held senior financial leadership positions at Eli Lilly and Company from 1996 to
2014, including chief financial officer of Eli Lilly Japan K.K. Mr. Campoy holds a Certified Management Accountant (CMA) designation. Mr. Campoy
received his M.B.A. in Finance and Decision Information Systems from Indiana University and his B.S. in Management from Faculdade de Ciências
Contábeis e de Administração de Empresas de Tupã (FACCAT), in São Paulo, Brazil.
The board of directors believes that Mr. Campoy is qualified to serve on our board of directors because of his extensive strategic and financial leadership
experience in the pharmaceutical and biotechnology sectors.
Alessandra Cesano
Dr. Cesano is 63 years old and has served as a member of our board of directors since February 2024. Dr. Cesano has served as the Chief Medical Officer
of ESSA Pharma Inc., a pharmaceutical company developing therapies for the treatment of prostate cancer, since July 2019. Previously, Dr. Cesano was the
Chief Medical Officer of NanoString Technologies, Inc., a biotechnology company that develops translational research tools, from July 2015 to July 2019,
where she focused on development of translational and diagnostic multi-plexed assays for the characterization and measurement of mechanisms of immune
response and resistance. Prior to NanoString, Dr. Cesano was Chief Medical Officer at Cleave Biosciences, Inc., a biopharmaceutical company focusing on
protein therapies for the treatment of cancer and neurodegenerative diseases, and before that she served as Chief Medical Officer and Chief Operations
Officer at Nodality, Inc., where she built and led the Research & Development group, while providing the overall clinical vision for the organization. Dr.
Cesano has also held various management positions at Amgen Inc., Biogen Inc. (formerly Biogen Idec) and SmithKline Beecham Pharmaceuticals, where
she helped to advance various oncology drugs through late-stage development and FDA approvals. She currently serves as associate editor for the
Biomarker section of the Journal for ImmunoTherapy of Cancer and co-chair of the Society for Immunotherapy of Cancer (SITC) regulatory committee.
She has been an author on more than 140 publications. Dr. Cesano has served as a director at Puma Biotechnology, Inc. since July 2022 and as a director of
Summit Therapeutics Inc. since November 2022. Dr. Cesano received an M.D. summa cum laude, a board certification in oncology and a Ph.D. in Tumor
Immunology from the University of Turin, Italy.
The board of directors believes that Dr. Cesano is qualified to serve on our board of directors because of her extensive experience in biotechnology research
and development and oncology.
Troy M. Cox
Mr. Cox is 59 years old and has served as a member of our board of directors since June 2019. Mr. Cox served as Chief Executive Officer of Foundation
Medicine, Inc. from February 2017 through February 2019, as a member of Foundation Medicine’s board of directors from February 2017 until July 2018,
and in the additional role of President of Foundation Medicine from February 2018 until July 2018. Prior to Foundation Medicine, Mr. Cox served as
Senior Vice President, Sales & Marketing at Genentech, Inc. from February 2010 until February 2017. Before joining Genentech, Mr. Cox served as
President at UCB S.A. Prior to UCB BioPharma, Mr. Cox held senior commercial leadership roles with Sanofi-Aventis and Schering-Plough. Mr. Cox
served on the board of directors of SomaLogic, Inc. from September 2021 until January 2024 and as executive chair of the board of SomaLogic from
October 2022 to March 2023. He has served on the board of directors of Standard BioTools Inc. since January 2024 and on the board of directors of
SOPHiA GENETICS SA since July 2019. Mr. Cox received a B.B.A. in finance from the University of Kentucky and an M.B.A. from the University of
Missouri.
The board of directors believes Mr. Cox’s nearly three decades of proven leadership and expertise in the global, strategic and operational aspects of the
biopharmaceutical industry qualifies him to serve on our board of directors.
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Nancy Davidson
Dr. Davidson is 70 years old and has served as a member of our board of directors since December 2023. Dr. Davidson has served as the Executive Vice
President, Clinical Affairs, since April 2022, and as the Raisbeck Chair for Collaborative Cancer Research, since July 2019, of Fred Hutchinson Cancer
Center. In addition, Dr. Davidson has served as a Professor, since December 2016, and previously served as the Senior Vice President, since December
2016 to August 2023, of Fred Hutchinson Cancer Center Clinical Research Division. At the University of Washington School of Medicine, Dr. Davidson
served as Head of the Division of Medical Oncology from December 2016 to August 2023 and as a Professor since December 2016. Previously, Dr.
Davidson served as the President and Executive Director of the Seattle Cancer Care Alliance from December 2016 to April 2022. Dr. Davidson also held
various positions at the University of Pittsburgh from February 2009 to December 2016, including as the Director of the University of Pittsburgh Cancer
Institute. Dr. Davidson has served as Adjunct Professor of Oncology at The Johns Hopkins School of Medicine since February 2009. Dr. Davidson is also a
member of the scientific advisory boards of many foundations and cancer centers and a member of various organizations, including the American Society
of Clinical Oncology and the American Association for Cancer Research. She has received many awards, honors, and appointments, including the Brinker
International Award for Breast Cancer Research, the Rosalind E. Franklin Award for Women in Science from the National Cancer Institute (2008), and
election to the National Academy of Medicine (2011) and the American Academy of Arts and Sciences (2019). She has also been listed among Thomson
Reuters Highly Cited Researchers (2014-2015). Dr. Davidson holds an M.D. from the Harvard Medical School and a B.A. in Molecular Biology from
Wellesley College. She completed her residency in Internal Medicine at University of Pennsylvania and Johns Hopkins Hospital and a medical oncology
fellowship at the National Cancer Institute.
The board of directors believes that Dr. Davidson is qualified to serve on our board of directors because of her extensive knowledge and experience in the
field of oncology, and as an experienced researcher and clinician.
Susan Mahony
Dr. Mahony is 59 years old and has served as a member of our board of directors since June 2019 and as Lead Independent Director of our board of
directors since December 2023. Dr. Mahony is an executive with over 30 years of experience in pharmaceutical and life sciences companies. Dr. Mahony
served as Senior Vice President of Eli Lilly and Company and President of Lilly Oncology from February 2011 until August 2018. She joined Lilly in
2000, holding senior leadership positions in product development, marketing, human resources, and general management. Prior to joining Lilly, Dr.
Mahony served in sales and marketing roles in Europe for over a decade for Schering-Plough, Amgen, and Bristol-Myers Squibb. Dr. Mahony has served
on the board of directors of Assembly Biosciences, Inc. since December 2017 and on the board of directors of Axsome Therapeutics, Inc. since October
2023. She previously served on the board of directors of Horizon Therapeutics Public Limited Company from August 2019 to October 2023 (acquired by
Amgen Inc.) and on the board of directors of Vifor Pharma from May 2019 until August 2022. Dr. Mahony received a B.Sc. and a Ph.D. from Aston
University and an M.B.A. from London Business School.
Based on Dr. Mahony’s extensive experience in management at public pharmaceutical companies, together with her experience serving on the board of
directors of public and private companies, our board of directors concluded that she should serve as a director due to our business focus and strategy.
Derek J. Miller
Mr. Miller is 53 years old and has served as a member of our board of directors since April 2023. Mr. Miller has been a leader in the biotechnology and
pharmaceutical sector for more than 25 years with experience in corporate development, business development and global commercial strategy. He is an
independent commercial and business development consultant for pre-clinical and clinical-stage companies in oncology and rare diseases, and currently
serves as Chief Executive Officer of a cell and gene therapy imaging startup venture, spun out from the University of Pennsylvania. From May 2018 to
November 2019, he served as Chief Business Officer of Aro Biotherapeutics, a spinout of Janssen Pharmaceuticals, leading numerous strategic and
operational initiatives including a transformative collaboration with Ionis with potential revenues of up to $1.4 billion. Mr. Miller also previously served as
Chief Business Officer of Celator Pharmaceuticals where he led the development of their pipeline and business development strategy, resulting in its
acquisition by Jazz Pharmaceuticals in 2016 for cash proceeds of approximately $1.5 billion. Prior to Celator Pharmaceuticals, Mr. Miller held a variety of
marketing, sales and market access roles with Genentech, Centocor and GSK. Mr. Miller is a member of the Board of Trustees for the Eastern Pennsylvania
Chapter of the Leukemia and Lymphoma Society and serves as a mentor for the Villanova School of Business. He received an M.B.A. from Villanova
University and Bachelor of Arts and Science degree from the University of Delaware.
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The board of directors believes that Mr. Miller is qualified to serve on our board of directors because of his extensive experience in the biotechnology and
pharmaceutical sector, including experience in corporate development, business development and global commercial strategy.
Kelvin Neu
Dr. Neu is 50 years old and has served as a member of our board of directors since March 2020. Dr. Neu is Founder and Chief of Herringbone, a life
sciences innovation practice established in January 2022. Dr. Neu is also Co-Founder and Chair of QDX Technologies Pte. Ltd., a computational chemistry
company established in February 2023. Previously, Dr. Neu was a Partner at Baker Bros. Advisors LP, a registered investment adviser, where he worked
from April 2004 until January 2021. Dr. Neu previously served on the board of directors of IGM Biosciences, Prelude Therapeutics, Idera Pharmaceuticals,
Aquinox Pharmaceuticals and XOMA Corporation. Dr. Neu holds an M.D. from the Harvard Medical School-MIT Health Sciences and Technology
program, and spent three years in the Immunology Ph.D. program at Stanford University as a Howard Hughes Medical Institute Fellow. Dr. Neu holds an
A.B. (summa cum laude) from Princeton University, where he was awarded the Khoury Prize for graduating first in his department of Molecular Biology.
Prior to attending Princeton, Dr. Neu served for two and a half years in the military of his native Singapore.
The board of directors believes that Dr. Neu is qualified to serve on our board of directors because of his extensive investment and leadership experience,
knowledge of our industry, and educational background in biology and biotechnology.
Scott Platshon
Mr. Platshon is 32 years old and has served as a member of our board of directors since February 2024. Mr. Platshon has served as a Partner at EcoR1
Capital since December 2020. Mr. Platshon was also a Principal at EcoR1 Capital from December 2017 to December 2020, and has been with EcoR1
Capital since October 2015. Prior to joining EcoR1 Capital, Mr. Platshon served as an analyst at Aquilo Partners, a San Francisco life-sciences investment
bank, from September 2014 to September 2015. Mr. Platshon has served on the board of directors of Terremoto Biosciences since October 2023, Kumquat
Biosciences Inc. since February 2021 (prior to that he was a board observer since August 2019) and Ajax Therapeutics, Inc. since May 2021. Mr. Platshon
received his B.S. in Bioengineering from Stanford University.
The board of directors believes that Mr. Platshon is qualified to serve on our board of directors because of his extensive investment and leadership
experience, in addition to his knowledge of our industry.
Hollings C. Renton
Mr. Renton is 77 years old and has served as a member of our board of directors since February 2017. Mr. Renton served as Chief Executive Officer and
President of Onyx Pharmaceuticals, Inc. from March 1993 to March 2008 and was the chair of the board of directors of Onyx from June 2000 to March
2008. Onyx was acquired by Amgen Inc. in 2013 for $10.4 billion. Before joining Onyx, Mr. Renton was the President and Chief Operating Officer of
Chiron Corporation, a pharmaceutical company, from December 1991 to December 1993. Mr. Renton served in a variety of executive roles at Cetus
Corporation from 1983, including as President from 1990 to 1991, Chief Operating Officer from 1987 to 1990 and Chief Financial Officer from 1983 to
1987, prior to its acquisition by Chiron in 1991. Mr. Renton has served on the board of directors of AnaptysBio, Inc. since June 2015. Previously, Mr.
Renton served on the boards of four other biopharmaceutical companies, Portola Pharmaceuticals Inc., where he had also been board chairman (March
2010 to July 2020), KYTHERA Biopharmaceuticals, Inc. (December 2014 to October 2015), Affymax, Inc. (June 2009 to November 2014) and Rigel
Pharmaceuticals, Inc. (January 2004 to March 2014). Mr. Renton also previously served on the board of Cepheid Inc., a molecular diagnostics company,
from March 2000 to November 2016. Mr. Renton received his M.B.A. from the University of Michigan and his B.S. in Mathematics from Colorado State
University.
Because of Mr. Renton’s extensive experience building successful biotechnology companies and commercializing drug products, the board of directors
believes he is able to bring valuable insights to our board of directors.
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Executive Officers
The following table sets forth the names, ages and positions of our executive officers as of February 29, 2024.
Name
Kenneth Galbraith
Christopher Astle, Ph.D.
Paul A. Moore, Ph.D.
Jeffrey Smith, M.D.
Age
61
44
57
64
Position(s)
Chief Executive Officer, President and Chair of Board of Directors
Senior Vice President and Chief Financial Officer
Chief Scientific Officer
Executive Vice President and Chief Medical Officer
There are no family relationships among any of the directors or executive officers.
The following is biographical information for our executive officers, other than Mr. Galbraith, whose biographical information is included above.
Christopher Astle
Dr. Astle joined Zymeworks in April 2021 and was promoted to Senior Vice President and Chief Financial Officer in February 2022. He previously served
as our Executive Director, Corporate and Commercial Finance from April 2021 to February 2022. Prior to joining Zymeworks, Dr. Astle worked as a Chief
Financial Officer at the CFO Centre in British Columbia, Canada from April 2020 to March 2021, and as Vice President, Finance at Alder
BioPharmaceuticals Inc. in Seattle, USA from April 2019 to February 2020. From August 2017 to January 2020, he served as Chief Executive Officer and
founder of Think Forwards, a boutique financial consulting firm in London, United Kingdom. Dr. Astle worked at Allergan from 2011 to 2017, including
as the Associate Vice President Finance, International Division from July 2016 to July 2017, managing multiple product launches, M&A transactions and
restructurings, with a team of 170 across 60 countries. He is a UK Chartered Accountant (ICAS), qualifying at PwC London, UK in Audit &
Pharmaceutical Performance Improvement Consulting with audit clients including GSK. He is a board member of Healome Therapeutics (2021-present), a
private biotechnology company. During his time in the United Kingdom, he was the Chair of the 2018 CFO Agenda conference, guest lecturer at the
Henley Business School, and judge at the British Accountancy Awards. Dr. Astle holds a PhD in Organic Chemistry from the University of Bristol (UK)
and a MChem in Chemistry from the University of Liverpool (UK).
Paul A. Moore
Dr. Moore joined Zymeworks in July 2022 as our Chief Scientific Officer. Dr. Moore has more than 25 years of US-based experience in biologics drug
discovery and development in biotechnology research. His career efforts have led to the discovery and development of a range of FDA-approved and
clinical-stage biologics for patients with difficult-to-treat cancers and autoimmune conditions. Prior to joining Zymeworks, Dr. Moore served as Vice
President, Cell Biology, and Immunology at MacroGenics from April 2008 to July 2022, leading a team of approximately 50 researchers engaged in the
discovery, preclinical validation and clinical development of antibody-based therapeutics, including bispecific antibodies and antibody drug conjugates.
Among the portfolio supported by Dr. Moore were FDA-approved Margenza (margetuximab-cmkb) for treatment of HER2+ breast cancer, Zynyz
(retifanlimab-dlwr) for treatment of Merkel cell carcinoma and Tzield (teplizumab-mzwv) to delay onset of type I diabetes. Prior to joining MacroGenics,
Dr. Moore was Director of Cell Biology at Celera from May 2005 to April 2008, where he oversaw research leveraging proteomic-based discoveries to
validate novel cancer targets suitable for antibody-based therapeutics. Dr. Moore began his industrial career at Human Genome Sciences (HGS), holding
several titles within research culminating in Director of Lead Product Development, where he managed various genomic-based target discovery programs
including efforts that led to the discovery, development, approval, and commercialization of Benlysta (belimumab) for the treatment of systemic lupus
erythematosus. Dr. Moore has an extensive research record co-authoring over 75 peer-reviewed manuscripts and is a named co-inventor on over 50 issued
US patents. Dr. Moore holds a Ph.D. in Molecular Genetics from the University of Glasgow, performed post-doctoral work at the Roche Institute of
Molecular Biology in Nutley, New Jersey, and also holds a degree in Biotechnology from the University of Strathclyde.
Jeffrey Smith
Dr. Smith joined Zymeworks in January 2023 as Senior Vice President, Early Stage Development and was promoted to Executive Vice President and Chief
Medical Officer in January 2024. He is based at our European hub in Dublin, Ireland. Dr. Smith has held many senior positions within the pharmaceutical
industry. Previously, Dr. Smith served as the Managing
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Director of Alder Biopharmaceuticals Inc. in Dublin, Ireland from March 2017 to October 2019, and as Senior Vice President, Translational Medicine at
Alder Biopharmaceuticals Inc. in Seattle, USA from 2012 to March 2017. Dr. Smith was responsible for the clinical development (phase I – III) of
eptinezumab (anti-CGRP antibody for migraine) and clazakizumab (anti -IL-6 antibody for rheumatoid arthritis and cancer cachexia). Dr. Smith was also a
founder of Alder Biopharmaceutcials Inc (founded 2004). Dr. Smith received his M.B. B.S. and M.D. from the University of London, UK and is a Fellow
of the Royal College of Physicians in London.
Although we have not adopted specific targets for women and other diverse candidates in executive positions, the board of directors has always considered
diversity as an important aspect of its decision making when recommending appointments for individuals to serve as executive officers.
Governance
Code of Conduct and Ethics
Our board of directors has adopted corporate governance guidelines that set forth expectations for directors, director independence standards, board
committee structure and functions, and other policies for our governance. It also has adopted a Code of Business Conduct and Ethics (the “Code of
Conduct”) that applies to members of our board of directors, our executive officers and all of our employees. Several standing committees (audit,
compensation, nominating and corporate governance, and research and development) assist our board of directors in carrying out its responsibilities. Each
standing committee operates under a written charter adopted by our board of directors. The full text of our Code of Conduct is posted on our website at
www.zymeworks.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to, or waiver from, a provision
of the Code of Conduct by posting such information on the website address and location specified above. Paper copies of the Code of Conduct, as well as
our governing documents (including our certificate of incorporation and bylaws) may be obtained upon request by writing to: Corporate Secretary,
Zymeworks Inc., 108 Patriot Drive, Suite A, Middletown, Delaware 19709.
Audit Committee
Our audit committee currently consists of Mr. Campoy, Mr. Cox and Mr. Miller. Dr. Mahony and Ms. Lota Zoth, a former member of our board of
directors, ceased serving on the audit committee in June 2023 and December 2023, respectively. Mr. Campoy serves as the chair of our audit committee.
Our board of directors has determined that each of Mr. Campoy and Mr. Cox is an “audit committee financial expert” as that term is defined in the rules and
regulations established by the SEC, and possesses financial sophistication, as defined under the rules of the Nasdaq Global Select Market. The members of
our audit committee are “independent” for audit committee purposes, as that term is defined in the rules of the SEC and the applicable Nasdaq rules, and
have sufficient knowledge in financial and auditing matters to serve on the audit committee.
The principal purposes of our audit committee are to:
•
assist our board of directors in its oversight of:
◦
◦
◦
◦
◦
◦
the quality, audit and integrity of our financial statements and related information;
the independence, qualifications, appointment and performance of our external auditor;
our disclosure controls and procedures, internal control over financial reporting, and management’s responsibility for assessing and
reporting on the effectiveness of such controls;
the organization and performance of our internal audit function;
our compliance with applicable legal and regulatory requirements;
our enterprise risk management processes; and
•
prepare the report required by SEC rules to be included in our proxy statement for the annual meeting of stockholders, and for performing other
duties and responsibilities as are enumerated in or consistent with the audit committee’s charter.
Our board of directors has established a written charter setting forth the purpose, composition, authority and responsibility of our audit committee,
consistent with the rules of Nasdaq and the SEC, a current copy of which is available on our website at www.zymeworks.com. Our audit committee has
access to all of our books, records, facilities and personnel and may request any information about us as it may deem appropriate. It also has the authority in
its sole discretion and at our expense to retain and set the compensation of outside legal, accounting or other advisors as necessary to assist in the
performance of its duties and
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responsibilities. Both our independent auditors and internal financial personnel regularly meet privately with the audit committee and have unrestricted
access to this committee.
Our audit committee held four meetings during the year ended December 31, 2023.
Item 11. Executive Compensation
Discussion of Executive Compensation Practices
This section describes our executive compensation philosophy and how we implemented it through our 2023 compensation program for our named
executive officers. The named executive officers for 2023 are:
• Kenneth Galbraith, Chief Executive Officer and Chair of the Board of Directors;
•
•
Christopher Astle, Ph.D., Senior Vice President and Chief Financial Officer;
Paul Moore, Ph.D., Chief Scientific Officer; and
• Neil Klompas, CPA, CA, our former President and Chief Operating Officer.
This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and projections regarding future
compensation programs. Actual compensation programs adopted in the future may differ materially from the various planned programs summarized in this
discussion.
In the paragraphs that follow, we provide an overview and analysis of our compensation program and policies, the material compensation decisions we
have made under those programs and policies, and the material factors that we considered in making those decisions.
2023 Advisory Vote on Executive Compensation
At our 2023 annual general meeting, we conducted an advisory vote on named executive officer compensation. At that meeting, 74.71% of the votes cast
on the advisory vote proposal were supportive of our named executive officer compensation program as disclosed in our 2023 proxy statement. Our next
advisory vote on named executive officer compensation will be held at our 2024 annual general meeting.
The compensation committee reviewed the advisory vote results in the context of our overall compensation philosophy and programs, and based on the
level of support, determined that no significant changes to our compensation policies and programs were necessary. The compensation committee will
continue to consider the results from future stockholder advisory votes on named executive officer compensation and other relevant market developments
affecting named executive officer compensation in order to determine whether any subsequent changes to our named executive officer compensation
programs and policies would be warranted to reflect any stockholder concerns reflected in those advisory votes or to address market developments.
Overview of Compensation Program
Compensation Philosophy
The goal of our compensation program is to attract, retain and motivate our employees and executives, including our named executive officers. The
compensation committee is responsible for setting our executive compensation and reviewing and approving, or recommending to the board of directors for
approval, the Company’s annual corporate performance objectives applicable to executive and other Company bonus programs. In considering executive
compensation, the compensation committee strives to ensure that our total compensation is competitive within the industry in which we operate and
supports our overall strategy and corporate objectives. The combination of base salary, annual incentives and long-term incentives that we provide our
executives is designed to accomplish this.
Compensation Objectives
The objectives of our executive compensation program are to:
•
attract and retain highly qualified executive officers who have a history of proven success;
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•
align the interests of executive officers with our stockholders’ interests and with the execution of our business strategy;
• motivate and reward our executive officers through competitive pay practices and an appropriate mix of short- and long-term incentives;
•
•
evaluate and reward executive performance on the basis of achievement of program development goals and key financial measurements which we
believe closely correlate to long-term stockholder value; and
tie compensation awards directly to program development goals and key financial measurements with evaluations based on achieving and
overachieving predetermined objectives.
Role of the Compensation Committee
During 2023, the compensation committee’s work included the following:
•
•
•
•
Competitive Compensation Review – The compensation committee reviewed compensation practices and policies with respect to our executives
against Zymeworks’ peer group of companies (as further described below), in order to allow us to place our compensation practices for these
positions in a market context. This reference exercise included a review of base salary, total cash compensation and total direct compensation.
Executive Compensation – The compensation committee reviewed the corporate goals and objectives applicable to the compensation of the
Company’s executives and evaluated the executives’ performance in light of those goals and objectives. Based on this review and evaluation, the
compensation committee approved the 2023 compensation for the Company’s executives, including each of the named executive officers. In
addition, the compensation committee considered and approved the separation and transition arrangements related to Mr. Klompas.
Short- and Long-Term Incentive Plans – The compensation committee administers the Company’s incentive compensation plans and equity-based
plans with respect to the Company’s executives, including the named executive officers.
Succession Planning – The compensation committee reviewed the succession plan for the Chief Executive Officer and other executive officers.
In reaching its decisions, the compensation committee may consider input from management and other factors that the compensation committee considers
appropriate. Decisions made by the compensation committee are the responsibility of the compensation committee and may reflect factors and
considerations other than the information and/or recommendations provided by management.
Independent Compensation Consultant
In 2023, the compensation committee retained the Human Capital Solutions practice at Aon plc, as an independent consultant to the compensation
committee to conduct competitive reviews and assessments of Zymeworks’ executive compensation program and recommend go-forward strategies. The
compensation committee made the decision to retain Aon in its sole discretion and was directly responsible for the appointment, compensation and
oversight of Aon’s work. The compensation committee is involved in and approves the adoption of the following procedures during Aon’s assessments:
•
•
•
•
•
establishing the public company peer group used in the executive compensation assessment;
reviewing the detailed assessment of Zymeworks’ executive compensation program versus the market;
reviewing and approving executive pay mix;
reviewing the assessment of Zymeworks’ board of directors compensation program versus the market; and
reviewing and approving the non-executive equity compensation program.
The compensation committee utilizes these strategies when contemplating future executive compensation matters.
In 2023, Aon was retained to review the salaries, bonuses and equity plan levels and participation of executive employees, as well as equity plan levels and
participation of employees below the executive level. Zymeworks’ management did not make or recommend such engagements and all such other services
were approved by the compensation committee. Except as discussed below, Aon did not perform other services to the Company other than as a
compensation consultant. The compensation committee determined Aon to be independent after evaluating the factors required under the applicable listing
standard.
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Aon received $244,996 in fees in 2023 for services related to determining or recommending the amount or form of executive and non-employee director
compensation. Separately, management engaged Aon to perform unrelated broad-based compensation services and risk brokerage services (which included
global risk in Canada and the United States), for which Aon was paid $328,913. The compensation committee was informed about these services.
Peer Companies and Use of Market Data
We compare our executive compensation program to those of a group of peer companies (North American biotechnology companies of a similar size and
stage of development). The first step in the process is that the compensation committee, with the support of Aon and management, reviews trends in
biotechnology compensation practices and reviews and approves the list of peer companies used for benchmarking. As part of its analysis for 2023, Aon
collected and analyzed compensation information from a comparative group of biotechnology companies, or peer group, approved by the compensation
committee. The compensation committee evaluates the criteria used in establishing the peer group at least annually. The compensation committee seeks
input from management in addition to Aon to ensure the peer group is consistent with our current business objectives and strategy.
The list of peer companies is approved based on various factors including industry classification, market capitalization, headcount and stage of
development. In August 2022, with assistance from Aon, the compensation committee approved a peer group consisting of publicly traded, pre-commercial
biopharmaceutical companies:
• with an emphasis on oncology companies and a focus on companies in Phase 2 and Phase 3 clinical trials;
• with market capitalizations generally between $150 million and $1.2 billion (based on the Company’s then-current 30-day average market
capitalization of approximately $400 million);
• with generally between 100 and 900 employees;
•
•
that are located in Canada and the United States, with a focus on companies headquartered in biotechnology hub markets; and
preference for companies that have gone public in approximately the last five years (but continue to de-emphasize initial public offering date as a
primary selection criteria).
Based on these criteria, in August 2022, the compensation committee approved the following peer group set forth below and used this peer group to inform
compensation decisions for 2023:
Adaptimmune Therapeutics plc
Alector, Inc.
AnaptysBio, Inc.
Atara Biotherapeutics, Inc.
C4 Therapeutics, Inc.
CytomX Therapeutics, Inc.
Gossamer Bio, Inc.
(1)
IGM Biosciences, Inc.
Jounce Therapeutics, Inc.
Kura Oncology, Inc.
MacroGenics, Inc.
Mersana Therapeutics, Inc.
NGM Biopharmaceuticals, Inc.
Poseida Therapeutics, Inc.
Precision BioSciences, Inc.
REGENXBIO Inc.
Repare Therapeutics Inc.
(1)
Replimune Group, Inc.
Silverback Therapeutics, Inc.
Sutro Biopharma, Inc.
(1)
(1)
________________________
(1) Added to the peer group in August 2022. The following companies were deleted from the peer group approved in August 2022: Allogene Therapeutics, Inc., Athira
Pharma, Inc. and Harpoon Therapeutics, Inc.
Our compensation committee uses comparative data from our peer group as a reference when setting and adjusting executive compensation, but it does not
target our overall program or any particular element of compensation to be at a particular percentile compared to our peers. Rather, our compensation
committee uses a range of peer group data for each executive position for which data is available, along with an assessment of each executive’s
performance, criticality and tenure, to ensure that our executive compensation program and its constituent elements are and remain competitive in relation
to our peers.
Components of Compensation Package
In 2023, our executive compensation program consisted of three major components:
•
base salary;
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•
•
annual cash bonuses based on a comparison of corporate performance to pre-set goals and objectives; and
long-term incentives, which in 2023, consisted of grants of stock options and restricted stock units.
In making 2023 compensation decisions, our compensation committee believed that each component of executive compensation must be evaluated and
determined with reference to competitive market data, individual and Company-wide performance, our recruiting and retention goals, internal equity and
consistency, and other information it deems relevant. As it evaluated executive compensation in 2023, the compensation committee believed that in the
biopharmaceutical/biotechnology industry, long-term incentives such as stock options and restricted stock units are a primary motivator in attracting and
retaining executives, in addition to salary and cash incentive bonuses.
The primary components of our 2023 executive compensation program are described in more detail below.
Base Salary Annual base salary is designed to provide a competitive fixed rate of pay recognizing different levels of responsibility and performance within
Zymeworks. This compensation component helps us to attract and retain highly qualified executives who have a history of proven success. In determining
whether to increase the base salary for a particular executive, our compensation committee in discussions with our Chief Executive Officer (for executives
other than the Chief Executive Officer) considers a variety of factors, including performance, length of service and criticality of role. The determination of
base salary affects the amount of an executive’s cash bonus. The table below shows the base salaries of our named executive officers for 2023:
Name and Principal Position
Kenneth Galbraith, Chief Executive Officer, President and Chair of Board of Directors
Christopher Astle, Senior Vice President and Chief Financial Officer
Paul Moore, Chief Scientific Officer
Neil Klompas, Former President and Chief Operating Officer
(2)
(1)
2023 Base Salary
($)
625,000
410,000
465,000
500,000
________________________
(1) Mr. Galbraith has served as our Chief Executive Officer and Chair of our board of directors since January 2022. In addition, Mr. Galbraith has served as our President
since June 2023 and previously served as our President from January 2022 to August 2022.
(2) Mr. Klompas resigned from the positions of President and Chief Operating Officer effective June 2023.
Cash Bonus
The cash bonus component is designed to provide our named executive officers with annual cash incentive awards based on achievement of certain goals
and objectives. The awards represent pay at risk – they result in payment only if and to the extent certain goals and objectives are met – and do not affect
decisions regarding other components of compensation. This compensation component motivates and rewards our named executive officers for outstanding
performance.
Annual cash incentive compensation for our named executive officers is paid pursuant to the Company’s Executive Incentive Compensation Plan, which
provides the compensation committee discretion to make changes to performance targets and bonus targets, to decrease, increase or eliminate bonuses and
to change other terms and conditions related to annual incentive compensation, in each case as the compensation committee deems appropriate to meet the
overarching retention and incentive goals associated with our executive bonus program.
Named executive officers are eligible to receive an amount targeted at a pre-determined percentage of their base salary established at the beginning of each
year. In January 2023, the compensation committee set annual target bonuses for each of our named executive officers as follows:
Name and Principal Position
Kenneth Galbraith, Chief Executive Officer, President and Chair of Board of Directors
Christopher Astle, Senior Vice President and Chief Financial Officer
Paul Moore, Chief Scientific Officer
Neil Klompas, Former President and Chief Operating Officer
(2)
(1)
________________________
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2023 Target Bonus
(% of Base Salary)
60%
35%
45%
45%
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(1) Mr. Galbraith has served as our Chief Executive Officer and Chair of our board of directors since January 2022. In addition, Mr. Galbraith has served as our President
since June 2023 and previously served as our President from January 2022 to August 2022.
(2) The compensation committee assigned a target bonus percentage for Mr. Klompas in January 2023. However, Mr. Klompas resigned from the positions of President and
Chief Operating Officer effective June 2023. Pursuant to the Klompas Separation Agreement, Mr. Klompas was not eligible for any annual performance bonus with respect
to the Company’s 2023 fiscal year. For more information regarding the Klompas Separation Agreement, see the section titled “Executive Employment Arrangements and
Potential Payments upon Termination or Change in Control—Executive Employment Arrangements.”
At the beginning of each year, the compensation committee approves, or recommends that the board of directors approve, performance targets that are tied
to the level of achievement of corporate and/or individual goals, and the compensation committee approves the weighting assigned to each goal. For 2023,
the corporate and individual weighting was 100% corporate and 0% individual for all named executive officers. Achievement of corporate goals was a
precondition for payment of bonuses with respect to 2023. Our compensation committee believed that this mix was appropriate in order to incentivize our
management team to achieve our key corporate objectives.
After the end of the year, the compensation committee determines the performance bonus payable to each named executive officer based on the results
achieved as compared to the performance targets established for a particular year. Depending on level of achievement, named executive officers may earn
up to 150% of their respective target bonuses. There is no minimum bonus payable.
2023 Company Corporate Goals and Achievement
In January 2023, the board of directors approved corporate goals that were grouped into six main categories: (i) zanidatamab via the Jazz Partnership, (ii)
zanidatamab via the BeiGene Partnership, (iii) zanidatamab zovodotin (ZW49), (iv) Early R&D (ZW171, ZW191 and emerging pipeline), (v) Platforms
and Legacy Partnerships and (vi) Financial. In September 2023, the compensation committee updated certain of the corporate goals established at the
beginning of the year related to zanidatamab zovodotin to align with our revised strategy with respect to zanidatamab zovodotin.
In January 2024, the compensation committee reviewed our performance against the corporate goals under the 2023 bonus plan, as revised in September
2023, and determined that these goals were achieved at the 87.25% level. Additional detail on these goals and the assessed achievement is set forth in the
table below:
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2023 Corporate Goal
Category
Zanidatamab via the
Jazz Partnership
Advance clinical trials of zanidatamab, including:
Key Elements of Goal
•
•
•
enrollment of HERIZON-GEA-01;
finalize clinical study report for HERIZON-BTC-01; and
no material disruption to clinical drug supply of zanidatamab for any
studies being conducted by us or Jazz.
Successful interactions with U.S. and non-U.S. regulators.
Presentation of data.
Certain cost recoveries under our agreements with Jazz.
Target Weight of
Goal
25% for base goals;
an additional 12.5%
for stretch goals
Assessed
Achievement
18.25%
Zanidatamab via the
BeiGene Partnership
Advance clinical trials of zanidatamab, including:
•
•
•
enrollment of HERIZON-GEA-01;
finalize clinical study report for HERIZON-BTC-01; and
no material disruption to clinical drug supply of zanidatamab for any
studies being conducted by BeiGene.
Presentation of data.
Support of BeiGene’s interactions with regulatory authorities.
10% for base goals;
an additional 5%
for stretch goals
10.0%
Zanidatamab
Zovodotin (ZW49)
Advance clinical trials of zanidatamab zovodotin, including:
advancement of Phase 2 NSCLC trial; and
no material disruption to clinical drug supply of zanidatamab zovodotin
for clinical trials.
•
•
10% for base goals;
an additional 5%
for stretch goals
7.0%
Successful interactions with U.S. and non-U.S. regulators.
Presentation of data.
Negotiation of collaboration agreements.
Early R&D
(ZW171, ZW191 and
emerging pipeline)
Complete IND enabling studies for ZW171 and ZW191.
Complete GMP manufacturing of ZW171 and ZW191 to support clinical supplies
requirements.
Select second Topo1-based ADC IND molecule and fourth IND development
candidate.
Successful interactions with U.S. and non-U.S. regulators.
Presentation of data.
Revenue from upfront, research option and development payments.
Platform & Legacy
Goals relating to our collaboration agreements.
Improve Zymeworks’ financial position, including securing additional financing,
and a related stretch goal.
Financial
Total
40% for base goals;
an additional 20%
for stretch goals
45.0%
5% for base goals;
an additional 2.5%
for stretch goals
10% for base goals;
an additional 5%
for stretch goals
100% for base
goals; bonuses
capped at 150%
0%
7.0%
87.25%
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Given the Company’s strong performance against its 2023 corporate goals, the compensation committee determined that these goals were achieved at the
87.25% level and approved 2023 bonuses for our named executive officers as follows:
Name and Principal Position
Kenneth Galbraith, Chief Executive Officer, President and Chair of Board of Directors
Christopher Astle, Senior Vice President and Chief Financial Officer
Paul Moore, Chief Scientific Officer
Neil Klompas, Former President and Chief Operating Officer
(2)
2023 Bonus
(1)
$327,188
$125,204
$182,571
—
________________________
(1) Bonus amounts for all named executive officers are determined in U.S. dollars, and the table above reflects this determination in U.S. dollars. However, the 2023
bonuses for Dr. Astle and Dr. Moore were paid in Canadian dollars and the 2023 bonus for Mr. Galbraith was paid in British pounds, based on conversion rates in effect at
the time of payment.
(2) Mr. Klompas resigned from the positions of President and Chief Operating Officer effective June 2023, and therefore did not receive a bonus with respect to 2023.
Long-Term Incentives
Our Amended and Restated Stock Option and Equity Compensation Plan (the “Equity Compensation Plan”) authorizes us to make grants to eligible
recipients of stock options, restricted stock, restricted stock units and other share-based awards, to attract, retain, motivate and reward qualified directors
and employees and to enable and encourage such directors and employees to acquire shares of common stock as long-term investments.
In January 2023, the Company granted a mix of stock options and restricted stock units to our named executive officers. The compensation committee
believes this approach aligns the interests of our executives (including those of our named executive officers) with our stockholders’ interests by rewarding
for improvements in stock price over a period of time. The Company issues stock options and restricted stock units to reward for future performance and
appreciation. Because stock options only have value if our stock price increases relative to the stock option’s exercise price, we consider them to be an
important performance-based tool that encourages our named executive officers to focus on driving increases to stockholder value. Restricted stock units
play an important role in our executive compensation program because they provide some value even during periods of stock price or market volatilities,
provide retention incentives during the vesting period, and reinforce a culture of ownership. By granting restricted stock units, the Company can also
reduce the dilutive effect of the equity incentive awards in the form of stock options, which benefits our stockholders over time. In addition, the vesting
feature of our stock awards contributes to executive retention by providing an incentive to our executives to remain employed by us during the vesting
period. For 2023, we determined that annual grants to our named executive officers in the form of a 50/50 value mix of stock options and restricted stock
units was most appropriate to reflect the continued change in the market and the evolution of our compensation program away from an options-only
approach. The compensation committee evaluates the long-term incentive programs for each year, and the appropriate mix of equity awards to grant to our
executive officers for the applicable year. In future years, the compensation committee may approve a different mix of equity awards if it determines
necessary or appropriate to achieve our compensation objectives.
The option exercise price may not be less than the closing price of our common stock on the date of grant. For the 2023 stock option grants to our named
executive officers, 25% of the granted options is scheduled to vest on the first anniversary of grant date (subject to continued service and any applicable
acceleration of vesting provisions in their employment agreements, as described below). On the last day of each month thereafter, a further 1/36 of the
total number of remaining granted options is scheduled to vest.
th
Each restricted stock unit represents the right to receive one share of our common stock upon vesting of that unit, without the payment of an exercise price
or other cash consideration for the issued shares of common stock. For the 2023 restricted stock unit grants to our named executive officers, 1/3 of the
restricted stock units are scheduled to vest on each anniversary of the grant date (subject to the named executive officer’s continued service and subject to
any applicable acceleration provisions in the Equity Compensation Plan or in the named executive officer’s employment agreement.
rd
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The following table shows information regarding stock option and restricted stock unit grants to each of our named executive officers made during the year
ended December 31, 2023:
Name
Grant Date
Restricted Stock
Units Granted
(#)
(1)
Stock Options
Granted
(#)
(2)
Exercise Price of
Stock Options
($/Sh)
(3)
Grant Date Fair Value
of Stock and Option
Awards ($)
(4)
Kenneth Galbraith
Christopher Astle
Paul Moore
Neil Klompas
1/5/2023
1/5/2023
1/5/2023
1/5/2023
1/5/2023
1/5/2023
1/5/2023
1/5/2023
—
143,000
—
31,500
—
51,500
—
58,500
215,000
—
47,000
—
77,500
—
87,500
—
8.00
—
8.00
—
8.00
—
8.00
—
1,194,627
1,144,000
257,602
252,000
397,571
412,000
328,363
468,000
________________________
(1) Restricted stock units vest in three equal annual installments beginning on January 5, 2024, subject to the optionee’s continued service through each vesting date and any
applicable acceleration of vesting provisions described under the section below entitled “Executive Employment Arrangements and Potential Payments upon Termination or
Change in Control.”
(2) Options vest and become exercisable with respect to (i) 25% of the underlying shares one year after the grant date and (ii) the remainder of the underlying shares in 36
equal monthly installments following the first anniversary of the date of grant, subject to the optionee’s continued service through each vesting date and any applicable
acceleration of vesting provisions described under the section below entitled “Executive Employment Arrangements and Potential Payments upon Termination or Change in
Control.”
(3) The exercise price of the stock options is the closing price of the Company’s stock on the Nasdaq on the grant date.
(4) The amounts set forth in this column reflect the grant date fair value for restricted stock unit awards and stock option awards computed in accordance with Financial
Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 to the “Notes to Consolidated Financial
Statements – Summary of Significant Accounting Policies – Stock-Based Compensation” and Note 10(e) “Notes to Consolidated Financial Statements – Stockholders’
Equity-Stock Based Compensation” included in this Annual Report on Form 10-K for our year ended December 31, 2023.
Previous grants are taken into account when considering new option and restricted stock unit grants, as well as other factors such as market data, retention
and incentive considerations, internal equity, Company performance and prior and expected future individual contributions. Decisions regarding long-term
incentives do not affect decisions regarding other components of compensation.
Benefits and Perquisites
Other compensation to our named executive officers primarily consists of participation in our broad-based employee benefit plans. Named executive
officers are eligible to participate in all our employee benefit plans, in each case on the same basis as other employees in the entity in which they are
employed, including a retirement savings plan for those employed in Canada, a 401(k) plan for those employed in the United States, and pension plans for
those employed in Ireland and the United Kingdom. Our named executive officers also are eligible to participate in our employee stock purchase plan on
the same terms as our other eligible employees.
Currently, we do not view perquisites or other personal benefits as a material component of our executive compensation program. However, we do provide
certain perquisites to our named executive officers in situations where we believe it is appropriate to assist an individual in the performance of his or her
duties, to make them more efficient and effective, and for recruitment and retention purposes.
In addition, consistent with our philosophy regarding personal benefits, and as further described in “Executive Compensation—Executive Employment
Arrangements and Potential Payments upon Termination or Change in Control,” to encourage and facilitate Dr. Moore’s relocation to Canada, we provide
him with certain reimbursements for relocation expenses, as well as a gross-up to make sure such payments are tax neutral to him, tax equalization
payments to neutralize any increase in his taxes as a result of his relocation, and tax preparation assistance for two years following his relocation. The
compensation committee believes these benefits were appropriate to enable a smooth relocation for Dr. Moore and to allow him to keep his focus on the
business rather than on the costs and burdens of the relocation.
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Similarly, in November 2022, we amended Dr. Astle’s employment agreement to provide certain corporate housing benefits based on need (as determined
in the Company’s discretion) in the Vancouver, British Columbia metropolitan area. In addition to the corporate housing benefits, we provided for a gross-
up to Dr. Astle for the impact of any tax withholding related to the corporate housing benefits. The compensation committee believes that these corporate
housing benefits were important to allow Dr. Astle to be on-site at our offices in Vancouver as needed, increase his ability to work efficiently, and focus his
efforts on the business rather than travel and housing considerations.
We also provide certain personal benefits to Mr. Galbraith, which were negotiated as part of Mr. Galbraith’s initial January 2022 employment agreement
and subsequent amendments, including the most recent amendment in January 2024. These benefits were provided in order to induce him to initially join
and later to remain with the Company and to increase his ability to work efficiently. These benefits include certain housing, travel, relocation, and certain
tax equalization and gross-up benefits, as described in “Executive Compensation – Executive Employment Arrangements and Potential Payments upon
Termination or Change in Control.” In late 2022 and again in January 2024, we amended Mr. Galbraith’s employment agreement to extend the time period
for certain benefits, as described in “Executive Compensation – Executive Employment Arrangements and Potential Payments upon Termination or Change
in Control.” The compensation committee approved the extension of these benefits as it believed that doing so would assist Mr. Galbraith in the continued
performance of his duties and continue to aid in his efficiency.
In the future, we may continue to provide perquisites or other personal benefits in circumstances where we believe it is appropriate to assist an individual
named executive officer in the performance of his or her duties, to make him or her more efficient and effective, and for recruitment, motivation or
retention purposes.
Anti-Hedging Policy and Clawback Policy
Under the terms of our Insider Trading Policy, all directors, officers, employees, as well as any other personnel that we determine should be subject to our
Insider Trading Policy (such as contractors and consultants), any person or entity an insider controls, exercises substantial influence over, serves as a trustee
or in a similar fiduciary capacity of or is otherwise involved with, in connection with securities trading or investment decisions and an insider’s spouse,
partner, parents, children, dependents and other family members or roommates, are prohibited from purchasing financial instruments (including, for greater
certainty, prepaid variable forward contracts, equity swaps, collars, or units of exchange funds) designed to hedge or offset a decrease in the market value
of our securities.
In November 2023, we adopted a clawback policy in accordance with the SEC and Nasdaq requirements under the Dodd-Frank Wall Street Reform and
Consumer Protection Act. This policy provides for the non-discretionary recovery of excess incentive-based compensation from current and former
executive officers in the event of an accounting restatement, whether or not the executive officer was at fault for the restatement, in accordance with the
SEC and Nasdaq requirements.
In addition, as a public company subject to Section 304 of the Sarbanes-Oxley Act of 2002, if we are required to prepare an accounting restatement due to
our material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws, our chief executive officer and
chief financial officer may be legally required to reimburse us for any bonus or incentive-based or equity-based compensation they received from us during
the 12-month period following the first public issuance or filing with the SEC of the financial document incorporating such financial reporting requirement,
as well as profits realized from the sale of securities during that 12-month period.
Potential Payments upon Termination or Change in Control
Certain of our executives, including each of our named executive officers who remain current employees, are parties to employment agreements with us
which set forth conditions of employment and the payments that will be made upon termination of their employment. Additional discussion of the
employment agreements with our named executive officers is set forth below under “Executive Compensation—Executive Employment Arrangements and
Potential Payments upon Termination or Change in Control.” We believe that these protections are necessary to provide our valuable named executive
officers with incentives to forego other employment opportunities and to maintain continued focus and dedication to their responsibilities to maximize
stockholder value, including if there is a potential transaction that could involve a change in control, without undue concern that the officer will be
terminated and lose his or her income and benefits. We believe the level of severance and change in control benefits provided is appropriate and is
necessary to attract and retain key employees.
In May 2023, in connection with Mr. Klompas’ cessation of employment with Zymeworks, we and Mr. Klompas entered into a separation agreement that
provided for certain severance payments and benefits to Mr. Klompas in consideration for a release of
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claims in favor of us, effective June 2023. We believe that this separation arrangement was appropriate in light of Mr. Klompas’ past (and expected future)
contributions to Zymeworks, and generally believe it is favorable to us to obtain a release of claims even in the event of a mutual agreement to separate
from employment. We also entered into a consulting service agreement with Mr. Klompas pursuant to which he assists us with certain transitional matters.
We entered into the consulting service agreement in order to provide a smooth transition of Mr. Klompas’ duties and responsibilities and to allow us to
benefit from his ongoing input and expertise on certain matters. Additional discussion of these arrangements is set forth below under “Executive
Compensation—Executive Employment Arrangements and Potential Payments upon Termination or Change in Control.”
Summary Compensation Table
The following table presents the compensation awarded to, earned by or paid to each of our named executive officers for the years ended December 31,
2023 and December 31, 2022. We do not have non-qualified deferred compensation.
Name and Principal Position
Kenneth Galbraith, Chair,
President & CEO
(4)
Christopher Astle, SVP &
CFO
(7)
(10)
Paul Moore, CSO
Neil Klompas, Former President
& COO
(12)
Year
2023
2022
2023
2022
2023
2023
2022
Salary
(1)
($)
Stock Awards
($)
(2)
Option Awards
($)
(2)
625,452
582,481
410,093
358,749
465,784
321,568
503,795
(13)
(15)
1,144,000
879,000
252,000
—
412,000
468,000
—
1,194,627
5,044,999
257,602
593,772
397,571
328,363
950,036
Non-Equity
Incentive Plan
Compensation
(1)(3)
($)
All Other
Compensation
($)
(1)
321,651
537,728
124,895
203,048
182,120
—
330,699
89,146
81,249
147,230
159,436
224,762
1,007,801
23,878
(5)
(6)
(8)
(9)
(11)
(14)
(16)
Total ($)
3,374,876
7,125,457
1,191,820
1,315,005
1,682,237
2,125,732
1,808,408
________________________
(1) Salary, non-equity incentive plan compensation (bonuses) and amounts in the “All Other Compensation” column for all named executive officers are determined in U.S.
dollars. However, 2023 and 2022 cash compensation amounts for Mr. Klompas and Dr. Astle, and a portion of 2023 cash compensation amounts for Dr. Moore, were paid in
Canadian dollars and have been converted to U.S. dollars for the purposes of the table. For 2023 and 2022, the U.S. dollar per Canadian dollar exchange rates used for such
conversions were 0.7410 and 0.7685, which were the average annual Bank of Canada exchange rates for 2023 and 2022, respectively. Cash compensation amounts for Mr.
Galbraith were paid in British pounds and have been converted to U.S. dollars for the purposes of the table. For 2023 and 2022 the U.S. dollar per British pound exchange
rate used for such conversion were 1.2437 and 1.2354, which were the average annual Bank of Canada exchange rate for 2023 and 2022, respectively.
(2) The amounts set forth in these columns reflect the aggregate grant date fair value for restricted stock unit awards and option awards computed in accordance with
Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 to the “Notes to Consolidated
Financial Statements – Summary of Significant Accounting Policies – Stock-Based Compensation” and Note 10(e) “Notes to Consolidated Financial Statements –
Shareholders’ Equity – Stock Based Compensation” included in this Annual Report on Form 10-K for our year ended December 31, 2023.
(3)The amounts reflect the dollar value of incentive bonuses paid in 2024 and 2023 for performance during 2023 and 2022, respectively, as discussed further above under
“Executive Compensation – Components of Compensation Package – Cash Bonus.”
(4) Mr. Galbraith has served as our Chief Executive Officer and Chair of our board of directors since January 2022. In addition, Mr. Galbraith has served as our President
since June 2023 and previously served as our President from January 2022 to August 2022.
(5) Of the total amount for 2023, (i) $53,260 represents accommodation benefits, (ii) $6,547 represents Company contributions to a defined contribution pension plan, (iii)
$746 represents life insurance premiums through our group extended benefit plan, (iv) $17,593 represents airfare for immediate family members in accordance with the
terms of Mr. Galbraith’s employment agreement, and (v) $11,000 represents an estimated tax equalization payment (which includes $6,000 for estimated tax gross-up) in
connection with taxation attributable to the performance of work outside the United Kingdom.
(6) Of the total amount for 2022, (i) $45,724 represents accommodation benefits, (ii) $20,263 represents Company contributions to a defined contribution pension plan, (iii)
$2,158 represents life insurance premiums through our group extended benefit plan, and (iv) $13,104 represents airfare for immediate family members in accordance with
the terms of Mr. Galbraith’s employment agreement.
(7) Dr. Astle joined Zymeworks in April 2021 as Executive Director, Corporate and Commercial Finance and was promoted to Senior Vice President and Chief Financial
Officer in February 2022.
(8) Of the total amount for 2023, (i) $131,229 represents accommodation benefits (which includes $61,021 for tax gross-up), (ii) $13,289 represents Company contributions
to our registered retirement savings plan, and (iii) $2,712 represents life insurance premiums through our group extended benefit plan.
(9) Of the total amount for 2022, (i) $136,960 represents accommodation benefits (which includes $63,686 for tax gross-up), (ii) $21,525 represents Company contributions
to our registered retirement savings plan, and (iii) $951 represents life insurance premiums through our group extended benefit plan.
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(10) Dr. Moore has served as our Chief Scientific Officer since July 2022. Dr. Moore was not a named executive officer in 2022. As such, Dr. Moore’s compensation for
2022 is not included in the table above.
(11) Of the total amount for 2023, (i) $41,496 represents accommodation benefits, (ii) $163,115 represents relocation expenses (which includes $77,334 for tax gross-up),
(iii) $19,800 represents Company contributions to our 401(k) plan, and (iv) $351 represents life insurance premiums through our group extended benefit plan.
(12) Mr. Klompas served as our Chief Operating Officer and Chief Financial Officer until February 2022, as our Chief Operating Officer from February 2022 until August
2022, and as our President and Chief Operating Officer from August 2022 to June 2023.
(13) Included in the total amount for 2023 is $54,942 which represents payment of accrued vacation.
(14) Of the total amount for 2023, (i) $990,970 represents severance payments and benefits under a separation agreement, (ii) $15,998 represents Company contributions to
our registered retirement savings plan and, (iii) $833 represents life insurance premiums through our group extended benefit plan.
(15) Included in the total amount for 2022 is $47,624 which represents payment of accrued vacation.
(16) Of the total amount for 2022, (i) $23,004 represents Company contributions to our registered retirement savings plan and (ii) $874 represents life insurance premiums
through our group extended benefit plan.
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Outstanding Equity Awards at 2023 Year End
The following table lists all outstanding equity awards granted in Canadian dollars under our Second Amended and Restated Stock Option Plan, as
amended (the “Original Plan”) and equity awards granted in U.S. dollars under the Equity Compensation Plan and our Inducement Stock Option and
Equity Compensation Plan (the “Inducement Plan”) held by our named executive officers as of December 31, 2023:
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
Number of
Securities
Underlying
Unexercised Options
(#)
Unexercisable
(1)
Option
Exercise Price
($)
Option
Expiration
Date
Number of
Shares or Units
of Stock That
Have Not
Vested
(2)
(#)
Market Value of
Shares or Units
of Stock That
Have Not Vested
(2)(3)
($)
Name
Grant Date
Kenneth Galbraith
Christopher Astle
Paul Moore
Neil Klompas
1/15/2022
1/5/2023
12/22/2022
1/5/2023
5/17/2021
3/10/2022
1/5/2023
1/5/2023
7/18/2022
1/5/2023
1/5/2023
1/1/2015
1/29/2016
2/3/2017
6/12/2017
3/19/2018
1/8/2019
3/27/2019
3/10/2020
3/10/2021
3/10/2022
1/5/2023
3/10/2021
1/5/2023
250,000
—
—
—
11,500
57,292
—
—
75,000
—
—
23,464
125,700
35,615
85,000
75,000
90,000
15,000
43,125
34,531
91,667
—
—
—
250,000
215,000
—
—
5,750
67,708
47,000
—
125,000
77,500
—
—
—
—
—
—
—
—
1,875
14,219
108,333
87,500
—
—
14.97
8.00
—
—
(5)
26.68
7.00
8.00
—
5.82
8.00
0.00
10.70
8.97
16.75
9.82
11.84
15.53
15.23
35.20
34.82
7.00
8.00
—
—
1/14/2023
1/4/2033
—
—
5/16/2031
3/9/2022
1/4/2033
—
7/17/2032
1/4/2033
—
1/1/2025
1/29/2026
2/3/2027
6/12/2027
3/18/2028
1/7/2029
3/26/2029
3/9/2030
3/9/2031
3/9/2032
1/4/2033
—
—
—
—
(4)
100,000
143,000
—
—
—
31,500
—
—
51,500
—
—
—
—
—
—
—
—
—
—
—
2,709
58,500
—
—
1,039,000
1,485,770
—
—
—
327,285
—
—
535,085
—
—
—
—
—
—
—
—
—
—
—
28,147
607,815
________________________
(1) Options vest and become exercisable with respect to (i) 25% of the underlying shares one year after the grant date and (ii) the remainder of the underlying shares in 36
equal monthly installments following the first anniversary of the date of grant, subject to the optionee’s continued service through each vesting date and any applicable
acceleration of vesting provisions described under the section below entitled “Executive Employment Arrangements and Potential Payments upon Termination or Change in
Control.”
(2) Unless otherwise noted, restricted stock units vest in three equal annual installments on each of the first, second, and third anniversaries of the date of grant, subject to
the holder’s continued service through each vesting date and any applicable acceleration of vesting provisions described under the section below entitled “Executive
Employment Arrangements and Potential Payments upon Termination or Change in Control.”
(3) Market value of restricted stock units that have not vested is based on the closing price of the Company’s common shares on Nasdaq on December 29, 2023, which was
$10.39 per share.
(4) These restricted stock units vest on the third anniversary of the date of grant, subject to the holder’s continued service. Pursuant to the terms of Mr. Galbraith’s grant
agreement with respect to these restricted stock units, (i) if Mr. Galbraith’s employment is terminated by the Company without cause, 100% of the restricted stock units will
fully vest, and (ii) if on or within twelve months following a change of control (as defined in Mr. Galbraith’s employment agreement) or within three months prior to a
change of control, Mr. Galbraith’s employment with the Company terminates due to his resignation for good reason, 100% of the restricted stock units will fully vest, in
each case of (i) and (ii) subject to Mr. Galbraith having entered into a valid and enforceable settlement agreement with the Company on terms satisfactory to the
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Company. These restricted stock units also are subject to the applicable acceleration of vesting provisions described for Mr. Galbraith under the section below entitled
“Executive Employment Arrangements and Potential Payments upon Termination or Change in Control.”
(5) These options were granted with exercise prices denominated in Canadian dollars. The U.S. dollar per Canadian dollar exchange rate used to convert option exercise
price to U.S. dollars was 0.7410, which was the average annual Bank of Canada exchange rate for 2023.
Pension Benefits
We do not have any qualified or non-qualified defined benefit pension plans.
Non-qualified Deferred Compensation
We do not have any non-qualified defined contribution plans or other deferred compensation plans.
Executive Employment Arrangements and Potential Payments upon Termination or Change in Control
Executive Employment Arrangements
Key provisions of the employment agreements that were in effect as of December 31, 2023, for our named executive officers are described below.
Kenneth Galbraith. In connection with Mr. Galbraith’s appointment as President and Chief Executive Officer in January 2022, Mr. Galbraith entered into an
employment agreement with us (the “Original Agreement”), on December 30, 2022 Zymeworks BC and Zymeworks Management Inc., our subsidiaries,
and Mr. Galbraith entered into an amendment to the Original Agreement (the “First Amendment”), and on January 3, 2024, Zymeworks BC and Mr.
Galbraith entered into a second amendment (the “Second Amendment” and the Original Agreement, as amended by the First Amendment and the Second
Amendment, the “Galbraith Employment Agreement”). The Galbraith Employment Agreement does not have a specific term. The Second Amendment
established Mr. Galbraith’s principal place of employment as the United Kingdom, or another location as agreed upon between the parties, which removes
the requirement for Mr. Galbraith to relocate to Vancouver, British Columbia or Seattle, Washington, and incorporated certain extensions of compensation
and benefit provisions, as described below.
Pursuant to the Galbraith Employment Agreement, Mr. Galbraith is entitled to the following compensation and benefits:
• An annual base salary of $600,000, with eligibility to earn an annual discretionary bonus of up to 60% of his annual base salary, based upon the
achievement of certain Company goals determined by the board of directors. Mr. Galbraith’s current annual base salary is $655,000 and his target
annual discretionary bonus remains at 60% of his annual base salary;
• Options, which were granted to Mr. Galbraith in 2022, to purchase 500,000 of our common shares at an exercise price per share equal to the fair
market value on the date of grant (the “Inducement Options”). 25% of the Inducement Options vest and become exercisable on the one-year
anniversary of the date of grant, and thereafter 1/36th of the remaining Inducement Options will vest on the last day of each month, until all of the
Inducement Options have vested, subject to Mr. Galbraith’s continued service;
•
•
•
Eligibility to participate in our employee benefit plans, policies and arrangements that, in the aggregate, are reasonably consistent with other
executive officers generally, as well as reimbursement for certain fees and costs related to membership in certain professional associations and
professional development;
Enrollment in a qualifying pension scheme under the UK Pensions Act 2008;
Prior to the Second Amendment, the Galbraith Employment Agreement provided for reimbursement of relocation expenses up to a maximum
gross amount of $300,000, grossed up for the impact of any tax withholding, for reasonable moving expenses incurred by Mr. Galbraith and his
immediate family during relocation from Mr. Galbraith’s primary residence to Vancouver, British Columbia or Seattle, Washington if he relocated
on or before July 15, 2024 (under the Original Agreement, this related to a relocation within the first eighteen months of employment), with the
total amount reimbursed under this provision required to be repaid if Mr. Galbraith’s employment had terminated within three years (two years
under the Original Agreement) following the effective date of employment. The Second Amendment removed the requirement to relocate, and
deleted this provision regarding relocation expenses;
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•
•
Temporary housing for Mr. Galbraith in Vancouver, British Columbia, grossed up for the impact of any tax withholding. The First Amendment
had provided for this benefit through the earlier of Mr. Galbraith’s relocation or July 15, 2024, and under the Original Agreement, this was through
the earlier of Mr. Galbraith’s relocation or the date that is 18 months following the effective date of employment;
Reimbursement of reasonable travel and living expenses when traveling from his home to Vancouver, British Columbia or Seattle, Washington for
his employment duties, as well as reimbursement or Company payment for reasonable airfare and lodging expenses for Mr. Galbraith and his
immediate family for one trip per calendar year to Vancouver, British Columbia or Seattle, Washington, as applicable (under the Original
Agreement, this related to trips that occurred prior to the end of 2023 under the Original Agreement, and under the First Amendment, to trips that
occurred prior to the end of 2024);
• A tax equalization payment if Mr. Galbraith is subject to income taxation or other taxation outside of the United Kingdom during the period of his
employment, grossed up for the impact of any tax withholding, and tax preparation services;
•
•
•
•
If we terminate Mr. Galbraith’s employment during his first three years of employment, then Mr. Galbraith will be eligible to receive twelve
months of notice or the equivalent of twelve months of base salary as of the date notice is given, or any combination thereof that totals twelve
months of combined notice and base salary. Commencing in the fourth year of his employment, if we terminate Mr. Galbraith’s employment, Mr.
Galbraith will be eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date notice is given,
or any combination thereof, for each additional completed year of service, up to a total maximum of eighteen months. Mr. Galbraith will also be
eligible for continuation of group health and dental benefits through the applicable notice period to the extent permitted by any applicable benefit
plan;
In the event of termination on death or disability, as defined in our long-term disability plan or policy then in effect with respect to him, Mr.
Galbraith, or his estate, will receive (x) a lump sum payment equal to the difference between (1) eighteen months of base salary plus target annual
cash bonus as of the date of death or disability and (2) the amount that Mr. Galbraith or his estate will receive as a result of death or disability
under our applicable insurance policies in effect as of the date of termination, (y) group extended health and dental benefits continuation for his
surviving family members for eighteen months (or lump sum payment for the premium costs of such benefits in lieu thereof), and (z) full vesting
acceleration of all unvested and outstanding stock options or other equity grants made to Mr. Galbraith as of the date of death or disability;
If Mr. Galbraith’s employment is terminated by us without cause on or within twelve months following, or within three months prior to, a change
of control (as defined in the Galbraith Employment Agreement), Mr. Galbraith will be eligible to receive (x) a lump sum payment of eighteen
months of base salary and 100% of target annual cash bonus as of the date of termination, (y) group extended health and dental benefits
continuation as of the date of termination for eighteen months (or lump sum payment for the premium costs of such benefit plans in lieu thereof)
and (z) full vesting acceleration of all unvested and outstanding stock options or other equity grants as of the date of termination. Such payments
will be subject to Mr. Galbraith entering into a valid settlement agreement with us; and
In addition, the Galbraith Employment Agreement requires Mr. Galbraith, among other things, not to compete, either directly or indirectly, with us
while employed by us and for up to six months following the termination of his employment with us. The Galbraith Employment Agreement also
requires Mr. Galbraith not to solicit our employees or consultants to terminate their relationship with us while he is employed by us and for up to
one year following the termination of his employment with us.
On August 4, 2022, Mr. Galbraith ceased to serve in the role of our President, which role was then assumed by Mr. Klompas, and Mr. Galbraith continued
in the role of Chair of the Board of Directors and Chief Executive Officer. Effective upon Mr. Klompas’ departure in June 2023, Mr. Galbraith was re-
appointed as our President. The compensatory and other material terms of Mr. Galbraith’s employment with us were unchanged in connection with his re-
appointment as our President.
Neil Klompas. On August 4, 2022, the board of directors appointed Mr. Klompas as our President, effective August 4, 2022. Mr. Klompas continued in the
role of Chief Operating Officer following his appointment our President. The compensatory and other material terms of Mr. Klompas’ employment with us,
described below, were unchanged in connection with his appointment as President. Effective June 30, 2023, Mr. Klompas stepped down as our President
and Chief Operating Officer and separated from employment. In May 2023, in anticipation of Mr. Klompas’ departure, Zymeworks BC and Mr. Klompas
entered into a separation agreement and release (the “Klompas Separation Agreement”) providing for certain benefits, including:
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• A lump sum payment of $1,000,000, equivalent to twenty-four (24) months of his then-current base salary, which payment was subject to Mr.
Klompas not being terminated for cause prior to the June 30, 2023 (Mr. Klompas was not terminated for cause prior to such date and therefore
became entitled to this payment). Mr. Klompas was not eligible for any annual performance bonus with respect to our 2023 fiscal year;
•
•
•
Eligibility for Mr. Klompas and his spouse to participate in our employee benefit plans for the lesser of (a) twenty-four (24) months following
June 30, 2023 and (b) the date of enrollment in the benefit plans of a new employer;
Payments of $7,500 for professional development and continuing educational courses and $2,500 for legal fees incurred in the review of the
Klompas Separation Agreement, and reimbursement for laptop and provision of related peripherals;
Entry into a consulting services agreement (the “Klompas Consulting Agreement”), whereby Mr. Klompas will assist with certain transitional
matters at the request and direction of Zymeworks BC on an as needed basis. The Klompas Consulting Agreement became effective on June 30,
2023 and is scheduled to expire on June 30, 2025. Mr. Klompas will be entitled to continued vesting and exercise benefits for outstanding stock
options and restricted stock units under our equity incentive plans for the duration of the Klompas Consulting Agreement as well as certain cash
payments at a rate of $300/hour for any services provided in excess of five hours per week. If a change of control (as such term is defined in the
Equity Compensation Plan) had occurred prior to the expiration or earlier termination of the Klompas Consulting Agreement, any unvested
options and restricted stock units held by Mr. Klompas immediately prior to such change of control that would have vested on or prior to June 30,
2025 had Mr. Klompas remained as a service provider through such date, would have been accelerated such that they would have been vested as
of immediately prior to and contingent upon such change of control. Following the termination of the Klompas Consulting Agreement, and
provided that Mr. Klompas (i) had not been terminated for cause prior to June 30, 2023 (Mr. Klompas was not terminated for cause prior to such
date) and (ii) timely executed a supplemental release agreement, Mr. Klompas will have the period from the termination of the Klompas
Consulting Agreement to June 30, 2026 to exercise any vested Company stock options, subject to any such options’ earlier expiration during such
period; and
•
Reimbursement for all reasonable and documented business expenses actually and properly incurred in relation to Zymeworks BC’s and our
business up to June 30, 2023.
In addition to providing a release of claims in favor of the Company, the Klompas Separation Agreement reaffirmed Mr. Klompas’ agreement to be bound
by the confidentiality provisions and the restrictive covenants of his employment agreement, which include a requirement that Mr. Klompas not solicit our
employees to terminate their relationship with us while he is employed by us and for up to one year following the termination of his employment with us,
and a requirement, modified by the Klompas Separation Agreement, that he will not compete with us, while employed by us and for up to six months
following the termination of his employment, either directly or indirectly, with respect to certain aspects of our business with which he was materially
involved in the last 12 months of his employment with us.
Prior to Mr. Klompas’ separation from employment with us, Mr. Klompas was subject to an employment agreement with us, which had been entered into
with him on January 25, 2007 and amended from time to time, as well as to the later Klompas Promotion Letter, described below.
The 2007 employment agreement with Mr. Klompas had set forth the initial terms and conditions of his employment and had provided for his initial base
salary and initial equity award, and which included, among other things, provisions regarding confidentiality, ownership of developments, non-competition
and non-solicitation, as well as eligibility for our incentive plans, reimbursements for certain professional association memberships and professional
development fees and costs, and the ability to participate in generally available benefits. This agreement was amended on October 23, 2007, and January 1,
2014. On January 17, 2017, we entered into an amended and restated employment agreement with Mr. Klompas that superseded and replaced the January
2007 agreement, as amended, and set forth revised termination and change of control provisions. Under the revised not-for-cause termination severance
provisions, during the first three years of employment, Mr. Klompas was entitled to 12 months of written notice or payment in lieu of notice equal to 12
months of his base salary and continuation of benefits for 12 months, or any combination thereof. Commencing in the fourth year of employment, Mr.
Klompas was entitled to an additional one month’s notice, or the equivalent base salary and continuation of benefits, or any combination thereof, for each
additional completed year of service, up to a total maximum of 18 months. If Mr. Klompas were terminated without cause within 12 months following a
change of control, he would have received severance equal to 18 months of his base salary, continuation of benefits for 18 months and full vesting
acceleration of all unvested stock options or other equity grants made as at that date. Any severance payments payable under the agreement in excess of any
minimum required by certain applicable laws were conditional upon Mr. Klompas’ release of claims against us.
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In connection with Mr. Klompas’ appointment as Chief Operating Officer in January 2022, we provided Mr. Klompas with a promotion letter (the
“Klompas Promotion Letter”), which reflected increases to his then-current base salary and annual bonus opportunity. In January 2023, Mr. Klompas’ base
salary was increased to $500,000, which increase was given retroactive effect to August 4, 2022 in connection with his appointment as President, and his
annual target bonus remained at 45% of his base salary.
Christopher Astle. In connection with Dr. Christopher Astle’s appointment as Senior Vice President and Chief Financial Officer, we entered into an
amended and restated employment agreement with Dr. Astle effective as of February 24, 2022 (the “Astle Employment Agreement”). The Astle
Employment Agreement does not have a specific term.
Pursuant to the Astle Employment Agreement, Dr. Astle is entitled to the following compensation and benefits:
• An annual base salary of $375,000, with eligibility to earn an annual discretionary bonus of up to 35% of his annual base salary, based upon the
achievement of certain Company goals determined by the board of directors. Dr. Astle’s current annual base salary is $425,000 and his target
annual discretionary bonus for 2024 has been set at 40% of his annual base salary;
• Options, which were granted to Dr. Astle in 2022, to purchase 125,000 of our common shares at an exercise price per share equal to the fair
market value on the date of grant. The options were granted under the Equity Compensation Plan. 25% of the options will vest and become
exercisable on the one-year anniversary of the date of grant, and thereafter 1/36 of the remaining options will vest on the last day of each month,
until all of the options have vested, subject to Dr. Astle’s continued service;
th
•
•
•
•
Eligibility to participate in our employee benefit plans, policies and arrangements, as well as reimbursement for certain fees and costs related to
membership in certain professional associations and professional development;
If we terminate Dr. Astle’s employment without cause prior to April 1, 2024, then Dr. Astle will be eligible to receive twelve months of notice or
the equivalent of twelve months of base salary as of the date notice is given, or any combination thereof that totals twelve months of combined
notice and base salary. Commencing in the fourth year of his employment, if we terminate Dr. Astle’s employment without cause, Dr. Astle will be
eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date notice is given, or any
combination thereof, for each additional completed year of service after April 1, 2024, up to a total maximum of eighteen months. Dr. Astle will
also be eligible for continuation of group health and dental benefits through the applicable notice period to the extent permitted by any applicable
benefit plan. Such payments will be subject to Dr. Astle entering into a valid settlement agreement with us;
If Dr. Astle’s employment is terminated by us without cause on or within twelve months following a change of control (as defined in the Astle
Employment Agreement), Dr. Astle will be eligible to receive (x) eighteen months of base salary, (y) group extended health and dental benefits
continuation as of the date of termination for eighteen months and (z) full vesting acceleration of all unvested and outstanding stock options or
other equity grants as of the date of termination. Such payments will be subject to Dr. Astle entering into a valid settlement agreement with us; and
In addition, the Astle Employment Agreement requires Dr. Astle, among other things, not to compete, either directly or indirectly, with us while
employed by us and for up to six months following the termination of his employment with us. The Astle Employment Agreement also requires
Dr. Astle not to solicit our employees to terminate their relationship with us while he is employed by us and for up to one year following the
termination of his employment with us.
On November 17, 2022, we entered into an amendment with Dr. Astle to the Astle Employment Agreement. The amendment amends the Astle
Employment Agreement to provide to Dr. Astle certain corporate housing benefits based on need (as determined in our discretion) in the Vancouver, British
Columbia metropolitan area. In addition to the corporate housing benefits, the amendment provides for a gross-up to Dr. Astle for the impact of any tax
withholding related to the corporate housing benefits.
Paul Moore. On July 18, 2022, the Company and Zymeworks Biopharmaceuticals Inc., a subsidiary of the Company, entered into an employment
agreement with Dr. Moore setting forth the terms and conditions of his employment as Chief Scientific Officer of the Company (the “Initial Employment
Agreement”). In connection with Dr. Moore’s planned relocation from the United States to Canada, the Company and our subsidiary Zymeworks BC
entered into an amended and restated employment agreement with Dr. Moore (the “Moore Employment Agreement”) that supersedes and replaces the
Initial Employment Agreement. The Moore Employment Agreement does not have a stated term.
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Pursuant to the Moore Employment Agreement, Dr. Moore is entitled to the following compensation and benefits:
• An annual base salary of $465,000, with eligibility to earn an annual discretionary bonus of up to 45% of his annual base salary, based upon the
achievement of certain Company goals determined by the board of directors. Dr. Moore’s current annual base salary is $495,000 and his target
annual discretionary bonus remains at 45% of his annual base salary;
•
•
Eligibility to participate in our employee benefit plans, policies and arrangements, as well as reimbursement for certain fees and costs related to
membership in certain professional associations and professional development;
Reimbursement of relocation expenses up to a maximum of $200,000, grossed-up to offset the impact of any taxes on such payment, for
reasonable and customary moving expenses that Dr. Moore incurs within eighteen months of his July 18, 2022 start date in connection with his
relocation to the Vancouver, British Columbia metropolitan area, as contemplated in the Initial Employment Agreement.
• A tax equalization payment if Dr. Moore is subject to income taxation in Canada in a given year equal to the difference between (i) the sum of
total Canadian taxes plus any U.S. federal, state and local income taxes, that Dr. Moore is or would be obligated to pay for an applicable tax year,
and (ii) the amount of U.S. federal, state and local tax liability had Dr. Moore worked in the United States for the entire tax year. Any tax
equalization payment will be grossed-up to offset the impact of taxes on such payment.
•
•
•
•
Provision of tax preparation support or reimbursement of up to $5,000 per year for additional tax preparation expenses of Dr. Moore for a period
of two years from his July 18, 2022 start date.
If we terminate Dr. Moore’s employment without cause during his first three years of employment, then Dr. Moore will be eligible to receive
twelve months of notice or the equivalent of twelve months of base salary as of the date notice is given, or any combination thereof that totals
twelve months of combined notice and base salary. Commencing in the fourth year of his employment, if we terminate Dr. Moore’s employment
without cause, Dr. Moore will be eligible to receive an additional one month of notice or the equivalent of one month of base salary as of the date
notice is given, or any combination thereof, for each additional completed year of service, up to a total maximum of eighteen months. Dr. Moore
will also be eligible for continuation of group health and dental benefits through the applicable notice period to the extent permitted by any
applicable benefit plan; Such payments will be subject to Dr. Moore entering into a valid separation and release agreement with us;
If Dr. Moore’s employment is terminated by us without cause on or within twelve months following a change of control (as defined in the Moore
Employment Agreement), Dr. Moore will be eligible to receive as severance (x) eighteen months continued base salary following termination, (y)
group extended health and dental benefits as of the date of termination for eighteen months, and (z) full vesting acceleration of all unvested and
outstanding stock options or other equity grants as of the date of termination. Such payments will be subject to Dr. Moore entering into a valid
separation and release agreement with us; and
In addition, the Moore Employment Agreement requires Dr. Moore, among other things, not to compete, either directly or indirectly, with us while
employed by us and for up to six months following the termination of his employment with us. The Moore Employment Agreement also requires
Dr. Moore not to solicit our employees to terminate their relationship with us while he is employed by us and for up to one year following the
termination of his employment with us.
Equity Compensation Plan Information
Under our Original Plan, upon a transaction in which equity securities representing more than 66 2/3% of our common stock are sold (a “substantial sale”),
if the purchaser offers to buy out options, the options must be sold to the purchaser at a purchase price equal to (x) the price per share in the transaction
(calculated in accordance with the terms of the Original Plan) minus the exercise price per share, multiplied by (y) the number of shares then exercisable
under the option. If the option holders do not sell their options to the purchaser, such options will terminate upon completion of the substantial sale.
Under our Equity Compensation Plan and our Inducement Plan, in connection with a change of control (as defined in the applicable plan), our board of
directors or the committee to which our board of directors has delegated authority to administer the applicable plan (either, the “Administrator”) has the
right to provide for the conversion or exchange of any outstanding awards into or for options, rights or other securities in any entity participating in or
resulting from a change of control, cash or other property. If we enter into an agreement for a transaction that, if completed, would result in a change of
control, or otherwise becomes aware of a pending change of control, we will give written notice to the award holders regarding the
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potential change of control and a description of the effect of the change of control on outstanding awards at least seven (7) days prior to the closing of
change of control.
Under our Equity Compensation Plan and Inducement Plan, the Administrator may, in its discretion, accelerate the vesting and/or expiration date of any or
all outstanding awards in connection with the change of control to provide that such designated awards shall be fully vested and any options not exercised
within the specified period will be terminated after the completion of the change of control. If the change of control would also result in a capital
reorganization, arrangement, amalgamation or reclassification of our share capital (and if the vesting and expiration of the awards has not been accelerated
as contemplated by the prior sentence), upon completion of the change of control, the number and kind of shares subject to outstanding awards and, if
applicable, the exercise price per share of options shall be appropriately adjusted (including by substituting the awards for awards with respect to securities
in any successor entity to us) in such manner as the Administrator considers equitable to prevent substantial dilution or enlargement of the rights granted to
Award holders. The Administrator also may make changes to the terms of the awards or the Equity Compensation Plan or Inducement Plan to the extent
necessary or desirable to comply with any rules, regulations or policies of any stock exchange on which any of our securities may be listed, provided that
the value of previously granted awards and the rights of award holders are not materially adversely affected by any such changes. In addition, in the event
of a potential change of control, the Administrator may, in its sole discretion, modify the terms of the plan and/or the awards to assist the participants to
tender into a take-over bid or other transaction leading to a change of control, including the authority to allow participants to conditionally exercise options.
Director Compensation Table
The following table presents the compensation awarded to, earned by or paid to our directors (other than Mr. Galbraith, whose compensation is provided in
the Summary Compensation Table above) for the year ended December 31, 2023. Dr. Cesano and Mr. Platshon are not included in the table below as they
did not join the board of directors until 2024. We do not currently have director compensation in the form of share-based awards (other than stock options),
non-equity incentive plan compensation or non-qualified deferred compensation.
Name
Carlos Campoy
Troy M. Cox
Nancy Davidson
Kenneth Hillan
Susan Mahony
Derek J. Miller
(4)
Kelvin Neu
Hollings C. Renton
Natalie Sacks
Lota S. Zoth
Fees Earned or Paid
in Cash ($)
Option Awards
(1)(2)
($)
All Other
Compensation
(3)
25,875
51,077
4,333
53,788
49,072
29,480
49,703
51,245
29,391
84,845
483,094
212,754
436,683
212,754
212,754
504,121
212,754
212,754
—
—
—
—
—
—
—
—
—
—
—
(4)
21,545
Total
($)
508,969
263,831
441,016
266,542
261,826
555,146
262,457
263,999
29,391
84,845
________________________
(1) The amounts set forth in this column reflect the aggregate grant date fair value for option awards computed in accordance with Financial Accounting Standards Board
Accounting Standards Codification Topic 718, Compensation – Stock Compensation. See Note 2 to the “Notes to Consolidated Financial Statements – Summary of
Significant Accounting Policies – Stock-Based Compensation” and Note 10(e) “Notes to Consolidated Financial Statements – Stockholders’ Equity Stock- Based
Compensation” included in this Annual Report on Form 10-K for our year ended December 31, 2023.
(2) As of December 31, 2023, directors held the following number of options to purchase Company common shares: (i) Mr. Campoy, 87,000; (ii) Mr. Cox, 110,000; (iii) Dr.
Davidson, 74,000; (iv) Dr. Hillan, 121,425; (v) Dr. Mahony, 110,000; (vi) Mr. Miller, 87,000; (vii) Dr. Neu, 71,000; (viii) Mr. Renton, 121,425; (ix) Dr. Sacks, 78,140; and
(x) Ms. Zoth, 86,117.
(3) In 2023, cash compensation for non-employee directors was paid in advance for directors serving on the board of directors at the beginning of each of the first, second,
third and fourth quarters of 2023. In the fourth quarter of 2023, the board of directors changed the cash compensation approach such that, going forward, cash compensation
would be payable quarterly in arrears. As a result of this change, the amount included in this column for Dr. Davidson reflects the pro-rated cash compensation earned
during the fiscal year ended December 31, 2023 by Dr. Davidson.
(4) Mr. Miller provided consulting services to us pursuant to the Consulting Agreement (as defined below) the Company entered into with Derek J Miller Consulting LLC, a
limited liability company owned by Derek Miller in May 2022. The amounts set forth above reflect consulting fees paid to Mr. Miller for the year ended December 31, 2023.
In total, we have paid Mr. Miller an aggregate of approximately $36,000 for such consulting services, of which (i) approximately $22,000 was paid for services rendered
prior to Mr. Miller’s appointment to the board of directors and (ii) approximately $14,000 was paid for services rendered since Mr. Miller joined the board of directors. In
October
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2023, we entered into a Termination of Consulting Agreement and Further Amended and Restated Statement of Work #1 with Derek J Miller Consulting LLC, which
provided for, among other things, the termination of the Consulting Agreement effective as of November 30, 2023.
(5) Dr. Neu joined the Company’s board of directors in March 2020. Dr. Neu was an employee of Baker Bros. Advisors LP until January 2021. Pursuant to the terms of Dr.
Neu’s employment by Baker Brothers Advisors LP, the options granted to him in 2020 were, and will continue to be, beneficially owned by Baker Bros. Advisors LP.
Director Compensation
The written charter of our compensation committee provides that the compensation committee will review compensation for members of our board of
directors on at least an annual basis, taking into account their responsibilities and time commitment and information regarding the compensation paid at
peer companies. The compensation committee will make recommendations to our board of directors with respect to changes to our approach to director
compensation as it considers appropriate.
In November 2022, the compensation committee worked with Aon to update prior competitive assessments of our board of director compensation program.
Based on these findings, in November 2022, the compensation committee recommended, and the board of directors approved, the following changes to the
cash and equity compensation of non-employee directors:
•
•
•
The cash component for board of directors and committee membership was maintained at the 2022 levels, with the exception that the cash retainer
fee for service as chair of the compensation committee was increased from $10,000 to $12,000, the cash retainer fee for service as a member of the
compensation committee was increased from $5,000 to $6,000, the cash retainer fee for service as chair of the nominating and corporate
governance committee increased from $7,500 to $8,500, and the cash retainer fee for service as a member of the nominating and corporate
governance committee was increased from $3,750 to $4,250 (in each case effective January 2023);
The initial option grant for new directors, to be granted on or about the time of the director joining the board of directors, was changed from
th
40,000 to 50,000 options, with the vesting schedule remaining as 1/36 of the options vesting on each monthly anniversary of the grant date,
subject to the director’s continued service (effective November 2022); and
The annual equity grant to directors, to be granted at or about the time of our annual meeting of stockholders, was changed from 20,000 options to
25,000 options, with the vesting schedule remaining 100% of the options vesting on the date of the next year’s annual meeting of stockholders,
subject to the director’s continued service through such date (effective November 2022).
In May 2023, the board of directors approved, with input from the compensation committee and nominating and corporate governance committee, certain
amendments to our board of directors compensation program to provide for: (i) full acceleration of vesting of options granted as annual equity awards in
connection with our 2022 annual meeting of stockholders for directors departing on or after the restatement of the policy on May 24, 2023 and at or prior to
the 2023 annual meeting of stockholders, (ii) pro rata acceleration of vesting of options granted as annual equity awards in connection with the 2023 annual
meeting of stockholders for directors departing after the 2023 annual meeting of stockholders but at or before our 2024 annual meeting of stockholders,
with the pro rata acceleration determined based on the number of full or partial months served as a non-employee director on and after the 2023 annual
meeting of stockholders date, and (iii) extension of the post-termination exercise period for vested options held by departing directors to three years
following the director’s cessation of service (or, if earlier, upon the expiration of the option).
In November 2023, the compensation committees worked with Aon to again update prior competitive assessments of our board of director compensation
program. Based on these findings, in November 2023, the compensation committee recommended certain changes to the non-employee director
compensation program.
In December 2023, the board of directors approved, following its annual assessment of the director compensation program and including its consideration
of the input and recommendations from the compensation committee, the following changes to the cash and equity compensation of non-employee
directors (as amended, the “Amended and Restated Director Compensation Policy”), which changes adjust the director compensation program to more
closely align with the non-employee director compensation practices of the Company’s peer group:
•
Beginning January 1, 2024, the annual cash retainer fee for service as chair of the audit committee will be increased from $15,000 to $20,000, the
annual cash retainer fee for service as a member of the audit committee will be increased from $7,500 to $10,000, the annual cash retainer fee for
service as chair of the compensation committee will be increased from $12,000 to $15,000, the annual cash retainer fee for service as a member of
the compensation committee will be increased from $6,000 to $7,500, the annual cash retainer fee for service as chair of the nominating
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and corporate governance committee will be increased from $8,500 to $10,000, the annual cash retainer fee for service as a member of the
nominating and corporate governance committee will be increased from $4,250 to $5,000;
•
•
Effective immediately, the initial option grants for new non-employee directors, to be granted on or about the time of the director joining the board
of directors, were changed from options to purchase 50,000 shares of Company common stock to options to purchase 74,000 shares of Company
common stock, with the vesting schedule remaining as 1/36th of the shares subject to the option vesting on each monthly anniversary of the grant
date, subject to the director’s continued service; and
Effective immediately, the annual equity grant to continuing non-employee directors, to be granted at or about the time of our annual meeting of
stockholders, was changed from options to purchase 25,000 shares of Company common stock to 37,000 shares, with the vesting schedule
remaining 100% of the shares subject to the option vesting on the date of the next year’s annual meeting of stockholders, subject to the optionee’s
continued service through such date.
Following the recommendation of the compensation committee, the board of directors also determined to not implement stock ownership guidelines at this
time. No other changes to board of director compensation were made for 2023.
Cash Compensation for Directors
In 2023, we provided the below annual cash retainer fees for service on our board of directors and committees. The fees for service on committees are in
addition to the annual retainer fees for service on the board of directors.
Board of Directors:
Member
Lead Independent Director
Audit Committee:
Member
Chair
Compensation Committee:
Member
Chair
Nominating and Corporate Governance Committee:
Member
Chair
Research and Development Committee:
Member
Chair
Cash retainer fees were amended in December 2023 as discussed above.
Equity Compensation for Directors
Effective January 1,
2023
Effective January 1,
2024
Amount
($)
Amount
($)
40,000
65,000
7,500
15,000
6,000
12,000
4,250
8,500
6,000
15,000
40,000
65,000
10,000
20,000
7,500
15,000
5,000
10,000
6,000
15,000
Beginning from December 2023, new non-employee directors will be granted an initial option grant to purchase 74,000 shares of common stock, to be
granted on or about the time such director joins the board of directors, with a vesting schedule of 1/36th of the options vesting on each monthly anniversary
of the grant date, subject to the optionee’s continued service through such date.
In addition, non-employee directors will be granted an annual option grant to purchase 37,000 shares of common stock, to be granted at or about the time of
the Company’s annual meeting of stockholders, with a vesting schedule of 100% of the options
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vesting on the date of the next year’s annual meeting of stockholders, subject to the optionee’s continued service through such date.
Upon cessation of a non-employee director’s continued service, each outstanding stock option held by such director is subject to (i) full acceleration of
vesting of options granted as annual equity awards in connection with our 2022 annual meeting of stockholders for directors departing on or after May 24,
2023 and at or prior to the 2023 annual meeting of stockholders held on December 7, 2023 and (ii) pro rata acceleration of vesting of options granted as
annual equity awards in connection with the 2023 annual meeting of stockholders for directors departing after the 2023 annual meeting of stockholders, but
at or before our 2024 annual meeting of stockholders, with the pro rata acceleration determined based on the number of full or partial months served as a
non-employee director on and after the 2023 annual meeting of stockholders date.
In addition, the post-termination exercise period for vested options held by departing directors is extended to three years following the director’s cessation
of service (or, if earlier, upon the expiration of the option).
Expense Reimbursement
Each member of our board of directors is also entitled to reimbursement for reasonable travel and other expenses incurred in connection with attending
board meetings and meetings for any committee on which he or she serves. These amounts are not included in the table above.
Risk Management
As part of its normal practice, the compensation committee evaluates the risk-taking incentives created by our compensation programs, policies and
practices and has concluded that such programs, policies and practices are not reasonably likely to have a material adverse effect on the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
The following table sets forth summary information relating to our Equity Compensation Plan, employee share purchase plan, as amended (the “ESPP”),
the Original Plan and the Inducement Plan as of December 31, 2023:
Number of securities to be
issued upon exercise of
outstanding options,
(1)
warrants and rights
Weighted average
exercise price of
outstanding options,
(2)
warrants, and rights
Number of securities remaining available
for future issuance under equity
compensation plans (excluding securities
reflected in column a)
(a)
(b)
(c)
(3)
7,136,255
—
493,878
$12.99
—
$17.07
(4)
(5)
4,594,639
2,029,328
$12.65
Plan Category
Equity compensation plans approved by
security holders
Equity Compensation Plan
ESPP
Original Plan
Equity compensation plans not approved
by security holders
Inducement Plan
700,000
$12.36
50,000
________________________
(1) Includes restricted stock units.
(2) Does not include restricted stock units, which do not have an exercise price.
(3) The original maximum number of common shares reserved for issuance under the Equity Compensation Plan as of June 7, 2018, was 5,686,097. Beginning in 2019 and
ending in 2028, this maximum number may be increased on the first day of each calendar year by up to 4.0% of the number of outstanding shares on the last day of the
immediately preceding calendar year.
(4) Stock options granted under the Equity Compensation Plan are granted with exercise prices in both Canadian dollars and U.S. dollars. As of December 31, 2023, there
were 6,364,842 outstanding stock options under the Equity Compensation Plan, consisting of 995,600 stock
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options with a weighted average exercise price of C$17.98 ($13.32 based on the U.S. dollar per Canadian dollar exchange rate of 0.7409, which was the average annual
Bank of Canada exchange rate for 2023) and 5,369,242 stock options with a weighted average exercise price of $12.45.
(5) Stock options granted under the Original Plan were granted with exercise prices in Canadian dollars. As of December 31, 2023, there were 493,878 outstanding stock
options under the Original Plan, with a weighted average exercise price of C$17.07 ($12.65 based on the U.S. dollar per Canadian dollar exchange rate of 0.7409, which was
the average annual Bank of Canada exchange rate for 2023).
Inducement Plan
Our Inducement Plan was adopted by our board of directors in January 2022, and was amended and restated in October 2022. The Inducement Plan was
adopted without stockholder approval pursuant to the NYSE listing rules related to inducement plans, which are substantially similar to the Nasdaq rules
related inducement plans. The Inducement Plan allows for the grant of options, grant restricted stock, restricted stock units and other share-based awards.
The terms of the Inducement Plan are substantially similar to those of the Equity Compensation Plan, including with respect to treatment of awards in
connection with a change of control, as described above. However, in accordance with the exemption requirements under NYSE and Nasdaq rules, awards
under the Inducement Plan may only be made to employees of our Company or our subsidiaries to whom the grant of the award is a material inducement to
the individual’s entering into employment with us in accordance with such rules.
Share Ownership
The table below indicates information as of February 29, 2024, regarding the beneficial ownership of our common stock for:
•
•
•
•
each person who is known by us to beneficially own more than 5% of our common stock;
each named executive officer;
each of our directors; and
all executive officers and directors as a group.
In accordance with SEC rules, for the purposes of calculating percent ownership, as of February 29, 2024, (i) 70,532,213 shares of common stock were
issued and outstanding, and, (ii) for any individual who beneficially owned shares represented by exchangeable shares, warrants, options, or restricted stock
units that were exercisable or scheduled to vest within sixty days of February 29, 2024, those shares were treated as if outstanding for that person, but not
for any other person. Unless otherwise indicated in the footnotes to the table, and subject to community property laws where applicable, the following
persons have sole voting and investment control with respect to the shares beneficially owned by them. To our knowledge, except as noted in the table
below, no person or entity was the beneficial owner of more than 5% of the voting power of our common stock as of February 29, 2024.
Except as otherwise indicated, the address of each of the persons in this table is 108 Patriot Drive, Suite A, Middletown, Delaware 19709.
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Name and Address of Beneficial Owner
Common Stock
Beneficially
Owned
Percentage of
Shares
Beneficially
Owned
Total Voting
Percentage †
5% and Greater Stockholders:
EcoR1 Capital, LLC
BVF Partners L.P.
Redmile Group, LLC
Morgan Stanley
BlackRock, Inc.
Directors and Named Executive Officers:
Christopher Astle
Carlos Campoy
Alessandra Cesano
Troy M. Cox
Nancy Davidson
Kenneth Galbraith
Neil Klompas
Susan Mahony
Derek J. Miller
Paul Moore
Kelvin Neu
Scott Platshon
Hollings C. Renton
All Directors, Executive Officers:
All current executive officers and directors as a group (13 persons)
(19)
(1)
14,262,473
5,870,000
5,790,230
4,842,464
3,923,328
(3)
(4)
(5)
(6)
(7)
(8)
(10)
(11)
98,872
12,500
(9)
4,111
80,500
8,222
372,199
681,600
73,000
16,666
119,086
34,000
—
84,425
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(2)
19.99%
8.32%
8.21%
6.87%
5.56%
(2)
19.81%
8.25%
8.13%
6.80%
5.51%
*
*
*
*
*
*
*
*
*
*
*
—
*
*
*
*
*
*
*
*
*
*
*
*
—
*
962,331
1.35%
1.33%
________________________
* Less than one percent
† Percentage of total voting power represents voting power with respect to all shares of our common stock and the voting rights of the exchangeable shares exercised via the
share of our special voting preferred stock, as a single class. Each holder of our common stock is entitled to one vote per share, and each holder of an exchangeable share is
entitled to voting rights equivalent to one vote per exchangeable share on all matters submitted to our stockholders for a vote. The common stock and the special voting
preferred stock (exercising the voting rights of the exchangeable shares) vote together as a single class on all matters submitted to a vote of our stockholders, except as may
otherwise be required by our certificate of incorporation or bylaws.
(1) Consists of (i) 12,658,224 shares of common stock held by EcoR1 Capital Fund Qualified, L.P. (“Qualified Fund”) and (ii) 781,523 shares of common stock issuable
upon the exercise of pre-funded warrants held by Qualified Fund, (iii) 779,249 shares of common stock held by EcoR1 Capital Fund, L.P. (“Capital Fund”), and (iv) 43,477
shares of common stock issuable upon the exercise of pre-funded warrants held by Capital Fund. Qualified Fund, Capital Fund and other private investment funds managed
by EcoR1 Capital, LLC (collectively, “EcoR1”) are prohibited from exercising such pre-funded warrants, if as a result of such exercise, EcoR1 would beneficially own more
than 19.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise. EcoR1 is managed by EcoR1 Capital, LLC (“EcoR1
LLC”). Oleg Nodelman, the manager of EcoR1 LLC, has shared voting control and investment discretion over the securities reported herein that are held by EcoR1. As a
result, Mr. Nodelman may be deemed to have beneficial ownership of the securities that are held by EcoR1. The address of these entities and this individual is 357 Tehama
Street #3, San Francisco, California 94103. Scott Platshon, a Partner of EcoR1, is a member of the board of directors of the Company.
(2) In December 2023, the Company entered into a securities purchase agreement with funds affiliated with EcoR1 for the sale of an aggregate of 5,086,521 pre-funded
warrants to purchase 5,086,521 shares of common stock, $0.00001 par value per share, in a private placement. Each pre-funded warrant will be exercisable at an exercise
price equal to $0.0001 per share, subject to adjustments as provided under the terms of the pre-funded warrant and will be exercisable at any time on or after the closing
date, subject to a post-exercise beneficial ownership limitation of 19.99% (“Maximum Percentage”). For purposes of calculating the Percentage of Shares Beneficially
Owned and the Total Voting Percentage, the calculations only include 825,000 shares of common stock issuable upon the exercise of 825,000 pre-funded warrants pursuant
to the Maximum Percentage, and do not include the remaining 4,261,521 pre-funded warrants to purchase 4,261,521 shares of our common stock.
(3) Based on a Schedule 13G filed January 3, 2023, consists of 3,146,377 shares of common stock held by Biotechnology Value Fund, L.P. (“BVF”), 2,370,712 shares of
common stock held by Biotechnology Value Fund II, L.P. (“BVF2”), 267,526 shares of common stock held by Biotechnology Value Trading Fund OS LP (“Trading Fund
OS”), and 85,385 shares of common stock held in a certain BVF Partners L.P. managed account, each as of December 22, 2022. BVF Partners L.P., as the investment
manager of BVF, BVF2 and Trading Fund OS, and
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the sole member of BVF Partners OS Ltd., the general partner of Trading Fund OS, may be deemed to beneficially own the 5,870,000 shares of common stock as of
December 22, 2022. The address for this entity is 44 Montgomery Street, 40th Floor, San Francisco, CA 941014.
(4) Based on a Schedule 13G/A filed February 14, 2024, consists of 5,790,230 shares of common stock held as of December 31, 2023 by certain private investment vehicles
and/or sub-advised accounts managed by Redmile Group, LLC (“Redmile”) and may be deemed beneficially owned by Redmile as investment manager of such private
investment vehicles and/or sub-advised accounts, and by Jeremy C. Green as the principal of Redmile. The address for this entity and individual is One Letterman Drive
Building D, Suite D3-300, San Francisco, CA 94129 and c/o Redmile Group LLC, 45 W. 27th Street, Floor 11, New York, NY 10001, respectively.
(5) Based on a Schedule 13G/A filed February 9, 2024, consists of 4,842,464 shares of common stock held by Morgan Stanley as of December 31, 2023. The address for
this entity is 1585 Broadway, New York, NY, 10036.
(6) Based on a Schedule 13G filed January 29, 2024, consists of 3,923,328 shares of common stock held by BlackRock, Inc., as of December 31, 2023. The address for this
entity is 50 Hudson Yards, New York, NY 10001.
(7) Consists of 6,503 shares of common stock and 92,369 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29, 2024.
(8) Consists of 12,500 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29, 2024.
(9) Consists of 4,111 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29, 2024.
(10) Consists of 7,500 shares of common stock and 73,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29, 2024.
(11) Consists of 8,222 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29, 2024.
(12) Consists of 23,762 shares of common stock and 348,437 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29,
2024.
(13) Consists of 17,032 shares held personally and 700 shares held by S. Jennifer Heine, and 663,868 shares of common stock issuable upon the exercise of options
exercisable within 60 days after February 29, 2024.
(14) Consists of 73,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29, 2024.
(15) Consists of 16,666 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29, 2024.
(16) Consists of 7,367 shares of common stock and 111,719 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29,
2024.
(17) Consists of 34,000 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29, 2024. Dr. Neu was an employee of
Baker Bros. Advisors LP until January 2021. Pursuant to the terms of Dr. Neu’s employment by Baker Brothers Advisors LP, options granted to him in 2020 were, and will
continue to be, beneficially owned by Baker Bros. Advisors LP.
(18) Consists of 84,425 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 29, 2024.
(19) Although Mr. Klompas was one of our named executive officers in 2023, he is no longer with the Company and thus his ownership is not included in the total of shares
beneficially owned by the current executive officers and directors as a group. Dr. Smith is not a named executive officer, but he is a current executive officer as a result of
his promotion to Executive Vice President and Chief Medical Officer in January 2024. Therefore, Dr. Smith's ownership is reflected in the total shares beneficially owned by
the current executive officers and directors as a group.
Item 13. Certain Relationships and Related Transactions and Director Independence
Certain Relationships and Related Transactions
Other than as discussed below and the compensation arrangements discussed under “Executive Compensation—Discussion of Executive Compensation
Practices,” since January 1, 2022, there have not been any transactions to which we are a party, nor are there any proposed transactions to which we would
be a party, with related parties and which we are required to disclose pursuant to the rules of the SEC.
On March 16, 2020, we entered into a registration rights agreement with Baker Brothers Life Sciences, L.P. and 667, L.P., requiring us, upon request
delivered by such persons and subject to certain terms and conditions, to register the resale of the shares of our common stock held by them. Dr. Neu, who
joined our board of directors in March 2020, served as an employee of Baker Bros. Advisors L.P., which serves as an investment adviser to Baker Brothers
Life Sciences, L.P. and 667, L.P., until January 2021.
On January 31, 2022, we announced the closing of our underwritten public offering which consisted of the issuance of 11,035,000 common shares,
including the exercise in full of the underwriters’ over-allotment option to purchase 1,875,000 additional common shares, and, in lieu of shares, to certain
investors, pre-funded warrants to purchase up to 3,340,000 common shares. The common shares were sold at a price to the public of $8.00 per common
share and the pre-funded warrants were sold at a price of $7.9999 per pre-funded warrant, for aggregate gross proceeds to the Company of $115.0 million,
before deducting underwriting discounts and commissions and estimated offering expenses. Entities affiliated with Armistice Capital, LLC and
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Perceptive Advisors LLC purchased 2,285,000 and 1,100,000 common shares, respectively, and Armistice Capital Master Fund Ltd, Baker Brothers Life
Sciences, L.P. and 667, L.P. purchased 2,715,000, 577,293 and 47,707 pre-funded warrants, respectively. These entities beneficially owned more than 5%
of our common shares prior to or as a result of this offering.
On June 16, 2023, EcoR1 purchased an aggregate of 3,350,000 shares of common stock at $8.12 per share under our at-the-market sales agreement, dated
as of November 9, 2022, with Cantor Fitzgerald & Co. We received gross proceeds of $27.2 million and net cash proceeds of $26.2 million, after
underwriting commissions and offering expenses. EcoR1 beneficially owned more than 5% of our shares of common stock prior to this purchase.
On December 28, 2023, EcoR1 purchased an aggregate of 5,086,521 pre-funded warrants to purchase 5,086,521 shares of our common stock in a private
placement. The per share purchase price for the pre-funded warrants is $9.8299, for an aggregate purchase price of approximately $50 million. In
connection with the private placement, we entered into a registration rights agreement with EcoR1 requiring us to register the resale of the shares of our
common stock issuable upon exercise of the pre-funded warrants. In addition, we agreed that EcoR1 will have the right to nominate one of its partners as a
member of our board of directors, subject to specified conditions. On February 22, 2024, our board of directors appointed Mr. Scott Platshon as a member
of our board of directors. EcoR1 beneficially owned more than 5% of our shares of common stock prior to this purchase. Under the registration rights
agreement, we agreed to file a registration statement covering the resale by EcoR1 of their registrable securities upon the earlier of March 15, 2024 and the
first business day following the date that we file this Annual Report on Form 10-K for the fiscal year ended December 31, 2023. We agreed to use
commercially reasonable efforts to cause such registration statement or final prospectus, as applicable, to be declared effective as soon as practicable, but
no later than the later of April 29, 2024 and the 123rd calendar day following the closing date, and to keep such registration statement effective for a period
that will terminate upon the earliest of (i) the date that all registrable securities covered by such registration statement or final prospectus, as applicable,
have been sold, (ii) the date that all registrable securities covered by such registration statement or final prospectus, as applicable, may be sold without the
requirement for us to be in compliance with the current public information required under Rule 144 as to such registrable securities and without volume or
manner-of-sale restrictions and (iii) two (2) years after the date of the securities purchase agreement.
Indebtedness of Directors, Executive Officers and Employees
None of our directors, executive officers, employees, former directors, former executive officers or former employees, and none of their associates, is
indebted to us or another entity whose indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar agreement or
understanding provided by us.
Policy Regarding Related Party Transactions
We have adopted a formal, written policy regarding related person transactions. This written policy regarding related person transactions provides that a
related person transaction is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships), in which we are
a participant and in which a related person has, had or will have a direct or indirect material interest and in which the aggregate amount involved exceeds
$120,000. For purposes of this policy, a related person means any of our executive officers and directors (including director nominees), in each case at any
time since the beginning of our last fiscal year, or holders of more than 5% of any class of our voting securities and any member of the immediate family
of, or person sharing the household with, any of the foregoing persons.
Our audit committee has the primary responsibility for reviewing and approving, ratifying or disapproving related person transactions. In determining
whether to approve, ratify or disapprove any such transaction, our audit committee will consider, among other factors, (1) whether the transaction is fair to
us and on terms no less favorable than terms generally available to unaffiliated third parties under the same or similar circumstances, (2) the extent of the
related person’s interest in the transaction, (3) whether there are business reasons for us to enter into such transaction, (4) whether the transaction would
impair the independence of any of our outside directors and (5) whether the transaction would present an improper conflict of interest for any of our
directors or executive officers.
The policy grants standing pre-approval of certain transactions, including (1) certain compensation arrangements for our directors or executive officers, (2)
transactions with another company, other than an acquisition by us of that company, at which a related person’s only relationship is as a non-executive
employee, director or beneficial owner of less than 10% of that company’s shares, provided that the aggregate amount involved does not exceed the greater
of $1,000,000 or 2% of such company’s total annual revenues and the transaction is on terms no less favorable than terms generally available to unaffiliated
third parties under the same or similar circumstances, (3) charitable contributions by us to a charitable organization, foundation or university at which a
related person’s only relationship is as a non-executive employee or director, provided that the
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aggregate amount involved does not exceed the greater of $1,000,000 or 2% of such organization’s total annual receipts, (4) transactions where a related
person’s interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis
and (5) any indemnification or advancement of expenses made pursuant to our organizational documents or any agreement. In addition to our policy, our
audit committee charter provides that our audit committee shall review and approve or disapprove any related person transactions.
Interests of Management and Others in Material Transactions
Other than as described elsewhere in this Annual Report on Form 10-K, there are no material interests, direct or indirect, of any of our directors or
executive officers, any stockholder that beneficially owns, or controls or directs (directly or indirectly), more than 5% of any class or series of our
outstanding voting securities, or any associate or affiliate of any of the foregoing persons, in any transaction since January 1, 2022 that has materially
affected or is reasonably expected to materially affect us or our subsidiaries.
Director Independence
Under the Nasdaq listing rules, independent directors must comprise a majority of a listed company’s board of directors. In addition, the listing standards of
Nasdaq require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance
committees be independent. Under the Nasdaq listing rules, a director will only qualify as an “independent director” if, in the opinion of that company’s
board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
Audit committee members must also satisfy the additional independence criteria set forth in Rule 10A-3 under the Exchange Act, and the Nasdaq listing
rules. Compensation committee members must also satisfy the additional independence criteria set forth in Rule 10C-1 under the Exchange Act.
The board of directors has determined that all directors, except Mr. Galbraith, meet the independence requirements under the Nasdaq listing standards, and
qualify as “independent directors” under the Nasdaq listing standards. Mr. Galbraith is not considered independent by virtue of being our Chief Executive
Officer. The board of directors also determined that Mr. Campoy, Mr. Cox and Mr. Miller, who comprise our audit committee, and Dr. Mahony, Mr. Renton
and Dr. Davidson, who comprise our compensation committee, each satisfy the independence standards for those committees established by applicable
SEC rules and the Nasdaq listing standards, and that Mr. Campoy, Mr. Miller, and Dr. Cesano, who comprise our nominating and corporate governance
committee, are independent. In making these determinations, the board of directors considered the current and prior relationships that each non-employee
director has with our company and all other facts and circumstances that our board of directors deemed relevant in determining their independence,
including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them, including those described in the
section titled “—Certain Relationships and Related Transactions.”
As part of the board of directors’ determination that Mr. Miller satisfied the independence requirements under the Nasdaq listing standards and qualifies as
an independent director, the board of directors considered the consulting agreement (the “Consulting Agreement”) we entered into in May 2022 with Derek
J Miller Consulting LLC, a limited liability company owned by Mr. Miller. Pursuant to the Consulting Agreement, Mr. Miller has provided certain
consulting services to us, including but not limited to providing advice regarding development of corporate strategy, including corporate messaging,
pipeline and technology platform strategies, business development, licensing, investor activities and related matters. In October 2023, we entered into a
Termination of Consulting Agreement and Further Amended and Restated Statement of Work #1 with Derek J Miller Consulting LLC, which provides for,
among other things, the termination of the Consulting Agreement effective as of November 30, 2023. In total, we have paid Mr. Miller an aggregate of
approximately $36,000 for such consulting services, of which (i) approximately $22,000 was paid for services rendered prior to Mr. Miller’s appointment
to the board of directors and (ii) approximately $14,000 was paid for services rendered after Mr. Miller joined the board of directors.
There are no family relationships among any of our directors, director nominees or executive officers.
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Item 14. Principal Accounting Fees and Services
Principal Independent Accountant Fees and Services
KPMG LLP (“KPMG”) has served as our independent registered public accounting firm since June 24, 2015.
Aggregate fees billed by our independent auditors, KPMG, for the years ended December 31, 2023 and December 31, 2022, are detailed in the table below:
(1)
Audit Fees
Audit Related Fees
Tax Fees
(3)
All Other Fees
(4)
(2)
Total Fees Paid
2023
($)
(5)
775,096 $
—
507,300
—
1,282,396 $
2022
($)
(5)
752,300
—
385,600
—
1,137,900
$
$
________________________
(1) Fees for audit service on an accrued basis.
(2) Fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit of the financial
statements.
(3) Fees for professional services rendered for tax compliance, tax advice and tax planning, which include fees of $126,486 for tax compliance in 2023 (2022: $160,622).
(4) All other fees billed by the auditor for products and services not included in the foregoing categories.
(5) Canadian dollar amounts have been converted to U.S. dollars for the purposes of the table. For 2023 and 2022, the U.S. dollar per Canadian dollar exchange rates used
for such conversions were 0.7410 and 0.7685, which were the average annual Bank of Canada exchange rates for 2023 and 2022, respectively.
Pre-approval Policies and Procedures
Our audit committee has established a policy of reviewing, in advance, and either approving or not approving, all audit, audit-related, tax and other non-
audit services that our independent registered public accounting firm provides to us. This policy requires that all services received from independent
registered public accounting firms be approved in advance by the audit committee or a delegate of the audit committee. The audit committee has delegated
pre-approval responsibility to the chair of the audit committee with respect to audit and permissible non-audit services and any associated fees. All services
that KPMG provided to us in 2023 and 2022 have been pre-approved by our audit committee.
Our audit committee has determined that the provision of the services as set out above is compatible with the maintaining of KPMG’s independence in the
conduct of their auditing functions.
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Item 15. Exhibits, Financial Statement Schedules
PART IV
(a)(1) Financial Statements—The financial statements included in Item 8 are filed as part of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules—All schedules have been omitted because they are not applicable or required, or the information required to be set
forth therein is included in the consolidated Financial Statements or notes thereto included in Item 8 of this Annual Report on Form 10-K.
(a)(3) Exhibits—The exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.
(b) Exhibits—The exhibits listed on the Exhibit Index below are filed herewith or are incorporated by reference to exhibits previously filed with the SEC.
Exhibit No.
EXHIBITS INDEX
Description
2.1
2.2
2.3
2.4
3.1
3.2
3.3
4.1
4.2
4.3
4.4
10.1#
10.2#
10.3#
10.4†
Restated and Amended Transaction Agreement, dated August 18, 2022, by and among Zymeworks BC Inc., the Company, Zymeworks
Callco ULC and Zymeworks ExchangeCo Ltd. (incorporated by reference to Exhibit 2.1 to Amendment No. 1 to the Company’s
Registration Statement on Form S-4 filed with the SEC on August 19, 2022).
Plan of Arrangement (incorporated by reference to Exhibit 2.2 to Amendment No. 1 to the Company’s Registration Statement on Form
S-4 filed with the SEC on August 19, 2022).
Exchangeable Share Support Agreement, dated as of October 13, 2022, by and between the Company, Zymeworks CallCo ULC, and
Zymeworks ExchangeCo Ltd. (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K12B filed with
the SEC on October 13, 2022).
Voting and Exchange Trust Agreement, dated as of October 13, 2022, by and between the Company, Zymeworks Callco ULC,
Zymeworks ExchangeCo Ltd. and the Share Trustee (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on
Form 8-K12B filed with the SEC on October 13, 2022).
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K12B filed with the SEC on October 13, 2022).
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-
K filed with the SEC on March 15, 2023).
Certificate of Elimination of Series B Participating Preferred Stock of Zymeworks Inc. (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed with the SEC on June 12, 2023).
Description of Capital Stock.
Specimen common stock certificate of the Company (incorporated by reference to Exhibit 4.1 to Amendment No.1 to the Company’s
Registration Statement on Form S-4 filed with the SEC on August 19, 2022).
Registration Rights Agreement, dated December 23, 2023, by and among the Company and the Purchasers (incorporated by reference
to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2023).
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the
SEC on December 26, 2023).
Amended and Restated Employment Agreement, dated January 17, 2017, by and between Zymeworks BC Inc. and Neil Klompas
(incorporated by reference to Exhibit 10.4 to Zymeworks BC Inc.’s Registration Statement on Form F-1 filed with the SEC on April 3,
2017).
Promotion Letter from Zymeworks BC Inc. to Neil Klompas, dated January 5, 2022 (incorporated by reference to Exhibit 10.3 to
Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on January 5, 2022).
Separation Agreement and Release by and between Zymeworks BC Inc. and Neil Klompas, dated May 17, 2023 (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on May 18, 2023).
Collaboration Agreement, effective as of December 23, 2014, by and among Zymeworks BC Inc., Celgene Corporation and Celgene
Alpine Investment Co. LLC (incorporated by reference to Exhibit 10.22 to Zymeworks BC Inc.’s Registration Statement on Form F-1
filed with the SEC on April 3, 2017).
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Exhibit No.
10.5†
10.6*
10.7*
10.8*
10.9*
10.10†
10.11†
10.12*
10.13*
10.14
10.15*
10.16†
10.17*
10.18*
10.19†
10.20†
Description
First Amendment to Collaboration Agreement, effective as of May 29, 2017, by and between Zymeworks BC Inc., Celgene Corporation
and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 99.1 to a Report of Foreign Private Issuer on Form 6-K
furnished to the SEC on July 18, 2017 and deemed filed under the Exchange Act).
Second Amendment to Collaboration Agreement, effective as of March 31, 2020, by and between Zymeworks BC Inc., Celgene
Corporation and Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly
Report on Form 10-Q filed with the SEC on May 7, 2020).
Third Amendment to Collaboration Agreement, dated June 22, 2020, by and between Zymeworks BC Inc., Celgene Corporation and
Celgene Alpine Investment Co. LLC. (incorporated by reference to Exhibit 10.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-
Q filed with the SEC on August 5, 2020).
Letter Agreement, effective April 20, 2021, by and between Zymeworks BC Inc. and Celgene Corporation and Celgene Alpine
Investment Co. LLC. (incorporated by reference to Exhibit 99.4 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the
SEC on August 4, 2021).
Fourth Amendment to Collaboration Agreement, dated August 4, 2021, by and between Zymeworks BC Inc., Celgene Corporation and
Celgene Alpine Investment Co. LLC (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-
Q filed with the SEC on November 3, 2021).
Collaboration and License Agreement, effective as of December 1, 2015, by and between Zymeworks BC Inc. and GlaxoSmithKline
Intellectual Property Development Limited (incorporated by reference to Exhibit 10.23 to Zymeworks BC Inc.’s Registration Statement
on Form F-1 filed with the SEC on April 3, 2017).
Side Letter Agreement effective as of January 11, 2019, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual
Property Development Limited (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s 2018 Annual Report on Form 10-K
filed with the SEC on March 6, 2019).
First Amendment to Collaboration and License Agreement, effective as of April 30, 2019, by and between Zymeworks BC Inc. and
GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.4 to Zymeworks BC Inc.’s
Annual Report on Form 10-K filed with the SEC on March 2, 2020).
Side Letter Agreement effective as of September 30, 2019, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual
Property Development Limited. (incorporated by reference to Exhibit 99.5 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed
with the SEC on March 2, 2020).
Side Letter Agreement effective as of February 20, 2020, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual
Property Development Limited. (incorporated by reference to Exhibit 99.6 to Zymeworks BC Inc.’s Annual Report on Form 10-K filed
with the SEC on March 2, 2020).
Fifth Amendment to Collaboration and License Agreement, effective as of March 30, 2020, by and between Zymeworks BC Inc. and
GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 99.11 to Zymeworks BC Inc.’s
Annual Report on Form 10-K filed with the SEC on February 24, 2021).
Platform Technology Transfer and License Agreement, effective as of April 21, 2016, by and between Zymeworks BC Inc. and
GlaxoSmithKline Intellectual Property Development Limited (incorporated by reference to Exhibit 10.24 to Zymeworks BC Inc.’s
Registration Statement on Form F-1 filed with the SEC on April 3, 2017).
First Amendment to Platform Technology Transfer and License Agreement between Zymeworks BC Inc. and GlaxoSmithKline
Intellectual Property Development Limited, dated May 14, 2019 (incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s
Current Report on Form 8-K filed with the SEC on May 17, 2019).
Letter Agreement, effective June 4, 2021, by and between Zymeworks BC Inc. and GlaxoSmithKline Intellectual Property
Development Limited (incorporated by reference to Exhibit 99.7 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with
the SEC on August 4, 2021).
Collaboration and License Agreement, effective as of November 13, 2017, by and between Zymeworks BC Inc. and Janssen Biotech,
Inc., (incorporated by reference to Exhibit 99.1 to a Report of Foreign Private Issuer on Form 6-K furnished to the SEC on
November 24, 2017 and deemed filed under the Exchange Act).
First Amendment to the Collaboration and License Agreement, effective as of January 14, 2019, by and between Zymeworks BC Inc.
and Janssen Biotech, Inc. (incorporated by reference to Exhibit 99.3 to Zymeworks BC Inc.’s 2018 Annual Report on Form 10-K filed
with the SEC on March 6, 2019).
181
Table of Contents
Exhibit No.
10.21†
10.22*
10.23†
10.24*
10.25*
10.26*
10.27*
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36#
10.37#
Description
License Agreement, effective as of May 14, 2018, by and between Zymeworks BC Inc. and Daiichi Sankyo Company, Limited
(incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on May 18, 2018).
Termination and License Agreement by and between Zymeworks BC Inc. and Daiichi Sankyo Co., Ltd., effective as of February 28,
2023 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 8, 2023).
License and Collaboration Agreement, effective as of November 26, 2018, by and between Zymeworks BC Inc. and BeiGene Ltd.
(incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on December 6,
2018).
First Amendment to Collaboration Agreement, effective March 29, 2021, by and between Zymeworks BC Inc. and BeiGene, Ltd.
(incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 5,
2021).
Second Amendment to License and Collaboration Agreement, dated August 10, 2021, by and between Zymeworks BC Inc. and
BeiGene Ltd. (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on
November 3, 2021).
Third Amendment License and Collaboration Agreement by and between Zymeworks BC Inc. and BeiGene, Ltd., dated September 18,
2023 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 21,
2023).
Letter Agreement, effective October 7, 2020, by and between Zymeworks BC Inc. and BeiGene, Ltd. (incorporated by reference to
Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2021).
Termination Agreement by and between Zymeworks BC Inc. and BeiGene, Ltd., dated September 18, 2023 (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 21, 2023).
Indenture of Lease dated as of January 25, 2019, by and between 5th & Main Partnership and Zymeworks BC Inc. (incorporated by
reference to Exhibit 10.29 to Zymeworks BC Inc.’s 2018 Annual Report on Form 10-K filed with the SEC on March 6, 2019).
Notice and Acknowledgement of Exercise of Expansion Option under Lease, dated as of June 27, 2019, by and between 5th & Main
Partnership and Zymeworks BC Inc. (incorporated by reference to Exhibit 99.2 to Zymeworks BC Inc.’s Quarterly Report on Form 10-
Q filed with the SEC on May 7, 2020).
Lease Expansion and Modification Agreement, dated as of April 16, 2020, by and between 5th & Main Partnership and Zymeworks BC
Inc.(incorporated by reference to Exhibit 99.3 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 7,
2020).
Third Lease Modification Agreement, dated February 17, 2021, by and between Zymeworks BC Inc. and 5th & Main Partnership
(incorporated by reference to Exhibit 99.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on May 5,
2021).
Fourth Lease Modification Agreement, dated May 7, 2021, by and between Zymeworks BC Inc. and 5th and Main Partnership
(incorporated by reference to Exhibit 99.5 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4,
2021).
Lease Amending Agreement, dated April 1, 2022, by and between Zymeworks BC Inc. and 130 E 4th Partnership (incorporated by
reference to Exhibit 10.1 to Zymeworks BC Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 4, 2022).
Notice of Assignment of Lease, dated January 1, 2022 from 5th & Main Partnership, 2000 Main Holdings Inc. and Mount Pixel
Projects Limited Partnership to Zymeworks BC Inc. (incorporated by reference to Exhibit 10.2 to Zymeworks BC Inc.’s Quarterly
Report on Form 10-Q filed with the SEC on August 4, 2022).
Separation and Release Agreement by and between Zymeworks Biopharmaceuticals Inc. and Neil Josephson, dated March 3, 2023
(incorporated by reference to Exhibit 10.59 to the Company's Annual Report on Form 10-K filed with the SEC on March 7, 2023).
Employment Agreement by and between Zymeworks BC Inc. and Kenneth Galbraith, dated January 5, 2022 (incorporated by reference
to Exhibit 10.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on January 5, 2022).
182
Table of Contents
Exhibit No.
10.38#
10.39#
10.40#
10.41#
10.42 #
10.43 #
10.44#
10.45#
10.46#
10.47
10.48
10.49#
10.50#
10.51#
10.52#
10.53
10.54*
10.55*, +
10.56*, +
Description
Amendment to Employment Agreement, dated as of December 30, 2022, by and among Kenneth Galbraith, Zymeworks BC Inc. and
Zymeworks Management Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
SEC on December 30, 2022).
Amendment #2 to Employment Agreement, dated as of January 3, 2024, by and among Kenneth Galbraith and Zymeworks BC Inc.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 5, 2024).
Amended and Restated Employment Agreement by and between Zymeworks BC Inc. and Christopher Astle, dated February 24, 2022
(incorporated by reference to Exhibit 10.1 to Zymeworks BC Inc.’s Current Report on Form 8-K filed with the SEC on February 25,
2022).
Amendment to Amended and Restated Employment Agreement by and between Christopher Astle and Zymeworks BC Inc., dated
November 17, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on
November 18, 2022).
Employment Agreement by and between Zymeworks Pharmaceuticals Limited and Jeffrey Smith, dated January 3, 2023.
Letter, dated January 5, 2024, from Zymeworks Inc. to Jeffrey Smith.
Executive Incentive Compensation Plan (incorporated by reference to Exhibit 10.64 to the Company’s Annual Report on Form 10-K
filed with the SEC on March 7, 2023).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.73 to the Amendment No. 1 to the Company’s
Registration Statement on Form S-4 filed with the SEC on August 19, 2022).
Amended and Restated Employment Agreement by and between Zymeworks BC Inc., the Company and Paul Moore, dated July 14,
2023 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10,
2023).
Notice of Articles of ExchangeCo (incorporated by reference to Exhibit 10.79 to Amendment No. 1 to the Company’s Registration
Statement on Form S-4 filed with the SEC on August 19, 2022).
Articles of ExchangeCo (incorporated by reference to Exhibit 10.80 to Amendment No. 1 to the Company’s Registration Statement on
Form S-4 filed with the SEC on August 19, 2022).
Inducement Stock Option and Equity Compensation Plan of the Company (and forms of agreements thereunder).
Amended and Restated Stock Option and Equity Compensation Plan of the Company (and forms of agreements thereunder) and UK
Sub-Plan to the Amended and Restated Stock Option and Equity Compensation Plan of the Company (and forms of agreements
thereunder).
Second Amended and Restated Employee Stock Option Plan of the Company (and forms of agreements thereunder) (incorporated by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K12B filed with the SEC on October 13, 2022).
Amended and Restated Employee Stock Purchase Plan of the Company (incorporated by reference to Exhibit 10.5 to the Company’s
Current Report on Form 8-K12B filed with the SEC on October 13, 2022).
Sales Agreement, dated November 9, 2022, by and between the Company and Cantor Fitzgerald & Co. (incorporated by reference to
Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 9, 2022).
Amended and Restated License and Collaboration Agreement, dated May 15, 2023, by and between Zymeworks BC Inc. and Jazz
Pharmaceuticals Ireland Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with
the SEC on May 16, 2023).
Stock and Asset Purchase Agreement, dated April 25, 2023, by and between Zymeworks BC Inc., Zymeworks Biopharmaceuticals Inc.,
Zymeworks Zanidatamab Inc., and Jazz Pharmaceuticals, Inc (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly
Report on Form 10-Q filed with the SEC on August 10, 2023).
Amendment No. 1 to Stock and Asset Purchase Agreement, dated May 15, 2023, by and between Zymeworks BC Inc., Zymeworks
Biopharmaceuticals Inc., Zymeworks Zanidatamab Inc., and Jazz Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.5 to
the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2023).
183
Table of Contents
Exhibit No.
10.57
Description
Securities Purchase Agreement, dated December 23, 2023, by and among the Company and the Purchasers (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2023).
21.1
23.1
31.1
31.2
32.1
32.2
97.1
101
Subsidiaries of the Company.
Consent of KPMG LLP, an Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Compensation Recovery Policy.
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in Inline
XBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as at December 31, 2023 and 2022, (ii)
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021,
(iii) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021, (iv)
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 and (vi) Notes to Consolidated
Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
___________
† The Company has omitted portions of the referenced exhibit pursuant to a request for confidential treatment under Rule 24b-2 promulgated under the
Exchange Act.
* Certain portions of this exhibit (indicated by “[…***…]”) have been omitted in accordance with Item 601(b)(10) of Regulation S-K because the
omitted information is not material and the Company customarily and actually treats such omitted information as private or confidential.
# Indicates management contract or compensatory plan.
+ Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K, but a copy will be furnished supplementally to the SEC
upon request.
Item 16. Form 10-K Summary
Not applicable.
184
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: March 6, 2024
ZYMEWORKS INC.
By:
/s/ Kenneth Galbraith
Name: Kenneth Galbraith
Title:
Chair of the Board of Directors and Chief
Executive Officer (Principal Executive Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kenneth Galbraith, and
Christopher Astle, and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for
him or her and in their name, place and stead, in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same,
with Exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or substitute or substitutes may do or cause to be done by virtue hereof.
185
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
/s/ Kenneth Galbraith
Kenneth Galbraith
/s/ Christopher Astle
Christopher Astle
/s/ Troy M. Cox
Troy M. Cox
/s/ Alessandra Cesano
Alessandra Cesano
/s/ Susan Mahony
Susan Mahony
/s/ Kelvin Neu
Kelvin Neu
/s/ Hollings C. Renton
Hollings C. Renton
/s/ Carlos Campoy
Carlos Campoy
/s/ Derek Miller
Derek Miller
/s/ Nancy Davidson
Nancy Davidson
/s/ Scott Platshon
Scott Platshon
Title
Chair of the Board of Directors, President and Chief Executive Officer
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
186
Date
March 6, 2024
March 6, 2024
March 6, 2024
March 6, 2024
March 6, 2024
March 6, 2024
March 6, 2024
March 6, 2024
March 6, 2024
March 6, 2024
March 6, 2024
Exhibit 4.1
General
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material terms of the capital stock of Zymeworks Inc., a Delaware corporation (the “Company”). This summary does
not purport to be complete and is subject to, and qualified in its entirety by express reference to, the provisions of the Company’s amended and restated
certificate of incorporation (the “Certificate of Incorporation”), the Company’s amended and restated bylaws (the “Bylaws”), and the Company’s
Certificate of Designations of Special Voting Preferred Stock (the “Special Voting Certificate of Designations”), each of which is included as an exhibit to
the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and each of which may be amended from time to time, and the laws
of the state of Delaware. You are encouraged to read the Company’s Certificate of Incorporation, Bylaws, and Special Voting Certificate of Designations,
and the applicable provisions of the General Corporation Law of the State of Delaware (the “DGCL”), for additional information.
The Company’s authorized capital stock consists of 1,000,000,000 shares of capital stock, $0.00001 par value per share, of which:
•
•
900,000,000 shares are designated as “Common Stock”; and
100,000,000 shares are designated as preferred stock, of which one share is designated as “Special Voting Preferred Stock”.
As of March 4, 2024, there are 70,568,222 shares of Common Stock outstanding, held by approximately 82 stockholders of record, and there is one share
of Special Voting Preferred Stock outstanding, held by one stockholder of record.
Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Common Stock are entitled to receive
dividends out of funds legally available if the board of directors of the Company (the “Board”), in its discretion, determines to issue dividends and then
only at the times and in the amounts that the Board may determine.
No Preemptive or Similar Rights
The Company’s Common Stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Voting Rights
Holders of Common Stock are entitled to one vote for each share held as of the applicable record date on all matters submitted to a vote of the Company
stockholders.
The Company stockholders do not have the ability to cumulate votes for the election of directors. As a result, the holders of a plurality of the voting power
of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors can elect all of the directors standing
for election, if they should so choose. With respect to matters other than the election of directors, at any meeting of the Company stockholders at which a
quorum is present or represented, the affirmative vote of a majority of the voting power of the shares cast for or against a proposal shall be the act of the
stockholders and broker non-votes and abstentions will be considered for purposes of establishing a quorum, but will not be considered as votes cast for or
against a proposal, except as otherwise provided by law, the Company’s governing documents or the rules of the stock exchange on which the Company’s
securities are listed. The holders of 33 1/3% of the voting power of the capital stock issued and outstanding and entitled to vote as of the applicable record
date, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders.
The Certificate of Incorporation and the Bylaws provide that members of the Board will be elected to one of three staggered three-year terms. Only the
directors serving one term will be elected at each annual meeting of its
stockholders, with the directors serving under the remaining two terms continuing for the remainder of their respective three-year terms.
Liquidation Rights
If the Company becomes subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to the Company’s stockholders
would be distributable ratably among the holders of Common Stock and any participating preferred stock outstanding at that time, subject to prior
satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares
of preferred stock.
Fully Paid and Nonassessable
All outstanding shares of Common Stock are fully paid and non-assessable.
Preferred Stock
The Board has the authority, subject to limitations prescribed by Delaware law, to issue shares of authorized but unissued preferred stock in one or more
series, and to fix the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in each case without further vote
or action by the Company’s stockholders. These powers, rights, preferences and rights could include dividend rights, dividend rate, conversion rights,
voting rights, rights and terms of redemption (including sinking fund provisions), redemption price(s) and liquidation preferences, and the number of shares
constituting any series or the designation of such series, any or all of which may be greater than the rights of the Common Stock. The issuance of preferred
stock could adversely affect the voting power of holders of Common Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control or
other corporate action. Except for the single share of Special Voting Preferred Stock described below, there are no outstanding shares of preferred stock.
Special Voting Preferred Stock
On October 13, 2022, the Company (formerly known as Zymeworks Delaware Inc.) became the ultimate parent company of Zymeworks Inc., a corporation
existing under the laws of the Province of British Columbia and renamed as Zymeworks BC Inc. (“Zymeworks Canada”), pursuant to a statutory plan of
arrangement under the Business Corporations Act (British Columbia) as part of a series of transactions, including the corporate redomicile of Zymeworks
Canada (the “Redomicile Transactions”). Pursuant to the Redomicile Transactions, certain eligible shareholders of Zymeworks Canada, at their election,
were issued exchangeable shares (the “Exchangeable Shares”) in the capital of Zymeworks ExchangeCo Ltd., a company existing under the laws of the
Province of British Columbia and an indirect wholly owned subsidiary of the Company (“ExchangeCo”), on a one-for-one basis in exchange for some or
all of their common shares of Zymeworks Canada, together with certain contractual rights attached to such Exchangeable Shares. The Company has agreed
to issue shares of Common Stock as consideration when, among other things, the holder of Exchangeable Shares calls for its Exchangeable Shares to be
retracted in accordance with their terms.
On October 13, 2022, one share of Special Voting Preferred Stock was issued to Computershare Trust Company of Canada (the “Share Trustee”), as trustee
for and on behalf of the holders of the Exchangeable Shares (other than the Company and any affiliated entities of the Company). The holder of the Special
Voting Preferred Stock will vote together with the holders of the Common Stock, as a single class (except as otherwise required under applicable law), with
respect to all meetings of stockholders of the Company at which the holders of the Common Stock are entitled to vote. The Special Voting Preferred Stock
entitles the holder of record to that number of votes equal to the number of Exchangeable Shares outstanding at such time (other than those owned by the
Company or any affiliated entity of the Company) multiplied by the Exchangeable Share Exchange Ratio (which ratio is initially one), and in respect of
each beneficial owner of the Special Voting Preferred Stock, rounded down to the nearest whole vote (and for which the Share Trustee has received voting
instructions from such holders of Exchangeable Shares in accordance with the Voting and Exchange Trust Agreement, dated October 13, 2022, among the
Company, Zymeworks ExchangeCo Ltd., Zymeworks CallCo ULC and the Share Trustee).
The holder of the Special Voting Preferred Stock is not entitled to receive any dividends declared and paid by the Company and, upon any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, shall rank senior to the Common Stock, and junior to all other or series of
preferred stock of the Company, and is entitled to receive, prior to the holders of the Common Stock, an amount equal to US$1.00.
At such time as the share of Special Voting Preferred Stock has no votes attached to it, the Special Voting Preferred Stock shall be automatically cancelled
for no consideration.
Options and Restricted Stock Units
As of March 4, 2024, the Company had outstanding options to purchase an aggregate of:
•
•
7,656,552 shares of Common Stock, at a weighted average exercise price of $12.56 USD per share; and
1,393,015 shares of Common Stock, at a weighted average exercise price of $20.10 CAD per share.
As of March 4, 2024, the Company had 1,464,368 outstanding restricted stock units.
Pre-Funded Warrants
As of March 4, 2024, the Company had 5,086,521 outstanding pre-funded warrants to purchase up to 5,086,521 shares of Common Stock.
Exercisability
The pre-funded warrants are exercisable at any time after their original issuance. The pre-funded warrants will be exercisable, at the option of each holder,
in whole or in part by delivering to the Company a duly executed exercise notice and by payment in full in immediately available funds for the number of
shares of Common Stock purchased upon such exercise. As an alternative to payment in immediately available funds, the holder may, in its sole discretion,
elect to exercise the warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of Common
Stock determined according to the formula set forth in the pre-funded warrant. No fractional Common Stock will be issued in connection with the exercise
of a pre-funded warrant. In lieu of fractional shares, the Company will pay the holder an amount in cash equal to the fractional amount multiplied by the
fair market value of any fractional shares.
Exercise Limitations
Under the terms of the pre-funded warrants, the Company may not effect the exercise of any pre-funded warrant, and a holder will not be entitled to
exercise any portion of any pre-funded warrant, which, upon giving effect to such exercise, would cause (a) the aggregate number of shares of Common
Stock beneficially owned by the holder (together with its affiliates) to exceed 19.99% of the number of shares of Common Stock outstanding immediately
after giving effect to the exercise, or (b) the combined voting power of the Company securities beneficially owned by the holder (together with its affiliates)
to exceed 19.99% of the combined voting power of all of the Company securities then outstanding immediately after giving effect to the exercise, as such
percentage to any ownership is determined in accordance with the terms of the pre-funded warrants. However, any holder may increase or decrease such
percentage to any other percentage not in excess of 19.99% upon at least 61 days’ prior notice from the holder to the Company.
Exercise Price
The exercise price per whole share of Common Stock purchasable upon the exercise of the pre-funded warrants is $0.0001 per warrant share. The exercise
price of the pre-funded warrants is subject to appropriate adjustment in the event of certain share dividends and distributions, stock splits, stock
combinations, reclassifications or similar events affecting the Company’s Common Stock.
Exchangeable Shares
Pursuant to the Redomicile Transactions, certain former shareholders of Zymeworks Canada were issued Exchangeable Shares in the capital of
ExchangeCo., an indirect wholly owned subsidiary of the Company, together with certain contractual rights attached to the Exchangeable Shares. The
Company has agreed to issue shares of Common Stock as consideration when, among other things, the holder of Exchangeable Shares calls for its
Exchangeable Shares to be retracted in accordance with their terms.
As of March 4, 2024, there were 646,423 Exchangeable Shares held by shareholders and exchangeable on a one-to-one basis, subject to adjustment, for up
to 646,423 shares of Common Stock.
Anti-Takeover Effects of Certain Provisions of Delaware Law, the Certificate of Incorporation and the Bylaws
Delaware Law
The Company will be governed by the provisions of Section 203 of the DGCL. Section 203 generally prohibits a publicly held Delaware corporation from
engaging in a “business combination” with any “interested stockholder” for a period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
•
•
•
the business combination or transaction which resulted in the stockholder becoming an interested stockholder was approved by the Board prior to the
time that the stockholder became an interested stockholder;
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of
shares outstanding (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
on or subsequent to the date of the transaction, the business combination is approved by the Board and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.
In general, Section 203 defines a business combination to include:
• mergers or consolidations involving the corporation, or any direct or indirect majority-owned subsidiary of the corporation, and the interested
stockholder or any other entity if the merger or consolidation is caused by the interested stockholder;
•
•
•
•
any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation or any direct or
indirect majority-owned subsidiary of the corporation;
subject to exceptions, any transaction that results in the issuance or transfer by the corporation, or any direct or indirect majority-owned subsidiary of
the corporation, of any stock of the corporation or such subsidiary to the interested stockholder;
any transaction involving the corporation, or any direct or indirect majority-owned subsidiary of the corporation, that has the effect of increasing the
proportionate share of the stock or any class or series of the corporation or such subsidiary beneficially owned by the interested stockholder; and
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through
the corporation.
In general, Section 203 of the DGCL defines an “interested stockholder” as an entity or person who, together with such person’s affiliates and associates,
beneficially owns, or is an affiliate or associate of the corporation and within three years prior to the time of determination of interested stockholder status
did own, 15% or more of the outstanding voting stock of the corporation. These provisions may have the effect of delaying, deferring or preventing
changes in control of the Company, even though such a transaction may offer its stockholders the opportunity to sell their stock at a price above the
prevailing market price.
Certificate of Incorporation and Bylaws Provisions
Provisions of the Certificate of Incorporation and Bylaws include a number of provisions that could deter hostile takeovers or delay or prevent changes in
control of the Board or management. Among other things, the Certificate of Incorporation and Bylaws:
•
•
•
•
•
•
•
•
•
•
permit the Board to issue shares of preferred stock, with any powers, rights, preferences and privileges as they may designate;
provide that the authorized number of directors may be changed only by resolution of the Board; provided that the size of the Board may be increased
by no more than 1/3 of the number of directors in office at the conclusion of the most recent annual meeting of stockholders prior to the next annual
meeting of stockholders;
provide that all vacancies and newly created directorships, may, except as otherwise required by law, the Company’s governing documents or
resolution of the Board, and subject to the rights of holders of the Company’s preferred stock, be filled by the affirmative vote of a majority of
directors then in office, even if less than a quorum, or by a sole remaining director;
provide that members of the Board will serve one of three staggered three-year terms;
subject to the rights of holders of preferred stock, provide that a director may only be removed from the Board by the stockholders with the affirmative
vote of at least 66 2/3% of the voting power of the shares cast on such proposal;
require that any action to be taken by the Company’s stockholders must be effected at a duly called annual or special meeting of stockholders and not
be taken by written consent;
provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting
of stockholders must provide notice in writing in a timely manner, and also meet specific requirements as to the form and content of a stockholder’s
notice;
do not provide for cumulative voting rights (therefore allowing the holders of a plurality of the shares of Common Stock entitled to vote in any election
of directors to elect all of the directors standing for election, if they should so choose);
provide that special meetings of the Company’s stockholders may be called only by the Board, the chairperson of the Board, the Company’s chief
executive officer or president or the secretary of the Company upon request from holders of no less than 20% of the Company’s outstanding voting
stock, subject to the limitations and requirements set forth in the Bylaws; and
provide that stockholders are permitted to amend certain provisions of the Certificate of Incorporation and Bylaws only upon receiving at least 66
2/3% of the voting power of the then outstanding voting securities, voting together as a single class.
Exclusive Forum
The Bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any
derivative action or proceeding brought on the Company’s behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of the
Company’s directors, stockholders, officers or other employees to the Company or its stockholders, (3) any action arising pursuant to any provision of the
DGCL or the Certificate of Incorporation or Bylaws or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the
Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district
court for the District of Delaware), except for, as to each of (1) through (4) above, any claim as to which such court determines that there is an
indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court
within ten days following such determination), which is vested in the exclusive jurisdiction of a court or
forum other than such court or for which such court does not have subject matter jurisdiction. The Bylaws also provide that, unless the Company consents
in writing to the selection of an alternative forum, the federal district courts of the United States is the sole and exclusive forum for resolving any complaint
asserting a cause of action arising under the Securities Act against any person in connection with any offering of the Company’s securities (including
without limitation and for the avoidance of doubt, any underwriter, auditor, expert, control person or other defendant). Any person or entity purchasing or
otherwise acquiring any interest in any of the Company’s
securities shall be deemed to have notice of and consented to the foregoing bylaw provisions. This provision would not apply to any action brought to
enforce a duty or liability created by the U.S. Exchange Act and the rules and regulations thereunder. The Company’s stockholders will not be deemed to
have waived the Company’s compliance with the federal securities laws and the rules and regulations thereunder as a result of the Company’s exclusive
forum provisions.
Transfer Agent and Registrar
The transfer agent and registrar for the shares of Common Stock and Exchangeable Shares is Computershare. The transfer agent and registrar’s address is
150 Royall Street, Canton, Massachusetts 02021.
Listing
The Company’s Common Stock is listed on The Nasdaq Stock Market LLC under the symbol “ZYME”.
Indemnification of Directors and Officers
The Certificate of Incorporation contains provisions that limit the liability of the Company’s directors and officers for monetary damages to the fullest
extent permitted by the DGCL. In addition, if the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of
officers or directors, then the personal liability of the Company’s officers or directors will be eliminated or limited to the fullest extent permitted by the
DGCL.
The Bylaws provide that the Company will indemnify its directors and officers, and may indemnify its employees, agents and any other persons, to the
fullest extent permitted by the DGCL. The Bylaws also provide that it must advance expenses incurred by or on behalf of a director or officer in advance of
the final disposition of any action or proceeding, subject to limited exceptions.
Further, the Company has entered into or will enter into indemnification agreements with each of its directors and executive officers that may be broader
than the specific indemnification provisions contained in the DGCL. These indemnification agreements require the Company, among other things, to
indemnify its directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements also
require the Company to advance all expenses reasonably and actually incurred by the directors and executive officers in investigating or defending any
such action, suit or proceeding. The Company believes that these agreements are necessary to attract and retain qualified individuals to serve as directors
and executive officers.
The Company also expects to obtain and maintain insurance policies under which its directors and officers are insured, within the limits and subject to the
limitations of those policies, against certain expenses in connection with the defense of, and certain liabilities which might be imposed as a result of,
actions, suits, or proceedings to which they are parties by reason of being or having been the Company’s directors or officers. The coverage provided by
these policies may apply whether or not the Company would have the power to indemnify such person against such liability under the provisions of the
DGCL.
This Agreement is dated the 3 day of January, 2023
rd
PARTIES
(1)
Zymeworks Pharmaceu cals Limited, a company incorporated in Ireland with company number 722169 and registered office at 88
Harcourt Street, Dublin, Dublin 2, D02 DK18, Ireland (“the Company”)
EMPLOYMENT AGREEMENT Exhibit 10.42
(2)
Jeffrey Smith, of Dublin, Ireland (“the Employee”)
(together “the Par es” and each a “Party”)
WHEREAS
A.
B.
The Company is a clinical-stage biopharmaceu cal company dedicated to the development of next-genera on mul func onal
biotherapeu cs; and
The Employee has experience in «Experience», and/or related skills and exper se and wishes to contribute such experiences to the
development and growth of the Company’s business.
IT IS AGREED that the Company will employ the Employee and the Employee will work for the Company as Senior Vice President, Early Stage
Development on the following terms and condi ons:
1.
1.1
INTERPRETATIONS AND DEFINITIONS
In this Agreement, the following defini ons apply;
(a)
(b)
“Business” means the business of researching, developing and commercializing therapeu c proteins, an bodies, and any other
research, development and manufacturing work considered, planned or undertaken by the Company during the Employee’s
employment;
“Confiden al Informa on”; means trade secrets and other informa on, in whatever form or media, in the possession or control
of the Company, which is owned by the Company or by one of its clients or suppliers or a third party with whom the Company has
a business rela onship (collec vely, the “Associates”), and which is not generally known to the public and has been specifically
iden fied as confiden al or proprietary by the Company, or its nature is such that it would generally be considered confiden al in
the industry in which the Company or its Associates operate, or which the Company is obligated to treat as confiden al or
proprietary. Confiden al Informa on includes, without limita on, the following:
(i)
(ii)
the products and confiden al or proprietary facts, data, techniques, materials and other informa on related to the
business of the Company, including all related development or experimental work or research, related documenta on
owned or marketed by the Company and related formulas, algorithms, patent applica ons, concepts, designs,
flowcharts, ideas, programming techniques, specifica ons and so ware programs (including source code lis ngs),
methods, processes, inven ons, sources, drawings, computer models, prototypes and pa erns;
informa on regarding the Company’s business opera ons, methods and prac ces, including corporate strategy, market
research, market strategies, marke ng plans, public rela ons strategies, product pricing and strategies, adver sing
sources, lists and informa on concerning current and prospec ve customers, billing informa on, suppliers, packaging,
merchandizing, distribu on, methods of produc on,
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
manufacturing, pending projects or proposals, margins and hourly rates for staff and informa on regarding the financial,
legal and corporate affairs of the Company, including business plans and projec ons and informa on regarding the
Company’s financial condi on, opera ons, assets and liabili es, financial data, business structures, business ventures,
exis ng or contemplated businesses, products, or services;
(iii)
(iv)
(v)
employee informa on, contacts, and wage informa on (other than Employee’s own); and
technical and business informa on of, or regarding, the Company’s Associates.
The above list is not exhaus ve, and Confiden al Informa on also includes other informa on that is marked or otherwise
iden fied as confiden al or proprietary, or that would otherwise appear to a reasonable person to be confiden al or
proprietary in the context and circumstances in which the informa on is known or used;
(c)
“Developments” means all inven ons, ideas, concepts, designs, improvements, discoveries, modifica ons, computer so ware,
and other results which are or have been conceived of, developed by, wri en, or reduced to prac ce by the Employee, alone or
jointly with others (including, where applicable, all modifica ons, deriva ves, progeny, models, specifica ons, source code,
design documents, crea ons, scripts, artwork, text, graphics, photos and pictures) at any me;
(d)
“Excluded Developments” means any Development that meets the following requirements:
(i)
(ii)
an inven on for which no equipment, supplies, facility, or Confiden al Informa on of the employer was used and which
was developed en rely on the employee’s own me, unless
the inven on relates (A) directly to the business of the employer, or (B) to the employer’s actual or demonstrably
an cipated research or development, or
(iii)
the inven on results from any work performed by the employee for the employer.
(e)
(f)
(g)
(h)
(i)
“Prior Developments” means any Development that the Employee establishes was developed prior to the Employee performing
such services for the Company and precedes the Employee’s ini al engagement with the Company.
“Copies” means copies or records of any Confiden al Informa on in whatever form, (including, without limita on, in wri en,
oral, visual or electronic form or on any magne c or op cal disk or memory and wherever located) including, without limita on,
extracts, analysis, studies, plans, compila ons or any other way of represen ng or recording and recalling informa on which
contains, reflects or is derived or generated from Confiden al Informa on;
“Group”: the Company, any company of which it is a Subsidiary (its holding company) and any Subsidiaries of the Company or any
such holding company;
“Incapacity” means any sickness or injury which prevents the Employee from carrying out their du es;
“Intellectual Property Rights” means patents, rights to Inven ons, copyright and related rights, moral rights, trademarks, trade
names and domain names, rights in get-up, goodwill and the right to sue for passing off, rights in designs, rights in computer
so ware, database rights, rights to preserve the confiden ality of informa on (including know-how and trade
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
secrets) and any other intellectual property rights, in each case whether registered or unregistered, and including all applica ons
(or rights to apply) for and be granted, renewals or extensions of, and rights to claim priority from, such rights and all similar or
equivalent rights or forms of protec on which may now or in the future subsist in any part of the world; and all statutory rights,
common law rights, rights of ac on, powers or benefits belonging or accrued in rela on to such rights (including the right to sue
for (and recover) damages and other remedies in respect of infringement or misuse of such informa on both before and a er the
date of this agreement);
“Inven ons” means inven ons, ideas and improvements, whether or not patentable, and whether or not recorded in any
medium;
“Person” includes any individual, company or other body corporate;
“Subsidiary”: in rela on to a company (a holding company) means a subsidiary (as defined in sec on 7 of the Companies Act
2014, as amended) and any other company which is a subsidiary (as so defined) of a company which is itself a subsidiary of such
holding company;
(j)
(k)
(l)
(m)
“Termina on” means the termina on of the Employee’s employment with the Company, howsoever caused;
(n)
(o)
(p)
(q)
(r)
“Termina on Date” means the date of the termina on of the Employee’s employment with the Company, howsoever caused;
“the Board” means the board of directors of the Company;
“Parent” means Zymeworks Inc., the holding company of the Company; and
“Parent Board” means the board of directors of Parent.
“Business” means the trade and other commercial ac vi es carried on with a view to profit by the Company and the Group
during the last 12 months of the Employee’s employment up to the Termina on Date.
1.2
1.3
1.4
1.5
2.
2.1
(s)
“Territory” shall mean the Republic of Ireland.
Any reference to any provision of any legisla on shall include a reference to any modifica on, re-enactment or extension of such
legisla on.
Save as otherwise provide herein any references in this Agreement, Clauses or Paragraphs are references to the Clauses and Paragraphs of
this Agreement unless the context otherwise admits or requires.
Words such as hereunder, hereof and herein and other words commencing with here shall unless the context clearly indicates to the
contrary refers to the whole of this Agreement and not to any par cular clause thereof.
References to the singular shall include the plural and vice versa and references to any gender shall include other genders.
PRECONDITIONS
This contract and the Employee’s employment with the Company are condi onal on the following ma ers:
(a)
The Employee providing documentary evidence of their qualifica ons;
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(b)
The Employee being free from any obliga ons owed to a third party which might prevent the Employee from star ng work on the
date men oned below or from properly performing the du es of the posi on; and
(c)
Successful and sa sfactory reference checks being completed by the Company prior to the Commencement Date.
COMMENCEMENT DATE
Subject to the Employee’s sa sfac on of the pre-condi ons specified in clause 2 above, the Employee will commence employment with
the Company on January 3, 2023 (the “Commencement Date”).
The Employee will be employed on a full- me permanent basis. No previous period of employment with any other employer will count as
part of the Employee’s period of con nuous service with the Company.
ROLE AND DUTIES
The Employee will be employed by the Company as, SVP Early Stage Development and will report to the President & Chief Opera ng
Officer of the Parent.
The Employee will carry out the du es as set out in Appendix 1 to this Agreement (“the Du es”).
In addi on to the Employee’s normal du es, the Employee will perform any other du es as are assigned to the Employee by the Company
from me to me. The Employee shall carry out their du es in a proper, loyal and efficient manner and shall use their best endeavours to
promote the interests and reputa on of the Company and not do anything which is or may be harmful to the Company.
3.
3.1
3.2
4.
4.1
4.2
4.3
4.4
During the Employee’s period of employment, the Employee shall:
4.4.1
4.4.2
4.4.3
4.4.4
4.4.5
unless prevented by Incapacity, devote the Employee’s me, a en on and abili es to the Company’s business, and shall not
(without the prior wri en consent of the Company) directly or indirectly either on the Employee’s own account or on behalf of
any other person, company, business en ty, academic, research or training ins tu on or other organisa on engage in, be
concerned with, or provide services to (whether as an employee, officer, director, agent, partner, consultant or otherwise) any
other person, company, business en ty, academic, research or training ins tu on or other organisa on or accept any other
engagement;
diligently exercise such powers and perform such du es as management of the Company or Parent (“Management”) may from
me to me assign to the Employee;
at all mes and in all respects comply with the lawful and reasonable direc ons of the Company and all rules or codes of conduct
and statements of principle in force from me to me and/or required by any regulatory body in rela on to the Business;
report to the Company the Employee’s own wrongdoing and any wrongdoing or proposed wrongdoing of any other employee or
director of the Company or any member of the Group immediately upon becoming aware of it; and
use the Employee’s best endeavours to promote, protect, develop and extend the Business and the Business of any member of
the Group.
4.5
The Employee will disclose to Management all poten al conflicts of interest and ac vi es which could reasonably be seen to compete,
indirectly or directly, with the trade or business of the
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Company. Management will determine, in its sole discre on, whether the ac vity in ques on cons tutes a conflict of interest or
compe on with the Company. To the extent that Management, ac ng reasonably, determines a conflict of interest or compe on exists,
the Employee will discon nue such ac vity forthwith or within such longer period as Management agrees. The Employee will immediately
cer fy in wri ng to the Company that he/she has discon nued such ac vity and that he/she has, as required by Management, cancelled
any contracts or sold or otherwise disposed of any interest or assets over the 5% threshold described herein acquired by the Employee by
virtue of engaging in the impugned ac vity, or where no market exists to enable such sale or disposi on, by transfer of the Employee’s
beneficial interest into blind trust or other fiduciary arrangements over which the Employee has no control or direc on, or other ac on
that is acceptable to the Board.
The Employee shall, both during and a er the Employee’s employment with the Company (regardless of the reason for termina on),
provide to the Company any such informa on, explana ons and assistance rela ng to the Employee’s conduct in connec on with the
business and affairs of the Company or the Employee’s commercial ac vi es as the Company may reasonably request in order for the
Company to determine whether the Employee is in compliance with the Employee’s obliga ons under this Agreement.
The Employee shall not, directly or indirectly, procure, accept or obtain for the Employee’s own benefit (or for the benefit of any other
person) any payment, rebate, discount, commission, vouchers, gi , entertainment or other benefit (“Gratui es”) from any third party in
respect of any business transacted or proposed to be transacted (whether or not by the Employee) by or on behalf of the Company and
shall immediately disclose and account to the Company for any Gratui es received by the Employee (or by any other person on his behalf
or instruc on) subject to any policy which may be issued by the Company in rela on to insubstan al Gratui es.
The Employee shall comply with the Company’s policies and procedures at all mes.
EXCLUSIVE SERVICE
Subject to clause 5.2 during the Employee’s employment with the Company, the Employee shall not, except as the Company’s
representa ve or with Management’s wri en approval, whether paid or unpaid, be directly or indirectly engaged, concerned or have any
financial interest as agent, consultant, director, employee, owner, partner, shareholder or in any other capacity in any other business,
trade, profession or occupa on (or the se ng up of any business, trade, profession or occupa on).
Notwithstanding clause 5.1 the Employee may hold an investment by way of shares or other securi es of not more than 5% of the total
issued share capital of any company (whether or not it is listed or dealt in on a recognised stock exchange) where such company does not
carry on a business similar to or compe ve with any business for the me being carried on by the Company or the Group.
Notwithstanding clauses 5.1 and 5.2 herein, the Employee is not restricted from nor is required to obtain the consent of the Company to
make investments in any company which is involved in pharmaceu cals or biotechnology with securi es listed for trading on any
Canadian or U.S. stock exchange, quota on system or the over-the-counter market.
For the purposes of this Sec ons, “Employee” includes any en ty or company owned or controlled by the Employee.
The Employee agrees to disclose to Management any ma ers rela ng to the Employee’s spouse or civil partner (or anyone living as such),
children or parents which may be considered to interfere, conflict or compete with the proper performance of the Employee’s obliga ons
under this Agreement.
4.6
4.7
4.8
5.
5.1
5.2
5.3
5.4
5.5
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5.6
5.7
6.
6.1
6.2
6.3
6.4
7.
7.1
7.2
7.3
7.4
8.
8.1
8.2
The Employee may not, during their employment, engage, whether directly or indirectly, in any ac vity which could or might reasonably
be considered by others to impair the Employee’s ability to act at all mes in the best interests of the Company and the Group.
The Employee may not without the prior wri en consent of Management accept any gi , discount, gratuity and/or favour of whatever
kind from any customer, dealer, client or supplier of the Company or the Group.
WORKING HOURS
The Employee will be employed on a full- me basis.
The Employee’s normal hours of work are 37.5 hours per week. The Company reasonably expects the normal working hours of the
Employee will be from 9 am to 5 pm, five days per week, Monday to Friday. The Company reserves the right to vary these mes on a
temporary or con nuing basis dependent on the needs of the business.
The Employee’s break and rest period en tlements are as set out in the Organisa on of Working Time Act 1997 and are unpaid.
The Employee acknowledges that sa sfactory performance of the Du es may, from me to me, require flexibility in rela on to the
Employee’s normal working hours and the Employee will work such over me as is reasonably necessary to carry out the Du es. Due to
the nature of the posi on, this may include evening or weekend work where necessary. The Employee acknowledges that the Employee
shall not receive further remunera on in respect of any addi onal hours worked over and above the normal working hours. The
Employee’s salary also takes into account that the Employee may from me to me work on a Sunday.
PLACE OF WORK
The Employee’s normal place of work will be at the Company’s offices, Digital Office Centre, Dublin Airport, Office 104 Balheary
Demense, Balheary Road, Swords, Co Dublin, K67 E5A0, Ireland or such other place as the Company may reasonably require for the
proper performance and exercise of the Employee’s du es.
For the proper and efficient performance of the Du es, the Employee may be required to travel periodically to and work from loca ons
inside or outside Ireland that the Company may require from me to me.
The Company reserves the right to change the place of the Employee’s employment on either a temporary or permanent basis. In such
event, the Employee will be given reasonable no ce. Any such change to place of work will not cons tute a breach of this Agreement or
give rise to any en tlement to payment to the Employee for disturbance or otherwise.
The Company also reserves the right to implement and amend from me to me a policy regarding mobile/remote work.
REMUNERATION
During the con nuance of this Agreement and in considera on of the Du es performed by the Employee referred to in clause 4 above,
the Company will pay to the Employee an annual base salary of Four Hundred and Twenty Five Thousand ($425,000) USD.
The Employee’s salary shall accrue from working day to day and be payable on the last working day of the month into the Employee’s
nominated bank or building society account, a er the deduc on of PAYE, PRSI, and USC payments and all other lawful or authorised
deduc ons. The Employee acknowledges and accepts the Company’s right to deduct any benefit in kind tax payable in respect
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
hereof from the Employee’s salary from me to me. The Company reserves the right to alter the method of payment of the Employee’s
salary, as may be necessary in the circumstances.
The Employee will be no fied, in wri ng, each month of the gross and net remunera on and of the nature and amount of all deduc ons.
For the purposes of the Na onal Minimum Wage Act 2000, the pay reference period shall be a month.
The Employee may, under Sec on 23 of the Na onal Minimum Wage Act 2000, request from the Company a wri en statement of the
Employee’s average hourly rate of pay for any pay reference period (other than the current pay reference period) falling within the twelve
month period immediately preceding the request.
For the purpose of the Payment of Wages Act 1991, the Employee acknowledges and agrees that the Company is en tled, at any me
during or on termina on of Employee’s employment, to deduct from Employee’s salary or other payments due to Employee, all sums
owed to the Company including, but not limited to, any balance owing on staff accounts, any overpayments, loans or losses and Employee
hereby consents to any such deduc ons.
Management will review the Employee’s performance, base salary, and equity par cipa on level under the terms of any Incen ve Plans,
annually beginning in 2023. The ming of performance and salary reviews may from me to me be amended by the Company in its sole
discre on.
BONUSES, PENSIONS AND OTHER BENEFITS
The Company shall procure the following benefits for the Employee subject to such policies regarding same as are in force and to any
limita ons imposed by the underwriters of such schemes as are imposed from me to me:
8.3
8.4
8.5
8.6
9.
9.1
9.2
Incen ve Plans:
The Employee shall be en tled to par cipate in such incen ve programs as may be available from me to me for the Company’s
employees, including, without limi ng the generality of the foregoing, share op on plans, share purchase plans, profit-sharing or bonus
plans (including target annual bonus as described below) (collec vely, the “Incen ve Plans”). Such par cipa on shall be on the terms and
condi ons of such Incen ve Plans as at the date hereof or as may from me to me be amended or implemented by the Company or the
Parent in its sole discre on. A copy of the Zymeworks Inc. Amended and Restated Employee Stock Purchase Plan in effect as of the
Commencement Date are a ached hereto as Appendix 3.
9.3
Target Annual Bonus:
Subject to Management discre on based on factors determined by Management including Company performance, the Employee will be
eligible to earn an annual cash bonus, with an ini al target amount of 35% of base salary. The Employee will be eligible to receive up to a
full (non-prorated bonus) if the Commencement Date is on or prior to September 30 of the year of the Commencement Date. The
Employee will be eligible to receive a prorated bonus if the Commencement Date is on or a er October 1 of the year of the
Commencement Date. The achieved por on (if any) of the annual cash bonus will be payable, less any statutory deduc ons, on the date
the Company pays such bonuses to other similarly-situated employees, subject to the Employee’s con nued employment with the
Company and no no ce of termina on of the Agreement having been issued by either Employer or Employee through the applicable
payment date. In the Company’s discre on, the Employee’s annual bonus arrangements may be under, and subject to the terms and
condi ons of, such plans and programs as the Company or its affiliates may implement from me to me.
9.4
Pension Scheme:
9.4.1
Personal Re rement Savings Account:
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The Company does not provide an occupa onal pension scheme. The Employee is en tled to make contribu ons to a Personal
Re rement Savings Account (“PRSA”). The Company will allow the Employee reasonable paid me off, subject to work
requirements, to a end a mee ng with the Company’s PRSA provider to discuss the se ng up of a PRSA for the Employee. Once
a PRSA has been set up for the Employee, the Employee may request that the Company deduct an amount from his monthly
remunera on, such deduc on to be applied to the Employee’s PRSA. The Employee will receive wri en confirma on of any
deduc ons made in connec on with same on his monthly payslip.
9.4.2
From the Commencement Date, the Company will match any contribu ons up to 6% percent made by the Employee into a PRSA,
subject at all mes to the terms, condi ons and provisions of the par cular scheme and on the condi on that no excess health
loading exists on the Employee’s life and subject to sa sfactory medical examina ons (if required).
9.5
Health Insurance:
The Company shall make an annual contribu on of E2,500.00 towards the Employee’s membership of a Health Insurance Scheme.
9.6
Laptop Computer:
The Company will provide the Employee with a laptop computer for use compa ble with office computers. This will remain the property
of the Company and must be returned to the Company on the termina on of the employment or as otherwise requested.
9.7
Mobile Phone:
The Company will provide the Employee with a mobile telephone for business use only.
9.8
Stock Op ons:
Subject to approval by Parent Board, the Employee shall be granted 188,000 op ons to acquire common shares of common stock of
Parent (the “Shares”), provided the Employee is employed by the Company on the grant date (the “Op ons”). The exercise price of the
Op ons will be set in accordance with the terms of the Zymeworks Inc. Amended and Restated Stock Op on and Equity Compensa on
Plan as it may herea er be amended (the “Equity Compensa on Plan”), and the Op ons will vest and become exercisable in accordance
with the terms of such Equity Compensa on Plan, subject to the Employee’s con nued employment with the Company through the
applicable ves ng date. A copy of the Equity Compensa on Plan in effect as of the Commencement Date will be provided to the
Employee.
9.9
9.10
9.11
The Company reserves the right to vary or discon nue any Company benefit plan(s) in which the Employee may be en tled to par cipate.
The Company shall also have the right to subs tute a new benefit plan for any plan in which the Employee may be eligible to par cipate.
Any Company benefit plan which are governed by a policy of insurance shall be subject to and condi onal upon the terms and condi ons
of the relevant policy/policies of insurance.
The Company reserves the right to withdraw any or all of these schemes at any me and/or to vary the schemes, the insurers, the rules
terms and condi ons applicable to the scheme (including the eligibility condi ons) or the level of cover at any me in its absolute
discre on. The Employee acknowledges and agrees that the Employee shall not be en tled to any benefits under any of the Company’s
insurance schemes unless the claim is admi ed and paid by the relevant insurance provider and that the Company shall have no
obliga on to take any legal ac on against any insurance provider in order to secure admission of any claim or payment of any benefits.
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
9.12
9.13
Nothing in this Agreement or in the rules, terms and condi ons of any insurance scheme shall give rise to any express or implied
limita ons on the right of the Company to terminate the Employee’s employment at any me as set out herein and the Company shall be
en tled to terminate the Employee’s employment at any me even if this results in the cessa on of any cover or benefits under any
employee benefit scheme. The Employee shall not have any express or implied right to receive any benefits or to the con nua on of
benefits following the termina on of Employee’s employment.
All benefits payable or otherwise made available to the Employee under any Company benefit plan(s) in which the Employee may be
en tled to par cipate from me to me shall automa cally cease, as shall the Employee’s eligibility to par cipate in such plan(s), upon
the termina on of the Employee’s employment for any reason whatsoever and the Company shall be under no obliga on therea er to
confer such/similar benefits on the Employee.
10.
EXPENSES
Subject to approval by Management, the Employee will be reimbursed by the Company for all reasonable, vouched expenses properly and
wholly, exclusively and necessarily incurred by the Employee in the proper performance of the Employee’s du es, subject to the
produc on of evidence of expenditure sa sfactory to the Company and compliance with the Company’s expenses policy as may be in
place from me to me.
11.
ANNUAL LEAVE AND PUBLIC HOLIDAYS
The Employee shall be en tled to 24 working days annual leave (which is inclusive of the Employee’s statutory annual leave en tlement as
set out in the Organisa on of Work Time Act 1997).
11.1
The Company’s annual leave year runs from 1 January to 31 December.
11.2
11.3
11.4
11.5
Annual leave must be taken at such mes as are convenient to the business of the Company and otherwise in accordance with Sec on 20
of the Organisa on of Working Time Act 1997. The Company reserves the right to require the Employee to take annual leave on specified
days and also, during any period of no ce.
The Employee’s statutory annual leave en tlement shall be deemed to be taken first in any leave year. Any contractual leave over and
above the statutory minimum shall not accrue during periods of sick leave.
If the Employee’s employment commences or is terminated during the annual leave year, the Employee’s en tlement to annual leave
during that year will be assessed on a pro rata basis.
The Employee may not carry forward more than 5 days unused holiday into the following holiday year, subject to the provisions of the
Organisa on of Working Time Act 1997.
11.6
Any annual leave that has been carried over into the next leave year must be taken before the end of March of the following leave year.
11.7
11.8
If, in the event of the termina on of the Employee’s employment, the Employee has exceeded the annual leave en tlement for that year,
the excess will be deducted from any sums due to the Employee by the Company and, if such deduc on is insufficient, the Employee will
repay the Company in respect of such excess.
In the event that the Employee is dismissed without no ce, or resigns without giving the required no ce, calcula on of accrued annual
leave shall be limited to the statutory en tlement under the Organisa on of Working Time Act 1997 (as amended from me to me). Any
paid annual leave (including paid public holidays) taken shall be deemed first to have been taken in sa sfac on of that statutory
en tlement.
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11.9
Salary in lieu of annual leave will not be paid by the Company except on termina on of employment and in accordance with the
Organisa on of Working Time Act 1997.
11.10 Not more than 10 days of annual leave may be taken at any one me, except in excep onal circumstances.
12.
SICK LEAVE AND SICK PAY
12.1
12.2
12.3
12.4
If the Employee becomes unfit for work due to illness or injury, the Employee, or someone on their behalf, will no fy Laura O’Connor,
Head of Global Human Resources, as soon as possible and at least one hour before the Employee’s scheduled start me on the first day
of the absence, se ng out the likely dura on of, and the reason for, the absence. The Employee is required to provide a medical
cer ficate in a form sa sfactory to the Company for all absences from work for more than three (3) consecu ve working days.
The Company may (at its own expense) at any me, whether or not the Employee is then incapacitated, require the Employee to submit
to such medical examina ons and tests by doctor(s) nominated by the Company and the Employee hereby authorises such doctor(s) to
disclose to, and discuss with, the Company and its medical advisers the results of such examina ons and tests.
Subject to the Employee’s compliance with the no fica on and cer fica on obliga ons set out in this Agreement, the Employee will be
eligible to con nue to receive his basic salary while on sick leave for a maximum aggregate period of 10 working days in any calendar year.
If the Employee’s employment commences or is terminated during the calendar year, the Employee’s en tlement to paid sick leave during
that year will be assessed on a pro rata basis.
Any payment in respect of sick pay in excess of the provisions of this Agreement will be at the absolute discre on of the Company. Any
sick pay paid to the Employee pursuant to this clause shall include any social welfare benefit to which the Employee is en tled by law and
shall be reduced by the amount of any such social welfare benefit recoverable by the Employee, whether or not recovered. The Employee
shall immediately no fy the Company of any social welfare or other benefits recoverable by them.
12.5
Sick leave is governed by the Company’s sick leave policy as may be in effect from me to me.
13.
TERMINATION
13.1
The Company shall be en tled in any of the following circumstances to terminate the Employee’s employment without no ce if at any
me the Employee:-
(a)
(b)
(c)
(d)
(e)
commits any serious or material breach or a series of breaches of any of the provisions of this Agreement or any of the
Company’s policies or procedures;
neglects or fails or refuses to properly discharge any of the Employee’s du es;
is guilty of dishonesty or misconduct;
is convicted of any criminal offence (other than a convic on for a road traffic offence that does not result in the imposi on of a
custodial sentence) which, in the reasonable opinion of the Company, may affect the Employee’s posi on with, or the reputa on
of, the Company or its clients or customers;
is guilty of any conduct tending to bring the Employee or the Company or the Group or its clients or customers into disrepute
whether such conduct takes place within or outside work;
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(f)
(g)
for any reason becomes, in the reasonable opinion of the Company, incapable of performing the du es;
misconducts themselves in such a way whether during or outside work that in the reasonable opinion of the Company, renders
the Employee unfit to con nue as an employee; or
(h)
ceases to be eligible to work in Ireland.
13.2
13.3
13.4
13.5
Nothing in this Agreement prevents the Company from summarily dismissing the Employee in the event of any serious breach by the
Employee of the terms of their employment or where the Employee is found to have commi ed misconduct.
If, by entering into employment with the Company, the Employee is in breach of any obliga on owed to any third party and/or if the
Employee has provided inaccurate or false informa on in rela on to their appointment by the Company, whether concerning their
qualifica ons, references or otherwise, the Company shall be en tled to terminate the Employee’s employment immediately without
no ce and without payment in lieu of no ce.
Termina on by either Party: Either Party may terminate the Employee’s employment by giving prior wri en no ce to the other of not
less than three (3) months’ no ce or such shorter period as the Employee and Management may agree. The Company may choose to
waive all or part of the no ce period and pay to the Employee the base salary to be earned during the balance of the no ce period.
Termina on by Company. The Company may, in its sole and absolute discre on, terminate the Employee’s employment at any me by
no fying the Employee that the Company is exercising its right under this clause and, only in the event that such termina on is without
Cause (as defined below),the Company will provide wri en no ce or make a payment in lieu of no ce (“No ce or Payment in Lieu”) to
the Employee. This No ce or Payment in Lieu (payment of which will be condi onal on the execu on by the Employee of a separa on and
release of claims agreement in a form determined by the Company) will be:
13.5.1 In the event of such termina on without Cause that does not occur within twelve (12) months following a Change of Control (as
defined below), the following:
13.5.1.1
13.5.1.2
twelve (12) months of no ce (to include any no ce due under clause 13.4) or the equivalent of nine (9) months of
base salary as of the date no ce is given plus any no ce due under clause 13.4, or any combina on thereof that
totals twelve (12) months of combined no ce and base salary, less tax and statutory deduc ons, if termina on of
employment occurs during the first three years of employment measured from the Effec ve Date (with any base
salary equivalent payable over twelve (12) months, or sooner, at the sole discre on of the Company); and
commencing in the fourth year of employment measured from the Effec ve Date, an addi onal one (1) month of
no ce or the equivalent of one (1) month of base salary as of the date no ce is given, or any combina on thereof,
less tax and statutory deduc ons, for each addi onal completed year of service, up to a total maximum of fi een
(15) months plus any no ce due under clause 13.4 (payable over eighteen (18) months, or sooner, at the sole
discre on of the Company, to include any no ce due under clause 13.4).
13.5.2 In the event of such termina on without Cause that occurs within twelve (12) months following a Change of Control (as defined
below), the following:
13.5.2.1
eighteen (18) months of no ce (to include any no ce due under clause 13.4) or the equivalent of fi een (15) months
of base salary as of the date no ce is
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given plus any no ce due under clause 13.4, or any combina on thereof that totals eighteen (18) months of
combined no ce and base salary, less tax and statutory deduc ons; and
13.5.2.2
full ves ng accelera on of all unvested and outstanding stock op ons or other Company or Parent unvested and
outstanding equity grants made to the Employee as of the date of termina on.
For purposes of the foregoing, “Cause” shall mean (i) a material breach by the Employee of any of Employee’s material obliga ons hereunder; (ii)
any act of misappropria on, embezzlement, inten onal fraud or similar conduct involving the Company or any of its affiliates; (iii) the convic on or
the plea of no contest or the equivalent in respect of a criminal offense that would have a direct and specific nega ve bearing on Employee’s
ability to perform the responsibili es of the posi on; (iv) the Company’s conclusion, following a reasonable and good-faith inves ga on, that
Employee has violated the Company’s policies with respect to Equal Employment Opportunity or prohibi on of harassment, discrimina on, or
retalia on; or (v) inten onal inflic on of any damage of a material nature to any property of the Company or any of its affiliates or employees.
For purposes of the foregoing, “Change of Control” shall mean (i) the acquisi on, directly or indirectly, by any person or group of persons ac ng
jointly or in concert of common shares of Parent which, when added to all other common shares of Parent at the me held directly or indirectly by
such person or persons ac ng jointly or in concert cons tutes for the first me in the aggregate 40% of more of the outstanding common shares of
Parent and such shareholding exceeds the collec ve shareholding of the current directors of Parent, excluding any directors ac ng in concert with
the acquiring party; or (ii) the removal, by extraordinary resolu on of the shareholders of Parent, of more than 51% of the then incumbent Board
of Parent, or the elec on of a majority of Board members to Parent’s board who were not nominees of Parent’s incumbent board at the me
immediately preceding such elec on; or (iii) consumma on of a sale of all or substan ally all of the assets of Parent; or (iv) the consumma on of a
reorganiza on, plan of arrangement, merger, or other transac on which has substan ally the same effect as to above.
13.6
For the avoidance of doubt, the No ce or Payment in Lieu shall not include any element in rela on to:
(a)
(b)
(c)
any bonus or commission payments that might otherwise have been due during the period for which the Payment in Lieu is
made;
any payment in respect of benefits which the Employee would have been en tled to receive during the period for which the
Payment in Lieu is made; and
any payment in respect of any holiday en tlement that would have accrued during the period for which the Payment in Lieu is
made.
Payment or no ce in accordance with these clauses to the Employee by the Company will be full and adequate compensa on to the
Employee with respect to any claim rela ng to the Employee’s employment or termina on or manner of termina on of the Employee’s
employment, and the Employee waives any right that he/she may have to claim further payment, compensa on or damages from the
Company.
Payment of any amount under this Agreement in excess of any minimum required by law is condi onal upon execu on by the Employee
of a separa on and release of claims agreement in a form determined by the Company.
The ves ng and exercise of any outstanding Zymeworks Inc. equity awards granted to the Employee in the event the Employee’s
employment with the Company or this Agreement terminates, for any reason, shall be governed by the terms of the applicable Equity
Compensa on Plan and any applicable award agreement in effect between the Company and the Employee at the me of termina on.
13.7
13.8
13.9
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13.10
The termina on of the Employee’s employment for whatever reason shall not affect those terms of this Agreement which are expressed
to have effect a er such termina on and shall be without prejudice to any accrued rights or remedies of the par es.
14.
OBLIGATIONS ON TERMINATION
14.1
The Company shall forthwith pay to the Employee all accrued and unpaid remunera on and expenses due under the terms of this
Agreement.
14.2
Upon the termina on of the Employee’s employment the Employee:-
(a)
(b)
(c)
(d)
shall immediately deliver up to the Company all correspondence, documents, memoranda, papers, computer disks, object or
source codes, wri ng, credit cards, keys, mobile telephones and other property of the Company which may be in the Employee’s
possession or under Employee’s control by reason of their employment;
shall not use or adopt or purport to use or adopt the name or any trade or business name of the Company for any purpose;
shall not hold themselves out, or represent, to any third party that the Employee has the authority or ostensible authority to
represent or to contractually bind, the Company; and
shall not make any statements, whether verbally or in wri ng, which are false, misleading, derogatory or disparaging of the
Company and/or Group and its or their respec ve directors, employees, servants, agents and officers. The Company agrees that it
will not make any statements, whether verbally or in wri ng, which are derogatory or disparaging of the Employee.
15.
COMPANY PROPERTY
15.1
15.2
15.3
15.4
All documents, manuals, hardware and so ware provided for the Employee’s use by the Company, and any data or documents (including
copies) produced, maintained or stored on the Company’s/Group’s computer systems or other electronic equipment (including mobile
phones) remain the property of the Company/Group.
The Employee must not remove any documents, or tangible items which belong to the Company/Group or which contain any Confiden al
Informa on from the Company’s premises at any me without proper advance authorisa on.
The Employee must return to the Company upon request and, in any event, upon the termina on of the employment, all documents and
tangible items which belong to the Company/Group or which contain or refer to any Confiden al Informa on and which are in the
Employee’s possession or under their control.
The Employee must, if requested by the Company, delete all Confiden al Informa on from any re-usable material and destroy all other
documents and tangible items which contain or refer to any Confiden al Informa on and which are in the Employee’s possession or
under their control.
15.5
On termina on of the Employee’s employment (howsoever arising) the Employee shall:
(a)
immediately deliver to the Company all documents, books, materials, records, correspondence, papers and informa on (on
whatever media and wherever located) rela ng to the business or affairs of the Company/Group or their business contacts, any
keys, credit cards and any other property of the Company/Group including any car provided to the Employee which is in their
possession or under their control;
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
(b)
irretrievably delete any informa on rela ng to the business of the Company/Group stored on any magne c or op cal disk or
memory and all ma er derived from such sources which is in the Employee’s possession or under their control outside the
Company’s premises; and
(c)
provide a signed statement that the Employee has complied fully with the obliga ons under this clause 15.
16.
POST TERMINATION RESTRICTIONS
16.1
16.2
By virtue of the Employee’s role, the Employee has access to trade secrets, Confiden al Informa on and personal knowledge of and
influence over clients and employees of the Company and the Group. To protect these Company interests, the Employee agrees that the
Employee will be bound by the following covenants which the Employee acknowledges are reasonable.
The Employee hereby agrees that they will not, during the con nuance of the Employee’s employment, and for a period of six months
a er its termina on (howsoever caused), without the prior wri en consent of the Company or Parent, directly or indirectly, within the
Territory, be employed by, engaged, concerned or interested in (except as the holder or beneficial owner for investment purposes of not
more than 5% in nominal value of any class of securi es listed or dealt with on any recognized stock exchange or automated quota on
system), as a director, employee, manager, consultant, advisor or in any other managerial or sales capacity, either on the Employee’s own
behalf or in conjunc on with or on behalf of any person, firm, company, business, concern or enterprise whatsoever, any business wholly
or partly in compe on with the Business.
16.3
The Employee hereby agrees that they will not, during the con nuance of the Employee’s employment, and for a period of nine months
a er its termina on (howsoever caused), without the prior wri en consent of Company or Parent, directly or indirectly:
16.3.1 either on the Employee’s own behalf or in conjunc on with or on behalf of any other person, firm, company, business, concern or
enterprise whatsoever;
(a)
(b)
(c)
solicit or en ce or endeavour to solicit or en ce away from the service of the Company any person employed by the Company or
any member of the Group in a director, officer, managerial, sales, financial, marke ng, purchasing, technical, IT or logis cal
capacity in the 24 months prior to the Termina on Date and with whom Employee had worked at any me during that period
whether or not such person would commit a breach of his/her contract of employment by reason of leaving such service;
canvass, solicit or approach or cause to be canvassed or solicited or approached for orders/business in respect of any goods or
services provided by the Company or the Group any person, firm, company, business, concern or enterprise whatsoever who is or
was at any me during the period of one year immediately preceding the Termina on Date a customer of, or in the habit of
dealing with, the Company or the Group or who is or had been during the said 1 year period nego a ng with the Company or the
Group for the supply of such services or goods, and with whom the Employee had dealings or knowledge of their requirements;
or
interfere or seek to interfere to take steps as may interfere with the con nuance of supplies to the Company or the Group (or the
terms rela ng to such supplies) from any persons who are or who have been supplying components, materials, goods or services
to the Company or the Group at any me during the one year period immediately preceding Termina on Date if such
interference or steps causes or would cause the supplier to materially alter its rela onship or the terms on which it does business
with the Company or the Group.
16.4
The Employee agrees that they will not a er the Termina on Date whether directly or indirectly, use in connec on with any business, any
name that includes the name of the Company or the Group or any colourable imita on of such name(s).
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16.5
16.6
The Employee agrees that if during the con nuance in force of the restric ons set out in this clause, the Employee receives an offer of
employment from any person, the Employee will immediately provide that person with a complete and accurate copy of this clause.
Nothing contained in this clause shall act to prevent the Employee from using generic skills learnt while employed by the Company in any
business or ac vity which is not in compe on with the Company or the Group.
16.7
Severance
The Employee hereby acknowledges and agrees that clause 16 of this contract, and every part thereof, are en rely separate and
independent (notwithstanding that they may be contained in the same clause, sub-clause, paragraph, sub-paragraph, sentence or phrase)
and that they are independent, separate and severable and enforceable accordingly and that the dura on, extent and applica on of each
clause, and every part thereof, is no greater than is reasonable and necessary for protec on of the legi mate interests of the Company
and Group and that if any such clause, or any part thereof shall be adjudged by any court of competent jurisdic on to be void or
unenforceable but would be valid if part of the wording thereof was deleted and/or the period thereof was reduced and/or the
geographical area dealt with thereby was reduced the said clause, or part thereof, shall apply within the jurisdic on of that court with
such modifica ons as may be necessary to make it valid, effec ve and enforceable and shall be deemed to have been amended
accordingly so that such clause, or part thereof, shall be construed by such court by limi ng and reducing it or them so as to be
enforceable to the maximum extent compa ble with the applicable law as it shall then apply.
17.
COOPERATION
17.1
17.2
Upon the receipt of reasonable no ce from the Company (including outside counsel), the Employee agrees that while employed by the
Company and for one year therea er, the Employee will respond and provide informa on with regard to ma ers in which the Employee
has knowledge as a result of the Employee’s employment with the Company, and will provide reasonable assistance to the Company and
its Group Companies and their respec ve representa ves in defence of all claims that may be made against the Company or its Group
Companies, and will reasonably assist the Company and its Group Companies in the prosecu on of all claims that may be made by the
Company or its Group Companies, to the extent that such claims may relate to the period of the Employee’s employment with the
Company.
The Employee agrees to promptly inform the Company if the Employee becomes aware of any lawsuit involving such claims that may be
filed or threatened against the Company or any Group company. The Employee also agrees to inform the Company promptly (to the
extent that the Employee is legally permi ed to do so) if the Employee is asked to assist in any inves ga on of the Company or any Group
company (or their ac ons), regardless of whether a lawsuit or other proceeding has then been filed against the Company or any Group
company with respect to such inves ga on, and shall not do so unless legally required. Upon presenta on of appropriate documenta on,
the Company shall pay or reimburse the Employee for all reasonable out-of-pocket travel, duplica ng or telephonic expenses incurred by
the Employee in complying with this clause 17.
18.
CONFIDENTIALITY
18.1
18.2
The Employee acknowledges that in the course of the employment the Employee has access to Confiden al Informa on. The Employee
therefore agrees to accept the restric ons in this clause.
The Employee shall not, during the con nuance of the Employee’s employment or at any me therea er, except as authorised by the
Company in the proper performance of the Du es, use, disclose or cause to be disclosed to any person, use for the Employee’s own
purposes or for any purposes other than those of the Company, any Confiden al Informa on which the Employee may have received or
obtained during the Employee’s employment with the Company or informa on in respect of which the Company is bound by an obliga on
of confidence to a third party. The
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Employee shall use their best endeavours to prevent the unauthorised use, publica on or disclosure of any such informa on and agrees
that the Employee will inform the Company immediately of any instances of misuse or disclosure of which the Employee becomes aware.
The Employee shall not, during the con nuance of the Employee’s employment or at any me therea er, except as authorised by the
Company in the proper performance of the Du es, make or use or retain any Copies.
All Confiden al Informa on and Copies shall be the property of the Company and on termina on of the Employee’s employment, or at
any me during the term of this contract of employment at the request of the Company, the Employee shall:
18.3
18.4
(a)
(b)
hand over all Confiden al Informa on or Copies to Employee’s immediate supervisor or another person nominated by the
Company for this purpose;
irretrievably delete any Confiden al Informa on stored on any magne c or op cal disk or memory, including personal computer
networks, personal e-mail accounts or personal accounts on websites, and all ma er derived from such sources which is in the
Employee’s possession or under his control outside the Company’s premises; and
(c)
provide a signed statement that the Employee has complied fully with the Employee’s obliga ons under this clause 18.
18.5
The restric ons contained in this clause shall not apply to:
(a)
(b)
any disclosure authorised by the Company or required in the ordinary and proper course of the Employee’s employment or as
required by the order of a court of competent jurisdic on or an appropriate regulatory authority; or
any informa on which the Employee can demonstrate was known to the Employee prior to the commencement of the
Employee’s employment by the Company or is in the public domain otherwise than as a result of a breach of this clause.
18.6
Ownership of Developments
18.6.1 Acknowledgment of Company Ownership - The Employee acknowledges that the Company will be the exclusive owner of all the
Developments made during the term of the Employee’s employment by the Company, except Excluded Developments, and to all
intellectual property rights in and to such Developments. The Employee hereby assigns all right, tle and interest in and to such
Developments and their associated intellectual property rights throughout the world and universe to the Company, including
without limita on, all trade secrets, patent rights, copyrights, mask works, industrial designs and any other intellectual property
rights in and to each such Development, effec ve at the me each is created. Further, the Employee irrevocably waives all moral
rights the Employee may have in such Developments.
18.6.2 Excluded Developments and Prior Developments - The Company acknowledges that it will not own any Excluded Developments or
Prior Developments.
18.6.3 Disclosure of Developments - To avoid any disputes over the ownership of Developments, the Employee will provide the Company
with a general wri en descrip on of any of the Developments the Employee believes the Company does not own because they
are Excluded Developments or Prior Developments. Therea er, the Employee agrees to make full and prompt disclosure to the
Company of all Developments, including, without limita on, Excluded Developments, made during the term of the Employee’s
employment with the Company. The Company will hold any informa on it receives regarding Excluded Developments and Prior
Developments in confidence.
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18.6.4 Further Acts - The Employee agrees to cooperate fully with the Company both during and a er the Employee’s employment by
the Company, with respect to (i) signing further documents and doing such acts and other things reasonably requested by the
Company to confirm the Company’s ownership of the Developments other than Excluded Developments and Prior Developments,
the transfer of ownership of such Developments to the Company, and the waiver of the Employee’s moral rights therein, and (ii)
obtaining or enforcing patent, copyright, trade secret or other protec on for such Developments; provided that the Company
pays all the Employee’s expenses in doing so, and reasonable compensa on if such acts are required a er the Employee leaves
the employment by the Company.
18.6.5 Employee-owned Inven ons - The Employee hereby covenants and agrees with the Company that, unless the Company agrees in
wri ng otherwise, the Employee will not use or incorporate any Excluded Development or Prior Development in any work
product, services, or other deliverables the Employee provides to the Company. If the Employee uses or incorporates any
Excluded Development or Prior Development with the Company’s permission, as provided above, the Employee (i) represents
and warrants that he or she owns all proprietary interest in such Excluded Development or Prior Development and (ii) grants to
the Company, at no charge, a non-exclusive, irrevocable, perpetual, worldwide license to use, distribute, transmit, broadcast, sub-
license, produce, reproduce, perform, publish, prac ce, make, and modify such Excluded Development or Prior Development.
18.6.6 Prior Employer Informa on - The Employee hereby covenants and agrees with the Company that during the Employee’s
employment by the Company, the Employee will not improperly use or disclose any confiden al or proprietary informa on of any
former employer, partner, principal, co-venturer, customer, or independent contractor of the Employee and that the Employee
will not bring onto the Company’s premises any unpublished documents or any property belonging to any such persons or
en es unless such persons or en es have given their consent. In addi on, the Employee will not violate any non-disclosure,
non-compete or proprietary rights agreement the Employee has signed with any person or en ty prior to the Employee’s
execu on of this Agreement, or knowingly infringe the intellectual property rights of any third party while employed by the
Company.
18.7
Protec on of Computer Systems and So ware - The Employee agrees to take all necessary precau ons to protect the computer systems
and so ware of the Company, including, without limita on, complying with the obliga ons set out in the Company’s policies.
18.8
Defend Trade Secrets Act. Pursuant to the Defend Trade Secrets Act of 2016, the Employee understands that under United States law:
18.8.1 an individual may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade
secret that:
18.8.2 is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an a orney; and (B)
solely for the purpose of repor ng or inves ga ng a suspected viola on of law; or
18.8.3 is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
18.8.4 Further, an individual who files a lawsuit for retalia on by an employer for repor ng a suspected viola on of law may disclose the
employer’s trade secrets to the a orney and use the trade secret informa on in the court proceeding if the individual:
18.8.5 files any document containing the trade secret under seal; and
18.8.6 does not disclose the trade secret, except pursuant to court order.
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
19.
INTELLECTUAL PROPERTY
19.1
The Employee acknowledges that all Intellectual Property Rights and Inven ons created wholly or partly by the Employee in the course of
their employment with the Company (whether or not during working hours or using Company premises or resources, and, in the case of
Inven ons whether or not recorded in material form), together with all materials embodying such Intellectual Property Rights and
Inven ons shall automa cally belong to the Company to the fullest extent permi ed by law. To the extent that they do not vest in the
Company automa cally, the Employee holds them on trust for the Company.
19.2
The Employee acknowledges that, because of the nature of their du es and the par cular responsibili es arising from the nature of those
du es, they have, and shall have at all mes while they are employed by the Company, a special obliga on to further the interests of the
Company.
19.3
The Employee shall:
(a)
(b)
(c)
(d)
promptly communicate in confidence to the Company, full par culars of any Intellectual Property Right and/or Inven on referred
to in clause 19.1 and the Employee shall not use, disclose to any person or exploit any such Intellectual Property Right or
Inven on without the prior wri en consent of the Company;
at the Company’s request, and in any event upon termina on of employment, give to the Company all originals and copies of
correspondence, documents, papers and records on all media which record or relate to any such Intellectual Property Rights;
not a empt to register any such Intellectual Property Rights or seek to patent any Inven on unless instructed to do so by the
Company; and
at the request and expense of the Company, prepare and execute such instruments and do such other acts and things as may be
necessary or desirable, in the opinion of the Company, to enable the Company or its nominee to obtain and maintain protec on
of any Intellectual Property Right vested in the Company in such parts of the world as may be specified by the Company or its
nominee, to enable the Company to exploit and enforce its rights in respect of any Intellectual Property Right vested in the
Company to best advantage, and to defend claims for infringement of third party Intellectual Property Rights.
19.4
The Employee hereby irrevocably:
(a)
(b)
appoints the Company to be their a orney in their name and on their behalf to sign, execute or do any instrument or act and
generally to use their name for the purpose of giving to the Company or its nominee the full benefit of the provisions of this
clause 19; and
uncondi onally waives any and all of their moral rights (conferred by the Copyright and Related Rights Acts 2000 to 2019, and all
similar rights in other jurisdic ons around the world) which they have or will have, and agrees not to support, maintain or permit
any claim for infringement of their moral rights.
19.5
To the extent that by law any Intellectual Property Right to which clause 19.1 applies does not, or is not permi ed to or cannot, vest in or
belong to the Company, the Employee agrees immediately upon the same coming into existence to offer to the Company a right of first
refusal to acquire the same on arms’ length terms to be agreed between the Employee and the Company. The Company shall ini ate
nego a ons by no ce in wri ng and in the absence of agreement within thirty days of such no ce, the ma er will be referred to
arbitra on to be decided upon by an arbitrator to be appointed by the President for the me being of the Law Society of Ireland (whose
decision shall be final and binding on the par es and whose costs shall be borne equally by the par es).
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
19.6
The Employee’s obliga ons under this clause shall con nue to apply a er the termina on of their employment with the Company
(whether terminated lawfully or otherwise). Each of these obliga ons is enforceable independently of the others and their validity shall
not be affected if any of the others is, to any extent, unenforceable.
20.
DATA PROTECTION
20.1
The Company needs to process the Employee’s personal data, as required, for the purposes of administering this contract; without such
processing, it would not be possible for the Company to enter into this Agreement with the Employee. Informa on regarding the legal
basis for any such processing, the period of me for which the personal data will be retained and related ma ers is set out in the
Company’s Data Protec on Policy as may be in place from me to me.
21.
SHORT-TIME AND LAY-OFF
21.1
The Company reserves the right to place the Employee on lay off or short me. In the event that the Employee is placed on lay off the
Employee shall have no right to any remunera on in respect of the period of such lay off. If the Employee is placed on short me, the
Employee will only be paid for hours actually worked.
22.
TERMS OF EMPLOYMENT (INFORMATION) ACT, 1994-2014
22.1
The provisions of this Agreement shall cons tute no ce to the Employee of the terms and condi ons of employment as are required to be
given to the Employee pursuant to the Terms of Employment (Informa on) Act, 1994-2014.
23.
ALTERATION OF THE EMPLOYEE’S TERMS OF EMPLOYMENT
23.1
23.2
23.3
The Company reserves the right to make reasonable altera ons to any of the Employee’s terms of employment from me to me. Such
changes may be made by way of a general no ce applicable to all employees or by way of specific no ce to the Employee. Any such
changes shall take effect immediately and the Employee will be no fied of the change(s) by the Company in wri ng as soon as possible
therea er and, in any event, not later than one month a er the date the change(s) is/are implemented.
In the event that varia on(s) or amendment(s) is/are made to the terms and condi ons of the Employee’s employment, such varia on(s)
or amendment(s) will not cons tute a new agreement and the employment of the Employee will con nue in all respects as before,
subject to the terms and condi ons of this Agreement as so varied.
No failure or delay by the Company in exercising any remedy, right, power of privilege under or in rela on to this Agreement or at law
shall operate as a waiver of the same nor shall any single or par al exercise of any remedy, right, power or privilege preclude any further
exercise of the same or the exercise of any other remedy, right, power or privilege.
24.
COLLECTIVE AGREEMENTS
24.1
There are no collec ve agreements or employment regula on orders affec ng the Employee’s employment with the Company.
25.
COMPANY POLICIES AND PROCEDURES
25.1
The Employee must abide by all of the Company’s Policies and Procedures. These policies and procedures do not form part of the terms
and condi ons of employment and may be amended, deleted or supplemented from me to me. The Employee will receive no fica on
of any such changes by the Company from me to me. Where there is a conflict between the provisions of any
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
policy or procedure and this contract of employment, the terms and condi ons of this contract shall prevail.
25.2
The Employee hereby confirms that upon commencement of employment the Employee will review and acknowledge the Company
Policies and Procedures available through the Company’s compliance management system. The Employee confirms that they will comply
with the Company Policies and Procedures throughout their employment with the Company.
26.
DISCIPLINARY AND GRIEVANCE PROCEDURES
26.1
26.2
The Employee is subject to the Company’s disciplinary and grievance procedures which are available through the Company’s compliance
management system. These procedures do not form part of the Employee’s contract of employment and may be amended by the
Company from me to me.
The Company may suspend the Employee from any or all of the Employee’s du es for no longer than is necessary to promptly inves gate
any disciplinary ma er involving the Employee or so long as is otherwise reasonable while any disciplinary procedure against the
Employee is outstanding.
26.3
During any period of suspension:
(a)
(b)
(c)
(d)
(e)
The Employee shall con nue to receive their basic salary and all contractual benefits in the usual way and subject to the terms of
any benefit arrangement;
The Employee shall remain an employee of the Company and bound by the terms of this Agreement;
The Employee shall ensure that Management knows where he will be and how the Employee can be contacted during each
working day (except during any periods taken as holiday in the usual way);
The Company may exclude the Employee from the place of work or any other premises of the Company or any Group company;
and
The Company may require the Employee not to contact or deal with (or a empt to contact or deal with) any officer, employee,
consultant, client, customer, supplier, agent, distributor, shareholder, adviser or other business contact of the Company or any
Group company.
27.
HEALTH & SAFETY AT WORK
27.1
The Employee must familiarise themselves with and abide by the Company’s Health and Safety Policy as may be in place from me to
me. During the course of the employment the Employee is obliged to take care for their own health and safety and that of their
colleagues.
28.
SECURITY
28.1
All communica ons, whether by telephone, email, fax, or any other means, which are transmi ed, undertaken or received using the
Company’s informa on technology (“IT”) or communica ons systems or Company property will be treated by the Company as work
related and the Company’s IT systems and network are provided for the Employee’s use in undertaking their du es. The Employee agrees
that the Company may intercept, record and monitor all such communica ons made by the Employee and their use of the Company’s IT
systems and network without further no ce. Accordingly, the Employee should not regard any such communica ons or use as being
private and ma ers which are private should be conducted by the Employee outside of working hours, away from the Company’s
premises and without use of the Company’s communica ons and IT hardware, so ware, systems and networks.
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
28.2
The recording and monitoring of communica ons is intended to protect the Company’s business interests, for example, but without
limita on, for the purposes of quality control, security of communica on and IT systems, protec on of the Company’s confiden al
informa on and legi mate business interests, record-keeping and eviden al requirements, detec on and preven on of criminal ac vity
or misconduct and to assist the Company to comply with relevant legal requirements.
28.3
The Employee agrees that recorded or monitored communica ons may be used as evidence in disciplinary or legal proceedings, including
in any such ac on against the Employee.
29.
SERVICE OF NOTICES
29.1
29.2
Any no ce given under this Agreement shall be deemed to have been served on the Employee if it is served on the Employee personally
or, in the alterna ve, le at or sent by registered post to the Employee at their usual address, as supplied by them to the Company.
Any no ce given under this Agreement shall be deemed to have been served on the Company if it is hand delivered personally or sent by
fax, email or post (the chosen method of delivery to incorporate proof of delivery) to the Parent Company’s President & Chief Opera ng
Officer with a copy to the Head of Global Human Resources.
29.3
For the purpose of calcula ng deemed receipt:
(a)
(b)
all references to me are to local me in the place of deemed receipt; and
if deemed receipt would occur on a Saturday or Sunday or a public holiday when banks are not open for business, deemed
receipt is at 09.00 am on the next business day.
29.4
This clause does not apply to the service of any proceedings or other documents in any legal ac on.
30.
ENTIRE AGREEMENT
30.1
This Agreement and any document/agreement referred to in it cons tutes the whole agreement between the Par es in rela on to the
Employee’s employment by the Company and supersedes all previous discussions, correspondence, nego a ons, arrangements,
understandings and agreements between them.
30.2
Each Party acknowledges that, in entering into this Agreement, it has not relied on and shall have no remedy in respect of any pre-
contractual statement.
31.
WAIVER
31.1
No failure or delay by the Company in exercising any remedy, right, power of privilege under or in rela on to this Agreement or at law
shall operate as a waiver of the same nor shall any single or par al exercise of any remedy, right, power or privilege preclude any further
exercise of the same or the exercise of any other remedy, right, power or privilege.
32.
COUNTERPARTS
32.1
This Agreement may be executed in any number of counterparts, each of which, when executed, shall be an original, and all the
counterparts together shall cons tute one and the same instrument.
33.
GOVERNING LAW AND JURISDICTION
33.1
This Agreement and any dispute or claim arising out of or in connec on with it or its subject ma er or forma on (including non-
contractual disputes or claims) shall be governed by and construed in accordance with the laws of Ireland.
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
33.2
The Par es irrevocably agree that the courts and tribunals of Ireland shall have exclusive jurisdic on to se le any dispute or claim that
arises out of or in connec on with this Agreement or its subject ma er or forma on (including non-contractual disputes or claims).
34.
SEVERABILITY
34.1
If any provision or part thereof of this Agreement or its applica on to any person or circumstance is or is found to be invalid or
unenforceable, the invalidity or unenforceability of such provision or part thereof shall be severed from this Agreement and shall not
affect the validity or enforceability of that provision or of other provisions of this Agreement or the applica on of such provisions to any
person or circumstance.
35.
HEADINGS
35.1
The headings to the clauses of this Agreement are for convenience of reference only and shall not affect the meaning or construc on of
anything contained in this Agreement.
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
IN WITNESS whereof the Par es hereto have executed this Agreement in manner hereina er appearing the day and year first above wri en.
SIGNED for and on behalf of the Company
by in the presence of:
Witness Signature:
Address:
Occupa on:
SIGNED AND DELIVERED by
JEFFREY SMITH
in the presence of:
Witness Signature:
Address:
Occupa on:
/s/ Laura O’Connor
Signature of Laura O’Connor, Head of Global Human Resources
/s/ Jeffrey Smith
Signature of Jeffrey Smith
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
APPENDIX 1
THE DUTIES
1.
The Employee’s primary responsibili es and du es will include;
(a)
(b)
TO BE CONFIRMED
The performance of any other du es as may be reasonably required of him/her by the Company from me to me.
Zymeworks Inc. | Suite 800 - 114 East 4th Avenue, Vancouver, BC, V5T 1G4 | zymeworks.com
Exhibit 10.43
January 5, 2024
Jeffrey Smith
1
[…***…]
Dear Jeffrey,
I am pleased to offer you a promotion to the position of Executive Vice President, Chief Medical Officer, with the addition of the
following changes to your compensation package, effective January 1, 2024.
Your revised compensation is based on your contributions to the Company’s goals and ongoing efforts to make Zymeworks a world leader
in antibody and protein therapeutics.
Current Base Salary $425,000.00 USD
Promotional Increase 14.1%
Jan. 1, 2024 New Base Salary $485,000.00 USD
Current Bonus Target 35%
New Bonus Target 45%
On behalf of the senior management team and Zymeworks’ Board of Directors, I am pleased to inform you of your 2024 annual equity
grant. This year, your grant will be issued to you in Stock Options and Restricted Stock Units (RSUs).
Annual Stock Option Award 90,000
Annual RSU Award 60,000
Pending receipt of all required corporate approvals, the Options and RSUs will be granted under the Company’s Amended and Restated
Stock Option and Equity Compensation Plan, per the following stock vesting schedule:
Stock Options
•
•
25% of the Options will vest and become exercisable on the one-year anniversary of the date of grant, after which
1/36 of the remaining Options will vest on the last day of each month, until all of the Options have vested, subject to your
continued company service
RSUs
The RSUs will vest over a three-year period as follows:
•
•
•
1/3 of such RSUs will vest on the one-year anniversary of the Grant Date
1/3 of such RSUs will vest on the two-year anniversary of the Grant Date
The remaining 1/3 of such RSUs will vest on the three-year anniversary of the Grant Date, subject to your continued
company service
You will be notified at a later date when your annual stock option and RSU grant is ready for your review and acceptance in Shareworks.
1
Personal Information – Contact Information.
This is well deserved! I want to personally thank you for all your contributions and commitment to Zymeworks’ success as we strive to
bring patients home to their loved ones disease-free. All of your efforts are greatly appreciated.
We wish you well in your new position. If you have any questions, please do not hesitate to contact me.
Sincerely,
/s/ Kenneth Galbraith
Kenneth Galbraith
Chair & CEO
I, Jeffrey Smith, understand that all other terms and conditions of my employment remain unchanged.
Acknowledged:
Signed: /s/ Jeffrey Smith
Dated: January 6, 2024
Exhibit 10.49
ZYMEWORKS INC.
INDUCEMENT STOCK OPTION AND EQUITY COMPENSATION PLAN
(as amended and restated through the Arrangement Effective Time)
TABLE OF CONTENTS
ARTICLE I INTERPRETATION 1
Section 1.1 Definitions 1
Section 1.2 Interpretation 5
ARTICLE II GENERAL PROVISIONS 5
Section 2.1 Administration 5
Section 2.2 Shares Reserved 6
Section 2.3 Amendment and Termination 7
Section 2.4 Compliance with Legislation 8
Section 2.5 Effective Time and Termination 9
Section 2.6 Tax Withholdings and Deductions 9
Section 2.7 Non-Transferability 9
Section 2.8 Participation in this Plan 10
Section 2.9 Notice 10
Section 2.10 Right to Issue Other Shares 11
Section 2.11 Quotation of Shares 11
Section 2.12 No Fractional Shares 11
Section 2.13 Governing Law 11
ARTICLE III OPTIONS 11
Section 3.1 Grant 11
Section 3.2 Exercise Price 12
Section 3.3 Vesting 12
ARTICLE IV EXERCISE & EXPIRY & CHANGE OF CONTROL 12
Section 4.1 Conditions of Exercise 12
Section 4.2 Exercise Period 13
Section 4.3 Termination Date 14
Section 4.4 Change of Control 15
ARTICLE V OTHER AWARDS 17
Section 5.1 General 17
Section 5.2 Restricted Stock 17
Section 5.3 Restricted Stock Units 17
Section 5.4 Other Share-Based Awards; Performance Vesting 18
i
ARTICLE I
INTERPRETATION
Section 1.1 Definitions
For the purposes of this Plan, the following terms shall have the following meanings:
(a)
“Affiliate” or “Affiliated” means, with respect to any specified Person, any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified
Person (for the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled
by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise);
(b)
“Arrangement Effective Time” has the meaning given to that term in the Transaction Agreement.
(c)
“Authorized Leave” means any leave of absence (paid or unpaid) approved in writing by the Corporation
for a period of more than four (4) weeks that occurs while the Participant continues to be employed as an employee by the
Corporation and includes any parental leave, short term disability or other bona fide paid or unpaid leave of absence or
sabbatical period;
(d)
“Award” means a grant of an Option or of an Other Award hereunder. Each Award under the Plan is
intended to qualify as an employment inducement award under Rule 303A.08.
(e)
“Board” means the board of directors of the Corporation as constituted from time to time, or a committee
thereof to which authority has been delegated by the board of directors with respect to any particular functions of the board of
directors, as set forth in Section 2.1(c) herein;
(f)
“Business Day” means a day, other than a Saturday or Sunday, on which banking institutions in
Vancouver, British Columbia are not authorized or obligated by law to close;
(g)
“Change of Control” means the happening, in a single transaction or in a series of related transactions, of
any of the following events:
(i)
any transaction (other than a transaction described in clause (ii) below) pursuant to which any
person or group of persons acting jointly or in concert acquires the direct or indirect beneficial ownership of securities
of the Corporation representing 50% or more of the aggregate voting power of all of the Corporation’s then issued and
outstanding securities entitled to vote in the election of directors of the Corporation;
1
(ii)
there is consummated an arrangement, amalgamation, merger, consolidation or similar transaction
involving (directly or indirectly) the Corporation and, immediately after the consummation of such arrangement,
amalgamation, merger, consolidation or similar transaction, the shareholders of the Corporation immediately prior
thereto do not beneficially own, directly or indirectly, either (A) outstanding voting securities representing more than
50% of the combined outstanding voting power of the surviving or resulting entity in such arrangement, amalgamation,
merger, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting power of the
parent of the surviving or resulting entity in such arrangement, amalgamation, merger, consolidation or similar
transaction, in each case in substantially the same proportions as their beneficial ownership of the outstanding voting
securities of the Corporation immediately prior to such transaction;
(iii)
the sale, lease, exchange, license or other disposition of all or substantially all of the Corporation’s
assets to a person other than (A) a disposition to a Person that was an Affiliate of the Corporation at the time of such
sale, lease, exchange, license or other disposition or (B) a sale, lease, exchange, license or other disposition to an entity,
more than fifty percent (50%) of the combined voting power of the voting securities of which are beneficially owned
by Shareholders of the Corporation in substantially the same proportions as their beneficial ownership of the
outstanding voting securities of the Corporation immediately prior to such sale, lease, exchange, license or other
disposition;
(iv)
the passing of a resolution by the Board or Shareholders to substantially liquidate the assets of the
Corporation or wind up the Corporation’s business or significantly rearrange its affairs in one or more transactions or
series of transactions or the commencement of proceedings for such a liquidation, winding-up or re-arrangement
(except where such re-arrangement is part of a bona fide reorganization of the Corporation in circumstances where the
business of the Corporation is continued and the shareholdings remain substantially the same following the re-
arrangement);
(v)
individuals who, on the Effective Time, are members of the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the
appointment or election (or nomination for election) of any new Board member was approved or recommended by a
majority vote of the members of the Incumbent Board then still in office, such new member will, for purposes of this
Plan, be considered as a member of the Incumbent Board; or
(vi) any transaction, plan, scheme, reorganization or arrangement whereby an entity acquires, directly
or indirectly, greater than fifty percent (50%) of the Zymeworks Common Shares (as defined in the Transaction
Agreement), such that upon the Arrangement Effective Time, the Corporation is a successor to Zymeworks (as defined
in the Transaction Agreement) under this Plan. For the avoidance of doubt, the addition of this clause (vi) is effective
as of immediately prior to, and contingent upon, the Arrangement Effective Time.
(h)
“Code” has the meaning given to that term in Appendix 1;
2
(i)
“Corporation” means Zymeworks Inc., a Delaware corporation, and its respective successors and
assigns;
(j)
“Date of Grant” means the date on which a particular Award is granted by the Board as evidenced by the
Grant Agreement pursuant to which the particular Award was granted;
(k)
“Effective Time” has the meaning given to that term in Section 2.5;
(l)
“Eligible Person” means any employee of the Corporation or any of its direct or indirect subsidiaries to
whom the grant of the Award or Awards to the Employee is a material inducement to the Employee’s entering into
employment with the Company (or any of its Parent or Subsidiaries, as applicable) in accordance with Rule 303A.08,
including grants to new employees in connection with a merger or acquisition;
(m) “Exercise Notice” means an election to exercise Options granted to a Participant under this Plan, in the
case of Options substantially in the form attached as Exhibit “B” to the Grant Agreement, as may be amended from time to
time by the Corporation;
(n)
“Exercise Period” means the period from the Vesting Date to the close of business on the Expiry Date
during which a particular Option may be exercised in the manner described in Section 4.1 in the case of Options;
(o)
“Exercise Price” has the meaning given to that term in Section 3.2;
(p)
“Expire” means, with respect to an Option, the termination of such Option, on the occurrence of which
such Option is void, incapable of exercise and of no value whatsoever; and Expires, Expired and Expiry have a similar
meaning;
(q)
“Expiry Date” means the date on which an Option Expires;
(r)
“Fair Market Value” means, on any particular day, the Market Price of a Share, but if the Shares are not
listed and posted for trading on an applicable stock exchange at the relevant time, it shall be the fair market value of the Share,
as determined by the Board acting in good faith;
(s)
“Grant Agreement” means an agreement between the Corporation and a Participant under which an
Award is granted, in the case of Options substantially in the form attached hereto as Schedule “A”, as may be amended from
time to time by the Corporation;
(t)
(u)
“Incapacity” has the meaning given to that term in Section 4.3(c);
“Incumbent Board” has the meaning given to that term in Section 1.1(f);
(v)
“Market Price” means, on any particular day, closing sale price of a Share on the Primary Stock
Exchange for such day (or, if such day is not a trading day), the closing sale price reported for the immediately preceding
trading day. Notwithstanding the foregoing, the Corporation may convert a Market Price denominated in United States
currency to Canadian
3
currency, or vice-versa, at the Bank of Canada daily average exchange rate on the day prior to the particular day, and the
converted amount shall be the Market Price;
(w) “Non-Executive Director” means any director of the Corporation who is not an employee or officer of
the Corporation or any Affiliate;
(x)
“NYSE” means the New York Stock Exchange;
(y)
“Option” means an option to purchase a Share that is granted to an Eligible Person pursuant to the terms
of this Plan;
granted;
(z)
“Other Award” means an Award granted under Article 5 hereof.
(aa) “Participant” means an Eligible Person to whom an Award has been
(bb) “Person” means any individual, partnership, corporation, company,
association, trust, joint venture, limited liability company, unincorporated organization, entity or division or any government,
governmental department or agency or political subdivision thereof;
(cc) “Plan” means this Zymeworks Inc. Inducement Stock Option and Equity Compensation Plan, originally
effective January 5, 2022, as amended through the Arrangement Effective Time and as it may be further amended from time to
time;
(dd) “Primary Stock Exchange” means a Stock Exchange where the majority of the trading volume and value
of the Shares has occurred for the five (5) trading days immediately preceding the relevant date;
(ee) “Rule 303A.08” means the NYSE Listed Company Manual Rule 303A.08. Reference to Rule 303A.08
will include the terms and conditions of Rule 303A.08 and any applicable interpretive material and other guidance issued
under Rule 303A.08.
(ff) “Share” means a share of common stock of the Corporation;
(gg) “Share Compensation Arrangement” means any stock option, stock option plan, employee stock
purchase plan, long-term incentive plan or any other compensation or incentive mechanism of the Corporation involving the
issuance or potential issuance of securities of the Corporation from treasury, including without limitation a Share purchase
from treasury which is financially assisted by the Corporation by way of a loan, guarantee or otherwise, but does not include
any such arrangement which does not involve the issuance from treasury or potential issuance from treasury of securities of
the Corporation;
(hh) “Shareholders” means holders of Shares;
(ii)
“Stock Exchange” means the NYSE and, if the Shares are listed and posted for trading on another stock
exchange, the stock exchange(s) on which the Shares are listed or posted for trading;
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(jj) “Surrender” has the meaning given to that term in Section 4.1(c);
(kk) “Surrender Notice” has the meaning given to that term in Section 4.1(c);
(ll) “Termination Date” has the meaning given to that term in Section 4.3(c);
(mm) “Transaction Agreement” means the Restated and Amended TransactionAgreement dated August 18, 2022 by
and among the Corporation (then-referred to as Zymeworks Delaware Inc.), Zymeworks Inc., a company then-existing under
the Business Corporations Act (British Columbia), Zymeworks Callco ULC, and Zymeworks ExchangeCo Ltd. as the same
may be amended, modified or supplemented from time to time in accordance therewith, prior to the Arrangement Effective
Time; and
(nn) “Vesting Date” means the date or dates determined in accordance with the terms of the Grant Agreement
entered into in respect of such Award (with respect to Options as described in Section 3.3), on and after which a particular
Award, or any part thereof, becomes non- forfeitable and/or may be exercised (as the case may be), subject to amendment or
acceleration from time to time in accordance with the terms hereof or the terms of the Grant Agreement.
Section 1.2 Interpretation
(a) Whenever the Board is to exercise discretion or authority in the administration of the terms and
conditions of this Plan, the term “discretion” or “authority” means the sole and absolute discretion of the Board.
(b)
gender include any other gender.
In the Plan, words importing the singular shall include the plural and vice versa and words importing any
(c) Unless otherwise specified in the Participant’s Grant Agreement, all references to money amounts are to
(x) with respect to Awards granted prior to the Arrangement Effective Time, Canadian currency, and (y) with respect to
Awards granted on or after the Arrangement Effective Time, U.S. dollars.
(d) As used herein, the terms “Article” and “Section” mean and refer to the specified Article and Section of
this Plan, respectively.
(e) The words “including” and “includes” mean “including (or includes) without limitation”.
ARTICLE II
GENERAL PROVISIONS
Section 2.1 Administration
(a) The Board shall administer this Plan. Nothing contained herein shall prevent the Board from adopting
other or additional Share Compensation Arrangements or other compensation arrangements.
5
(b)
Subject to the terms and conditions set forth herein, the Board has the authority: (i) to grant Awards to
Eligible Persons (which Awards will be intended as a material inducement to the individual becoming an Eligible Person,
including grants to new employees);
(ii) to determine the terms, including the limitations, restrictions, vesting period and conditions, if any, of such grants; (iii) to
interpret this Plan and all agreements entered into hereunder; (iv) to adopt, amend and rescind such administrative guidelines
and other rules relating to this Plan as it may from time to time deem advisable; and (v) to make all other determinations and
to take all other actions in connection with the implementation and administration of this Plan as it may deem necessary or
advisable. The Board’s guidelines, rules, interpretations and determinations shall be conclusive and binding upon the
Corporation, its subsidiaries and all Participants, Eligible Persons and their legal, personal representatives and beneficiaries.
(c) Notwithstanding the foregoing or any other provision contained herein, the Board shall have the right to
delegate the administration and operation of this Plan, in whole or in part, to a committee thereof. For greater certainty, any
such delegation by the Board may be revoked or amended at any time at the Board’s sole discretion.
(d) No member of the Board or any person acting pursuant to authority delegated by it hereunder shall be
liable for any action or determination in connection with the Plan made or taken in good faith and each member of the Board
and each such person shall be entitled to indemnification by the Corporation with respect to any such action or determination.
(e) The Board may adopt such rules or regulations and vary the terms of this Plan and any grant hereunder as
it considers necessary to address tax or other requirements of any applicable U.S. or non-U.S. jurisdiction.
(f)
The Plan shall not in any way fetter, limit, obligate, restrict or constrain the Board with regard to the
allotment or issue of any Shares or any other securities in the capital of the Corporation other than as specifically provided for
in the Plan.
Section 2.2 Shares Reserved
(a)
Subject to the other provisions of this Section 2.2, the maximum number of Shares that may be delivered
pursuant to Awards granted under the Plan shall be 750,000.
(b)
For the purposes of calculating the maximum aggregate number of Shares which may be delivered under
this Plan pursuant to Section 2.2(a), following the Expiry, cancellation or other termination of any Awards under this Plan, a
number of Shares equal to the number of shares subject to such Awards, cancelled or terminated shall immediately and
automatically become available for issuance in respect of Awards that may be subsequently granted under this Plan.
(c) The Corporation shall at all times reserve for issuance and keep available such number of Shares as shall
be sufficient to satisfy the requirements of this Plan.
If there is a change in the outstanding Shares by reason of any stock dividend or split, or in connection
with a reclassification, reorganization or other change of Shares, consolidation, distribution (other than an ordinary course
dividend in cash or Shares, but including
(d)
6
for greater certainty shares or equity interests in a subsidiary or business unit of the Corporation or one of its subsidiaries or
cash proceeds of the disposition of such a subsidiary or business unit), merger or amalgamation or similar corporate
transaction, the Board shall make, subject to any required approval of the Stock Exchange, the appropriate substitution or
adjustment in order to maintain the Participants’ economic rights in respect of their Awards in connection with such change,
including without limitation:
(i)
adjustments to the Exercise Price without any change in the total price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the price for each Share covered by the
Option;
(ii)
adjustments to the number of Shares to which a Participant is entitled upon exercise or vesting of
an Award;
(iii) adjustments permitting the immediate exercise of any outstanding Options that are not otherwise
exercisable or the immediate vesting of Other Awards; and
(iv) adjustments to the number or kind of Shares or other securities reserved for issuance pursuant to
the Plan and to the number or kind of Shares or other securities or other property issuable upon the exercise or vesting
of Awards.
Section 2.3 Amendment and Termination
(a) The Board may, in its sole discretion, suspend or terminate the Plan at any time or from time to time
and/or amend or revise the terms of the Plan or of any Award granted under the Plan and any Grant Agreement relating
thereto, provided that such suspension, termination, amendment or revision shall:
(i)
not adversely alter or impair any Award previously granted except as permitted by the terms of
this Plan;
(ii)
be in compliance with applicable law and subject to any regulatory approvals including, where
required, the approval of the Stock Exchange; or
(iii) be subject to Shareholder approval, where required by law, the requirements of the Stock
Exchange or this Plan.
(b)
If the Plan is terminated, the provisions of the Plan and any administrative guidelines and other rules and
regulations adopted by the Board and in force with respect to outstanding Awards will continue in effect as long as any such
Award or any rights pursuant thereto remain outstanding and, notwithstanding the termination of the Plan, the Board will
remain able to make such interpretations and amendments to the Plan or the Awards as they would have been entitled to make
if the Plan were still in effect.
(c)
Subject to Section 2.3(a), the Board may from time to time, in its discretion, make changes to the Plan or
any Award, which may include but are not limited to:
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(i)
any amendment of a “housekeeping” nature, including without limitation those made to clarify the
meaning of an existing provision of the Plan, correct or supplement any provision of the Plan that is inconsistent with
any other provision of the Plan, correct any grammatical or typographical errors or amend the definitions in the Plan
regarding administration of the Plan;
(ii)
a change to the vesting provisions of the Plan or any Award;
(iii) a change to the provisions governing assignability and the effect of termination of a Participant’s
employment, contract or office;
(iv)
the addition of a form of financial assistance and any amendment to a financial assistance
provision which is adopted;
(v)
a change to advance the date on which any Option may be exercised under the Plan; and
(vi) an amendment of the Plan or an Award as necessary to comply with applicable law or the
requirements of the Stock Exchange or any other regulatory body having authority over the Corporation, the Plan, the
Participants or the Shareholders.
(d)
Shareholder approval is required for any reduction in the Exercise Price of an Option after the Option has
been granted or any cancellation of such Option and the substitution of that Option with a new Option with a reduced Exercise
Price, except in the case of an adjustment pursuant to Section 2.2(d).
Section 2.4 Compliance with Legislation
(a) The Plan (including any amendments thereto), the terms of the grant of any Award under the Plan, the
grant and exercise of any Award and the Corporation’s obligation to sell and deliver Shares upon the vesting or exercise of any
Award, shall be subject to all applicable U.S. and non-U.S. federal, provincial, state and local laws, rules and regulations, the
rules and regulations of the Stock Exchange and any other stock exchange on which the Shares are listed or posted for trading
and to such approvals by any regulatory or governmental agency as may, in the opinion of counsel to the Corporation, be
required. The Corporation shall not be obliged by any provision of the Plan or the grant of any Award hereunder to issue or
sell Shares in violation of such laws, rules and regulations or any condition of such approvals.
(b) No Award shall be granted, and no Shares shall be issued or sold hereunder, where such grant, issue or
sale would require registration of the Plan or of Shares under the securities laws of any non-U.S./non-Canadian jurisdiction,
and any purported grant of any Award or purported issue or sale of Shares hereunder in violation of this provision shall be
void.
(c) The Corporation shall have no obligation to issue any Shares pursuant to this Plan unless upon official
notice of issuance such Shares shall have been duly listed with the Stock Exchange (and any other stock exchange on which
the Shares are listed or posted for trading). Shares issued and sold to Participants pursuant to the exercise or vesting of Awards
may be subject to limitations on sale or resale under applicable securities laws.
8
If Shares cannot be issued to a Participant upon the exercise or vesting of an Award due to legal or
regulatory restrictions, the obligation of the Corporation to issue such Shares shall terminate and any funds paid to the
Corporation in connection with the exercise of an Option will be returned to the applicable Participant as soon as practicable.
(d)
Section 2.5 Effective Time and Termination
The Plan became effective at the time (the “Effective Time”) it was originally approved by the Board of Zymeworks.
No Awards may be issued under the Plan from and after the tenth anniversary of the Effective Time, provided that Awards
issued prior to such date shall remain in effect following such date in accordance with their terms. The amendment and
restatement through the Arrangement Effective Date is effective as of, and contingent upon, the Arrangement Effective Time,
except that the changes to Section 1.1(g)(vi) are effective as of immediately prior to, and contingent upon, the Arrangement
Effective Time.
Section 2.6 Tax Withholdings and Deductions
The Corporation shall have the authority and the right to deduct or withhold from any amount otherwise payable to a
Participant, or require a Participant to remit to the Corporation, an amount sufficient for the Corporation to be able to comply
with the applicable provisions of any
U.S. or non-U.S. federal, provincial, state or local law relating to the withholding of tax or other required deductions (“Tax
Obligations”) arising as a result of any Award. Notwithstanding any other provision contained herein, the delivery of Shares
with respect to any Award granted under this Plan is subject to the condition that if at any time the Corporation determines, in
its discretion, that the satisfaction of the Tax Obligations is necessary or desirable in respect of such delivery, such delivery is
not required unless provision for the Tax Obligation has been made to the satisfaction of the Corporation. In such
circumstances, the Corporation may require that a Participant pay to the Corporation, in addition to the Exercise Price for the
Shares (if applicable), such amount as the Corporation is obliged to remit to the relevant taxing authority in respect of the
Award. Any such additional payment is due no later than the date as of which any amount with respect to the Award first
becomes includable in the gross income of the Participant for tax purposes. To the extent permitted by the Board, a Participant
may direct a portion of the Shares acquired to be sold by a broker to satisfy the Tax Obligations and the funds from such sale
to be paid to the Corporation to be remitted to the relevant taxing authority.
Section 2.7 Non-Transferability
Except as set forth herein, Awards are not transferable. Options may be exercised only by:
(a)
the Participant to whom the Options were granted;
(b) with the Board’s prior written approval and subject to such conditions as the Corporation may stipulate
(which may include conditions with respect to compliance with applicable securities law), such Participant’s family or
retirement savings trust or any registered retirement savings plans or registered retirement income funds of which the
Participant is and remains the annuitant;
(c)
upon the Participant’s death, by the legal representative of the Participant’s estate; or
(d)
upon the Participant’s Incapacity, the legal representative having authority to deal with the property of the
Participant;
9
provided that any such legal representative shall first deliver evidence satisfactory to the Corporation of entitlement to exercise
any Option. A person exercising an Option may subscribe for Shares only in the person’s own name or in the person’s capacity
as a legal representative.
Section 2.8 Participation in this Plan
(a) No Participant has any claim or right to be granted an Award (including, without limitation, an Award
granted in substitution for any Award that has expired pursuant to the terms of this Plan), and the granting of any Award does
not and is not to be construed as giving a Participant a right to continued employment or to remain an employee of the
Corporation or an Affiliate of the Corporation. Nothing contained in this Plan or in any Award granted under this Plan shall
interfere in any way with the rights of the Corporation or an Affiliate of the Corporation in connection with the employment,
retention or termination of any such person.
(b) No Participant has any rights or privileges as a shareholder of the Corporation in respect of Shares with
respect to any Award until the allotment and issuance to the Participant of certificates representing such Shares or the entry of
such Participant’s name on the share register of the Corporation as the holder of Shares and that person becomes the holder of
record of those Shares. The Participant or the Participant’s legal representative shall not, by reason of the grant of any Award
(other than an Award of Restricted Stock as set forth in Article 5), be considered to be a shareholder of the Corporation until
shares have been issued in respect thereof.
(c) The Corporation makes no representation or warranty as to the future market value of the Shares or with
respect to any income tax matters affecting the Participant resulting from the grant, vesting or delivery of an Award or
transactions in the Shares. With respect to any fluctuations in the market price of Shares, neither the Corporation, nor any of its
directors, officers, employees, shareholders or agents shall be liable for anything done or omitted to be done by such person or
any other person with respect to the price, time, quantity or other conditions and circumstances of the issuance of Shares
hereunder or in any other manner related to the Plan. For greater certainty, no amount will be paid to, or in respect of, a
Participant under the Plan or pursuant to any other arrangement, and no additional Awards will be granted to such Participant
to compensate for a downward fluctuation in the price of the Shares, nor will any other form of benefit be conferred upon, or
in respect of, a Participant for such purpose. The Corporation does not assume responsibility for the income or other tax
consequences resulting to the Participant and they are advised to consult with their own tax advisors.
Section 2.9 Notice
Each notice relating to an Award, including the exercise of an Option, must be in writing. All notices to the
Corporation must be delivered personally, by prepaid registered mail or by email and must be addressed to the secretary of the
Corporation. All notices to the Participant will be addressed to the principal address of the Participant on file with the
Corporation. Either the
10
Corporation or the Participant may designate a different address by written notice to the other. Such notices are deemed to be
received: (i) if delivered personally, on the date of delivery; (ii) if sent by prepaid, registered mail, on the fifth Business Day
following the date of mailing; or (iii) if sent by email, when the sender receives an email from the recipient acknowledging
receipt, provided that an automatic “read receipt” does not constitute acknowledgment of an email for purposes hereof. Any
notice given by either the Participant or the Corporation is not binding on the recipient thereof until received.
Section 2.10 Right to Issue Other Shares
The Corporation shall not by virtue of this Plan be in any way restricted from declaring and paying stock dividends,
issuing further Shares, repurchasing Shares or varying or amending its share capital or corporate structure.
Section 2.11 Quotation of Shares
So long as the Shares are listed on a Stock Exchange, the Corporation must apply to the Stock Exchange for the listing
or quotation, as applicable, of the Shares issued upon the exercise or delivery of all Awards granted under the Plan, however,
the Corporation cannot guarantee that such Shares will be listed or quoted on the Stock Exchange or any other stock exchange.
Section 2.12 No Fractional Shares
No fractional Shares shall be issued upon the exercise or delivery of any Award granted under the Plan and,
accordingly, if a Participant would become entitled to a fractional Share upon the exercise or delivery of an Award, or from an
adjustment permitted by the terms of this Plan, such Participant shall only have the right to purchase or receive the next lowest
whole number of Shares, and no payment or other adjustment will be made with respect to the fractional interest so
disregarded.
Section 2.13 Governing Law
With respect to Awards granted prior to the Arrangement Effective Time, the Plan shall be governed by the laws of the
Province of British Columbia and the federal laws of Canada applicable therein. With respect to Awards granted on or after the
Arrangement Effective Time, the Plan shall be governed by the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof and the federal laws of the United States applicable therein, without giving effect to the
principles of conflicts of law thereof.
ARTICLE III
OPTIONS
Section 3.1 Grant
(a)
Subject to the provisions of this Plan, the Board may grant Options to any Eligible Person upon the terms,
conditions and limitations set forth herein or such other terms,
11
conditions and limitations as the Board may determine and set forth in the Grant Agreement; provided each Option granted
under the Plan shall be a Non-Qualified Option.
(b) An Option shall be evidenced by a Grant Agreement, signed on behalf of the Corporation.
(c) The grant of an Option to, or the exercise of an Option by, a Participant under the Plan shall neither entitle
such Participant to receive nor preclude such Participant from receiving subsequently granted Options.
Section 3.2 Exercise Price
An Option may be exercised at a price that shall be fixed by the Board at the time that the Option is granted, but in no
event shall it be less than the Fair Market Value of the Shares on the Date of Grant (the “Exercise Price”). The Exercise Price
shall be subject to adjustment in accordance with the provisions of Section 2.2(d) hereof.
Section 3.3 Vesting
(a) All Options granted hereunder shall vest in accordance with the terms of the Grant Agreement entered
into in respect of such Options. The Board has the right to accelerate the date upon which any Option becomes exercisable
notwithstanding the vesting schedule set forth for such Option, regardless of any adverse or potentially adverse tax
consequences resulting from such acceleration.
(b) The vesting of any Options granted hereunder shall continue to vest during any period of Authorized
Leave.
ARTICLE IV
EXERCISE & EXPIRY & CHANGE OF CONTROL
Section 4.1 Conditions of Exercise
(a) Vested Options may only be exercised during the Exercise Period by the Participant or upon the
Participant’s death or Incapacity, his or her legal representative (provided that such legal representative shall first deliver
evidence satisfactory to the Corporation of entitlement to exercise such vested Options). Subject to the restrictions set out in
this Plan and to any alternative exercise procedure which may be established from time to time by the Board, Options to
acquire Shares may be exercised by delivering to the Corporation an Exercise Notice, together with a bank draft, certified
cheque or other form of payment acceptable to the Corporation in an amount equal to the aggregate Exercise Price of the
Shares to be purchased pursuant to the exercise of the Options and, if required by Section 2.6, the amount necessary to satisfy
any source deductions or withholding taxes.
Pursuant to the Exercise Notice, a Participant may choose to undertake a “cashless exercise” with the
assistance of a broker in order to facilitate the exercise of such Participant’s Options. The “cashless exercise” procedure may
include a sale of such number of
(b)
12
Shares as is necessary to raise an amount equal to the aggregate Exercise Price for all Options being exercised by that
Participant under an Exercise Notice. The Participant shall also comply with Section 2.6 of this Plan with regards to any
applicable withholding tax and shall comply with all such other procedures and policies as the Corporation may prescribe or
determine to be necessary or advisable from time to time in connection with such “cashless exercise.”
(c)
In addition, in lieu of exercising any vested Option in the manner described in this Article 4, and pursuant
to the terms of this Article 4, a Participant may provide a properly endorsed notice of surrender to the Secretary of the
Corporation, substantially in the form of Exhibit “C” to the Grant Agreement (a “Surrender Notice”) pursuant to which the
Participant agrees to transfer, dispose and surrender an Option (“Surrender”) to the Corporation and elects to receive that
number of Shares calculated using the following formula, after deduction of any income tax and other amounts required by
law to be withheld pursuant to Section 2.6:
X = Y * (A-B) / A
Where:
X = the number of Shares to be issued to the Participant
Y = the number of Shares underlying the Options to be Surrendered
A = the Fair Market Value of the Shares as at the date of the Surrender
B = the Exercise Price of such Options
The decision of whether or not to permit Surrender for any Option is at the sole discretion of the Corporation and will
be made on a case by case basis.
(d) Where Shares are to be issued to the Participant pursuant to the terms of this Section 4.1, as soon as
practicable following the receipt of the Exercise Notice and, if Options are exercised only in accordance with the terms of
Section 4.1(a), the required bank draft, certified cheque or other acceptable form of payment, the Corporation shall duly issue
such Shares to the Participant as fully paid and non-assessable.
Section 4.2 Exercise Period
(a) The Exercise Period shall be determined by the Board in its sole and absolute discretion at the time the
Option is granted and:
of Grant; and
(i)
each Option shall Expire not later than ten (10) years after the Date
(ii)
unless otherwise provided in the Participant’s Grant Agreement, the
Exercise Period shall be automatically reduced or the Expiry Date postponed in accordance with this Article 4 upon the
occurrence of any of the events referred to herein.
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(b) Notwithstanding any other provision of the Plan, if the Expiry Date of an Option falls on a date upon
which such Participant is prohibited from exercising such Option due to a blackout period or other trading restriction imposed
by the Corporation, then the Expiry Date of such Option shall be automatically extended to the tenth (10th) Business Day
following the date the relevant black-out period or other trading restriction imposed by the Corporation is lifted, terminated or
removed; provided, however, that notwithstanding the foregoing, the Expiry Date of an Option shall in no case extend beyond
the tenth (10th) anniversary of the date on which it is granted.
Section 4.3 Termination Date
(a)
Subject to Section 4.2, unless otherwise provided in the Participant’s Grant Agreement, employment
agreement:
(i)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s retirement with the concurrence of the Board, any Options granted to such Participant and vested as
of the Termination Date (as defined below) shall remain exercisable by such Participant until the earlier of:
(i) 90 days following the Termination Date; and (ii) the Expiry Date. As of the Termination Date, all unvested Options
of such Participant shall Expire and such Participant shall no longer be eligible for a grant of Options;
(ii)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s death or Incapacity, any Options granted to such Participant and vested as of the Termination Date
shall remain exercisable by such Participant (or, in accordance with Section 2.7, the Participant’s legal representative)
until the earlier of: (i) one year following the date of death or the date on which the Board determines that the
Incapacity will prevent the employee from fulfilling his or her duties with the Corporation; and (ii) the Expiry Date. As
of the Termination Date, all unvested Options of such Participant shall Expire;
(iii)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s termination for cause, as determined by the Board, in its discretion, then, as of the Termination
Date, the vested and unvested Options granted to such Participant shall Expire and be of no further force or effect
whatsoever and such Participant shall no longer be eligible for a grant of Options;
(iv)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s resignation, then any Options granted to such Participant and vested as of the Termination Date
shall remain exercisable by such Participant until the earlier of: (i) 90 days following the Termination Date; and (ii) the
Expiry Date. As of the Termination Date, all unvested Options granted to such Participant shall Expire and be of no
further force or effect whatsoever and such Participant shall no longer be eligible for a grant of Options; and
(v)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s dismissal without cause, any
14
Options granted to such Participant and vested as of the Termination Date shall remain exercisable by such Participant
until the earlier of: (i) ninety (90) days following the Termination Date; and (ii) the Expiry Date. As of the Termination
Date, all unvested Options of such Participant shall Expire (for certainty, without regard to any period of reasonable
notice that the Corporation or a subsidiary, as the case may be, may be required at law to provide to the Participant)
and such Participant shall no longer be eligible for a grant of Options.
(b) Notwithstanding any other provisions of this Section 4.3, the Board may extend the expiration date of
vested and unvested Options of a Participant beyond the Expiry Dates set out above, provided that such extended dates are not
later than the initial assigned maximum Expiry Date of any such Option.
(c)
For purposes of the foregoing:
“Incapacity” means the permanent and total incapacity of a Participant as determined in accordance
with procedures established by the Board for purposes of this Plan; and
“Termination Date” means in the case of a Participant whose employment or term of office with the
Corporation or a subsidiary terminates in the circumstances set out in Section 4.3, the date that is designated by
the Corporation or a subsidiary, as the case may be, as the last day of the Participant’s employment or term of
office with the Corporation or a subsidiary, as the case may be, provided that in the case of termination of
employment by voluntary resignation by the Participant, such date shall not be earlier than the date notice of
resignation was given, and, in the case of a termination by the Corporation without cause, “Termination Date”
specifically does not mean the date on which any period of reasonable notice that the Corporation or a
subsidiary, as the case may be, may be required at law to provide to the Participant, would expire.
Section 4.4 Change of Control
(a) Notwithstanding anything else in this Plan or any Grant Agreement, the Board has the right to provide for
the conversion or exchange of any outstanding Awards into or for options, rights or other securities in any entity participating
in or resulting from a Change of Control, cash or other property.
(b) Upon the Corporation entering into an agreement relating to a transaction which, if completed, would
result in a Change of Control, or otherwise becoming aware of a pending Change of Control, the Corporation shall give
written notice of the proposed Change of Control to the Award holders, together with a description of the effect of such
Change of Control on outstanding Awards, not less than seven (7) days prior to the closing of the transaction resulting in the
Change of Control.
(c) The Board may, in its sole discretion, accelerate the vesting and/or the Expiry Date of any or all
outstanding Awards to provide that, notwithstanding the vesting provisions of such Awards or any Grant Agreement, such
designated outstanding Awards shall be
15
fully vested and conditionally exercisable (in the case of Options) upon (or prior to) the completion of the Change of Control
provided that the Board shall not, in any case, authorize the exercise of Options pursuant to this Section 4.4(c) beyond the
Expiry Date of the Options. If the Board elects to accelerate the vesting and/or the Expiry Date of the Options, then if any of
such Options are not exercised within seven (7) days after the applicable holders are given the notice contemplated in Section
4.4(b) (or such later Expiry Date as the Board may prescribe), such unexercised Options shall, unless the Board otherwise
determines, terminate and Expire following the completion of the proposed Change of Control. If, for any reason, the Change
of Control does not occur within the contemplated time period, the acceleration of the vesting and the Expiry Date of the
Awards shall be retracted and vesting shall instead revert to the manner provided in the Grant Agreement.
(d) To the extent that the Change of Control would also result in a capital reorganization, arrangement,
amalgamation or reclassification of the share capital of the Corporation (and the Board does not accelerate the vesting and/or
the Expiry Date of Awards pursuant to Section 4.4(c)), the Corporation shall make adequate provisions to ensure that, upon
completion of the proposed Change of Control, the number and kind of shares subject to outstanding Awards and, if
applicable, the Exercise Price per share of Options shall be appropriately adjusted (including by substituting the Awards for
awards with respect to securities in any successor entity to the Corporation) in such manner as the Board considers equitable to
prevent substantial dilution or enlargement of the rights granted to Award holders. The Board may make changes to the terms
of the Awards or the Plan to the extent necessary or desirable to comply with any rules, regulations or policies of any stock
exchange on which any securities of the Corporation may be listed, provided that the value of previously granted Awards and
the rights of Award holders are not materially adversely affected by any such changes.
(e) Notwithstanding anything else to the contrary herein, in the event of a potential Change of Control, the
Board shall have the power, in its sole discretion, to modify the terms of this Plan and/or the Awards (including, for greater
certainty, to cause the vesting of all unvested Awards) to assist the Participants to tender into a take-over bid or other
transaction leading to a Change of Control. For greater certainty, in the event of a take-over bid or other transaction leading to
a Change of Control, the Board shall have the power, in its sole discretion, to permit Participants to conditionally exercise their
Options, such conditional exercise to be conditional upon the take-up by such offeror of the Shares or other securities tendered
to such take- over bid in accordance with the terms of such take-over bid (or the effectiveness of such other transaction leading
to a Change of Control). If, however, the potential Change of Control referred to in this Section 4.4(e) is not completed within
the time specified therein (as the same may be extended), then notwithstanding this Section 4.4(e) or the definition of “Change
of Control”: (i) any conditional exercise of vested Options shall be deemed to be null, void and of no effect, and such
conditionally exercised Options shall for all purposes be deemed not to have been exercised; (ii) Shares which were issued
pursuant to exercise of Options which vested pursuant to this Section 4.4 shall be returned by the Participant to the
Corporation and reinstated as authorized but unissued Shares; and (iii) the original terms applicable to Options which vested
pursuant to this Section 4.4 shall be reinstated.
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ARTICLE V
OTHER AWARDS
Section 5.1 General
In addition to Awards of Options hereunder, the Board may grant the types of Awards described in this Article 5
(“Other Awards”), in accordance with the terms of this Article and the Plan.
The Board has the right to accelerate the date upon which any Other Award vests notwithstanding the vesting schedule
set forth for such Other Award, regardless of any adverse or potentially adverse tax consequences resulting from such
acceleration.
Section 5.2 Restricted Stock
The Board may grant or award Shares to Eligible Persons that are subject to transfer, vesting and forfeiture restrictions
(“Restricted Stock”) in respect of such number of Shares, and subject to such terms or conditions, as it shall determine and
specify in a Grant Agreement, and may provide in a Grant Agreement for an Option to be exercisable for Restricted Stock. A
holder of Restricted Stock shall have all of the rights of a shareholder of the Corporation, including the right to vote the shares,
unless the Board shall otherwise determine at the time of grant; provided that unless the Board determines otherwise any
dividends paid on Restricted Stock will be held in escrow until all restrictions on such Shares have lapsed. Unless a
Participant’s Grant Agreement provides to the contrary, unvested Restricted Stock shall not be transferred without the written
consent of the Board. In addition, at the time of termination for any reason of a Participant’s employment or other service
relationship with the Corporation or a subsidiary, unvested Restricted Stock shall be forfeited to the Corporation for no
consideration, unless otherwise determined by the Board. Share certificates, if any, representing Awards of Restricted Stock
(which may also be held in book entry or similar form) shall be imprinted with a legend to the effect that the Shares
represented may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of except in accordance
with the terms of the Grant Agreement and, if the Board so determines, the holder may be required to deposit the share
certificates or other evidence of legal and beneficial ownership with the President, Chief Financial Officer, Secretary or other
officer of the Corporation or with an escrow agent designated by the Board, together with a stock power or other instrument of
transfer appropriately endorsed in blank. In the event that the Restricted Stock is not represented by a share certificate, the
Corporation shall direct the Corporation’s registrar and transfer agent to make an appropriate notation of the restrictions on
transfer to which the Restricted Stock is subject in the stock books and records of the Corporation.
Section 5.3 Restricted Stock Units
The Board may grant Awards payable in Shares upon vesting (“Restricted Stock Units”) to Eligible Persons
hereunder, in respect of such number of Shares, and subject to such terms or conditions, as it shall determine and specify in a
Grant Agreement. A Restricted Stock Unit represents the right to receive, without payment to the Corporation, a Share.
Restricted Stock Units shall become vested as determined by the Board as set forth in the applicable Grant
17
Agreement, unless otherwise described in the Plan. Amounts payable in connection with a Restricted Stock Unit shall be paid
to the holder thereof as set forth in the applicable Grant Agreement, but in no event later than two and one-half months
following the end of the calendar year in which the applicable vesting condition is met (unless receipt is deferred in
accordance with procedures adopted by the Board, any of which shall comply with the requirements of Section 409A of the
Code if the Participant is a United States taxpayer). Restricted Stock Units shall not constitute or be treated as property or as a
trust fund of any kind. All amounts at any time attributable to the Restricted Stock Units shall be and remain the sole property
of the Corporation and all holders’ rights thereunder are limited to the rights to receive Shares as provided in the Plan and the
applicable Grant Agreement.
Section 5.4 Other Share-Based Awards; Performance Vesting
The Board may grant such Other Awards payable in Shares as the Board may determine to be necessary or appropriate,
including awards of Shares that are not subject to vesting or forfeiture restrictions. The vesting of Other Awards hereunder
may be made subject to the attainment of performance goals, as the Board may determine in its discretion.
18
APPENDIX 1
US RESIDENT EMPLOYEES
The terms of the Plan are hereby modified with respect to those Participants who are U.S. Participants:
SPECIAL APPENDIX
to the
Zymeworks Inc. Inducement Stock Option and Equity Compensation Plan
Special Provisions Applicable to Participants Subject to the United States Internal
Revenue Code
This Appendix sets forth special provisions of the Zymeworks Inc. Inducement Stock Option and Equity
Compensation Plan (the “Plan”) that apply to U.S. Participants. All Options issued under the Plan to U.S. Participants are
intended to be exempt from Section 409A of the Code, or any successor thereto, and all provisions hereunder shall be read,
interpreted, and applied with that purpose in mind. Terms used herein that are defined in the Plan shall have the meanings set
forth in the Plan, as amended from time to time.
Interpretation
For the purposes of this Appendix, the following terms have the following meanings:
(i)
(ii)
(iii)
(iv)
(v)
“Code” means the United States Internal Revenue Code of 1986, as amended, and any applicable United States
Treasury Regulations and other binding regulatory guidance thereunder;
“Incentive Stock Option” means any Option that qualifies as an incentive stock option within the meaning of
Section 422 of the Code or any successor thereto and which also satisfies the requirements of such section
(including, without limitation, the requirement that the Participant is employed by the Corporation or a “parent
corporation” or “subsidiary corporation” of the Corporation (as such terms are defined in Section 424 of the
Code));
“Non-Qualified Option” means any Option granted under the Plan to a U.S. Participant which is not an
Incentive Stock Option;
“Option” means an option to purchase a Share that is granted to an Eligible Person pursuant to the terms of this
Plan, provided that all Options granted under the Plan and this Appendix will be Non-Qualified Options.
“Separation From Service” shall have the meaning as set forth in United States Treasury Regulation Section
1.409A-1(h) (after giving effect to the presumptions contained therein); and
(vi)
“U.S. Participant” shall have the meaning set forth in Section 2(a), below.
1.
(a)
19
(b)
2.
(a)
(b)
(c)
(d)
The Plan and this Appendix are complementary to each other and shall, with respect to Options granted to U.S.
Participants, be read and deemed as one. In the event of any contradiction, whether explicit or implied, between the
provisions of this Appendix and the Plan, the provisions of this Appendix shall prevail with respect to Options granted
to U.S. Participants. All Options granted under the Plan and this Appendix will be Non-Qualified Options.
Application
The following special rules and limitations are applicable to Options issued under the Plan to Participants subject to
taxation in the United States (referred to hereunder as “U.S. Participants”) at the time of grant.
Each U.S. Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed
on or for the account of such U.S. Participant in connection with the Plan (including any taxes and penalties under
Section 409A), and neither the Corporation nor any Affiliate of the Corporation shall have any obligation to pay,
indemnify or otherwise hold such U.S. Participant (or any beneficiary) harmless from any or all of such taxes or
penalties.
The Corporation and its Affiliates, if applicable, shall withhold taxes according to the requirements of applicable laws,
rules and regulations, including the withholding of taxes at source to satisfy any applicable U.S. and non-U.S. federal,
provincial, state or local tax withholding obligation and employment taxes.
Each recipient of an Option hereunder who is or who becomes a U.S. Participant is advised to consult with his or her
personal tax advisor with respect to the tax consequences under federal, state, local and other tax laws of the receipt
and/or exercise of an Option hereunder.
(e) Without derogating from the powers and authorities of the Board detailed in the Plan, and unless specifically required
under applicable law, the Board shall also have the sole and full discretion and authority to administer the provisions of
this Appendix and all actions related thereto including, in addition to any powers and authorities specified in the Plan,
the performance, from time to time and at any time, of adopting standard forms of Grant Agreements to be applied
with respect to U.S. Participants, incorporating and reflecting, inter alia, relevant provisions regarding the grant of
Options in accordance with this Appendix and amending or modifying the terms of such standard forms from time to
time.
3.
Exercise Price
The Exercise Price of each Option granted under the Plan to a U.S. Participant shall not be less than the Fair Market
Value of a Share on the date such Option is granted. Notwithstanding any other provision of the Plan, in determining the Fair
Market Value of a Share under the Plan in connection with the grant of an Option to a U.S. Participant, the Board will make
the determination of Fair Market Value in good faith consistent with the rules of Section 409A of the Code and the rules of the
NYSE, to the extent applicable.
20
4.
Expiry of Option
Notwithstanding any other provision of the Plan and any provisions of the Grant Agreement to the contrary, Options
granted to U.S. Participants may not be exercised under any circumstance following the ten (10) year anniversary of the date
of grant.
5.
Adjustments to Options
In the event of a corporate transaction requiring the adjustment of an Option held by a U.S. Participant, the number of
Shares deliverable on the exercise of an Option held by a U.S. Participant and the Exercise Price of an Option held by a U.S.
Participant shall be adjusted in a manner intended to keep the Options exempt from Section 409A of the Code.
6.
Amendment of Appendix
The Board shall retain the power and authority to amend or modify this Appendix and any Option issued hereunder to
the extent the Board in its sole discretion deems necessary or advisable to comply with law or regulation, including to comply
with any guidance issued under Section 409A of the Code. Such amendments may be made without the approval of any U.S.
Participant.
21
SCHEDULE “A”
ZYMEWORKS INC. STOCK OPTION GRANT AGREEMENT
This agreement (the “Grant Agreement”) evidences the Options granted by Zymeworks Inc. (the “Corporation”) to the
undersigned (the “Participant”), pursuant to and subject to the terms of the Zymeworks Inc. Inducement Stock Option and
Equity Compensation Plan (the “Plan”), which is incorporated herein by reference. The Schedules attached to this Stock
Option Grant Agreement shall form an integral part of this Stock Option Grant Agreement.
The Corporation hereby grants to the Participant on the Date of Grant such number of Options as set forth in the
attached Schedule “A”, as may be amended from time to time, with each Option representing the right to purchase, on the
terms provided herein and in the Plan (including, without limitations, the applicable exercise provisions), a Share with an
Exercise Price per Share as set forth in the attached Schedule “A”, as may be amended from time to time, in each case subject
to adjustment in accordance with the provisions of the Plan.
ARTICLE 1 INTERPRETATION
(a)
Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan.
(b) Words importing the singular shall include the plural and vice versa and words importing any gender include any other
gender.
(c)
(d)
Unless otherwise specified herein, all references to money amounts are to U.S. dollars.
The words “including” and “includes” mean “including (or includes) without limitation”.
ARTICLE 2 VESTING
Section 2.1 Options
Unless earlier terminated, relinquished or expired, Options granted pursuant to this Grant Agreement shall vest in
accordance with the provisions set forth in the attached Schedule “A” as may be amended from time to time.
Section 3.1 Participation in the Plan
ARTICLE 3 GENERAL PROVISIONS
No Participant has any claim or right to be granted an Option (including, without limitation, an Option granted in
substitution for any Option that has expired pursuant to the terms of this Plan), and the granting of any Option is not to be
construed as giving a Participant a right to continued employment or to remain an employee of the Corporation or an Affiliate
of the
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Corporation. Nothing contained in this Grant Agreement or the Plan shall interfere in any way with the rights of the
Corporation or an Affiliate of the Corporation in connection with the employment or termination of any such person. Upon
any such termination, a Participant’s rights to exercise Options will be subject to restrictions and time limits for the exercise of
Options. Complete details of such restrictions are set out in the Plan, and in particular in Article 4 thereof (except to the extent
that such provisions are varied in accordance with Schedule “A” hereto). The Participant hereby agrees that any rule,
regulation or determination, including the interpretation by the Board of the Plan, the Option granted hereunder and the
exercise thereof, is final and conclusive for all purposes and binding on all persons including the Corporation and the
Participant.
Section 3.2 Binding Agreement
The exercise of the Options granted hereby, issuance of Shares and ownership of the Shares are subject to the terms
and conditions of the Plan (all of which are incorporated into and form part of this Grant Agreement) and this Grant
Agreement. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors
(including any successor by reason of amalgamation of any party) and permitted assigns.
Section 3.3 Governing Law
This Grant Agreement shall be governed by the laws of the State of Delaware and the federal laws of the United States,
in each case, without giving effect to the principles of conflicts of law thereof.
[The remainder of this page is intentionally left blank]
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By acceptance of these Options, the undersigned acknowledges receipt of the Plan text and agrees hereby to be subject
and bound to the terms of the Plan. The undersigned further acknowledges and agrees that the Participant’s abovementioned
participation is voluntary and has not been induced by expectation of engagement, appointment, employment, continued
engagement or continued employment, as the case may be.
Accepted and agreed to this day of , . Corporation: ZYMEWORKS INC.
By:
Name:
Title:
_________________________
Signature of Option Holder
_________________________
Name of Option Holder (Please Print)
Participant:
Address:
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EXHIBIT “A” OPTION GRANT
Participant:
Number of Options:
Exercise Price:
Date of Grant:
Vesting Schedule:
1
Expiry Date:
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
[1] Include here any provisions with respect to the expiry of vested/unvested options that would depart from Section
4.3 of the Plan (i.e., the impact of certain events on the vesting/exercise period, including termination for cause, voluntary resignation, termination other
than for cause, termination upon a change of control, and retirement, death or disability).
A-4
TO: ZYMEWORKS INC. (the “Corporation”)
EXHIBIT “B” ELECTION TO EXERCISE STOCK OPTIONS
The undersigned option holder hereby elects to exercise Options granted by the Corporation to the undersigned
pursuant to a Grant Agreement dated , 20___ under the Zymeworks Inc. Inducement Stock Option and Equity
Compensation Plan (the “Plan”), for the number Shares set forth below. Capitalized terms used herein and not otherwise
defined shall have the meanings given to them in the Plan.
Number of Shares to be Acquired:
Option Exercise Price (per Share): $
Aggregate Purchase Price: $
Amount enclosed that is payable on account of any Source Deductions relating to
this Option exercise (contact the Corporation for details of such amount):
[ ] Or check here if alternative arrangements have been made with the
Corporation;
and hereby tenders a certified cheque, bank draft or other form of payment confirmed as acceptable by the Corporation for
such aggregate purchase price, and, if applicable, all Source Deductions, and directs such Shares to be registered in the name
of
I hereby agree to file or cause the Corporation to file on my behalf, on a timely basis, all insider reports and other reports that I
may be required to file under applicable securities laws. I understand that this request to exercise my Options is irrevocable.
DATED this day of ,
Signature of Option Holder
Name of Option Holder (Please Print)
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TO: ZYMEWORKS INC. (the “Corporation”)
EXHIBIT “C” SURRENDER NOTICE
The undersigned option holder hereby elects to transfer, dispose and surrender Options granted by the Corporation to the
undersigned pursuant to a Grant Agreement dated , 20_ under the Zymeworks Inc. Inducement Stock Option and Equity
Compensation Plan (the “Plan”) to the Corporation in exchange for Shares as calculated in accordance with Section 4.1(c) of
the Plan. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan.
Please issue a certificate or certificates representing the Shares in the name of: _________________
I hereby agree to file or cause the Corporation to file on my behalf, on a timely basis, all insider reports and other reports that I
may be required to file under applicable securities laws. I understand that this request to exercise my Options is irrevocable.
DATED this day of , .
Signature of Option Holder
Name of Option Holder (Please Print)
Type of Option Non-Qualified Option
2
2
Add for U.S. Participants
A-6
SCHEDULE “B”
ZYMEWORKS INC. RESTRICTED STOCK UNIT GRANT AGREEMENT
This agreement (the “Grant Agreement”) evidences the Restricted Stock Units granted by Zymeworks Inc. (the
“Corporation”) to the undersigned (the “Participant”), pursuant to and subject to the terms of the Zymeworks Inc. Inducement
Stock Option and Equity Compensation Plan (the “Plan”), which is incorporated herein by reference. Exhibit “A” attached to this
Restricted Stock Unit Grant Agreement shall form an integral part of this Restricted Stock Unit Agreement.
The Corporation hereby grants to the Participant on the Date of Grant such number of Restricted Stock Units as set forth
in the attached Exhibit “A”, as may be amended from time to time, with each Restricted Stock Unit representing the right to
receive, on the terms provided herein and in the Plan, a Share as set forth in the attached Exhibit “A”, as may be amended from
time to time, in each case subject to adjustment in accordance with the provisions of the Plan.
ARTICLE 1
INTERPRETATION
(a)
Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan.
(b) Words importing the singular shall include the plural and vice versa and words importing any gender include any other
gender.
Section 2.1 Restricted Stock Units
ARTICLE 2
VESTING
Unless earlier terminated, relinquished or expired, Restricted Stock Units granted pursuant to this Grant Agreement shall
vest in accordance with the provisions set forth in the attached Schedule “A” as may be amended from time to time.
Section 3.1 Participation in the Plan
ARTICLE 3
GENERAL PROVISIONS
No Participant has any claim or right to be granted a Restricted Stock Unit, and the granting of any Restricted Stock Unit
is not to be construed as giving a Participant a right to continued employment or to remain an employee of the Corporation or an
Affiliate of the Corporation. Nothing contained in this Grant Agreement or the Plan shall interfere in any way with the rights of
the Corporation or an Affiliate of the Corporation in connection with the employment or termination of any such person. Upon
any such termination, a Participant’s rights with respect to unvested Restricted Stock Units shall be terminated, unless otherwise
determined by the Board. The Participant hereby agrees that any rule, regulation or determination, including the interpretation by
the Board of the Plan, the Restricted Stock Units granted hereunder and the exercise thereof, is final and conclusive for all
purposes and binding on all persons including the Corporation and the Participant.
B-1
Section 3.2 Issuance; Binding Agreement
Any issuance of Shares and ownership of the Shares are subject to the terms and conditions of the Plan (all of which are
incorporated into and form part of this Grant Agreement) and this Grant Agreement. The Participant’s record of Share ownership
shall be recorded in the books of the Corporation only when the Restricted Stock Units vest and the Shares are issued. Shares
shall be delivered to the Participant as soon as practicable following the applicable vest date, subject to the Participant’s
employment or service on such date. This Grant Agreement shall inure to the benefit of and be binding upon the parties and their
respective successors (including any successor by reason of amalgamation of any party) and permitted assigns.
Section 3.3 Miscellaneous
(a)
The Participant hereby acknowledges and agrees that any sums required to satisfy the U.S. and non-U.S. federal, state,
provincial and local tax withholding obligations of the Corporation that arise in connection with the Award or the
transactions contemplated by this Grant Agreement (the “Tax Obligations”) are the sole responsibility of the Participant.
By accepting this Grant Agreement, the Participant hereby agrees that, until and unless the Board determines otherwise,
Shares held by the Participant shall be sold on Participant’s behalf in such amounts and at such times as is determined in
accordance with this Section 3.3(a), and to allow the Agent (as defined below) to remit the cash proceeds of such sales to
the Corporation as more specifically set forth below, as the method by which Participant shall satisfy the Tax Obligations
(the “Sell-to-Cover Arrangement”). The Participant further acknowledges and agrees to the following provisions:
(i)
The Participant hereby irrevocably appoints the Corporation’s designated broker Solium Capital Inc., or such other
broker as the Corporation may select, as the Participant’s agent (the “Agent”), and authorizes and directs the
Agent to implement the Sell-to-Cover Arrangement while in effect, including but not limited to:
1. Sell on the open market at the then-prevailing market price(s), on the Participant’s behalf, as soon as
practicable on or after the delivery of Shares underlying the Restricted Stock Units, the number (rounded
up to the next whole number) of Shares sufficient to generate proceeds to cover (A) the satisfaction of the
Tax Obligations arising from the settlement of the associated vested Restricted Stock Units and (B) all
applicable fees and commissions due to, or required to be collected by, the Agent with respect thereto;
2. Remit directly to the Corporation the proceeds necessary to satisfy the Tax Obligations arising from the
settlement of the associated vested Restricted Stock Units
3. Retain the amount required to cover all applicable fees and commissions due to, or required to be collected by,
the Agent, relating directly to the sale; and
4. Deposit any remaining funds in the Participant’s account.
(ii)
The Participant acknowledges that by accepting this Award, he or she is agreeing to the Sell-to-Cover
Arrangement as the method through which the Participant shall satisfy the Tax Obligations. The Participant
authorizes the Corporation and the Agent to cooperate and communicate with one another to determine the
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number of Shares that must be sold pursuant to this Section 3.3(a) to satisfy the Tax Obligations.
(iii)
The Participant acknowledges that the Agent is under no obligation to arrange for the sale of Shares at any
particular price under the Sell-to-Cover Arrangement and that the Agent may effect sales under the Sell-to-Cover
Arrangement in one or more orders and that the average price for executions resulting from bunched orders may
be assigned to the Participant’s account. In addition, the Participant acknowledges that it may not always be
possible to sell Shares under the Sell-to-Cover Arrangement and in the event of the Agent’s inability to sell
Shares, the Participant will continue to be responsible for the Tax Obligations.
(iv)
The Participant hereby agrees to execute and deliver to the Agent any other agreements or documents as the Agent
reasonably deems necessary or appropriate to carry out the purposes and intent of the Sell-to-Cover Arrangement.
The Agent is a third-party beneficiary of this Section 3.3(a).
(v)
The Participant’s agreement to the Sell-to-Cover Arrangement is irrevocable.
(vi)
The Participant further represents that:
1. The Participant is agreeing to the Sell-to-Cover Arrangement in good faith and not as part of a plan or scheme
to evade any law, including, without limitation, any securities laws; and
2. The Participant will not disclose to the Agent any information concerning the Corporation that might
influence the Agent’s execution of sales under the Sell-to-Cover Arrangement.
(vii)
If the Administrator determines that Participant cannot satisfy Participant’s Tax Obligation through the Sell-to-
Cover Arrangement or the Board otherwise determines it is in the best interests of the Corporation for Participant
to satisfy Participant’s Tax Obligation by a method other than through the Sell-to-Cover Arrangement, it may
permit or require Participant to satisfy Participant’s Tax Obligation, in whole or in part (without limitation), if
permissible by applicable local law, by (i) paying cash, (ii) electing to have the Corporation withhold otherwise
deliverable Shares having a value equal to the minimum amount statutorily required to be withheld (or such
greater amount as Participant may elect if permitted by the Board, if such greater amount would not result in
adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligation from
Participant’s wages or other cash compensation paid to Participant by the Corporation and/or the Affiliate
employing or engaging the Participant, (iv) delivering to the Corporation Shares that Participant owns and that
have vested with a fair market value equal to the amount required to be withheld (or such greater amount as
Participant may elect if permitted by the Board, if such greater amount would not result in adverse financial
accounting consequences), or (v) such other means as the Board deems appropriate. To the extent determined
appropriate by the Corporation in its discretion, it will have the right (but not the obligation) to satisfy any Tax
Obligations by reducing the number of Shares otherwise deliverable to Participant.
(b)
To the extent that the Corporation declares a cash dividend while all or a portion of the Restricted Stock Units are
unvested, the Participant shall be credited with dividend equivalent rights (as determined by the Board in its discretion)
with respect to each Share
B-3
subject to the unvested portion of the Restricted Stock Units. Such dividend equivalent right will entitle the Participant to
payment of such dividend only upon vesting of the corresponding portion of the Restricted Stock Unit; and such right will
be forfeited to the extent the corresponding portion of the Restricted Stock Unit is forfeited.
No purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or
other) or other disposition of, or creation of a security interest in or lien on, any of the Restricted Stock Units by any
holder thereof shall be valid (other than pursuant to the laws of descent and distribution).
This Grant Agreement, together with the Plan, constitutes the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth
in this Grant Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this
Grant Agreement provided, however, in any event, this Grant Agreement shall be subject to and governed by the Plan.
The award of Restricted Stock Units evidenced by this Grant Agreement to any Participant who is a United States
taxpayer is intended to be exempt from the nonqualified deferred compensation rules of Section 409A of the Code as a
“short term deferral” (as that term is used in the final regulations and other guidance issued under Section 409A of the
Code, including Treasury Regulation Section 1.409A-1(b)(4)(i)), and shall be construed and administered accordingly.
This Grant Agreement shall be governed by the laws of the State of Delaware and the federal laws of the United States, in
each case, without giving effect to the principles of conflicts of law thereof.
[The remainder of this page is intentionally left blank]
(c)
(d)
(e)
(f)
B-4
By acceptance of these Restricted Stock Units, the undersigned acknowledges receipt of the Plan text and agrees hereby
to be subject and bound to the terms of the Plan. The undersigned further acknowledges and agrees that the Participant’s
abovementioned participation is voluntary and has not been induced by expectation of engagement, appointment, employment,
continued engagement or continued employment, as the case may be.
Accepted and agreed to this ____ day of _____________, _____.
Corporation:
ZYMEWORKS INC.
By:
Name:
Title:
_____________________________________________Signature of
Restricted Stock Unit Holder
_____________________________________________Name of Restricted
Stock Unit Holder (Please Print)
Participant:
Address:
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EXHIBIT “A” RESTRICTED STOCK UNIT GRANT
Participant: [ ]
Number of Restricted Stock
Units: [ ]
Date of Grant: [ ]
Vesting Schedule: [ ] There shall be no proportionate or partial vesting between the foregoing vesting dates. All vesting shall be subject to
the Participant’s continued employment or service on the applicable vesting date.
B-
6
Exhibit 10.50
ZYMEWORKS INC.
AMENDED AND RESTATED STOCK OPTION AND EQUITY COMPENSATION PLAN
(as amended and restated through the Arrangement Effective Time)
TABLE OF CONTENTS
ARTICLE I INTERPRETATION
Section 1.1 Definitions
Section 1.2 Interpretation
ARTICLE II GENERAL PROVISIONS
Section 2.1 Administration
Section 2.2 Shares Reserved
Section 2.3 Amendment and Termination
Section 2.4 Compliance with Legislation
Section 2.5 Effective Time and Termination
Section 2.6 Tax Withholdings and Deductions
Section 2.7 Non-Transferability
Section 2.8 Participation in this Plan
Section 2.9 Notice
Section 2.10 Right to Issue Other Shares
Section 2.11 Quotation of Shares
Section 2.12 No Fractional Shares
Section 2.13 Governing Law
ARTICLE III OPTIONS
Section 3.1 Grant
Section 3.2 Exercise Price
Section 3.3 Vesting
ARTICLE IV EXERCISE & EXPIRY & CHANGE OF CONTROL
Section 4.1 Conditions of Exercise
Section 4.2 Exercise Period
Section 4.3 Termination Date
Section 4.4 Change of Control
ARTICLE V OTHER AWARDS
Section 5.1 General
Section 5.2 Restricted Stock
Section 5.3 Restricted Stock Units
Section 5.4 Other Share-Based Awards; Performance Vesting
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ARTICLE I
INTERPRETATION
Section 1.1. Definitions
For the purposes of this Plan, the following terms shall have the following meanings:
(a)
“Affiliate” or “Affiliated” means, with respect to any specified Person, any other Person which directly or
indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified
Person (for the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled
by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise);
(b)
“Arrangement Effective Time” has the meaning given to that term in the Transaction Agreement.
(c)
“Authorized Leave” means any leave of absence (paid or unpaid) approved in writing by the Corporation
for a period of more than four (4) weeks that occurs while the Participant continues to be employed as an employee by the
Corporation or retained as a Consultant by the Corporation and includes any parental leave, short term disability or other bona
fide paid or unpaid leave of absence or sabbatical period;
(d)
“Award” means a grant of an Option or of an Other Award hereunder.
(e)
“Board” means the board of directors of the Corporation as constituted from time to time, or a committee
thereof to which authority has been delegated by the board of directors with respect to any particular functions of the board of
directors, as set forth in Section 2.1(c) herein;
(f)
“Business Day” means a day, other than a Saturday or Sunday, on which banking institutions in
Vancouver, British Columbia are not authorized or obligated by law to close;
any of the following events:
(g)
“Change of Control” means the happening, in a single transaction or in a series of related transactions, of
(i)
any transaction (other than a transaction described in clause (ii) below) pursuant to which any
person or group of persons acting jointly or in concert acquires the direct or indirect beneficial ownership of securities of
the Corporation representing 50% or more of the aggregate voting power of all of the Corporation’s then issued and
outstanding securities entitled to vote in the election of directors of the Corporation;
(ii)
there is consummated an arrangement, amalgamation, merger, consolidation or similar transaction
involving (directly or indirectly) the Corporation and, immediately after the consummation of such arrangement,
amalgamation, merger, consolidation or similar transaction, the shareholders of the Corporation immediately prior thereto
do not beneficially own, directly or indirectly, either (A) outstanding voting securities representing more than 50% of the
combined outstanding voting power of the surviving or resulting entity in such arrangement, amalgamation, merger,
consolidation or
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similar transaction or (B) more than 50% of the combined outstanding voting power of the parent of the surviving or
resulting entity in such arrangement, amalgamation, merger, consolidation or similar transaction, in each case in
substantially the same proportions as their beneficial ownership of the outstanding voting securities of the Corporation
immediately prior to such transaction;
(iii)
the sale, lease, exchange, license or other disposition of all or substantially all of the Corporation’s
assets to a person other than (A) a disposition to a Person that was an Affiliate of the Corporation at the time of such sale,
lease, exchange, license or other disposition or (B) a sale, lease, exchange, license or other disposition to an entity, more
than fifty percent (50%) of the combined voting power of the voting securities of which are beneficially owned by
Shareholders of the Corporation in substantially the same proportions as their beneficial ownership of the outstanding
voting securities of the Corporation immediately prior to such sale, lease, exchange, license or other disposition;
(iv)
the passing of a resolution by the Board or Shareholders to substantially liquidate the assets of the
Corporation or wind up the Corporation’s business or significantly rearrange its affairs in one or more transactions or
series of transactions or the commencement of proceedings for such a liquidation, winding-up or re-arrangement (except
where such re-arrangement is part of a bona fide reorganization of the Corporation in circumstances where the business of
the Corporation is continued and the shareholdings remain substantially the same following the re-arrangement);
(v)
individuals who, on the Effective Time, are members of the Board (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or
election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the
members of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a
member of the Incumbent Board; or
(vi)
any transaction, plan, scheme, reorganization or arrangement whereby an entity acquires, directly
or indirectly, greater than fifty percent (50%) of the Zymeworks Common Shares (as defined in the Transaction
Agreement), such that upon the Arrangement Effective Time, the Corporation is a successor to Zymeworks (as defined in
the Transaction Agreement) under this Plan. For the avoidance of doubt, the addition of this clause (vi) is effective as of
immediately prior to, and contingent upon, the Arrangement Effective Time.
(h)
“Code” has the meaning given to that term in Appendix 1;
(i)
“Consultant” means an individual (including an individual whose services are contracted through a
personal holding corporation) with whom the Corporation or any of its subsidiaries has a contract for services who is approved
for participation in the Plan by the Board and for whom there exists an exemption from applicable prospectus requirements
permitting the granting of an Award; provided that if Form S-8 under the Securities Act of 1933 is being used to register the sale
of securities to the Consultant, the individual must meet the requirements of the definition set forth in General Instruction A.1.(a)
(1) of such form;
(j)
“Corporation” means Zymeworks Inc., a Delaware corporation, and its respective successors and assigns;
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Grant Agreement pursuant to which the particular Award was granted;
(k)
“Date of Grant” means the date on which a particular Award is granted by the Board as evidenced by the
(l)
“Effective Time” has the meaning given to that term in Section 2.5;
direct or indirect subsidiaries;
(m)
“Eligible Person” means any director, officer, employee or Consultant of the Corporation or any of its
(n)
“Exercise Notice” means an election to exercise Options granted to a Participant under this Plan, in the
case of Options substantially in the form attached as Exhibit “B” to the Grant Agreement, as may be amended from time to time
by the Corporation;
(o)
“Exercise Period” means the period from the Vesting Date to the close of business on the Expiry Date
during which a particular Option may be exercised in the manner described in Section 4.1 in the case of Options;
(p)
“Exercise Price” has the meaning given to that term in Section 3.2;
“Expire” means, with respect to an Option or Legacy Option, the termination of such Option or Legacy
Option, on the occurrence of which such Option or Legacy Option is void, incapable of exercise and of no value whatsoever; and
Expires, Expired and Expiry have a similar meaning;
(q)
(r)
“Expiry Date” means the date on which an Option Expires;
(s)
“Fair Market Value” means, on any particular day, the Market Price of a Share, but if the Shares are not
listed and posted for trading on an applicable stock exchange at the relevant time, it shall be the fair market value of the Share, as
determined by the Board acting in good faith;
“Grant Agreement” means an agreement between the Corporation and a Participant under which an
Award is granted, in the case of Options substantially in the form attached hereto as Schedule “A”, as may be amended from time
to time by the Corporation;
(t)
(u)
(v)
Legacy Option Plan;
(w)
“Incapacity” has the meaning given to that term in Section 4.3(c);
“Incumbent Board” has the meaning given to that term in Section 1.1(e);
“Legacy Option” means an option to purchase a Share that was granted pursuant to the terms of the
time to time;
(x)
“Legacy Option Plan” means the Corporation’s Employee Stock Option Plan, as may be amended from
(y)
“Market Price” means, on any particular day, closing sale price of a Share on the Primary Stock Exchange
for such day (or, if such day is not a trading day), the closing sale price reported for the immediately preceding trading day.
Notwithstanding the foregoing, the Corporation may convert a Market Price denominated in United States currency to Canadian
currency, or vice-versa, at the Bank of Canada daily average exchange rate on the day prior to the particular day, and the
converted amount shall be the Market Price;
Corporation or any Affiliate;
(z)
“Non-Executive Director” means any director of the Corporation who is not an employee or officer of the
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(aa)
“NYSE” means the New York Stock Exchange;
terms of this Plan;
(bb) “Option” means an option to purchase a Share that is granted to an Eligible Person pursuant to the
(cc)“Other Award” means an Award granted under Article 5 hereof.
(dd) Participant” means an Eligible Person to whom an Award has been granted;
(ee) “Person” means any individual, partnership, corporation, company, association, trust, joint venture,
limited liability company, unincorporated organization, entity or division or any government, governmental department or agency
or political subdivision thereof;
(ff) “Plan” means this Zymeworks Inc. Amended and Restated Stock Option and Equity Compensation
Plan, originally effective June 7, 2018, as amended through the Arrangement Effective Time and as it may be further amended
from time to time;
value of the Shares has occurred for the five (5) trading days immediately preceding the relevant date;
(gg) “Primary Stock Exchange” means a Stock Exchange where the majority of the trading volume and
(hh) “Share” means a share of common stock of the Corporation;
(ii) “Share Compensation Arrangement” means any stock option, stock option plan, employee stock
purchase plan, long-term incentive plan or any other compensation or incentive mechanism of the Corporation involving the
issuance or potential issuance of securities of the Corporation from treasury, including without limitation a Share purchase from
treasury which is financially assisted by the Corporation by way of a loan, guarantee or otherwise, but does not include any such
arrangement which does not involve the issuance from treasury or potential issuance from treasury of securities of the
Corporation;
(jj) “Shareholders” means holders of Shares;
stock exchange, the stock exchange(s) on which the Shares are listed or posted for trading;
(kk) “Stock Exchange” means the NYSE and, if the Shares are listed and posted for trading on another
(ll) “Surrender” has the meaning given to that term in Section 4.1(c);
(mm) “Surrender Notice” has the meaning given to that term in Section 4.1(c);
(nn) “Termination Date” has the meaning given to that term in Section 4.3(c);
(oo) “Transaction Agreement” means the Restated and Amended Transaction Agreement dated
August 18, 2022 by and among the Corporation (then-referred to as Zymeworks Delaware Inc.), Zymeworks Inc., a company
then-existing under the Business Corporations Act (British Columbia), Zymeworks Callco ULC, and Zymeworks ExchangeCo
Ltd. as the same may be amended, modified or supplemented from time to time in accordance therewith, prior to the
Arrangement Effective Time; and
(pp) “Vesting Date” means the date or dates determined in accordance with the terms of the Grant
Agreement entered into in respect of such Award (with respect to Options as described in Section 3.3), on and after which a
particular Award, or any part thereof, becomes non-
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forfeitable and/or may be exercised (as the case may be), subject to amendment or acceleration from time to time in accordance
with the terms hereof or the terms of the Grant Agreement.
Section 1.2. Interpretation
of this Plan, the term “discretion” or “authority” means the sole and absolute discretion of the Board.
(a) Whenever the Board is to exercise discretion or authority in the administration of the terms and conditions
(b)
gender include any other gender.
In the Plan, words importing the singular shall include the plural and vice versa and words importing any
Unless otherwise specified in the Participant’s Grant Agreement, all references to money amounts are to
(x) with respect to Awards granted prior to the Arrangement Effective Time, Canadian currency, and (y) with respect to Awards
granted on or after the Arrangement Effective Time, U.S. dollars.
(c)
this Plan, respectively.
(d)
As used herein, the terms “Article” and “Section” mean and refer to the specified Article and Section of
(e)
The words “including” and “includes” mean “including (or includes) without limitation”.
ARTICLE II
GENERAL PROVISIONS
Section 2.1 Administration
other or additional Share Compensation Arrangements or other compensation arrangements.
(a)
The Board shall administer this Plan. Nothing contained herein shall prevent the Board from adopting
(b)
Subject to the terms and conditions set forth herein, the Board has the authority: (i) to grant Awards to
Eligible Persons; (ii) to determine the terms, including the limitations, restrictions, vesting period and conditions, if any, of such
grants; (iii) to interpret this Plan and all agreements entered into hereunder; (iv) to adopt, amend and rescind such administrative
guidelines and other rules relating to this Plan as it may from time to time deem advisable; and (v) to make all other
determinations and to take all other actions in connection with the implementation and administration of this Plan as it may deem
necessary or advisable. The Board’s guidelines, rules, interpretations and determinations shall be conclusive and binding upon the
Corporation, its subsidiaries and all Participants, Eligible Persons and their legal, personal representatives and beneficiaries.
(c)
Notwithstanding the foregoing or any other provision contained herein, the Board shall have the right to
delegate the administration and operation of this Plan, in whole or in part, to a committee thereof. For greater certainty, any such
delegation by the Board may be revoked or amended at any time at the Board’s sole discretion.
(d)
No member of the Board or any person acting pursuant to authority delegated by it hereunder shall be
liable for any action or determination in connection with the Plan made or taken in good faith and each member of the Board and
each such person shall be entitled to indemnification by the Corporation with respect to any such action or determination.
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it considers necessary to address tax or other requirements of any applicable U.S. or non-U.S. jurisdiction.
(e)
The Board may adopt such rules or regulations and vary the terms of this Plan and any grant hereunder as
(f)
The Plan shall not in any way fetter, limit, obligate, restrict or constrain the Board with regard to the
allotment or issue of any Shares or any other securities in the capital of the Corporation other than as specifically provided for in
the Plan.
Section 2.2. Shares Reserved
(a)
Subject to the other provisions of this Section 2.2, the maximum number of Shares that may be delivered
pursuant to Awards granted under the Plan shall be 5,686,097 (which includes 3,686,097 Shares issuable upon exercise of
Options outstanding as of March 31, 2018), which maximum number shall be increased on the first day of each calendar year
beginning in calendar year 2019 and ending in calendar year 2028 by a number of Shares equal to 4.0% of the number of
outstanding Shares on the last day of the immediately preceding calendar year (or such lesser number of Shares as the Board may
determine prior to the commencement of the applicable calendar year).
(b)
For the purposes of calculating the maximum aggregate number of Shares which may be delivered under
this Plan pursuant to Section 2.2(a), following the Expiry, cancellation or other termination of any Awards under this Plan and the
Legacy Options under the Legacy Option Plan, a number of Shares equal to the number of shares subject to such Awards or
Legacy Options so Expired, cancelled or terminated shall immediately and automatically become available for issuance in respect
of Awards that may be subsequently granted under this Plan.
be sufficient to satisfy the requirements of this Plan.
(c)
The Corporation shall at all times reserve for issuance and keep available such number of Shares as shall
(d)
[Reserved]
(e)
If there is a change in the outstanding Shares by reason of any stock dividend or split, or in connection
with a reclassification, reorganization or other change of Shares, consolidation, distribution (other than an ordinary course
dividend in cash or Shares, but including for greater certainty shares or equity interests in a subsidiary or business unit of the
Corporation or one of its subsidiaries or cash proceeds of the disposition of such a subsidiary or business unit), merger or
amalgamation or similar corporate transaction, the Board shall make, subject to any required approval of the Stock Exchange, the
appropriate substitution or adjustment in order to maintain the Participants’ economic rights in respect of their Awards in
connection with such change, including without limitation:
adjustments to the Exercise Price without any change in the total price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the price for each Share covered by the Option;
(i)
an Award;
(ii)
adjustments to the number of Shares to which a Participant is entitled upon exercise or vesting of
exercisable or the immediate vesting of Other Awards; and
(iii)
adjustments permitting the immediate exercise of any outstanding Options that are not otherwise
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(iv)
adjustments to the number or kind of Shares or other securities reserved for issuance pursuant to the
Plan and to the number or kind of Shares or other securities or other property issuable upon the exercise or vesting of
Awards.
Section 2.3 Amendment and Termination
The Board may, in its sole discretion, suspend or terminate the Plan at any time or from time to time and/or
amend or revise the terms of the Plan or of any Award granted under the Plan and any Grant Agreement relating thereto, provided
that such suspension, termination, amendment or revision shall:
(a)
Plan;
(i)
not adversely alter or impair any Award previously granted except as permitted by the terms of this
required, the approval of the Stock Exchange; or
(ii)
be in compliance with applicable law and subject to any regulatory approvals including, where
or this Plan.
(iii)
be subject to Shareholder approval, where required by law, the requirements of the Stock Exchange
(b)
If the Plan is terminated, the provisions of the Plan and any administrative guidelines and other rules and
regulations adopted by the Board and in force with respect to outstanding Awards will continue in effect as long as any such
Award or any rights pursuant thereto remain outstanding and, notwithstanding the termination of the Plan, the Board will remain
able to make such interpretations and amendments to the Plan or the Awards as they would have been entitled to make if the Plan
were still in effect.
(c)
Subject to Section 2.3(a), the Board may from time to time, in its discretion and without the approval of
Shareholders, make changes to the Plan or any Award that do not require the approval of Shareholders under Section 2.3(d),
which may include but are not limited to:
(i)
any amendment of a “housekeeping” nature, including without limitation those made to clarify the
meaning of an existing provision of the Plan, correct or supplement any provision of the Plan that is inconsistent with any
other provision of the Plan, correct any grammatical or typographical errors or amend the definitions in the Plan regarding
administration of the Plan;
(ii)
a change to the vesting provisions of the Plan or any Award;
(iii)
employment, contract or office;
a change to the provisions governing assignability and the effect of termination of a Participant’s
(iv)
which is adopted;
the addition of a form of financial assistance and any amendment to a financial assistance provision
(v)
a change to advance the date on which any Option may be exercised under the Plan; and
an amendment of the Plan or an Award as necessary to comply with applicable law or the
requirements of the Stock Exchange or any other regulatory body having authority over the Corporation, the Plan, the
Participants or the Shareholders.
(vi)
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(d)
Shareholder approval is required for the following amendments to the Plan:
Awards granted under the Plan (as set out in Section 2.2), other than an adjustment pursuant to Section 2.2(e);
(i)
any increase in the maximum number of Shares that may be issuable from treasury pursuant to
any reduction in the Exercise Price of an Option after the Option has been granted or any
cancellation of such Option and the substitution of that Option with a new Option with a reduced Exercise Price, except in
the case of an adjustment pursuant to Section 2.2(e);
(ii)
black-out period;
(iii)
any extension of the maximum Expiry Date of an Option, except in case of an extension due to a
(iv)
a change to the definition of Eligible Persons;
Participants receiving securities while no cash consideration is received by the Corporation; and
(v)
the addition of a deferred or performance share unit or any other provision which results in
(vi)
any amendment to Section 2.3(c) and Section 2.3(d).
Section 2.4 Compliance with Legislation
(a)
The Plan (including any amendments thereto), the terms of the grant of any Award under the Plan, the
grant and exercise of any Award and the Corporation’s obligation to sell and deliver Shares upon the vesting or exercise of any
Award, shall be subject to all applicable U.S. and non-U.S. federal, provincial, state and local laws, rules and regulations, the
rules and regulations of the Stock Exchange and any other stock exchange on which the Shares are listed or posted for trading
and to such approvals by any regulatory or governmental agency as may, in the opinion of counsel to the Corporation, be
required. The Corporation shall not be obliged by any provision of the Plan or the grant of any Award hereunder to issue or sell
Shares in violation of such laws, rules and regulations or any condition of such approvals.
(b)
No Award shall be granted, and no Shares shall be issued or sold hereunder, where such grant, issue or sale
would require registration of the Plan or of Shares under the securities laws of any non-U.S./non-Canadian jurisdiction, and any
purported grant of any Award or purported issue or sale of Shares hereunder in violation of this provision shall be void.
(c)
The Corporation shall have no obligation to issue any Shares pursuant to this Plan unless upon official
notice of issuance such Shares shall have been duly listed with the Stock Exchange (and any other stock exchange on which the
Shares are listed or posted for trading). Shares issued and sold to Participants pursuant to the exercise or vesting of Awards may
be subject to limitations on sale or resale under applicable securities laws.
If Shares cannot be issued to a Participant upon the exercise or vesting of an Award due to legal or
regulatory restrictions, the obligation of the Corporation to issue such Shares shall terminate and any funds paid to the
Corporation in connection with the exercise of an Option will be returned to the applicable Participant as soon as practicable.
(d)
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Section 2.5 Effective Time and Termination
The amendment and restatement of the Plan was effective at the time (the “Effective Time”) it was approved by the
shareholders of Zymeworks. No Awards may be issued under the Plan from and after the tenth anniversary of the Effective Time,
provided that Awards issued prior to such date shall remain in effect following such date in accordance with their terms. The
amendment and restatement through the Arrangement Effective Date is effective as of, and contingent upon, the Arrangement
Effective Time, except that the changes to Section 1.1(g)(vi) are effective as of immediately prior to, and contingent upon, the
Arrangement Effective Time.
Section 2.6 Tax Withholdings and Deductions
The Corporation shall have the authority and the right to deduct or withhold from any amount otherwise payable to a
Participant, or require a Participant to remit to the Corporation, an amount sufficient for the Corporation to be able to comply
with the applicable provisions of any U.S. or non-U.S. federal, provincial, state or local law relating to the withholding of tax or
other required deductions (“Tax Obligations”) arising as a result of any Award. Notwithstanding any other provision contained
herein, the delivery of Shares with respect to any Award granted under this Plan is subject to the condition that if at any time the
Corporation determines, in its discretion, that the satisfaction of the Tax Obligations is necessary or desirable in respect of such
delivery, such delivery is not required unless provision for the Tax Obligation has been made to the satisfaction of the
Corporation. In such circumstances, the Corporation may require that a Participant pay to the Corporation, in addition to the
Exercise Price for the Shares (if applicable), such amount as the Corporation is obliged to remit to the relevant taxing authority in
respect of the Award. Any such additional payment is due no later than the date as of which any amount with respect to the
Award first becomes includable in the gross income of the Participant for tax purposes. To the extent permitted by the Board, a
Participant may direct a portion of the Shares acquired to be sold by a broker to satisfy the Tax Obligations and the funds from
such sale to be paid to the Corporation to be remitted to the relevant taxing authority.
Section 2.7 Non-Transferability
Except as set forth herein, Awards are not transferable. Options may be exercised only by:
(a)
the Participant to whom the Options were granted;
(b)
with the Board’s prior written approval and subject to such conditions as the Corporation may stipulate
(which may include conditions with respect to compliance with applicable securities law), such Participant’s family or retirement
savings trust or any registered retirement savings plans or registered retirement income funds of which the Participant is and
remains the annuitant;
(c)
(d)
Participant;
upon the Participant’s death, by the legal representative of the Participant’s estate; or
upon the Participant’s Incapacity, the legal representative having authority to deal with the property of the
provided that any such legal representative shall first deliver evidence satisfactory to the Corporation of entitlement to exercise
any Option. A person exercising an Option may subscribe for Shares only in the person’s own name or in the person’s capacity as
a legal representative.
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Section 2.8 Participation in this Plan
(a)
No Participant has any claim or right to be granted an Award (including, without limitation, an Award
granted in substitution for any Award that has expired pursuant to the terms of this Plan), and the granting of any Award does not
and is not to be construed as giving a Participant a right to continued employment or to remain a Consultant, director, officer or
employee, as the case may be, of the Corporation or an Affiliate of the Corporation. Nothing contained in this Plan or in any
Award granted under this Plan shall interfere in any way with the rights of the Corporation or an Affiliate of the Corporation in
connection with the employment, retention or termination of any such person.
(b)
No Participant has any rights or privileges as a shareholder of the Corporation in respect of Shares with
respect to any Award until the allotment and issuance to the Participant of certificates representing such Shares or the entry of
such Participant’s name on the share register of the Corporation as the holder of Shares and that person becomes the holder of
record of those Shares. The Participant or the Participant’s legal representative shall not, by reason of the grant of any Award
(other than an Award of Restricted Stock as set forth in Article 5), be considered to be a shareholder of the Corporation until
shares have been issued in respect thereof.
(c)
The Corporation makes no representation or warranty as to the future market value of the Shares or with
respect to any income tax matters affecting the Participant resulting from the grant, vesting or delivery of an Award or
transactions in the Shares. With respect to any fluctuations in the market price of Shares, neither the Corporation, nor any of its
directors, officers, employees, shareholders or agents shall be liable for anything done or omitted to be done by such person or
any other person with respect to the price, time, quantity or other conditions and circumstances of the issuance of Shares
hereunder or in any other manner related to the Plan. For greater certainty, no amount will be paid to, or in respect of, a
Participant under the Plan or pursuant to any other arrangement, and no additional Awards will be granted to such Participant to
compensate for a downward fluctuation in the price of the Shares, nor will any other form of benefit be conferred upon, or in
respect of, a Participant for such purpose. The Corporation does not assume responsibility for the income or other tax
consequences resulting to the Participant and they are advised to consult with their own tax advisors.
Section 2.9 Notice
Each notice relating to an Award, including the exercise of an Option, must be in writing. All notices to the Corporation
must be delivered personally, by prepaid registered mail or by email and must be addressed to the secretary of the Corporation.
All notices to the Participant will be addressed to the principal address of the Participant on file with the Corporation. Either the
Corporation or the Participant may designate a different address by written notice to the other. Such notices are deemed to be
received: (i) if delivered personally, on the date of delivery; (ii) if sent by prepaid, registered mail, on the fifth Business Day
following the date of mailing; or (iii) if sent by email, when the sender receives an email from the recipient acknowledging
receipt, provided that an automatic “read receipt” does not constitute acknowledgment of an email for purposes hereof. Any
notice given by either the Participant or the Corporation is not binding on the recipient thereof until received.
Section 2.10 Right to Issue Other Shares
The Corporation shall not by virtue of this Plan be in any way restricted from declaring and paying stock dividends,
issuing further Shares, repurchasing Shares or varying or amending its share capital or corporate structure.
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Section 2.11 Quotation of Shares
So long as the Shares are listed on a Stock Exchange, the Corporation must apply to the Stock Exchange for the listing or
quotation, as applicable, of the Shares issued upon the exercise or delivery of all Awards granted under the Plan, however, the
Corporation cannot guarantee that such Shares will be listed or quoted on the Stock Exchange or any other stock exchange.
Section 2.12 No Fractional Shares
No fractional Shares shall be issued upon the exercise or delivery of any Award granted under the Plan and, accordingly,
if a Participant would become entitled to a fractional Share upon the exercise or delivery of an Award, or from an adjustment
permitted by the terms of this Plan, such Participant shall only have the right to purchase or receive the next lowest whole
number of Shares, and no payment or other adjustment will be made with respect to the fractional interest so disregarded.
Section 2.13 Governing Law
With respect to Awards granted prior to the Arrangement Effective Time, the Plan shall be governed by the laws of the
Province of British Columbia and the federal laws of Canada applicable therein. With respect to Awards granted on or after the
Arrangement Effective Time, the Plan shall be governed by the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof and the federal laws of the United States applicable therein, without giving effect to the
principles of conflicts of law thereof.
ARTICLE III
OPTIONS
Section 3.1 Grant
(a)
Subject to the provisions of this Plan, the Board may grant Options to any Eligible Person upon the terms,
conditions and limitations set forth herein or such other terms, conditions and limitations as the Board may determine and set
forth in the Grant Agreement; provided that no Option in respect of which Shareholder approval is required under the rules of the
Stock Exchange is granted until the time that such grant has been approved by the Shareholders.
(b)
An Option shall be evidenced by a Grant Agreement, signed on behalf of the Corporation.
such Participant to receive nor preclude such Participant from receiving subsequently granted Options.
(c)
The grant of an Option to, or the exercise of an Option by, a Participant under the Plan shall neither entitle
Section 3.2 Exercise Price
An Option may be exercised at a price that shall be fixed by the Board at the time that the Option is granted, but in no
event shall it be less than the Fair Market Value of the Shares on the Date of Grant (the “Exercise Price”). The Exercise Price
shall be subject to adjustment in accordance with the provisions of Section 2.2(e) hereof.
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Section 3.3 Vesting
(a)
All Options granted hereunder shall vest in accordance with the terms of the Grant Agreement entered into
in respect of such Options. The Board has the right to accelerate the date upon which any Option becomes exercisable
notwithstanding the vesting schedule set forth for such Option, regardless of any adverse or potentially adverse tax consequences
resulting from such acceleration.
(b)
Notwithstanding any other provision of the Plan, unless otherwise approved by the Board, the vesting of
any Options granted hereunder shall be suspended and postponed during any period of Authorized Leave and, upon a
Participant’s return from such Authorized Leave, the vesting of such Options shall be extended by a period equivalent to such
period of Authorized Leave provided that any such extension will not extend the Expiry Date of the option. Notwithstanding the
foregoing, upon a Participant’s return from an Authorized Leave that was a parental leave, the rate of vesting of such Participant’s
Options shall be accelerated to twice the rate provided for in the Participant’s Grant Agreement until such time as the Participant
holds vested Options in accordance with the original schedule of Vesting Dates provided for in the Participant’s Grant
Agreement. For certainty, nothing contained herein shall limit the effect of Section 4.3 of the Plan upon the termination of any
Participant’s employment or service as a Consultant, and the calculation of the number of Options vested as of a Participant’s
Termination Date for purposes thereof shall take into account any suspension, postponement or adjustment of the vesting
schedule applicable to such Options contemplated by this Section 3.3 (b).
ARTICLE IV
EXERCISE & EXPIRY & CHANGE OF CONTROL
Section 4.1 Conditions of Exercise
(a)
Vested Options may only be exercised during the Exercise Period by the Participant or upon the
Participant’s death or Incapacity, his or her legal representative (provided that such legal representative shall first deliver
evidence satisfactory to the Corporation of entitlement to exercise such vested Options). Subject to the restrictions set out in this
Plan and to any alternative exercise procedure which may be established from time to time by the Board, Options to acquire
Shares may be exercised by delivering to the Corporation an Exercise Notice, together with a bank draft, certified cheque or other
form of payment acceptable to the Corporation in an amount equal to the aggregate Exercise Price of the Shares to be purchased
pursuant to the exercise of the Options and, if required by Section 2.6, the amount necessary to satisfy any source deductions or
withholding taxes.
(b)
Pursuant to the Exercise Notice, a Participant may choose to undertake a “cashless exercise” with the
assistance of a broker in order to facilitate the exercise of such Participant’s Options. The “cashless exercise” procedure may
include a sale of such number of Shares as is necessary to raise an amount equal to the aggregate Exercise Price for all Options
being exercised by that Participant under an Exercise Notice. The Participant shall also comply with Section 2.6 of this Plan with
regards to any applicable withholding tax and shall comply with all such other procedures and policies as the Corporation may
prescribe or determine to be necessary or advisable from time to time in connection with such “cashless exercise.”
(c)
In addition, in lieu of exercising any vested Option in the manner described in this Article 4, and pursuant
to the terms of this Article 4, a Participant may provide a properly endorsed notice of surrender to the Secretary of the
Corporation, substantially in the form of Exhibit “C” to the Grant Agreement (a “Surrender Notice”) pursuant to which the
Participant agrees to transfer, dispose and surrender an Option (“Surrender”) to the Corporation
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and elects to receive that number of Shares calculated using the following formula, after deduction of any income tax and other
amounts required by law to be withheld pursuant to Section 2.6:
X = Y * (A-B) / A
Where:
X = the number of Shares to be issued to the Participant
Y = the number of Shares underlying the Options to be Surrendered
A = the Fair Market Value of the Shares as at the date of the Surrender
B = the Exercise Price of such Options
The decision of whether or not to permit Surrender for any Option is at the sole discretion of the Corporation and will be
made on a case by case basis.
(d) Where Shares are to be issued to the Participant pursuant to the terms of this Section 4.1, as soon as
practicable following the receipt of the Exercise Notice and, if Options are exercised only in accordance with the terms of Section
4.1(a), the required bank draft, certified cheque or other acceptable form of payment, the Corporation shall duly issue such Shares
to the Participant as fully paid and non-assessable.
Section 4.2 Exercise Period
Option is granted and:
(a)
The Exercise Period shall be determined by the Board in its sole and absolute discretion at the time the
(i)
each Option shall Expire not later than ten (10) years after the Date of Grant;
unless otherwise provided in the Participant’s Grant Agreement, the Exercise Period shall be
automatically reduced or the Expiry Date postponed in accordance with this Article 4 upon the occurrence of any of the
events referred to herein; and
(ii)
unless otherwise provided in the Participant’s Grant Agreement, no Option in respect of which
Shareholder approval is required under the rules of the Stock Exchange shall be exercisable until the time that such
Option has been approved by the Shareholders.
(iii)
(b)
Notwithstanding any other provision of the Plan, if the Expiry Date of an Option falls on a date upon
which such Participant is prohibited from exercising such Option due to a blackout period or other trading restriction imposed by
the Corporation, then the Expiry Date of such Option shall be automatically extended to the tenth (10th) Business Day following
the date the relevant black-out period or other trading restriction imposed by the Corporation is lifted, terminated or removed;
provided, however, that notwithstanding the foregoing, the Expiry Date of an Option shall in no case extend beyond the tenth
(10th) anniversary of the date on which it is granted.
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Section 4.3 Termination Date
(a)
Subject to Section 4.2, unless otherwise provided in the Participant’s Grant Agreement, employment
agreement or consulting agreement:
(i)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s retirement with the concurrence of the Board, any Options granted to such Participant and vested as of
the Termination Date (as defined below) shall remain exercisable by such Participant until the earlier of: (i) 90 days
following the Termination Date; and (ii) the Expiry Date. As of the Termination Date, all unvested Options of such
Participant shall Expire and such Participant shall no longer be eligible for a grant of Options;
(ii)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s death or Incapacity, any Options granted to such Participant and vested as of the Termination Date
shall remain exercisable by such Participant (or, in accordance with Section 2.7, the Participant’s legal representative)
until the earlier of: (i) one year following the date of death or the date on which the Board determines that the Incapacity
will prevent the employee from fulfilling his or her duties with the Corporation; and (ii) the Expiry Date. As of the
Termination Date, all unvested Options of such Participant shall Expire;
(iii)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s termination for cause, as determined by the Board, in its discretion, then, as of the Termination Date,
the vested and unvested Options granted to such Participant shall Expire and be of no further force or effect whatsoever
and such Participant shall no longer be eligible for a grant of Options;
(iv)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s resignation, then any Options granted to such Participant and vested as of the Termination Date shall
remain exercisable by such Participant until the earlier of: (i) 90 days following the Termination Date; and (ii) the Expiry
Date. As of the Termination Date, all unvested Options granted to such Participant shall Expire and be of no further force
or effect whatsoever and such Participant shall no longer be eligible for a grant of Options;
(v)
if, at any time, a Participant ceases to be an employee of the Corporation or a subsidiary as a result
of the Participant’s dismissal without cause, any Options granted to such Participant and vested as of the Termination
Date shall remain exercisable by such Participant until the earlier of: (i) ninety (90) days following the Termination Date;
and (ii) the Expiry Date. As of the Termination Date, all unvested Options of such Participant shall Expire (for certainty,
without regard to any period of reasonable notice that the Corporation or a subsidiary, as the case may be, may be
required at law to provide to the Participant) and such Participant shall no longer be eligible for a grant of Options;
(vi)
where, in the case of a Consultant, the Participant’s consulting agreement or arrangement
terminates by reason of: (i) termination by the Corporation or an Affiliate for any reason whatsoever other than for
material breach of the consulting agreement or arrangement (whether or not such termination is effected in compliance
with any termination provisions contained in the Participant’s consulting agreement or arrangement); or (ii) voluntary
termination by the Participant, then any Options held by the Participant that are exercisable at the Termination Date
continue to be exercisable by
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the Participant until the earlier of: (A) the date that is ninety (90) days from the Termination Date; and (B) the Expiry
Date. Any Options held by the Participant that are not exercisable at the Termination Date immediately expire and are
cancelled on such date;
(vii) where, in the case of a Consultant, the Participant’s consulting agreement or arrangement
terminates by reason of the death or Incapacity of the Participant, then any Options held by the Participant that are
exercisable at the date of the death or Incapacity of the Participant continue to be exercisable by the Participant (or, in
accordance with Section 2.7, the Participant’s legal representative) until the earlier of: (i) the date that is one year from the
date of the death or Incapacity of the Participant; and (ii) the Expiry Date. Any Options held by the Participant that are not
exercisable at the date of the death or Incapacity of the Participant immediately expire and are cancelled on such date;
(viii) where, in the case of a Consultant, the Participant’s consulting agreement or arrangement is
terminated by the Corporation or an Affiliate for material breach of the consulting agreement or arrangement (whether or
not such termination is effected in compliance with any termination provisions contained in the Participant’s consulting
agreement or arrangement), as determined by the Board, in its discretion, then any Options held by the Participant,
whether or not such Options are exercisable at the Termination Date, immediately expire and are cancelled on the
Termination Date at a time determined by the Board, in its discretion;
(ix)
if, at any time, a Participant ceases to be a director, officer or member of an advisory board of the
Corporation or a subsidiary (and is not or does not continue as an employee or consultant of the Corporation or a
subsidiary) for a reason other than the death or Incapacity of the Participant, the Options granted to such Participant and
vested as of the Termination Date may be exercised by such Participant until the earlier of: (i) ninety (90) days following
the Termination Date; and (ii) the Expiry Date. As of the Termination Date, all unvested Options granted to such
Participant shall cease and terminate and be of no further force or effect whatsoever;
(x)
if, at any time, a Participant ceases to be a director, officer or member of an advisory board of the
Corporation or a subsidiary (and is not or does not continue as an employee or consultant of the Corporation or a
subsidiary) as a result of the Participant’s death or Incapacity, any Options granted to such Participant and vested as of the
Termination Date shall remain exercisable by such Participant (or, in accordance with Section 2.7, the Participant’s legal
representative) until the earlier of: (i) the date that is one year from the date of the death or Incapacity of the Participant;
and (ii) the Expiry Date. As of the Termination Date, all unvested Options granted to such Participant shall cease and
terminate and be of no further force or effect whatsoever; and
(xi)
if, at any time, a Participant who is a Non-Executive Director, ceases to be a director of the
Corporation or a subsidiary for a reason other than the death or Incapacity of the Participant, the Options granted to such
Participant and vested as of the Termination Date may be exercised by such Participant until the earlier of: (i) the date that
is one year from the Termination Date; and (ii) the Expiry Date. As of the Termination Date, all unvested Options of such
Participant shall Expire and such Participant shall no longer be eligible for a grant of Options.
vested and unvested Options of a Participant beyond the Expiry
(b)
Notwithstanding any other provisions of this Section 4.3, the Board may extend the expiration date of
15
Dates set out above, provided that such extended dates are not later than the initial assigned maximum Expiry Date of any such
Option.
(c)
For purposes of the foregoing:
“Incapacity” means the permanent and total incapacity of a Participant as determined in accordance with
procedures established by the Board for purposes of this Plan; and
“Termination Date” means:
(i)
in the case of a Participant whose employment or term of office with the Corporation or a
subsidiary terminates in the circumstances set out in Section 4.3, the date that is designated by the Corporation or a
subsidiary, as the case may be, as the last day of the Participant’s employment or term of office with the Corporation or a
subsidiary, as the case may be, provided that in the case of termination of employment by voluntary resignation by the
Participant, such date shall not be earlier than the date notice of resignation was given, and, in the case of a termination by
the Corporation without cause, “Termination Date” specifically does not mean the date on which any period of reasonable
notice that the Corporation or a subsidiary, as the case may be, may be required at law to provide to the Participant, would
expire; and
(ii)
in the case of a Participant who is a Consultant and whose consulting agreement or arrangement
with the Corporation or a subsidiary, as the case may be, terminates in the circumstances set out in Section 4.3, the date
that is designated by the Corporation or a subsidiary, as the case may be, as the date on which the Participant’s consulting
agreement or arrangement is terminated, provided that in the case of voluntary termination by the Participant, such date
shall not be earlier than the date notice of voluntary termination was received by the Corporation, and, in the case of a
termination by the Corporation without cause, “Termination Date” specifically does not mean the date on which any
period of notice of termination that the Corporation or a subsidiary, as the case may be, may be required to provide to the
Participant under the terms of the consulting agreement or arrangement, would expire.
Section 4.4 Change of Control
Notwithstanding anything else in this Plan or any Grant Agreement, the Board has the right to provide for
the conversion or exchange of any outstanding Awards into or for options, rights or other securities in any entity participating in
or resulting from a Change of Control, cash or other property.
(a)
(b)
Upon the Corporation entering into an agreement relating to a transaction which, if completed, would
result in a Change of Control, or otherwise becoming aware of a pending Change of Control, the Corporation shall give written
notice of the proposed Change of Control to the Award holders, together with a description of the effect of such Change of
Control on outstanding Awards, not less than seven (7) days prior to the closing of the transaction resulting in the Change of
Control.
(c)
The Board may, in its sole discretion, accelerate the vesting and/or the Expiry Date of any or all
outstanding Awards to provide that, notwithstanding the vesting provisions of such Awards or any Grant Agreement, such
designated outstanding Awards shall be fully vested and conditionally exercisable (in the case of Options) upon (or prior to) the
completion of the Change of Control provided that the Board shall not, in any case, authorize the exercise of Options pursuant to
this Section 4.4(c) beyond the Expiry Date of the Options. If the
16
Board elects to accelerate the vesting and/or the Expiry Date of the Options, then if any of such Options are not exercised within
seven (7) days after the applicable holders are given the notice contemplated in Section 4.4(b) (or such later Expiry Date as the
Board may prescribe), such unexercised Options shall, unless the Board otherwise determines, terminate and Expire following
the completion of the proposed Change of Control. If, for any reason, the Change of Control does not occur within the
contemplated time period, the acceleration of the vesting and the Expiry Date of the Awards shall be retracted and vesting shall
instead revert to the manner provided in the Grant Agreement.
(d)
To the extent that the Change of Control would also result in a capital reorganization, arrangement,
amalgamation or reclassification of the share capital of the Corporation (and the Board does not accelerate the vesting and/or the
Expiry Date of Awards pursuant to Section 4.4(c)), the Corporation shall make adequate provisions to ensure that, upon
completion of the proposed Change of Control, the number and kind of shares subject to outstanding Awards and, if applicable,
the Exercise Price per share of Options shall be appropriately adjusted (including by substituting the Awards for awards with
respect to securities in any successor entity to the Corporation) in such manner as the Board considers equitable to prevent
substantial dilution or enlargement of the rights granted to Award holders. The Board may make changes to the terms of the
Awards or the Plan to the extent necessary or desirable to comply with any rules, regulations or policies of any stock exchange on
which any securities of the Corporation may be listed, provided that the value of previously granted Awards and the rights of
Award holders are not materially adversely affected by any such changes.
(e)
Notwithstanding anything else to the contrary herein, in the event of a potential Change of Control, the
Board shall have the power, in its sole discretion, to modify the terms of this Plan and/or the Awards (including, for greater
certainty, to cause the vesting of all unvested Awards) to assist the Participants to tender into a take-over bid or other transaction
leading to a Change of Control. For greater certainty, in the event of a take-over bid or other transaction leading to a Change of
Control, the Board shall have the power, in its sole discretion, to permit Participants to conditionally exercise their Options, such
conditional exercise to be conditional upon the take-up by such offeror of the Shares or other securities tendered to such take-
over bid in accordance with the terms of such take-over bid (or the effectiveness of such other transaction leading to a Change of
Control). If, however, the potential Change of Control referred to in this Section 4.4(e) is not completed within the time specified
therein (as the same may be extended), then notwithstanding this Section 4.4(e) or the definition of “Change of Control”: (i) any
conditional exercise of vested Options shall be deemed to be null, void and of no effect, and such conditionally exercised Options
shall for all purposes be deemed not to have been exercised; (ii) Shares which were issued pursuant to exercise of Options which
vested pursuant to this Section 4.4 shall be returned by the Participant to the Corporation and reinstated as authorized but
unissued Shares; and (iii) the original terms applicable to Options which vested pursuant to this Section 4.4 shall be reinstated.
ARTICLE V
OTHER AWARDS
Section 5.1 General
In addition to Awards of Options hereunder, the Board may grant the types of Awards described in this Article 5 (“Other
Awards”), in accordance with the terms of this Article and the Plan.
17
The Board has the right to accelerate the date upon which any Other Award vests notwithstanding the vesting schedule set
forth for such Other Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration.
Section 5.2
Restricted Stock
The Board may grant or award Shares to Eligible Persons that are subject to transfer, vesting and forfeiture restrictions
(“Restricted Stock”) in respect of such number of Shares, and subject to such terms or conditions, as it shall determine and
specify in a Grant Agreement, and may provide in a Grant Agreement for an Option to be exercisable for Restricted Stock. A
holder of Restricted Stock shall have all of the rights of a shareholder of the Corporation, including the right to vote the shares,
unless the Board shall otherwise determine at the time of grant; provided that unless the Board determines otherwise any
dividends paid on Restricted Stock will be held in escrow until all restrictions on such Shares have lapsed. Unless a Participant’s
Grant Agreement provides to the contrary, unvested Restricted Stock shall not be transferred without the written consent of the
Board. In addition, at the time of termination for any reason of a Participant’s employment or other service relationship with the
Corporation or a subsidiary, unvested Restricted Stock shall be forfeited to the Corporation for no consideration, unless otherwise
determined by the Board. Share certificates, if any, representing Awards of Restricted Stock (which may also be held in book
entry or similar form) shall be imprinted with a legend to the effect that the Shares represented may not be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of except in accordance with the terms of the Grant Agreement and, if
the Board so determines, the holder may be required to deposit the share certificates or other evidence of legal and beneficial
ownership with the President, Chief Financial Officer, Secretary or other officer of the Corporation or with an escrow agent
designated by the Board, together with a stock power or other instrument of transfer appropriately endorsed in blank. In the event
that the Restricted Stock is not represented by a share certificate, the Corporation shall direct the Corporation’s registrar and
transfer agent to make an appropriate notation of the restrictions on transfer to which the Restricted Stock is subject in the stock
books and records of the Corporation.
Section 5.3
Restricted Stock Units
The Board may grant Awards payable in Shares upon vesting (“Restricted Stock Units”) to Eligible Persons hereunder,
in respect of such number of Shares, and subject to such terms or conditions, as it shall determine and specify in a Grant
Agreement. A Restricted Stock Unit represents the right to receive, without payment to the Corporation, a Share. Restricted Stock
Units shall become vested as determined by the Board as set forth in the applicable Grant Agreement, unless otherwise described
in the Plan. Amounts payable in connection with a Restricted Stock Unit shall be paid to the holder thereof as set forth in the
applicable Grant Agreement, but in no event later than two and one-half months following the end of the calendar year in which
the applicable vesting condition is met (unless receipt is deferred in accordance with procedures adopted by the Board, any of
which shall comply with the requirements of Section 409A of the Code if the Participant is a United States taxpayer). Restricted
Stock Units shall not constitute or be treated as property or as a trust fund of any kind. All amounts at any time attributable to the
Restricted Stock Units shall be and remain the sole property of the Corporation and all holders’ rights thereunder are limited to
the rights to receive Shares as provided in the Plan and the applicable Grant Agreement.
Section 5.4
Other Share-Based Awards; Performance Vesting
The Board may grant such Other Awards payable in Shares as the Board may determine to be necessary or appropriate,
including awards of Shares that are not subject to vesting or
18
forfeiture restrictions. The vesting of Other Awards hereunder may be made subject to the attainment of performance goals, as the
Board may determine in its discretion.
19
APPENDIX 1
US RESIDENT EMPLOYEES
The terms of the Plan are hereby modified with respect to those Participants who are U.S. Participants:
SPECIAL APPENDIX
to the
Zymeworks Inc. Amended and Restated Stock Option and Equity Compensation Plan
Special Provisions Applicable to Participants Subject to
the United States Internal Revenue Code
This Appendix sets forth special provisions of the Zymeworks Inc. Amended and Restated Stock Option and Equity
Compensation Plan (the “Plan”) that apply to U.S. Participants. All Options issued under the Plan to U.S. Participants are
intended to be exempt from Section 409A of the Code, or any successor thereto, and all provisions hereunder shall be read,
interpreted, and applied with that purpose in mind. Terms used herein that are defined in the Plan shall have the meanings set
forth in the Plan, as amended from time to time.
1.
(a)
Interpretation
For the purposes of this Appendix, the following terms have the following meanings:
(i)
(ii)
(iii)
(iv)
“Code” means the United States Internal Revenue Code of 1986, as amended, and any applicable United States
Treasury Regulations and other binding regulatory guidance thereunder;
“Incentive Stock Option” means any Option granted under the Plan which is designated in the Grant Agreement
(at the time it is granted) as an incentive stock option within the meaning of Section 422 of the Code or any
successor thereto and which also satisfies the requirements of such section (including, without limitation, the
requirement that the Participant is employed by the Corporation or a “parent corporation” or “subsidiary
corporation” of the Corporation (as such terms are defined in Section 424 of the Code));
“Non-Qualified Option” means any Option granted under the Plan to a U.S. Participant which is not an Incentive
Stock Option;
“Ten Percent Shareholder” means a U.S. Participant who owns (or is deemed to own pursuant to Section 424(d)
of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation or any subsidiary of the Corporation, as applicable (determined in accordance with
Section 422 of the Code);
(v)
“Separation From Service” shall have the meaning as set forth in United States Treasury Regulation Section
1.409A-1(h) (after giving effect to the presumptions contained therein); and
(vi)
“U.S. Participant” shall have the meaning set forth in Section 2(a), below.
(b)
The Plan and this Appendix are complementary to each other and shall, with respect to Options granted to U.S.
Participants, be read and deemed as one. In the event of any
20
contradiction, whether explicit or implied, between the provisions of this Appendix and the Plan, the provisions of this
Appendix shall prevail with respect to Options granted to U.S. Participants. Options may be granted under this Appendix
either as Incentive Stock Options or as Non-Qualified Options, subject to any applicable restrictions or limitations as
provided under applicable law.
Application
The following special rules and limitations are applicable to Options issued under the Plan to Participants subject to
taxation in the United States (referred to hereunder as “U.S. Participants”) at the time of grant.
Incentive Stock Options may be granted with respect to a maximum fixed amount equal to 20% of the Shares reserved for
issuance under the Plan at the Effective Time (subject to adjustment pursuant to Section 2.2(e) of the Plan).
To the extent that the aggregate fair market value (determined as of the time the Option is granted) of the Shares with
respect to which Incentive Stock Options are exercisable for the first time by the U.S. Participant under all Share
Compensation Arrangements of the Corporation and/or its Affiliates (if applicable) exceeds US$100,000 during any
calendar year, the Options or portions thereof that exceed such limit (according to the order in which they are granted)
shall constitute Non-Qualified Options in accordance with Section 422(d) of the Code or any successor thereto,
notwithstanding any contrary provision of the Plan and/or Grant Agreement.
Each U.S. Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on
or for the account of such U.S. Participant in connection with the Plan (including any taxes and penalties under Section
409A), and neither the Corporation nor any Affiliate of the Corporation shall have any obligation to pay, indemnify or
otherwise hold such U.S. Participant (or any beneficiary) harmless from any or all of such taxes or penalties.
The Corporation and its Affiliates, if applicable, shall withhold taxes according to the requirements of applicable laws,
rules and regulations, including the withholding of taxes at source to satisfy any applicable U.S. and non-U.S. federal,
provincial, state or local tax withholding obligation and employment taxes.
Each recipient of an Option hereunder who is or who becomes a U.S. Participant is advised to consult with his or her
personal tax advisor with respect to the tax consequences under federal, state, local and other tax laws of the receipt
and/or exercise of an Option hereunder.
2.
(a)
(b)
(c)
(d)
(e)
(f)
(g) Without derogating from the powers and authorities of the Board detailed in the Plan, and unless specifically required
under applicable law, the Board shall also have the sole and full discretion and authority to administer the provisions of
this Appendix and all actions related thereto including, in addition to any powers and authorities specified in the Plan, the
performance, from time to time and at any time, of either or both of the following:
(i)
(ii)
deciding whether to issue Options as Incentive Stock Options or as Non-Qualified Options; and
adopting standard forms of Grant Agreements to be applied with respect to U.S. Participants, incorporating and
reflecting, inter alia, relevant provisions regarding
21
the grant of Options in accordance with this Appendix and amending or modifying the terms of such standard
forms from time to time.
3.
Exercise Price
The Exercise Price of each Option granted under the Plan to a U.S. Participant shall not be less than the Fair Market Value
of a Share on the date such Option is granted. Notwithstanding any other provision of the Plan, in determining the Fair Market
Value of a Share under the Plan in connection with the grant of an Option to a U.S. Participant, the Board will make the
determination of Fair Market Value in good faith consistent with the rules of Sections 422 and 409A of the Code and the rules of
the NYSE, to the extent applicable.
4.
Expiry of Option
Notwithstanding any other provision of the Plan and any provisions of the Grant Agreement to the contrary, Options
granted to U.S. Participants may not be exercised under any circumstance following the ten (10) year anniversary of the date of
grant.
5.
Disqualifying Disposition
Without limiting the generality of the foregoing, if a U.S. Participant sells or otherwise disposes of any of the Shares
acquired pursuant to an Incentive Stock Option on or before the later of (i) the date two years after the date the Option is granted
or (ii) the date one year after the transfer of such Shares to the U.S. Participant upon exercise of the Incentive Stock Option, the
U.S. Participant shall notify the Corporation in writing within 30 days after the date of any such disposition (“Disqualifying
Disposition”) and shall remit to the Corporation or its Affiliate, as applicable, the amount of any applicable U.S. and non-U.S.
federal, state, provincial and local withholding and employment taxes which the Corporation is required to collect in accordance
with applicable laws (if any).
6.
Adjustments to Options
In the event of a corporate transaction requiring the adjustment of an Option held by a U.S. Participant, the number of
Shares deliverable on the exercise of an Option held by a U.S. Participant and the Exercise Price of an Option held by a U.S.
Participant shall be adjusted in a manner intended to keep the Options exempt from Section 409A of the Code and to comply with
Section 422 of the Code, if applicable, in the case of an Incentive Stock Option.
7.
Amendment of Appendix
The Board shall retain the power and authority to amend or modify this Appendix and any Option issued hereunder to the
extent the Board in its sole discretion deems necessary or advisable to comply with law or regulation, including to comply with
any guidance issued under Sections 409A or 422 of the Code. Such amendments may be made without the approval of any U.S.
Participant.
8.
(a)
Ten Percent Shareholders
If any U.S. Participant to whom an Incentive Stock Option is to be granted under this Plan is, at the time of the grant of
such Option, a Ten Percent Shareholder, then the following special provisions shall apply:
(i)
the per share price at which Shares may be purchased upon the exercise of an Incentive Stock Option shall be no
less 110% of the Fair Market Value of a Share
22
at such time as the Option is granted (as determined under the applicable provisions of the Code); and
(ii)
the maximum term of the Option shall not exceed five (5) years from the date the Option is granted.
(b)
Subject to the provisions of this Section 8 regarding Ten Percent Shareholders, and applicable requirements for
securityholder approval, no Incentive Stock Option may be granted hereunder to a U.S. Participant following the expiry of
ten (10) years after the date on which this Plan is adopted by the Board.
23
Neither this document, nor any stock option agreement connected with it, is an approved prospectus for the purposes of
section 85(1) of the Financial Services and Markets Act 2000 (“FSMA”) and no offer of transferable securities to the
public (for the purposes of section 102B of FSMA) is being made in connection with the UK Sub-Plan to the Zymeworks
Inc, Amended and Restated Stock Option and Equity Compensation Plan (the "Sub-Plan").The Sub-Plan is exclusively
available to bona fide employees and former employees of Zymeworks Inc., Zymeworks Management Inc., and any other
UK Subsidiary.
UK SUB-PLAN TO THE
ZYMEWORKS INCORPORATED AMENDED AND RESTATED STOCK OPTION AND EQUITY COMPENSATION
PLAN
Additional Terms and Conditions for Options received by Participants resident in the UK.
1.
2.
3.
4.
5.
The purpose of this Sub-Plan is to provide incentives for present and future UK tax resident employees of
Zymeworks, Inc., Zymeworks Management Inc., and any other UK Subsidiary through the grant of options over
shares of Common Stock of Zymeworks, Inc (the "Corporation").
Capitalized terms are defined in the Zymeworks Inc. Amended and Restated Stock Option and Equity
Compensation Plan (the "US Plan"), subject to the provisions of this Sub-Plan.
References to Incentive Stock Options and Nonstatutory Stock Options shall not apply to Options granted under
the Sub-Plan.
The Options granted under this Sub-Plan shall be designated as Non-tax favoured Options.
This Sub-Plan is governed by the Plan and all its provisions shall be identical to those of the Plan SAVE THAT
(i) "Sub-Plan" shall be substituted for "Plan" where applicable and
(ii) the following provisions shall be as stated in this Sub-Plan in order to accommodate the specific
requirements of the laws of England and Wales:
6.
SECTION 1.1 Definitions.
The following definitions shall be deleted: “Consultant”, “Incentive Stock Option”, "Non-Executive Director; “Non-
Qualified Option and "Ten Percent Shareholders".
In the definition of "Eligible Person", the words "director, officer, or" and the words "or Consultant" shall be deleted and
the words "(including any of those persons who is also an officer or director of the Corporation or its subsidiaries)" shall
be added.
In Section 1.1, the following definitions shall be inserted:
24
"Award Tax Liability" means any liability or obligation of the Corporation and/or any subsidiary to account (or pay) for
income tax (under the UK withholding system of PAYE (pay as you earn)) or any other taxation provisions and primary
class 1 National Insurance Contributions in the United Kingdom to the extent arising from the grant, exercise, assignment,
release, vesting, settlement, cancellation or any other disposal of an Award or arising out of the acquisition, retention and
disposal of the Shares acquired under this Plan.
"Data" means certain personal information about the Participant, including, but not limited to, name, home address and
telephone number, date of birth, social insurance number, salary, nationality, job title, any stock, units or directorships
held in the Corporation or any subsidiary, details of all options or other entitlement to shares awarded, cancelled,
exercised, vested, unvested, or outstanding in the Participant's favour.
"Data Recipients" means third parties assisting the Corporation in the implementation, administration, and management
of the Plan.
"ITEPA" shall mean the Income Tax (Earnings and Pensions) Act 2003.
"Non-tax favoured Option" means an option over shares in the Corporation that is neither an HM Revenue & Customs
company share option (under Schedule 4 of ITEPA) nor an enterprise management incentive (EMI) option which meets
the requirements of Schedule 5 of ITEPA.
"Option Tax Liability" means any liability or obligation of the Corporation and/or any subsidiary to account (or pay) for
income tax (under the UK withholding system of PAYE (pay as you earn)) or any other taxation provisions and primary
class 1 National Insurance Contributions in the United Kingdom to the extent arising from the grant, exercise, assignment,
release, cancellation or any other disposal of an Option or arising out of the acquisition, retention and disposal of the
Shares acquired under this Plan.
"Personal Representative" means the personal representative(s) of a Participant (being either the executors of the will or,
if a Participant dies intestate, the duly appointed administrator(s) of the estate) who has provided to the Board evidence of
their appointment as such.
"Secondary Contributor” means a person or company who has a liability to account (or pay) the Secondary NIC
Liability to HM Revenue and Customs.
"Secondary NIC Liability" means any liability to employer's Class 1 National Insurance Contributions (including Health
and Social Care Levy, when applicable) to the extent arising from the grant, exercise, release or cancellation of an Option
or arising out of the acquisition, retention and disposal of the Shares acquired pursuant to an Option.
"Section 431 Election" means an election made under section 431 of ITEPA.
25
"UK Subsidiary” means a subsidiary of the Corporation which is incorporated in the UK.
"US Plan" means the Zymeworks Inc. Amended and Restated Stock Option and Equity Compensation Plan, originally
effective June 7, 2018, as amended through the Arrangement Effective Time and as it may be further amended from time
to time.
7.
SECTION 2.2 Shares Reserved
The word "Plan" shall be replaced with "the US Plan (together with the Plan).
8.
SECTION 2.3 Amendment and Termination
In Subsection (b) insert the following sentence " The Plan will terminate upon the expiry of the US Plan".
In Subsection (c) delete the words " and without the approval of Shareholders" and "that do not require the approval of
Shareholders under Section 2.3(d)".
Subsection (d) to be deleted in its entirety.
The following footnote shall be inserted:
"Any changes adverse to the Participant (other than those described in Section 2.3(c) (vi) will normally require Participant
consent under UK law."
9.
SECTION 2.4. Compliance with Legislation.
The words "all applicable U.S. and non-U.S. federal, provincial, state and local laws, rules and regulations" shall be
deleted and replaced with the words "any applicable law".
10.
SECTION 2.5. Effective Time and Termination.
The words "The March 4, 2020 amendment and restatement of the Plan was effective at the time (the “Effective Time”) it
was approved by the shareholders of Zymeworks." shall be deleted. The words "March 4, 2020" shall be inserted after the
words "anniversary of" and "(the "Effective Time")".
The words "The amendment and restatement through the Arrangement Effective Date is effective as of, and contingent
upon, the Arrangement Effective Time, except that the changes to Section 1.1(g)(vi) are effective as of immediately prior
to, and contingent upon, the Arrangement Effective Time." Shall be deleted and replaced with the words "The Plan will
terminate automatically on the termination of the US Plan".
11.
SECTION 2.6. Withholding Obligations.
The title of Section 2.6 shall be deleted and replaced with the title "Withholding Obligations".
26
Section 2.6 shall be deleted in its entirety and replaced with the paragraph below:
"In the event that the Corporation or any subsidiary determines that it is required to account to HM Revenue & Customs
for any Award Tax Liability or Secondary NIC Liability (under the Award Agreement) arising from the grant, exercise,
assignment, release, vesting, settlement, cancellation or any other disposal of an Award or arising out of the acquisition,
retention and disposal of the Shares acquired pursuant to an Award, the Participant, as a condition to the issue of Shares in
connection with an Award, shall make such arrangements satisfactory to the Corporation to enable it or any subsidiary to
satisfy any requirement to account for any Award Tax Liability (and, if applicable, any Secondary NIC Liability) that may
arise in connection with the Award including, but not limited to, arrangements satisfactory to the Corporation for
withholding Shares that would otherwise be issued to the Participant."
12.
SECTION 2.7. Non-Transferability.
Any reference to the words "legal representative" shall be deleted and replaced with the words "Personal Representative".
In Subsection (a) the word "or" shall be added.
In Subsection (c), the word "estate" shall be deleted and replaced with the words "within 12 months of the Participant's
death".
Subsections (b) and (d) shall be deleted in their entirety.
13.
SECTION 2.8. Participation in this Plan.
In Subsection (b), the words "or the Participant’s legal representative" shall be deleted.
14.
SECTION 2.13. Governing Law.
The words "The Section 431 Election shall be governed by the laws of England and Wales." shall be inserted at the end of
the Section.
15.
SECTION 3.3. Vesting.
In Subsection (b) the following footnote shall be inserted:
"Note that to avoid employment claims, vesting should not be suspended in periods of maternity, shared parental leave
etc. Please seek advice if in doubt."
16.
SECTION 4.1. Conditions of Exercise.
In Subsection (a) the words " or upon the Participant’s death or Incapacity, his or her legal representative (provided that
such legal representative shall first deliver evidence satisfactory to the Corporation of entitlement to exercise such vested
Options)" shall be deleted. Insert the words "(and any Option Tax Liability and any Secondary NIC Liability), and a
signed Section 431 Election if required" after the word "taxes".
27
In Subsection (b) insert the words "and any Option Tax Liability and any Secondary NIC Liability)" after the word "tax".
In Subsection (c)the words 'transfer, dispose' shall be deleted and replaced with the word 'release'. The words 'to the
Corporation' shall also be deleted. .
17.
SECTION 4.2. Exercise Period.
In Subsection (a)(ii), the word "and" shall be deleted.
Subsection (a)(iii) shall be deleted in its entirety.
18.
SECTION 4.3. Termination Date.
In Subsection (a) the words "or consulting agreement" shall be deleted and the word "or" shall be added.
In Subsection (a)(ii) the words "in accordance with Section 2.7" shall be deleted and replaced with the word "by". The
words "legal representative" shall be deleted and replaced with "Personal Representative".
In Subsection (a)(iii) delete the word "cause" and replace with "gross misconduct".
In Subsection (a)(v) the words "without cause" shall be deleted and replaced with the words "other than for gross
misconduct".
Subsections (a)(vi), (a)(vii), (a)(viii) and (a)(xi) shall be deleted in their entirety.
In Subsection 4.3(c)(i), the words " without cause" shall be deleted and replaced with the words "other than for gross
misconduct".
Subsection 4.3(c)(ii) shall be deleted in its entirety.
19.
SECTION 5.2. Restricted Stock.
The words "Specific UK securities laws advice must be taken where Restricted Stock is acquired other than on exercise of
an Option" shall be added below the heading.
20.
SECTION 5.4. Other Share-Based Awards; Performance Vesting
The words "Specific UK securities laws advice must be taken where restricted stock is acquired other than on exercise of
an Option" shall be added below the heading.
28
SCHEDULE “A”
ZYMEWORKS INC. STOCK OPTION GRANT AGREEMENT
This agreement (the “Grant Agreement”) evidences the Options granted by Zymeworks Inc. (the “Corporation”) to the
undersigned (the “Participant”), pursuant to and subject to the terms of the Zymeworks Inc. Amended and Restated Stock Option
and Equity Compensation Plan (the “Plan”), which is incorporated herein by reference. The Exhibits attached to this Stock
Option Grant Agreement shall form an integral part of this Stock Option Grant Agreement.
The Corporation hereby grants to the Participant on the Date of Grant such number of Options as set forth in the attached
Exhibit “A”, as may be amended from time to time, with each Option representing the right to purchase, on the terms provided
herein and in the Plan (including, without limitations, the applicable exercise provisions), a Share with an Exercise Price per
Share as set forth in the attached Exhibit “A”, as may be amended from time to time, in each case subject to adjustment in
accordance with the provisions of the Plan.
ARTICLE 1
INTERPRETATION
(a)
Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan.
(b) Words importing the singular shall include the plural and vice versa and words importing any gender include any other
gender.
(c)
(d)
Unless otherwise specified herein, all references to money amounts are to U.S. dollars.
The words “including” and “includes” mean “including (or includes) without limitation”.
ARTICLE 2
VESTING
Section 2.1 Options
Unless earlier terminated, relinquished or expired, Options granted pursuant to this Grant Agreement shall vest in
accordance with the provisions set forth in the attached Exhibit “A” as may be amended from time to time.
ARTICLE 3
GENERAL PROVISIONS
Section 3.1 Participation in the Plan
No Participant has any claim or right to be granted an Option (including, without limitation, an Option granted in
substitution for any Option that has expired pursuant to the terms of this Plan), and the granting of any Option is not to be
construed as giving a Participant a right to continued employment or to remain a Consultant, director, officer or employee, as the
case may be, of the Corporation or an Affiliate of the Corporation. Nothing contained in this Grant Agreement or the Plan shall
interfere in any way with the rights of the Corporation or an Affiliate of the Corporation in connection with the employment or
termination of any such person. Upon any such termination, a Participant’s rights to exercise Options will be subject to
restrictions and time limits for the exercise of Options. Complete details of such restrictions are set out in the Plan, and in
particular in Article 4 thereof (except to the extent that such provisions are varied in
accordance with Exhibit “A” hereto). The Participant hereby agrees that any rule, regulation or determination, including the
interpretation by the Board of the Plan, the Option granted hereunder and the exercise thereof, is final and conclusive for all
purposes and binding on all persons including the Corporation and the Participant.
Section 3.2 Binding Agreement
The exercise of the Options granted hereby, issuance of Shares and ownership of the Shares are subject to the terms and
conditions of the Plan (all of which are incorporated into and form part of this Grant Agreement) and this Grant Agreement. This
Agreement shall inure to the benefit of and be binding upon the parties and their respective successors (including any successor
by reason of amalgamation of any party) and permitted assigns.
Section 3.3 Governing Law
This Grant Agreement shall be governed by the laws of the State of Delaware and the federal laws of the United States, in
each case, without giving effect to the principles of conflicts of law thereof.
[The remainder of this page is intentionally left blank]
By acceptance of these Options, the undersigned acknowledges receipt of the Plan text and agrees hereby to be
subject and bound to the terms of the Plan. The undersigned further acknowledges and agrees that the Participant’s
abovementioned participation is voluntary and has not been induced by expectation of engagement, appointment, employment,
continued engagement or continued employment, as the case may be.
Accepted and agreed to this ___ day of __________, ______.
Corporation:
ZYMEWORKS INC.
By:
Name:
Title:
Participant:
Address:
Signature of Option Holder
Name of Option Holder (Please Print)
EXHIBIT “A” OPTION GRANT
Participant: [☐]
Number of Options [☐]
Exercise Price: [☐]
Date of Grant: [☐]
Vesting Schedule [☐]
Expiry Date [☐]
1
[1] Include here any provisions with respect to the expiry of vested/unvested options that would depart from Section 4.3 of the Plan (i.e., the impact of
certain events on the vesting/exercise period, including termination for cause, voluntary resignation, termination other than for cause, termination upon a
change of control, and retirement, death or disability).
TO: ZYMEWORKS INC. (the “Corporation”)
EXHIBIT “B” ELECTION TO EXERCISE STOCK OPTIONS
The undersigned option holder hereby elects to exercise Options granted by the Corporation to the undersigned pursuant
to a Grant Agreement dated ______________, 20____ under the Zymeworks Inc. Amended and Restated Stock Option and
Equity Compensation Plan (the “Plan”), for the number Shares set forth below. Capitalized terms used herein and not otherwise
defined shall have the meanings given to them in the Plan.
Number of Shares to be Acquired:
Option Exercise Price (per Share): $
Aggregate Purchase Price: $
Amount enclosed that is payable on account of any Source Deductions relating to
this Option exercise (contact the Corporation for details of such amount):
☐
Or check here if
alternative
arrangements
have been made
with
the
Corporation;
and hereby tenders a certified cheque, bank draft or other form of payment confirmed as acceptable by the Corporation for such
aggregate purchase price, and, if applicable, all Source Deductions, and directs such Shares to be registered in the name of
I hereby agree to file or cause the Corporation to file on my behalf, on a timely basis, all insider reports and other reports that I
may be required to file under applicable securities laws. I understand that this request to exercise my Options is irrevocable.
DATED this ___ day of _______________, _____
Signature of Option Holder
Name of Option Holder (Please Print)
TO: ZYMEWORKS INC. (the “Corporation”)
EXHIBIT “C” SURRENDER NOTICE
The undersigned option holder hereby elects to transfer, dispose and surrender Options granted by the Corporation to the
undersigned pursuant to a Grant Agreement dated _______________, 20_ under the Zymeworks Inc. Amended and Restated
Stock Option and Equity Compensation Plan (the “Plan”) to the Corporation in exchange for Shares as calculated in accordance
with Section 4.1(c) of the Plan. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in
the Plan.
Please issue a certificate or certificates representing the Shares in the name of: _____
I hereby agree to file or cause the Corporation to file on my behalf, on a timely basis, all insider reports and other reports that I
may be required to file under applicable securities laws. I understand that this request to exercise my Options is irrevocable.
DATED this ___ day of _______________, _____.
Signature of Option Holder
Name of Option Holder (Please Print)
Type of Option [Incentive Stock Option/Non-Qualified Option]
2
2
Add for U.S. Participants
SCHEDULE “A”
UK SUB-PLAN
ZYMEWORKS INC. STOCK OPTION GRANT AGREEMENT
This agreement (the “Grant Agreement”) evidences the Options granted by Zymeworks Inc. (the “Corporation”) to the
undersigned (the “Participant”), pursuant to and subject to the terms of the UK Sub-Plan to the Zymeworks Inc. Amended and
Restated Stock Option and Equity Compensation Plan (the “Plan”), which is incorporated herein by reference. The Exhibits
attached to this Stock Option Grant Agreement including the Section 431 Election, if required, shall form an integral part of this
Stock Option Grant Agreement. For the avoidance of doubt, unless the Board determines otherwise, the Section 431 Election will
be required.
The Corporation hereby grants to the Participant on the Date of Grant such number of Options as set forth in the attached
Exhibit “A”, as may be amended from time to time, with each Option representing the right to purchase, on the terms provided
herein and in the Plan (including, without limitations, the applicable exercise provisions), a Share with an Exercise Price per
Share as set forth in the attached Exhibit “A”, as may be amended from time to time, in each case subject to adjustment in
accordance with the provisions of the Plan.
ARTICLE 1
INTERPRETATION
Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan.
(a)
(b) Words importing the singular shall include the plural and vice versa and words importing any gender include any other
gender.
Unless otherwise specified herein, all references to money amounts are to U.S. dollars.
The words “including” and “includes” mean “including (or includes) without limitation”.
(c)
(d)
ARTICLE 2
VESTING
Section 2.1 Options
Unless earlier terminated, relinquished or expired, Options granted pursuant to this Grant Agreement shall vest in
accordance with the provisions set forth in the attached Exhibit “A” as may be amended from time to time.
ARTICLE 3
GENERAL PROVISIONS
Section 3.1 Participation in the Plan
No Participant has any claim or right to be granted an Option (including, without limitation, an Option granted in
substitution for any Option that has expired pursuant to the terms of this Plan), and the granting of any Option is not to be
construed as giving a Participant a right to continued employment or to remain a director, officer or employee, as the case may
be, of the Corporation or an Affiliate of the Corporation. Nothing contained in this Grant Agreement or the Plan shall interfere in
any way with the rights of the Corporation or an Affiliate of the Corporation in connection with the employment or termination of
any such person. Upon any such termination, a Participant’s rights to exercise Options will be subject to restrictions and time
limits for the exercise of Options. Complete details of such restrictions are set out in the Plan,
and in particular in Article 4 thereof (except to the extent that such provisions are varied in accordance with Exhibit “A” hereto).
The Participant hereby agrees that any rule, regulation or determination, including the interpretation by the Board of the Plan, the
Option granted hereunder and the exercise thereof, is final and conclusive for all purposes and binding on all persons including
the Corporation and the Participant.
Section 3.2 Binding Agreement
The exercise of the Options granted hereby, issuance of Shares and ownership of the Shares are subject to the terms and
conditions of the Plan (all of which are incorporated into and form part of this Grant Agreement) and this Grant Agreement. This
Agreement shall inure to the benefit of and be binding upon the parties and their respective successors (including any successor
by reason of amalgamation of any party) and permitted assigns.
Section 3.3 Governing Law
This Grant Agreement shall be governed by the laws of the State of Delaware and the federal laws of the United States, in
each case, without giving effect to the principles of conflicts of law thereof. The Section 431 Election is governed by the laws of
England and Wales.
ARTICLE 4
TAX OBLIGATIONS
Section 4.1 Secondary NIC Liability
As a condition of the exercise of this Option, the Participant irrevocably agrees to reimburse the Corporation or any other
company or person who is or becomes a Secondary Contributor for any Secondary NIC Liability.
Section 4.2 Withholding
In the event that the Corporation determines that it or any subsidiary is required to account to HM Revenue & Customs
for the Option Tax Liability and any Secondary NIC Liability or to withhold any other tax as a result of the exercise of this
Option, the Participant, as a condition to the exercise of the Option, shall make arrangements satisfactory to the Corporation to
enable it or any subsidiary to satisfy all withholding liabilities. The Participant shall also make arrangements satisfactory to the
Corporation to enable it to satisfy any withholding requirements that may arise in connection with the vesting or disposition of
Shares purchased by exercising this Option.
Section 4.3 Tax Consultation
The Participant understands that he or she may suffer adverse tax consequences as a result of the Participant's purchase or
disposition of the Shares. The Participant represents that he or she will consult with any tax advisors the Participant deems
appropriate in connection with the purchase or disposition of the Shares and that the Participant is not relying on the Corporation
or any Affiliate for any tax advice.
Section 4.4 Section 431 Election
Unless determined otherwise by the Board, as a further condition of the exercise of this Option, the Participant must enter
into a Section 431 Election in the form set out in Exhibit D or in such other form as may be determined by HM Revenue &
Customs from time to time.
Section 4.5 Participant 's Tax Indemnity
Indemnity. To the extent permitted by law, the Participant hereby agrees to indemnify and keep indemnified the
Corporation, and the Corporation as trustee for and on behalf of any related corporation, for any Option Tax Liability and
Secondary NIC Liability.
No Obligation to Issue Shares. The Corporation shall not be obliged to allot and issue any Shares or any interest in Shares
pursuant to the exercise of this Option unless and until the Participant has paid to the Corporation such sum as is, in the opinion
of the Corporation, sufficient to indemnify the Corporation in full against the Option Tax Liability and the Secondary NIC
Liability, or the Participant has made such other arrangement as in the opinion of the Corporation will ensure that the full amount
of any Option Tax Liability and any Secondary NIC Liability will be recovered from the Participant within such period as the
Corporation may then determine.
Right of Retention. In the absence of any such other arrangement being made, the Corporation shall have the right to
retain out of the aggregate number of Shares to which the Participant would have otherwise been entitled upon the exercise of
this Option, such number of Shares as, in the opinion of the Corporation, will enable the Corporation to sell as agent for the
Participant (at the best price which can reasonably expect to be obtained at the time of the sale) and to pay over to the
Corporation sufficient monies out of the net proceeds of sale, after deduction of all fees, commissions and expenses incurred in
relation to such sale, to satisfy the Participant 's liability under such indemnity.
ARTICLE 5
DATA PROTECTION
As a condition of the grant of the Option, the Participant hereby explicitly and unambiguously acknowledges the necessity
of the collection, use, processing and transfer, in electronic or other form, of personal data as described in this paragraph by and
among, as applicable, the Corporation and its subsidiaries for the exclusive purpose of implementing, administering and
managing the Option.
The Participant understands that the Corporation and its subsidiaries, may hold certain Data for the purpose of managing
and administering the Option.
The Participant acknowledges that Data may be transferred to such Data Recipient as may be selected by the Corporation
in the future (such as a stock plan service provider or broker), provided that the Corporation ensures that the Data Recipient
maintains a level of privacy broadly equivalent to the standard set forth in the Corporation’s Internal Privacy Policy (if any) and
in any event, no less than that required by any relevant applicable legislation. The Participant accepts that Data Recipients may be
located in the United States or the European Economic Area or elsewhere and the Data Recipient’s country may have different
data privacy laws and protections than the Participant’s country.
The Participant authorizes the Corporation and any Data Recipients to receive, possess, use, retain and transfer the Data,
in electronic or other form, for the purposes of implementing, administering and managing the Participant’s participation in the
Option, including any requisite transfer of Data to a designated broker or other third party with whom the Participant may elect to
deposit any Option Shares acquired upon exercise of the Option, as such Data may be required for the administration of the
Option and/or the subsequent holding of Option Shares on the Participant’s behalf.
The Participant understands Data will be held only as long as necessary to implement, administer and manage the
Participant’s participation in the Option.
The Participant understands that the Participant may, at any time, view Data, request additional information about the
storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, without
cost to the Participant, by contacting in writing the Participant’s human resources representative. Further, the Participant
understands that the Participant is providing the representations herein on a purely voluntary basis. If the Participant opposes, or
later seeks to oppose any processing of the Data, the Participant’s employment status or service and career with the Corporation
will not be affected; the only consequence opposing such processing is that the Corporation would not be able to grant the
Participant Options or other equity awards or administer or maintain such awards. Therefore, the Participant understands that
opposing the processing of the Data may affect the Participant’s ability to participate in the Option or in any future equity awards.
For more information on the consequences of opposing the processing of the Data, the Participant understands that the
Participant may contact the Participant’s human resources representative.
As a condition of the grant of the Option, the Participant unambiguously gives the Participant's consent to the transfer of
Data, as described in this Grant Agreement, and although countries outside of the United Kingdom may lack legal provisions that
offer an adequate level of protection, similar to the General Data Protection Regulation 2016/679 (the EU GDPR), the UK
General Data Protection Regulation (the UK GDPR) and the UK Data Protection Act 2018 and any national implementing laws,
regulations and secondary legislation as amended or updated from time to time in the United Kingdom, the Participant agrees that
Data may be transferred to such countries.
ARTICLE 6
ADDITIONAL TERMS
The Participant has no right to compensation or damages for any loss in respect of the Option where such loss arises (or is
claimed to arise), in whole or in part, from the termination of the Participant's employment; or notice to terminate employment
given by or to the Participant. This exclusion of liability shall apply however termination of employment, or the giving of notice,
is caused other than in a case where a competent tribunal or court, from which there can be no appeal (or which the relevant
employing Corporation has decided not to appeal), has found that the cessation of the Participant’s employment amounted to
unfair or constructive dismissal of the Participant and however compensation or damages may be claimed.
The Participant has no right to compensation or damages for any loss in respect of an Option where such loss arises (or is
claimed to arise), in whole or in part, from any company ceasing to be a subsidiary of the Corporation; or the transfer of any
business from a subsidiary of the Corporation to any person which is not a subsidiary of the Corporation. This exclusion of
liability shall apply however the change of status of the relevant company, or the transfer of the relevant business, is caused, and
however compensation or damages may be claimed.
[The remainder of this page is intentionally left blank]
By acceptance of these Options, the undersigned acknowledges receipt of the Plan text and agrees hereby to be subject
and bound to the terms of the Plan. The undersigned further acknowledges and agrees that the Participant’s abovementioned
participation is voluntary and has not been induced by expectation of appointment, employment or continued employment, as the
case may be.
Accepted and agreed to this ___ day of __________, ______.
Corporation:
ZYMEWORKS INC.
By:___________________
Name: ___________________
Title: ___________________
Signature of Option Holder
Name of Option Holder (Please Print)
Participant:
Address:
EXHIBIT “A” OPTION GRANT
Participant: [☐]
Number of Options [☐]
Exercise Price: [☐]
Date of Grant: [☐]
Vesting Schedule [☐]
Expiry Date [☐]
1
[1] Include here any provisions with respect to the expiry of vested/unvested options that would depart from Section 4.3 of the Plan (i.e., the impact of
certain events on the vesting/exercise period, including termination as a result of gross misconduct, voluntary resignation, termination upon a change of
control, and retirement, death or disability)
EXHIBIT “B” ELECTION TO EXERCISE STOCK OPTIONS
TO: ZYMEWORKS INC. (the “Corporation”)
The undersigned option holder hereby elects to exercise Options granted by the Corporation to the undersigned pursuant
to a Grant Agreement dated ______________, 20____ under the Zymeworks Inc. Amended and Restated Stock Option and
Equity Compensation Plan (the “Plan”), for the number Shares set forth below. Capitalized terms used herein and not otherwise
defined shall have the meanings given to them in the Plan.
Number of Shares to be Acquired:
Option Exercise Price (per Share): $
Aggregate Purchase Price: $
Amount enclosed that is payable on account of any Option Tax Liability and Secondary NIC Liability relating to this Option
exercise (contact the Corporation for details of such amount):
☐
Or check here
if alternative
arrangements
have been
made with the
Corporation;
and hereby tenders a certified cheque, bank draft or other form of payment confirmed as acceptable by the Corporation for such
aggregate purchase price, and, if applicable, any Option Tax Liability and Secondary NIC Liability, and directs such Shares to be
registered in the name of _____________________________.
I hereby agree to file or cause the Corporation to file on my behalf, on a timely basis, all insider reports and other reports that I
may be required to file under applicable securities laws. I understand that this request to exercise my Options is irrevocable.
DATED this ___ day of _______________, _____
Signature of Option Holder
Name of Option Holder (Please Print)
EXHIBIT “C” SURRENDER NOTICE
TO: ZYMEWORKS INC. (the “Corporation”)
The undersigned option holder hereby elects to release and surrender Options granted by the Corporation to the undersigned
pursuant to a Grant Agreement dated _______________, 20_ under the Zymeworks Inc. Amended and Restated Stock Option
and Equity Compensation Plan (the “Plan”) in exchange for Shares as calculated in accordance with Section 4.1(c) of the Plan.
Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan.
Please issue a certificate or certificates representing the Shares in the name of: _____
I hereby agree to file or cause the Corporation to file on my behalf, on a timely basis, all insider reports and other reports that I
may be required to file under applicable securities laws. I understand that this request to exercise my Options is irrevocable.
DATED this ___ day of _______________, _____.
Signature of Option Holder
Name of Option Holder (Please Print)
Joint Election under s431 ITEPA 2003 for full or partial disapplication of Chapter 2 Income Tax (Earnings and Pensions)
Act 2003
EXHIBIT “D” SECTION 431 ELECTION
One Part Election
1. Between
the Employee …………………..
whose National Insurance Number is ………………….
and
the Company (who is the Employee's employer) Zymeworks Management Inc.
of Company Registration Number n/a
2. Purpose of Election
This joint election is made pursuant to section 431(1) or 431(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and
applies where employment-related securities, which are restricted securities by reason of section 423 ITEPA, are acquired.
The effect of an election under section 431(1) is that, for the relevant Income Tax and NIC purposes, the employment-related
securities and their market value will be treated as if they were not restricted securities and that sections 425 to 430 ITEPA do not
apply. An election under section 431(2) will ignore one or more of the restrictions in computing the charge on acquisition.
Additional Income Tax will be payable (with PAYE and NIC where the securities are Readily Convertible Assets).
Should the value of the securities fall following the acquisition, it is possible that Income Tax/NIC that would have arisen
because of any future chargeable event (in the absence of an election) would have been less than the Income Tax/NIC due
by reason of this election. Should this be the case, there is no Income Tax/NIC relief available under Part 7 of ITEPA
2003; nor is it available if the securities acquired are subsequently transferred, forfeited or revert to the original owner.
3. Application
This joint election is made not later than 14 days after the date of acquisition of the securities by the employee and applies to:
Number of securities ……………….
Description of securities shares of common stock
Name of issuer of securities Zymeworks Inc.
To be acquired by the Employee after [date] under the terms of the UK Sub-Plan to the Zymeworks Inc. Amended and Restated
Stock Option and Equity Compensation Plan.
4. Extent of Application
This election disapplies:
S.431(1) ITEPA: All restrictions attaching to the securities.
5. Declaration
This election will become irrevocable upon the later of its signing or the acquisition (and each subsequent acquisition) of
employment-related securities to which this election applies.
In signing this joint election, we agree to be bound by its terms as stated above.
……………………………………….. …./…./……….
Signature (Employee) Date
………………………………………. …./…../………
Signature (for and on behalf of the Company) Date
………………………….………………
Position in Company
Note: Where the election is in respect of multiple acquisitions, prior to the date of any subsequent acquisition of a security it
may be revoked by agreement between the employee and employer in respect of that and any later acquisition.
SCHEDULE “B”
ZYMEWORKS INC. RESTRICTED STOCK UNIT GRANT AGREEMENT
This agreement (the “Grant Agreement”) evidences the Restricted Stock Units granted by Zymeworks Inc. (the
“Corporation”) to the undersigned (the “Participant”), pursuant to and subject to the terms of the Zymeworks Inc. Amended and
Restated Stock Option and Equity Compensation Plan (the “Plan”), which is incorporated herein by reference. Exhibit “A”
attached to this Restricted Stock Unit Grant Agreement shall form an integral part of this Restricted Stock Unit Agreement.
The Corporation hereby grants to the Participant on the Date of Grant such number of Restricted Stock Units as set forth
in the attached Exhibit “A”, as may be amended from time to time, with each Restricted Stock Unit representing the right to
receive, on the terms provided herein and in the Plan, a Share as set forth in the attached Exhibit “A”, as may be amended from
time to time, in each case subject to adjustment in accordance with the provisions of the Plan.
ARTICLE 1
INTERPRETATION
(a)
Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan.
(b) Words importing the singular shall include the plural and vice versa and words importing any gender include any other
gender.
ARTICLE 2
VESTING
Section 2.1 Restricted Stock Units
Unless earlier terminated, relinquished or expired, Restricted Stock Units granted pursuant to this Grant Agreement shall
vest in accordance with the provisions set forth in the attached Exhibit “A” as may be amended from time to time.
ARTICLE 3
GENERAL PROVISIONS
Section 3.1 Participation in the Plan
No Participant has any claim or right to be granted a Restricted Stock Unit, and the granting of any Restricted Stock Unit
is not to be construed as giving a Participant a right to continued employment or to remain a Consultant, director, officer or
employee, as the case may be, of the Corporation or an Affiliate of the Corporation. Nothing contained in this Grant Agreement
or the Plan shall interfere in any way with the rights of the Corporation or an Affiliate of the Corporation in connection with the
employment or termination of any such person. Upon any such termination, a Participant’s rights with respect to unvested
Restricted Stock Units shall be terminated, unless otherwise determined by the Board. The Participant hereby agrees that any
rule, regulation or determination, including the interpretation by the Board of the Plan, the Restricted Stock Units granted
hereunder and the exercise thereof, is final and conclusive for all purposes and binding on all persons including the Corporation
and the Participant.
Section 3.2 Issuance; Binding Agreement
Any issuance of Shares and ownership of the Shares are subject to the terms and conditions of the Plan (all of which are
incorporated into and form part of this Grant Agreement) and this Grant Agreement. The Participant’s record of Share ownership
shall be recorded in the books of the Corporation only when the Restricted Stock Units vest and the Shares are issued. Shares
shall be delivered to the Participant as soon as practicable following the applicable vest date, subject to the Participant’s
employment or service on such date. This Grant Agreement shall inure to the benefit of and be binding upon the parties and their
respective successors (including any successor by reason of amalgamation of any party) and permitted assigns.
Section 3.3. Miscellaneous
(a)
The Participant hereby acknowledges and agrees that any sums required to satisfy the U.S. and non-U.S. federal, state,
provincial and local tax withholding obligations of the Corporation that arise in connection with the Award or the
transactions contemplated by this Grant Agreement (the “Tax Obligations”) are the sole responsibility of the Participant.
By accepting this Grant Agreement, the Participant hereby agrees that, until and unless the Board determines otherwise,
Shares held by the Participant shall be sold on Participant’s behalf in such amounts and at such times as is determined in
accordance with this Section 3.3(a), and to allow the Agent (as defined below) to remit the cash proceeds of such sales to
the Corporation as more specifically set forth below, as the method by which Participant shall satisfy the Tax Obligations
(the “Sell-to-Cover Arrangement”). The Participant further acknowledges and agrees to the following provisions:
(i)
The Participant hereby irrevocably appoints the Corporation’s designated broker Solium Capital Inc., or such other
broker as the Corporation may select, as the Participant’s agent (the “Agent”), and authorizes and directs the
Agent to implement the Sell-to-Cover Arrangement while in effect, including but not limited to:
1. Sell on the open market at the then prevailing market price(s), on the Participant’s behalf, as soon as
practicable on or after the delivery of Shares underlying the Restricted Stock Units, the number (rounded
up to the next whole number) of Shares sufficient to generate proceeds to cover (A) the satisfaction of the
Tax Obligations arising from the settlement of the associated vested Restricted Stock Units and (B) all
applicable fees and commissions due to, or required to be collected by, the Agent with respect thereto;
2. Remit directly to the Corporation the proceeds necessary to satisfy the Tax Obligations arising from the
settlement of the associated vested Restricted Stock Units
3. Retain the amount required to cover all applicable fees and commissions due to, or required to be collected by,
the Agent, relating directly to the sale; and
4. Deposit any remaining funds in the Participant’s account.
(ii)
The Participant acknowledges that by accepting this Award, he or she is agreeing to the Sell-to-Cover
Arrangement as the method through which the Participant
shall satisfy the Tax Obligations. The Participant authorizes the Corporation and the Agent to cooperate and
communicate with one another to determine the number of Shares that must be sold pursuant to this Section 3.3(a)
to satisfy the Tax Obligations.
(iii)
The Participant acknowledges that the Agent is under no obligation to arrange for the sale of Shares at any
particular price under the Sell-to-Cover Arrangement and that the Agent may effect sales under the Sell-to-Cover
Arrangement in one or more orders and that the average price for executions resulting from bunched orders may
be assigned to the Participant’s account. In addition, the Participant acknowledges that it may not always be
possible to sell Shares under the Sell-to-Cover Arrangement and in the event of the Agent’s inability to sell
Shares, the Participant will continue to be responsible for the Tax Obligations.
(iv)
The Participant hereby agrees to execute and deliver to the Agent any other agreements or documents as the Agent
reasonably deems necessary or appropriate to carry out the purposes and intent of the Sell-to-Cover Arrangement.
The Agent is a third-party beneficiary of this Section 3.3(a).
(v)
The Participant’s agreement to the Sell-to-Cover Arrangement is irrevocable.
(vi)
The Participant further represents that:
1. The Participant is agreeing to the Sell-to-Cover Arrangement in good faith and not as part of a plan or scheme
to evade any law, including, without limitation, any securities laws; and
2. The Participant will not disclose to the Agent any information concerning the Corporation that might
influence the Agent’s execution of sales under the Sell-to-Cover Arrangement.
(vii)
If the Administrator determines that Participant cannot satisfy Participant’s Tax Obligation through the Sell-to-
Cover Arrangement or the Board otherwise determines it is in the best interests of the Corporation for Participant
to satisfy Participant’s Tax Obligation by a method other than through the Sell-to-Cover Arrangement, it may
permit or require Participant to satisfy Participant’s Tax Obligation, in whole or in part (without limitation), if
permissible by applicable local law, by (i) paying cash, (ii) electing to have the Corporation withhold otherwise
deliverable Shares having a value equal to the minimum amount statutorily required to be withheld (or such
greater amount as Participant may elect if permitted by the Board, if such greater amount would not result in
adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligation from
Participant’s wages or other cash compensation paid to Participant by the Corporation and/or the Affiliate
employing or engaging the Participant, (iv) delivering to the Corporation Shares that Participant owns and that
have vested with a fair market value equal to the amount required to be withheld (or such greater amount as
Participant may elect if permitted by the Board, if such greater amount would not result in adverse financial
accounting consequences), or (v) such other means as the Board deems appropriate. To the
extent determined appropriate by the Corporation in its discretion, it will have the right (but not the obligation) to
satisfy any Tax Obligations by reducing the number of Shares otherwise deliverable to Participant.
(b)
(c)
(d)
(e)
(f)
To the extent that the Corporation declares a cash dividend while all or a portion of the Restricted Stock Units are
unvested, the Participant shall be credited with dividend equivalent rights (as determined by the Board in its discretion)
with respect to each Share subject to the unvested portion of the Restricted Stock Units. Such dividend equivalent right
will entitle the Participant to payment of such dividend only upon vesting of the corresponding portion of the Restricted
Stock Unit; and such right will be forfeited to the extent the corresponding portion of the Restricted Stock Unit is
forfeited.
No purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or
other) or other disposition of, or creation of a security interest in or lien on, any of the Restricted Stock Units by any
holder thereof shall be valid (other than pursuant to the laws of descent and distribution).
This Grant Agreement, together with the Plan, constitutes the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth
in this Grant Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this
Grant Agreement provided, however, in any event, this Grant Agreement shall be subject to and governed by the Plan.
The award of Restricted Stock Units evidenced by this Grant Agreement to any Participant who is a United States
taxpayer is intended to be exempt from the nonqualified deferred compensation rules of Section 409A of the Code as a
“short term deferral” (as that term is used in the final regulations and other guidance issued under Section 409A of the
Code, including Treasury Regulation Section 1.409A-1(b)(4)(i)), and shall be construed and administered accordingly.
This Grant Agreement shall be governed by the laws of the State of Delaware and the federal laws of the United States, in
each case, without giving effect to the principles of conflicts of law thereof.
[The remainder of this page is intentionally left blank]
By acceptance of these Restricted Stock Units, the undersigned acknowledges receipt of the Plan text and agrees hereby
to be subject and bound to the terms of the Plan. The undersigned further acknowledges and agrees that the Participant’s
abovementioned participation is voluntary and has not been induced by expectation of engagement, appointment, employment,
continued engagement or continued employment, as the case may be.
Accepted and agreed to this ____ day of _____________, _____.
Corporation:
ZYMEWORKS INC.
By:
Name:
Title:
Participant:
Address:
Signature of Restricted Stock Unit Holder
Name of Restricted Stock Unit Holder (Please Print)
EXHIBIT “A” RESTRICTED STOCK UNIT GRANT
Participant: [☐]
Number of Restricted Stock
Units [☐]
Date of Grant: [☐]
Vesting Schedule [☐] There shall be no proportionate or partial vesting between the foregoing vesting dates. All vesting shall
be subject to the Participant’s continued employment or service on the applicable vesting date.
SCHEDULE “B”
UK SUB-PLAN
ZYMEWORKS INC. RESTRICTED STOCK UNIT GRANT AGREEMENT
This agreement (the “Grant Agreement”) evidences the Restricted Stock Units granted by Zymeworks Inc. (the
“Corporation”) to the undersigned (the “Participant”), pursuant to and subject to the terms of the UK Sub-Plan to the Zymeworks
Inc. Amended and Restated Stock Option and Equity Compensation Plan (the “Plan”), which is incorporated herein by reference.
The Exhibits attached to this Restricted Stock Unit Grant Agreement including the Section 431 Election, if required, shall form
an integral part of this Restricted Stock Unit Agreement. For the avoidance of doubt, unless the Board determines otherwise, the
Section 431 Election will be required.
The Corporation hereby grants to the Participant on the Date of Grant such number of Restricted Stock Units as set forth
in the attached Exhibit “A”, as may be amended from time to time, with each Restricted Stock Unit representing the right to
receive, on the terms provided herein and in the Plan, a Share as set forth in the attached Exhibit “A”, as may be amended from
time to time, in each case subject to adjustment in accordance with the provisions of the Plan.
ARTICLE 1
INTERPRETATION
(a)
Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan.
(b) Words importing the singular shall include the plural and vice versa and words importing any gender include any other
gender.
ARTICLE 2
VESTING
Section 2.1 Restricted Stock Units
Unless earlier terminated, relinquished or expired, Restricted Stock Units granted pursuant to this Grant Agreement shall
vest in accordance with the provisions set forth in the attached Exhibit “A” as may be amended from time to time.
ARTICLE 3
GENERAL PROVISIONS
Section 3.1 Participation in the Plan
No Participant has any claim or right to be granted a Restricted Stock Unit, and the granting of any Restricted Stock Unit
is not to be construed as giving a Participant a right to continued employment or to remain a director, officer or employee, as the
case may be, of the Corporation or an Affiliate of the Corporation. Nothing contained in this Grant Agreement or the Plan shall
interfere in any way with the rights of the Corporation or an Affiliate of the Corporation in connection with the employment or
termination of any such person. Upon any such termination, a Participant’s rights with respect to unvested Restricted Stock Units
shall be terminated, unless otherwise determined by the Board. The Participant hereby agrees that any rule, regulation or
determination, including the interpretation by the Board of the Plan, the Restricted Stock Units granted hereunder and the
exercise thereof, is final and conclusive for all purposes and binding on all persons including the Corporation and the Participant.
Section 3.2 Issuance; Binding Agreement
Any issuance of Shares and ownership of the Shares are subject to the terms and conditions of the Plan (all of which are
incorporated into and form part of this Grant Agreement) and this Grant Agreement. The Participant’s record of Share ownership
shall be recorded in the books of the Corporation only when the Restricted Stock Units vest and the Shares are issued. Shares
shall be delivered to the Participant as soon as practicable following the applicable vest date, subject to the Participant’s
employment or service on such date. This Grant Agreement shall inure to the benefit of and be binding upon the parties and their
respective successors (including any successor by reason of amalgamation of any party) and permitted assigns.
Section 3.3. Miscellaneous
(a)
The Participant hereby acknowledges and agrees that any sums including the Award Tax Liability and the Secondary NIC
Liability required to satisfy the U.S. and non-U.S. federal, state, provincial and local tax withholding obligations of the
Corporation that arise in connection with the Award or the transactions contemplated by this Grant Agreement (the “Tax
Obligations”) are the sole responsibility of the Participant. By accepting this Grant Agreement, the Participant hereby
agrees that, until and unless the Board determines otherwise, Shares held by the Participant shall be sold on Participant’s
behalf in such amounts and at such times as is determined in accordance with this Section 3.3(a), and to allow the Agent
(as defined below) to remit the cash proceeds of such sales to the Corporation as more specifically set forth below, as the
method by which Participant shall satisfy the Tax Obligations (the “Sell-to-Cover Arrangement”). The Participant further
acknowledges and agrees to the following provisions:
(i)
The Participant hereby irrevocably appoints the Corporation’s designated broker Solium Capital Inc., or such other
broker as the Corporation may select, as the
Participant’s agent (the “Agent”), and authorizes and directs the Agent to implement the Sell-to-Cover
Arrangement while in effect, including but not limited to:
a. Sell on the open market at the then-prevailing market price(s), on the Participant’s behalf, as soon as
practicable on or after the delivery of Shares underlying the Restricted Stock Units, the number (rounded
up to the next whole number) of Shares sufficient to generate proceeds to cover (A) the satisfaction of the
Tax Obligations arising from the settlement of the associated vested Restricted Stock Units and (B) all
applicable fees and commissions due to, or required to be collected by, the Agent with respect thereto;
b. Remit directly to the Corporation the proceeds necessary to satisfy the Tax Obligations arising from the
settlement of the associated vested Restricted Stock Units;
c. Retain the amount required to cover all applicable fees and commissions due to, or required to be collected
by, the Agent, relating directly to the sale; and
d. Deposit any remaining funds in the Participant’s account.
(ii)
(iii)
The Participant acknowledges that by accepting this Award, he or she is agreeing to the Sell-to-Cover
Arrangement as the method through which the Participant shall satisfy the Tax Obligations. The Participant
authorizes the Corporation and the Agent to cooperate and communicate with one another to determine the
number of Shares that must be sold pursuant to this Section 3.3(a) to satisfy the Tax Obligations.
The Participant acknowledges that the Agent is under no obligation to arrange for the sale of Shares at any
particular price under the Sell-to-Cover Arrangement and that the Agent may effect sales under the Sell-to-Cover
Arrangement in one or more orders and that the average price for executions resulting from bunched orders may
be assigned to the Participant’s account. In addition, the Participant acknowledges that it may not always be
possible to sell Shares under the Sell-to-Cover Arrangement and in the event of the Agent’s inability to sell
Shares, the Participant will continue to be responsible for the Tax Obligations.
(iv)
The Participant hereby agrees to execute and deliver to the Agent any other agreements or documents as the Agent
reasonably deems necessary or appropriate to carry out the purposes and intent of the Sell-to-Cover Arrangement.
The Agent is a third-party beneficiary of this Section 3.3(a).
(v)
The Participant’s agreement to the Sell-to-Cover Arrangement is irrevocable.
(vi)
The Participant further represents that:
a. The Participant is agreeing to the Sell-to-Cover Arrangement in good faith and not as part of a plan or
scheme to evade any law, including, without limitation, any securities laws; and
b. The Participant will not disclose to the Agent any information concerning the Corporation that might
influence the Agent’s execution of sales under the Sell-to-Cover Arrangement.
(vii)
If the Administrator determines that Participant cannot satisfy Participant’s Tax Obligation through the Sell-to-
Cover Arrangement or the Board otherwise determines it is in the best interests of the Corporation for Participant
to satisfy Participant’s Tax Obligation by a method other than through the Sell-to-Cover Arrangement, it may
permit or require Participant to satisfy Participant’s Tax Obligation, in whole or in part (without limitation), if
permissible by applicable local law, by (i) paying cash, (ii) electing to have the Corporation withhold otherwise
deliverable Shares having a value equal to the minimum amount statutorily required to be withheld (or such
greater amount as Participant may elect if permitted by the Board, if such greater amount would not result in
adverse financial accounting consequences), (iii) withholding the amount of such Tax Obligation from
Participant’s wages or other cash compensation paid to Participant by the Corporation and/or the Affiliate
employing or engaging the Participant, or (iv) such other means as the Board deems appropriate. To the extent
determined appropriate by the Corporation in its discretion, it will have the right (but not the obligation) to satisfy
any Tax Obligations by reducing the number of Shares otherwise deliverable to Participant.
(b)
(c)
(d)
(e)
(f)
To the extent that the Corporation declares a cash dividend while all or a portion of the Restricted Stock Units are
unvested, the Participant shall be credited with dividend equivalent rights (as determined by the Board in its discretion)
with respect to each Share subject to the unvested portion of the Restricted Stock Units. Such dividend equivalent right
will entitle the Participant to payment of such dividend only upon vesting of the corresponding portion of the Restricted
Stock Unit; and such right will be forfeited to the extent the corresponding portion of the Restricted Stock Unit is
forfeited.
No purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or
other) or other disposition of, or creation of a security interest in or lien on, any of the Restricted Stock Units by any
holder thereof shall be valid.
This Grant Agreement, together with the Plan, constitutes the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement not expressly set forth
in this Grant Agreement shall affect or be used to interpret, change or restrict the express terms and provisions of this
Grant Agreement provided, however, in any event, this Grant Agreement shall be subject to and governed by the Plan.
The award of Restricted Stock Units evidenced by this Grant Agreement to any Participant who is a United States
taxpayer is intended to be exempt from the nonqualified deferred compensation rules of Section 409A of the Code as a
“short term deferral” (as that term is used in the final regulations and other guidance issued under Section 409A of the
Code, including Treasury Regulation Section 1.409A-1(b)(4)(i)), and shall be construed and administered accordingly.
This Grant Agreement shall be governed by the laws of the State of Delaware and the federal laws of the United States, in
each case, without giving effect to the principles of conflicts of law thereof. The Section 431 Election is governed by the
laws of England and Wales.
ARTICLE 4
TAX OBLIGATIONS
Section 4.1 Secondary NIC Liability
By accepting the Restricted Stock Units, the Participant irrevocably agrees to reimburse the Corporation or any other
company or person who is or becomes a Secondary Contributor for any Secondary NIC Liability.
Section 4.2 Withholding
In the event that the Corporation determines that it or any subsidiary is required to account to HM Revenue & Customs
for the Award Tax Liability and any Secondary NIC Liability or to withhold any other tax as a result of the Restricted Stock
Units, the Participant, by accepting this award, shall accept to make arrangements satisfactory to the Corporation to enable it or
any subsidiary to satisfy all withholding liabilities. The Participant shall also make arrangements satisfactory to the Corporation
to enable it to satisfy any withholding requirements that may arise in connection with the grant, vesting, settlement or
cancellation of the Restricted Stock Units.
Section 4.3 Tax Consultation
The Participant understands that he or she may suffer adverse tax consequences as a result of the Participant's purchase or
disposition of the Shares following vesting or settlement of the Restricted Stock Units. The Participant represents that he or she
will consult with any tax advisors the Participant deems appropriate in connection with the purchase or disposition of the Shares
and that the Participant is not relying on the Corporation or any Affiliate for any tax advice.
Section 4.4 Section 431 Election
Unless determined otherwise by the Board, as a condition to acceptance of this Award, the Participant must enter into a
Section 431 Election in the form set out in Exhibit “B” or in such other form as may be determined by HM Revenue & Customs
from time to time.
Section 4.5 Participant 's Tax Indemnity
Indemnity. To the extent permitted by law, the Participant hereby agrees to indemnify and keep indemnified the
Corporation, and the Corporation as trustee for and on behalf of any related corporation, for any Award Tax Liability and
Secondary NIC Liability.
No Obligation to Issue Shares. The Corporation shall not be obliged to allot and issue any Shares or any interest in Shares
pursuant to the vesting or settlement of the Restricted Stock Units unless and until the Participant has paid to the Corporation
such sum as is, in the opinion of the Corporation, sufficient to indemnify the Corporation in full against the Award Tax Liability
and the Secondary NIC Liability, or the Participant has made such other arrangement as in the opinion of the Corporation will
ensure that the full amount of any Award Tax Liability and any Secondary NIC Liability will be recovered from the Participant
within such period as the Corporation may then determine.
Right of Retention. In the absence of any such other arrangement being made, the Corporation shall have the right to
retain out of the aggregate number of Shares to which the Participant would have otherwise been entitled pursuant to the
settlement of the Restricted Stock Units, such number of Shares as, in the opinion of the Corporation, will enable the Corporation
to sell as agent for the Participant (at the best price which can reasonably expect to be obtained at the time of the sale) and to pay
over to the Corporation sufficient monies out of the net proceeds of sale, after deduction of all fees, commissions and expenses
incurred in relation to such sale, to satisfy the Participant 's liability under such indemnity.
ARTICLE 5
DATA PROTECTION
(a)
(b)
(c)
(d)
(e)
(f)
By accepting the Restricted Stock Units, the Participant hereby explicitly and unambiguously acknowledges the necessity
of the collection, use, processing and transfer, in electronic or other form, of personal data as described in this paragraph
by and among, as applicable, the Corporation and its subsidiaries for the exclusive purpose of implementing,
administering and managing the award of the Restricted Stock Units.
The Participant understands that the Corporation and its subsidiaries, may hold certain Data for the purpose of managing
and administering the Restricted Stock Units.
The Participant acknowledges that Data may be transferred to such Data Recipient as may be selected by the Corporation
in the future (such as a stock plan service provider or broker), provided that the Corporation ensures that the Data
Recipient maintains a level of privacy broadly equivalent to the standard set forth in the Corporation’s Internal Privacy
Policy (if any) and in any event, no less than that required by any relevant applicable legislation. The Participant accepts
that Data Recipients may be located in the United States or the European Economic Area or elsewhere and the Data
Recipient’s country may have different data privacy laws and protections than the Participant’s country.
The Participant authorizes the Corporation and any Data Recipients to receive, possess, use, retain and transfer the Data,
in electronic or other form, for the purposes of implementing, administering and managing the Participant’s participation
in the award of the Restricted Stock Units, including any requisite transfer of Data to a designated broker or other third
party with whom the Participant may elect to deposit any Shares pursuant to the vesting or settlement of the Restricted
Stock Units, as such Data may be required for the administration of the Restricted Stock Units and/or the subsequent
holding of the resulting Shares on the Participant’s behalf.
The Participant understands Data will be held only as long as necessary to implement, administer and manage the
Participant’s participation in the award of the Restricted Stock Units.
The Participant understands that the Participant may, at any time, view Data, request additional information about the
storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein,
without cost to the Participant, by contacting in writing the Participant’s local human resources representative. Further, the
Participant understands that the Participant is providing the representations herein on a purely voluntary basis. If the
Participant opposes, or later seeks to oppose any processing of the Data, the Participant’s employment status or service
and career with the Corporation will not be affected; the only consequence opposing such processing is that the
Corporation would not be able to offer the Participant the Restricted Stock Units or other equity awards or administer or
maintain such awards. Therefore, the Participant understands that opposing the processing of the Data may affect the
Participant’s ability to participate in the award of the Restricted Stock Units or in any future equity awards.
(g)
(h)
For more information on the consequences of opposing the processing of the Data, the Participant understands that the
Participant may contact the Participant’s local human resources representative.
By accepting the Restricted Stock Units, the Participant unambiguously gives the Participant's consent to the transfer of
Data, as described in this Grant Agreement, and although countries outside of the United Kingdom may lack legal
provisions that offer an adequate level of protection, similar to the General Data Protection Regulation 2016/679 (the EU
GDPR), the UK General Data Protection Regulation (the UK GDPR) and the UK Data Protection Act 2018 and any
national implementing laws, regulations and secondary legislation as amended or updated from time to time in the United
Kingdom, the Participant agrees that Data may be transferred to such countries.
ARTICLE 6
ADDITIONAL TERMS
The Participant has no right to compensation or damages for any loss in respect of the Restricted Stock Units where such
loss arises (or is claimed to arise), in whole or in part, from the termination of the Participant's employment; or notice to
terminate employment given by or to the Participant. This exclusion of liability shall apply however termination of employment,
or the giving of notice, is caused other than in a case where a competent tribunal or court, from which there can be no appeal (or
which the relevant employing Corporation has decided not to appeal), has found that the cessation of the Participant’s
employment amounted to unfair or constructive dismissal of the Participant and however compensation or damages may be
claimed.
The Participant has no right to compensation or damages for any loss in respect of the Restricted Stock Units where such
loss arises (or is claimed to arise), in whole or in part, from any company ceasing to be a subsidiary of the Corporation; or the
transfer of any business from a subsidiary of the Corporation to any person which is not a subsidiary of the Corporation. This
exclusion of liability shall apply however the change of status of the relevant company, or the transfer of the relevant business, is
caused, and however compensation or damages may be claimed.
[The remainder of this page is intentionally left blank]
By acceptance of these Restricted Stock Units, the undersigned acknowledges receipt of the Plan text and agrees hereby
to be subject and bound to the terms of the Plan. The undersigned further acknowledges and agrees that the Participant’s
abovementioned participation is voluntary and has not been induced by expectation of, appointment, employment or continued
employment, as the case may be.
Accepted and agreed to this ____ day of _____________, _____.
Corporation:
ZYMEWORKS INC.
By:
Name:
Title:
Participant:
Address:
Signature of Restricted Stock Unit Holder
Name of Restricted Stock Unit Holder (Please Print)
EXHIBIT “A” RESTRICTED STOCK UNIT GRANT
(a)
Participant: [☐]
(b)
Number of Restricted Stock
Units [☐]
(c)
Date of Grant: [☐]
(d)
Vesting Schedule [☐] There shall be no proportionate or partial vesting between the
foregoing vesting dates. All vesting shall be subject to the Participant’s continued
employment or service on the applicable vesting date.
Joint Election under s431 ITEPA 2003 for full or partial disapplication of Chapter 2 Income Tax (Earnings and Pensions)
Act 2003
EXHIBIT “B” SECTION 431 ELECTION
One Part Election
1. Between
the Employee …………………..
whose National Insurance Number is ………………….
and
the Company (who is the Employee's employer) Zymeworks Management Inc.
of Company Registration Number n/a
2. Purpose of Election
This joint election is made pursuant to section 431(1) or 431(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and
applies where employment-related securities, which are restricted securities by reason of section 423 ITEPA, are acquired.
The effect of an election under section 431(1) is that, for the relevant Income Tax and NIC purposes, the employment-related
securities and their market value will be treated as if they were not restricted securities and that sections 425 to 430 ITEPA do not
apply. An election under section 431(2) will ignore one or more of the restrictions in computing the charge on acquisition.
Additional Income Tax will be payable (with PAYE and NIC where the securities are Readily Convertible Assets).
Should the value of the securities fall following the acquisition, it is possible that Income Tax/NIC that would have arisen
because of any future chargeable event (in the absence of an election) would have been less than the Income Tax/NIC due
by reason of this election. Should this be the case, there is no Income Tax/NIC relief available under Part 7 of ITEPA
2003; nor is it available if the securities acquired are subsequently transferred, forfeited or revert to the original owner.
3. Application
This joint election is made not later than 14 days after the date of acquisition of the securities by the employee and applies to:
Number of securities ……………….
Description of securities shares of common stock
Name of issuer of securities Zymeworks Inc.
To be acquired by the Employee after [date] under the terms of the UK Sub-Plan to the Zymeworks Inc. Amended and Restated
Stock Option and Equity Compensation Plan.
4. Extent of Application
This election disapplies:
S.431(1) ITEPA: All restrictions attaching to the securities.
5. Declaration
This election will become irrevocable upon the later of its signing or the acquisition (and each subsequent acquisition) of
employment-related securities to which this election applies.
In signing this joint election, we agree to be bound by its terms as stated above.
……………………………………….. …./…./……….
Signature (Employee) Date
………………………………………. …./…../………
Signature (for and on behalf of the Company) Date
………………………….………………
Position in Company
Note: Where the election is in respect of multiple acquisitions, prior to the date of any subsequent acquisition of a security it
may be revoked by agreement between the employee and employer in respect of that and any later acquisition.
Subsidiaries of the Company*
Exhibit 21.1
Name of Subsidiary
Zymeworks CallCo ULC
Zymeworks ExchangeCo Ltd.
Zymeworks BC Inc.
Zymeworks Management Inc.
Zymeworks Management Inc. (UK Establishment)
Zymeworks Biopharmaceuticals Inc.
Zymeworks Pharmaceuticals Limited
Zymeworks Lifesciences Pte. Ltd.
State or Jurisdiction of Incorporation or
Organization
Province of British Columbia
Province of British Columbia
Province of British Columbia
Province of British Columbia
United Kingdom
Washington
Ireland
Singapore
*
Inclusion on the list above is not an admission that any of the above entities, individually or in the aggregate, constitutes a significant subsidiary within
the meaning of Rule 1-02(w) of Regulation S-X and Item 601(b)(21)(ii) of Regulation S-K.
4854-6759-2529.5
Exhibit 23.1
We consent to the use of:
Consent of Independent Registered Public Accounting Firm
•
our report dated March 6, 2024 on the consolidated financial statements of Zymeworks Inc. (the “Entity”) which comprise the consolidated
balance sheets as of December 31, 2023 and 2022, the related consolidated statements of (loss) income and comprehensive (loss) income, changes in
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively the
“consolidated financial statements”), and
•
our report dated March 6, 2024 on the effectiveness of the Entity’s internal control over financial reporting as of December 31, 2023
each of which is included in the Annual Report on Form 10-K of the Entity for the fiscal year ended December 31, 2023.
We also consent to the incorporation by reference of such reports in the Registration Statements (Nos. 333-270338, 333-225556-01, 333-257819-01, 333-
263043-01 and 333-263042-01) on Form S-8, and (No. 333-259970-01) on Form S-3 of the Entity.
/s/ KPMG LLP
Chartered Professional Accountants
March 6, 2024
Vancouver, Canada
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Kenneth Galbraith, certify that:
1. I have reviewed this Annual Report on Form 10-K of Zymeworks Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 6, 2024
/s/ Kenneth Galbraith
Chief Executive Officer
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Christopher Astle, certify that:
1. I have reviewed this Annual Report on Form 10-K of Zymeworks Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 6, 2024
/s/ Christopher Astle
Chief Financial Officer
SECTION 906 CERTIFICATION
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) in
connection with the Annual Report on Form 10-K of Zymeworks Inc. for the annual period ended December 31, 2023 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), the undersigned officer hereby certifies, to such officer’s knowledge, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Zymeworks Inc.
Exhibit 32.1
/s/ Kenneth Gabraith
Name: Kenneth Galbraith
Title:
Date:
Chief Executive Officer
March 6, 2024
This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-
Oxley Act of 2002, be deemed “filed” by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the
liability of that section.
SECTION 906 CERTIFICATION
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) in
connection with the Annual Report on Form 10-K of Zymeworks Inc. for the annual period ended December 31, 2023 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), the undersigned officer hereby certifies, to such officer’s knowledge, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Zymeworks Inc.
Exhibit 32.2
/s/ Christopher Astle
Name:
Title:
Date:
Christopher Astle
Chief Financial Officer
March 6, 2024
This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-
Oxley Act of 2002, be deemed “filed” by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the
liability of that section.
ZYMEWORKS INC.
COMPENSATION RECOVERY POLICY
As adopted by Compensa on Commi ee on November 28, 2023
Exhibit 97.1
Zymeworks Inc. (the “Company”) is commi ed to strong corporate governance. As part of this commitment, the Compensa on
Commi ee (the “Commi ee”) of the Company’s Board of Directors (the “Board”) has adopted this clawback policy called the
Compensa on Recovery Policy (the “Policy”). The Policy is intended to further the Company’s pay-for-performance philosophy and to
comply with applicable laws by providing rules rela ng to the reasonably prompt recovery of certain compensa on received by Covered
Execu ves in the event of an Accoun ng Restatement. The applica on of the Policy to Covered Execu ves is not discre onary, except to
the limited extent provided below, and applies without regard to whether a Covered Execu ve was at fault. Capitalized terms used in the
Policy are defined below, and the defini ons have substan ve impact on its applica on so reviewing them carefully is important to your
understanding.
The Policy is intended to comply with, and will be interpreted in a manner consistent with, Sec on 10D of the Securi es
Exchange Act of 1934 (the “Exchange Act”), with Exchange Act Rule 10D-1 and with the lis ng standards of the na onal securi es
exchange (the “Exchange”) on which the securi es of the Company are listed, including any official interpre ve guidance.
Persons Covered by the Policy
The Policy is binding and enforceable against all “Covered Execu ves.” A Covered Execu ve is each individual who is or was ever
designated as an “officer” by the Board in accordance with Exchange Act Rule 16a-1(f) (a “Sec on 16 Officer”). The Commi ee may (but
is not obligated to) request or require a Covered Execu ve to sign and return to the Company an acknowledgement that such Covered
Execu ve will be bound by the terms and comply with the Policy. The Policy is binding on each Covered Execu ve whether or not the
Covered Execu ve signs and/or returns any acknowledgment.
Administra on of the Policy
The Commi ee has full delegated authority to administer the Policy. The Commi ee is authorized to interpret and construe the
Policy and to make all determina ons necessary, appropriate, or advisable for the administra on of the Policy. In addi on, if determined
in the discre on of the Board, the Policy may be administered by the independent members of the Board or another commi ee of the
Board made up of independent members of the Board, in which case all references to the Commi ee will be deemed to refer to the
independent members of the Board or the other Board commi ee. All determina ons of the Commi ee will be final and binding and
will be given the maximum deference permi ed by law.
Accoun ng Restatements Requiring Applica on of the Policy
If the Company is required to prepare an accoun ng restatement due to the material noncompliance of the Company with any
financial repor ng requirement under the securi es laws, including any required accoun ng restatement to correct an error in
previously issued financial statements that is material to the previously issued financial statements, or that would result in a material
misstatement if the error were corrected in the current period or le uncorrected in the current period (an “Accoun ng Restatement”),
then the Commi ee must determine the Excess Compensa on, if any, that must be recovered. The Company’s obliga on to recover
Excess Compensa on is not dependent on if or when restated financial statements are filed.
Compensa on Covered by the Policy
The Policy applies to certain Incen ve-Based Compensa on (certain terms used in this Sec on are defined below) that is
Received on or a er October 2, 2023 (the “Effec ve Date”), during the Covered Period while the Company has a class of securi es listed
on a na onal securi es exchange. Such Incen ve-Based Compensa on is considered “Clawback Eligible Incen ve-Based Compensa on”
if the Incen ve-Based
Compensa on is Received by a person a er such person became a Sec on 16 Officer and the person served as a Sec on 16 Officer at
any me during the performance period for the Incen ve-Based Compensa on. ”Excess Compensa on” means the amount of Clawback
Eligible Incen ve-Based Compensa on that exceeds the amount of Clawback Eligible Incen ve-Based Compensa on that otherwise
would have been Received had such Clawback Eligible Incen ve-Based Compensa on been determined based on the restated amounts.
Excess Compensa on must be computed without regard to any taxes paid and is referred to in the lis ng standards of the Exchange as
“erroneously awarded compensa on”.
To determine the amount of Excess Compensa on for Incen ve-Based Compensa on based on stock price or total shareholder
return, where it is not subject to mathema cal recalcula on directly from the informa on in an Accoun ng Restatement, the amount
must be based on a reasonable es mate of the effect of the Accoun ng Restatement on the stock price or total shareholder return upon
which the Incen ve-Based Compensa on was Received and the Company must maintain documenta on of the determina on of that
reasonable es mate and provide that documenta on to the Exchange.
“Incen ve-Based Compensa on” means any compensa on that is granted, earned, or vested based wholly or in part upon the
a ainment of a Financial Repor ng Measure. For the avoidance of doubt, no compensa on that is poten ally subject to recovery under
the Policy will be earned un l the Company’s right to recover under the Policy has lapsed. The following items of compensa on are not
Incen ve-Based Compensa on under the Policy: salaries, bonuses paid solely at the discre on of the Commi ee or Board that are not
paid from a bonus pool that is determined by sa sfying a Financial Repor ng Measure, bonuses paid solely upon sa sfying one or more
subjec ve standards and/or comple on of a specified employment period, non-equity incen ve plan awards earned solely upon
sa sfying one or more strategic measures or opera onal measures, and equity awards for which the grant is not con ngent upon
achieving any Financial Repor ng Measure performance goal and ves ng is con ngent solely upon comple on of a specified
employment period (e.g., me-based ves ng equity awards) and/or a aining one or more non-Financial Repor ng Measures.
“Financial Repor ng Measures” are measures that are determined and presented in accordance with the accoun ng principles
used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Stock
price and total shareholder return are also Financial Repor ng Measures. A Financial Repor ng Measure need not be presented within
the financial statements or included in a filing with the Securi es and Exchange Commission.
Incen ve-Based Compensa on is “Received” under the Policy in the Company’s fiscal period during which the Financial
Repor ng Measure specified in the Incen ve-Based Compensa on award is a ained, even if the payment, ves ng, se lement or grant
of the Incen ve-Based Compensa on occurs a er the end of that period. For the avoidance of doubt, the Policy does not apply to
Incen ve-Based Compensa on for which the Financial Repor ng Measure is a ained prior to the Effec ve Date.
“Covered Period” means the three completed fiscal years immediately preceding the Accoun ng Restatement Determina on
Date. In addi on, Covered Period can include certain transi on periods resul ng from a change in the Company’s fiscal year.
“Accoun ng Restatement Determina on Date” means the earliest to occur of: (a) the date the Board, a commi ee of the
Board, or one or more of the officers of the Company authorized to take such ac on if Board ac on is not required, concludes, or
reasonably should have concluded, that the Company is required to prepare an Accoun ng Restatement; and (b) the date a court,
regulator, or other legally authorized body directs the Company to prepare an Accoun ng Restatement.
Repayment of Excess Compensa on
The Company must recover Excess Compensa on reasonably promptly and Covered Execu ves are required to repay Excess
Compensa on to the Company. Subject to applicable law, the Company may recover Excess Compensa on by requiring the Covered
Execu ve to repay such amount to the Company by direct payment to the Company or such other means or combina on of means as
the Commi ee determines to be appropriate (these determina ons do not need to be iden cal as to each Covered Execu ve). These
means include (but are not limited to):
(a)
requiring reimbursement of cash Incen ve-Based Compensa on previously paid;
-2-
(b)
(c)
(d)
seeking recovery of any gain realized on the ves ng, exercise, se lement, sale, transfer, or other disposi on of any
equity-based awards (including, but not limited to, me-based ves ng awards), without regard to whether such awards
are Incen ve-Based Compensa on or vest based on the achievement of performance goals;
offse ng the amount to be recovered from any unpaid or future compensa on to be paid by the Company or any
affiliate of the Company to the Covered Execu ve, including (but not limited to) payments of severance that might
otherwise be due in connec on with a Covered Execu ve’s termina on of employment and without regard to whether
such amounts are Incen ve-Based Compensa on;
cancelling outstanding vested or unvested equity awards (including, but not limited to, me-based ves ng awards),
without regard to whether such awards are Incen ve-Based Compensa on; and/or
(e)
taking any other remedial and recovery ac on permi ed by law, as determined by the Commi ee.
The repayment of Excess Compensa on must be made by a Covered Execu ve notwithstanding any Covered Execu ve’s belief
(whether or not legi mate) that the Excess Compensa on had been previously earned under applicable law and therefore is not subject
to clawback.
In addi on to its rights to recovery under the Policy, the Company or any affiliate of the Company may take any legal ac ons it
determines appropriate to enforce a Covered Execu ve’s obliga ons to the Company or to discipline a Covered Execu ve. Failure of a
Covered Execu ve to comply with their obliga ons under the Policy may result in (without limita on) termina on of that Covered
Execu ve’s employment, ins tu on of civil proceedings, repor ng of misconduct to appropriate governmental authori es, reduc on of
future compensa on opportuni es or change in role. The decision to take any ac ons described in the preceding sentence will not be
subject to the approval of the Commi ee and can be made by the Board, any commi ee of the Board, or any duly authorized officer of
the Company or of any applicable affiliate of the Company. For avoidance of doubt, any decisions of the Company or the Covered
Execu ve’s employer to discipline a Covered Execu ve or terminate the employment of a Covered Execu ve are independent of
determina ons under this Policy. For example, if a Covered Execu ve was involved in ac vi es that led to an Accoun ng Restatement,
the Company’s decision as to whether or not to terminate such Covered Execu ve’s employment would be made under its employment
arrangements with such Covered Execu ve and the requirement to apply this no-fault and non-discre onary clawback policy will not be
determina ve of whether any such termina on is for cause, although failure to comply with the Policy might be something that could
result in a termina on for cause depending on the terms of such arrangements.
Limited Excep ons to the Policy
The Company must recover the Excess Compensa on in accordance with the Policy except to the limited extent that any of the
condi ons set forth below is met, and the Commi ee determines that recovery of the Excess Compensa on would be imprac cable:
(a)
(b)
The direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered.
Before reaching this conclusion, the Company must make a reasonable a empt to recover such Excess Compensa on,
document such reasonable a empt(s) to recover, and provide that documenta on to the Exchange; or
Recovery would likely cause an otherwise tax-qualified re rement plan, under which benefits are broadly available to
employees of the Company, to fail to meet the legal requirements as such.
Other Important Informa on in the Policy
The Policy is in addi on to the requirements of Sec on 304 of the Sarbanes-Oxley Act of 2002 that are applicable to the
Company’s Chief Execu ve Officer and Chief Financial Officer, as well as any other applicable
-3-
laws, regulatory requirements, rules, or pursuant to the terms of any exis ng Company policy or agreement providing for the recovery of
compensa on.
Notwithstanding the terms of any of the Company’s organiza onal documents (including, but not limited to, the Company’s
bylaws), any corporate policy or any contract (including, but not limited to, any indemnifica on agreement), neither the Company nor
any affiliate of the Company will indemnify or provide advancement for any Covered Execu ve against any loss of Excess Compensa on.
Neither the Company nor any affiliate of the Company will pay for or reimburse insurance premiums for an insurance policy that covers
poten al recovery obliga ons. In the event that the Company is required to recover Excess Compensa on pursuant to the Policy from a
Covered Execu ve who is no longer an employee, the Company will be en tled to seek recovery in order to comply with applicable law,
regardless of the terms of any release of claims or separa on agreement that individual may have signed.
The Commi ee or Board may review and modify the Policy from me to me.
If any provision of the Policy or the applica on of any such provision to any Covered Execu ve is adjudicated to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provisions of the Policy or the
applica on of such provision to another Covered Execu ve, and the invalid, illegal or unenforceable provisions will be deemed amended
to the minimum extent necessary to render any such provision or applica on enforceable.
The Policy will terminate and no longer be enforceable when the Company ceases to be a listed issuer within the meaning of
Sec on 10D of the Exchange Act.
-4-
ACKNOWLEDGEMENT
•
•
•
•
•
•
•
•
I acknowledge that I have received and read the Compensa on Recovery Policy (the “Policy”) of Zymeworks Inc. (the
“Company”).
I understand and acknowledge that the Policy applies to me, and all of my beneficiaries, heirs, executors, administrators or other
legal representa ves and that the Company’s right to recovery in order to comply with applicable law will apply, regardless of the
terms of any release of claims or separa on agreement I have signed or will sign in the future.
I agree to be bound by and to comply with the Policy and understand that determina ons of the Commi ee (as such term is
used in the Policy) will be final and binding and will be given the maximum deference permi ed by law.
I understand and agree that my current indemnifica on rights, whether in an individual agreement or the Company’s
organiza onal documents, exclude the right to be indemnified for amounts required to be recovered under the Policy.
I understand that my failure to comply in all respects with the Policy is a basis for termina on of my employment with the
Company and any affiliate of the Company as well as any other appropriate discipline.
I understand that neither the Policy, nor the applica on of the Policy to me, gives rise to a resigna on for good reason (or similar
concept) by me under any applicable employment agreement or arrangement.
I acknowledge that if I have ques ons concerning the meaning or applica on of the Policy, it is my responsibility to seek
guidance from the Company’s General Counsel, Head of Human Resources or my own personal advisers.
I acknowledge that neither this Acknowledgement nor the Policy is meant to cons tute an employment contract.
Please review, sign and return this form to the Company’s General Counsel.
Covered Execu ve
(print name)
(signature)
(date)