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Zymeworks Reports Financial Results for the Second Quarter of 2018

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Zymeworks Inc. (TSX:ZYME), a clinical-stage biopharmaceutical
company developing multifunctional therapeutics, today reported
financial results for the second quarter ended June 30, 2018.

"This was a pivotal quarter for Zymeworks highlighted by the oral
presentation of ZW25 clinical data at the ASCO annual meeting," said Ali
Tehrani, Ph.D., Zymeworks' President & CEO. "With the completion of our
subsequent financing, we are well capitalized to accelerate the clinical
development of ZW25 into registrational studies."

Dr. Tehrani continued, "We also have a number of important near-term
catalysts including providing the refined regulatory strategy for ZW25,
supported by a clinical update; filing an Investigational New Drug
application for our novel bispecific antibody-drug conjugate, ZW49; and
the initiation of clinical development by our partners for their
Azymetric bispecific candidates as well as the establishment of new
revenue-generating partnerships."

Second Quarter 2018 Business Highlights and Recent Developments

  • Oral Presentation for ZW25 at the American Society of Clinical
    Oncology (ASCO) Annual Meeting

    Updated clinical
    data
    continued to demonstrate robust single agent anti-tumor
    activity and tolerability across a range of HER2-expressing cancers
    including breast and gastric. Currently Zymeworks is evaluating ZW25
    as a single agent and in combination with other cancer therapeutics.
  • Completed $97.8 Million Public Offering
    Zymeworks closed a
    public offering of 6,210,000 common shares, including the full
    over-allotment of 810,000 additional shares, for gross proceeds of
    approximately $97.8 million.
  • Expanded Daiichi Sankyo Immuno-Oncology Collaboration Focused on
    Bispecific Antibodies

    Zymeworks granted additional
    licenses
    enabling Daiichi Sankyo to develop two bispecific
    antibody therapeutics utilizing the Zymeworks' Azymetric™ and EFECT™
    technology platforms. Zymeworks received an upfront technology access
    fee of $18.0 million and may receive up to $466.7 million in milestone
    payments and up to double-digit tiered royalties on global product
    sales.
  • Expanded Corporate Collaboration with Celgene
    Zymeworks expanded
    its relationship with Celgene. The research program term has been
    extended by two years and additional licenses for two products have
    been added for a total of 10 potential products under the
    collaboration. Zymeworks received an expansion fee of $4.0 million and
    may receive up to $328 million in additional milestone payments
    resulting in total potential milestones of $1.64 billion, plus
    royalties on worldwide sales.

Financial Results for the Three Months Ended June 30, 2018

Revenue for the three months ended June 30, 2018 was $22.0 million as
compared to $1.3 million in the same period in 2017. The change between
the two periods was primarily due to an $18.0 million upfront technology
access fee related to a second licensing agreement with Daiichi Sankyo
and a $4.0 million research program expansion fee from Celgene.

For the three months ended June 30, 2018, research and development
expenditures were $15.4 million as compared to $8.3 million for the same
period in the prior year. The change between the two periods was
primarily due to increases in clinical costs for ZW25 as well as
increased development costs for ZW49, investments in earlier stage R&D
activities and platform technologies, and non-cash liability classified
equity adjustments.

General and administrative expenses were $8.6 million for the three
months ended June 30, 2018, and $2.3 million for the same period in
2017, primarily due increases in non-cash liability classified equity
adjustments and stock-based compensation, as well as changes in
compensation and professional fees associated with year-over-year
corporate growth following the company's initial public offering in 2017.

Non-cash charges for the three months ended June 30, 2018 included $3.1
million ($2.4 million in G&A and $0.7 million in R&D) related to the
quarterly mark-to-market revaluation of liability classified equity
adjustments (attributed to the accounting treatment of historical
stock-based compensation in both Canadian and US dollars) and
stock-based compensation.

The net loss for the three months ended June 30, 2018 was $5.9 million
as compared to $11.0 million for the same period in 2017. Zymeworks
expects R&D expenditures to increase over time due to the ongoing
development of product candidates and other clinical, preclinical, and
regulatory activities. Additionally, Zymeworks expects to continue
receiving revenue from its existing and future strategic partnerships,
including technology access fees and milestone-based payments. However,
Zymeworks' ability to receive these payments is dependent upon either
Zymeworks or its collaborators successfully completing specified
research and development activities.

As of June 30, 2018, Zymeworks had $166.2 million in cash and cash
equivalents and short-term investments.

About Zymeworks Inc.

Zymeworks is a clinical-stage biopharmaceutical company dedicated to the
discovery, development and commercialization of next-generation
multifunctional biotherapeutics. Zymeworks' suite of complementary
therapeutic platforms and its fully integrated drug development engine
provide the flexibility and compatibility to precisely engineer and
develop highly differentiated product candidates. Zymeworks' lead
product candidate, ZW25, is a novel bispecific antibody currently being
evaluated in an adaptive Phase 1 clinical trial. Zymeworks is also
advancing a deep pipeline of preclinical product candidates and
discovery-stage programs in immuno-oncology and other therapeutic areas.
In addition to Zymeworks' wholly owned pipeline, its therapeutic
platforms have been further leveraged through multiple strategic
partnerships with global biopharmaceutical companies.

Cautionary Note Regarding Forward-Looking Statements

This press release includes "forward-looking statements" within the
meaning of the U.S. Private Securities Litigation Reform Act of 1995 and
"forward-looking information" within the meaning of Canadian securities
laws, or collectively, forward-looking statements. Forward-looking
statements in this news release include, but are not limited to,
statements related to the expected clinical development of ZW25 and
ZW49, preclinical development of Zymeworks' product candidates,
including the advancement of such product candidates through clinical
trials, potential milestone payments, royalties and other revenue,
expected research and development expenditures, and other information
that is not historical information. When used herein, words such as
"anticipate", "plan", "expect", "will", "may", "continue", and similar
expressions are intended to identify forward-looking statements. 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. All forward-looking
statements are based upon Zymeworks' current expectations and various
assumptions. Zymeworks believes there is a reasonable basis for its
expectations and beliefs, but they are inherently uncertain. Zymeworks
may not realize its expectations, and its beliefs may not prove correct.
Actual results could differ materially from those described or implied
by such forward-looking statements as a result of various factors,
including, without limitation, market conditions and the factors
described under "Risk Factors" in Zymeworks' Annual Report on Form 10-K
for its fiscal year ended December 31, 2017 (a copy of which may be
obtained at www.sec.gov
and www.sedar.com).
Consequently, forward-looking statements should be regarded solely as
Zymeworks' current plans, estimates and beliefs. Investors should not
place undue reliance on forward-looking statements. Zymeworks cannot
guarantee future results, events, levels of activity, performance or
achievements. Zymeworks does not undertake and specifically declines any
obligation to update, republish, or revise any forward-looking
statements to reflect new information, future events or circumstances or
to reflect the occurrences of unanticipated events, except as may be
required by law.

ZYMEWORKS INC.
Condensed Interim Consolidated Statements
of Loss

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

(unaudited)

           
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Revenue
Research and developmental collaborations $ 22,000 $ 1,342 $ 22,040 $ 1,572
Operating expenses:
Research and development 15,368 8,289 28,453 17,347
Government grants and credits

(218)
15,368 8,289 28,453 17,129
General and administrative 8,648 2,285 15,714 8,544
Impairment on acquired IPR&D

1,536
Total operating expenses 24,016 10,574 44,167 27,209
Loss from operations (2,016) (9,232) (22,127) (25,637)
Other (expense) income, net (2,016) (1,611) (3,174) (1,132)
 
Loss before income taxes (4,032) (10,843) (25,301) (26,769)
Income tax (1,842) (125) (1,777) (125)
 
Net loss and comprehensive loss $ (5,874) $ (10,968) $ (27,078) $ (26,894)
 
Net loss per common share:
Basic (0.22) (0.55) (1.03) (1.61)
Diluted (0.22) (0.63) (1.03) (1.73)
 
Weighted-average common shares outstanding:
Basic 26,869,829 20,915,608 26,168,387 17,071,108
Diluted 26,869,829 21,038,652 26,168,387 17,223,606
 

ZYMEWORKS INC.
Selected Condensed Consolidated Balance
Sheet Data

(Expressed in thousands of U.S. dollars)

         
 

June 30,
2018

December 31,
2017

 
(unaudited)
 
Cash, cash equivalents and short-term investments $ 166,227 $ 87,797
 
Working capital (unaudited) 148,518 77,674
 
Total assets 210,995 131,955
 
Accumulated deficit (135,794) (108,716 )
 
Total shareholders' equity 186,465 116,428
 

NON-GAAP FINANCIAL MEASURES

In addition to reporting financial information in accordance with U.S.
generally accepted accounting principles ("GAAP") in this press release,
Zymeworks is also reporting normalized expenses and normalized loss per
share, which are non-GAAP financial measures. Normalized expenses and
normalized loss per share are not defined by GAAP and should not be
considered as alternatives to net loss, net loss per share or any other
indicator of Zymeworks' performance required to be reported under GAAP.
In addition, Zymeworks' definitions of normalized expenses and
normalized loss per share may not be comparable to similarly titled
non-GAAP measures presented by other companies. Investors and others are
encouraged to review Zymeworks' financial information in its entirety
and not rely on a single financial measure. As defined by Zymeworks,
normalized expenses represent total research and development expenses
and general and administrative expenses adjusted for non-cash stock
based compensation expenses for equity and liability classified equity
instruments.

Normalized expenses are a non-GAAP measure that Zymeworks believes is
useful because it excludes those items that Zymeworks believes are not
representative of Zymeworks' operating expenses.

GAAP to Non-GAAP Reconciliations
(Expressed in thousands
of U.S. dollars except share and per share data)

(unaudited)

           
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
       
Research and development expenses $ 15,368 $ 8,289 $ 28,453 $ 17,347
Stock based compensation for equity classified instruments (621) (345) (1,033) (46)
Stock based compensation for liability classified instruments (690)     217 (1,470)     (926)
Normalized research and development expenses (Non-GAAP basis)

$ 14,057

$ 8,161

$ 25,950

$ 16,375

 
General and administrative expenses $ 8,648 $ 2,285 $ 15,714 $ 8,544
Stock based compensation for equity classified instruments (1,074) (231) (1,665) (897)
Stock based compensation for liability classified instruments (2,363)     1,700 (4,039)     234
Normalized general and administrative expenses (Non-GAAP basis)

$ 5,211

$ 3,754

$ 10,010

$ 7,881

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
 
Net loss per common share – Basic (0.22) (0.55) (1.03) (1.61)
Stock based compensation for equity classified instruments 0.06 0.03 0.10 0.06
Stock based compensation for liability classified instruments 0.11     (0.09) 0.21     0.04
Normalized net loss per common share – Basic (Non-GAAP basis)

(0.05)

(0.61)

(0.72)

(1.51)

 
Net loss per common share - Diluted (0.22) (0.63) (1.03) (1.73)
Stock based compensation for equity classified instruments 0.06 0.03 0.10 0.05
Stock based compensation for liability classified instruments 0.11     (0.09) 0.21     0.04
Normalized net loss per common share – Diluted (Non-GAAP basis)

(0.05)

(0.69)

(0.72)

(1.64)

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