Zymeworks Secures \$250 Million Royalty-Backed Note Financing from Royalty Pharma: Key Details for Investors

Key Highlights of the Transaction

• Zymeworks Inc. (Nasdaq: ZYME) announced a transformative non-dilutive \$250 million royalty-backed note financing with Royalty Pharma plc (Nasdaq: RPRX).
• Repayments of the note will occur through 30% of worldwide tiered royalties on sales of Ziihera^® (zanidatamab-hrii) owed to Zymeworks from its partners, Jazz Pharmaceuticals and BeOne Medicines, until the note is fully repaid.
• Zymeworks retains 70% of royalties on Ziihera sales during the repayment period, with all royalty rights reverting to Zymeworks once Royalty Pharma has received total payments of either 1.65x the note amount by December 31, 2033, or 1.925x the note amount at any time thereafter.
• The proceeds provide non-dilutive capital, strengthening Zymeworks’ balance sheet, supporting its ongoing stock repurchase program, enabling potential strategic acquisitions, and funding its cash runway beyond 2028.

Detailed Transaction Terms

• Structure: Non-recourse royalty-backed note, secured against 30% of future global Ziihera royalties from Jazz and BeOne.
• Royalty Sharing:
  • Zymeworks will continue to receive the remaining 70% of Ziihera royalties throughout the repayment period.
  • Royalty Pharma’s right to royalties will cease once cumulative payments reach the pre-set cap (1.65x note amount by end of 2033, or 1.925x note amount at any time).
• Royalty Rates:
  • Under the Jazz agreement: Zymeworks receives tiered royalties (10% to high teens) on global sales (excluding Asia (except Japan), Australia, and New Zealand) up to \$2 billion, and 20% on sales above \$2 billion.
  • Under the BeOne agreement: Zymeworks receives mid-single to mid-double digit royalties on sales up to \$1 billion and 19.5% on sales above \$1 billion (BeOne markets in Asia (excluding Japan), Australia, and New Zealand).
• Milestone Payments: Zymeworks retains all regulatory and commercial milestone payments, which could total up to \$1.5 billion, including:
  • Up to \$440 million in near-term regulatory milestones for Ziihera in metastatic gastroesophageal adenocarcinoma (mGEA).
  • \$89 million for regulatory milestones in third indications.
  • Up to \$977.5 million in potential commercial milestone payments.

Strategic Implications for Zymeworks Shareholders

• Non-Dilutive Financing: The transaction provides significant capital without issuing new equity, thus preventing shareholder dilution.
• Stock Repurchase Program: The strengthened capital position supports the ongoing share buyback plan, potentially enhancing EPS and shareholder value.
• Acquisition and Growth Capacity: The capital raised provides substantial flexibility for strategic business development, including potential acquisitions and partnerships.
• Extended Cash Runway: Management asserts the deal funds operations well beyond 2028, reducing concerns about near-term capital needs.
• Future Royalty Upside: Once the capped repayments to Royalty Pharma are made, Zymeworks regains full royalty rights, maximizing long-term value from Ziihera.

About Ziihera (zanidatamab-hrii)

• Ziihera is a bispecific HER2-directed antibody designed to bind two extracellular sites on HER2, resulting in receptor internalization, reduced HER2 expression, and tumor cell death through multiple immune mechanisms (CDC, ADCC, ADCP).
• Approved in the U.S. for adults with previously treated, unresectable or metastatic HER2-positive (IHC 3+) biliary tract cancer, with FDA accelerated approval based on response rate and duration of response. Continued approval may be contingent on confirmatory trials.
• Ziihera is also in development for other HER2-positive solid tumors, including metastatic gastroesophageal adenocarcinoma (mGEA). The HERIZON-GEA-01 study showed promising results in first-line mGEA, a disease with poor prognosis and high unmet need.
• Ziihera has received two Breakthrough Therapy designations and two Fast Track designations from the FDA, as well as Orphan Drug status from both the FDA and EMA for BTC and gastric cancer.

Company Strategy and Pipeline

• Zymeworks is shifting towards an asset and royalty aggregation strategy, seeking to optimize future cash flows from licensed products like Ziihera and other candidates (e.g., pasritamig).
• The company is building a portfolio of healthcare assets expected to generate strong cash flows, while continuing to innovate in antibody drug conjugates and multispecific antibody therapeutics targeting cancer, inflammation, and autoimmune diseases.
• Active strategic partnerships with global biopharma leaders underpin this approach and may provide additional value to shareholders.

Potential Share Price Drivers and Sensitivities

• This transaction is a major, potentially price-sensitive event for Zymeworks shareholders.
• The structure provides near-term funding with no equity dilution, a key positive for existing shareholders.
• Upside remains from retained royalty rights, large milestone payment potential, and the prospect of regaining 100% of Ziihera royalties after repayment of the note.
• Execution risk remains, including commercial success of Ziihera, regulatory approvals for new indications, and the company’s ability to deliver on its asset aggregation and capital allocation strategy.
• If Ziihera underperforms commercially, milestones are delayed or not met, or the company’s strategic initiatives falter, the financial benefits of this deal may not be fully realized, which could negatively affect the share price.

Advisors

• TD Cowen acted as financial advisor to Zymeworks.
• Gibson Dunn (Zymeworks), and Covington & Burling, Choate, and Maiwald (Royalty Pharma) acted as legal advisors.

Contact Information

• Zymeworks Investor Relations: Shrinal Inamdar, Vice President, Investor Relations, (604) 678-1388, [email protected]
• Zymeworks Media Inquiries: Diana Papove, Vice President, Corporate Communications, (604) 678-1388, [email protected]
• Royalty Pharma Investor Relations: +1 (212) 883-6637, [email protected]

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell securities. All forward-looking statements are subject to substantial risks and uncertainties, including but not limited to regulatory, commercial, and operational risks as outlined by Zymeworks and Royalty Pharma. Actual results may differ materially from those anticipated. Investors should consult the latest filings with the SEC and seek professional advice before making investment decisions.

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