8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8–K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

August 28, 2008

Date of Report (Date of earliest event reported)

ZYMOGENETICS, INC.

(Exact name of registrant as specified in its charter)

Washington	000-33489	91-1144498
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1201 Eastlake Avenue East Seattle, Washington	98102-3702
(Address of principal executive offices)	(Zip Code)

(206) 442-6600

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On August 28, 2008, ZymoGenetics, Inc. (the “Company”) announced a restructuring of its relationship with Merck Serono International, a branch of Laboratories Serono S.A. (“Merck Serono”), a division of Merck KGaA, Darmstadt, Germany. As part of the restructuring, the Company and Merck Serono amended and restated certain agreements between the parties (or their affiliates) as further described below.

Development and Marketing Agreement

On August 28, 2008, the Company and Ares Trading S.A., an affiliate of Merck Serono, entered into the First Amended and Restated Development and Marketing Agreement (the “Restated Development Agreement”), which amends and restates the Collaborative Development and Marketing Agreement, effective August 30, 2001 (the “Original Development Agreement”). Pursuant to the Original Development Agreement, the parties have been co-developing atacicept in autoimmune diseases and cancer. The Company exercised its contractual right under the Original Development Agreement to discontinue its co-development and co-funding obligations and converted its rights to an exclusive license to Merck Serono.

Under the Restated Development Agreement, the Company will not be responsible for funding development costs for any product under the agreement incurred after June 1, 2008, and Merck Serono becomes responsible for funding all of the program costs on a worldwide basis. As a result of the Company’s discontinuation of its cost sharing obligations, Merck Serono now has worldwide development and commercialization rights for products developed under this agreement, including atacicept. Merck Serono will pay the Company milestone fees and royalties on worldwide net sales.

The Company will continue to be responsible for certain ongoing activities, including the lupus nephritis clinical trial through June 30, 2009 or such earlier date determined by Merck Serono, in its sole discretion, and will have its expenses reimbursed by Merck Serono.

Strategic Alliance Agreement

On August 28, 2008, the Company and Serono Technologies S.A., an affiliate of Merck Serono, entered into the First Amended and Restated Strategic Alliance Agreement (the “Restated Alliance Agreement”), which amends and restates the Strategic Alliance Agreement, dated October 12, 2004.

The Restated Alliance Agreement revises Merck Serono’s exclusive option to acquire rights to product development candidates resulting from research under the strategic alliance. Under the revised terms, the Company and Merck Serono will now have an alternating option right to obtain an exclusive, worldwide, royalty bearing license to a product candidate jointly developed pursuant to the strategic alliance, with Merck Serono having the option for the first product candidate. Under certain circumstances, Merck Serono has the ability to obtain an exclusive license to a product candidate for which the Company has exercised its option. An exclusive license will provide that if the licensee seeks a partner for the applicable product candidate, the licensor will have the right to opt in to co-develop and co-commercialize the product candidate on pre-negotiated terms, including retroactive and prospective cost sharing, royalties and milestone fees. In addition to its co-development and co-commercialization rights within the United States, Merck Serono will have an exclusive license outside of the United States whether Merck Serono opts in to develop a product candidate of the Company or the Company opts in to develop a product candidate of Merck Serono.

In addition to the foregoing agreements, the Company is a party to certain other licensing and other agreements with Merck Serono and its affiliates with regard to earlier stage product candidates. In connection with the restructuring of the Company’s relationship with Merck Serono, the parties also converted their co-development/co-commercialization agreements for IL-17RC and IL-31 to licenses comparable to those contained in the Restated Alliance Agreement, with Merck Serono receiving an exclusive license and all rights to IL-17RC and the Company receiving an exclusive license and all rights to IL-31.

The foregoing summaries of the Restated Development Agreement and the Restated Alliance Agreement are qualified in their entirety by reference to the full text of the Restated Development Agreement and the Restated Alliance Agreement, which will be filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.

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Item 8.01 Other Events.

On September 3, 2008, the Company issued a press release relating to the restructuring of its relationship with Merck Serono, a copy of which is filed herewith as Exhibit 99.1 and incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
99.1	ZymoGenetics, Inc. press release dated September 3, 2008.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ZYMOGENETICS, INC.
Date: September 2, 2008	By:	/s/    James A. Johnson
		James A. Johnson
		Executive Vice President, Chief Financial Officer and Treasurer

EXHIBIT INDEX

Exhibit No.	Description
99.1	ZymoGenetics, Inc. press release dated September 3, 2008.

EX-99.1

Exhibit 99.1

Contact

Investor and Media Relations

Susan W. Specht, MBA Director, Corporate Communications (206) 442-6592 Michael Fitzpatrick Associate Director, Corporate Communications (206) 442-6702

FOR IMMEDIATE RELEASE

ZymoGenetics and Merck Serono Restructure Partnership

- Conference call to be held September 3, 2008 at 10:30 a.m. Eastern Time -

Seattle, September 3, 2008 – ZymoGenetics, Inc. (NASDAQ: ZGEN) today announced a restructuring of its partnership with Merck Serono, a division of Merck KGaA, Darmstadt, Germany. With respect to the ongoing development of atacicept, ZymoGenetics exercised its contractual right to convert to a worldwide royalty license. By making this election, ZymoGenetics will no longer be responsible for funding development costs, and Merck Serono will fund 100% of the program costs on a worldwide basis. Merck Serono will now have exclusive worldwide development and commercialization rights for atacicept, including in North America. Merck Serono will make milestone payments to ZymoGenetics, as agreed in the original contract between the two companies signed in 2001, and pay royalties on worldwide net sales.

“We believe that atacicept holds tremendous promise as a potential treatment for autoimmune diseases, with a broad, parallel path of development in lupus, multiple sclerosis, and rheumatoid arthritis. Converting to a royalty position on atacicept allows us to avoid a major capital commitment, reduce expenses and preserve cash over the next several years, while securing the value of our atacicept asset,” said Douglas E. Williams, Ph.D. President of ZymoGenetics.

The companies also revised their research alliance to achieve greater operational efficiencies. ZymoGenetics will now control the development and commercialization of IL-31 mAb, and Merck Serono will have the full responsibility for developing and commercializing IL-17RC. Both compounds are drug candidates for the treatment of inflammatory diseases. Future product candidates resulting from the companies’ activities under the research alliance will be exclusively licensed for development and commercialization to either ZymoGenetics or Merck Serono.

“This restructuring of our partnership with ZymoGenetics emphasizes the importance of atacicept and our commitment to the program,” added Vincent Aurentz, Executive Vice President Portfolio Management & Business Development at Merck Serono. “It also demonstrates the need to be flexible in managing successful partnerships to maximize their potential. Having the responsibility for development and exclusive commercialization rights for atacicept also in North America strengthens the overall strategic value of atacicept for Merck Serono.”

Conference Call and Webcast Information

A ZymoGenetics conference call will be held on September 3, 2008 at 10:30 a.m. Eastern Time and may be accessed at www.zymogenetics.com or by dialing 877-407-0778 (International: 201-689-8565). Participants should dial in to the call approximately 10 minutes prior to the scheduled start time to register. A live webcast of the presentation can be accessed by going to: www.zymogenetics.com. The webcast will be archived for 30 days.

For replay, please visit www.zymogenetics.com or use the following information:

• U.S. callers: 877-660-6853

• International callers: 201-612-7415

Replay passcode account #: 286

Conference ID #: 296009

About Atacicept

Merck Serono is developing atacicept (formerly referred to as TACI-Ig) as a potential treatment of autoimmune diseases, such as systemic lupus erythematosus (SLE), lupus nephritis (LN), rheumatoid arthritis and multiple sclerosis, as well as B-cell malignancies. Atacicept, a recombinant fusion protein, contains the soluble TACI receptor that binds to the cytokines BLyS and APRIL. These cytokines are members of the tumor necrosis factor family that promote B-cell survival and autoantibody production associated with certain autoimmune diseases such as SLE. Current data indicates that levels of BLyS and/or APRIL are elevated in patients with rheumatoid arthritis, SLE, B-cell malignancies and multiple sclerosis. Atacicept has been shown in animal models to affect several stages of B-cell development and may inhibit the survival of cells responsible for making antibodies.

About IL-17RC

The IL-17 family of cytokines generally mediates inflammatory effects and has six members, IL-17A through F. Expression of IL-17A and IL-17F, the most closely related molecules in this family, is up-regulated in joints of rheumatoid arthritis patients, inflamed lung tissue, brains and spinal cords of multiple sclerosis patients and inflammatory bowel disease. ZymoGenetics identified IL-17RC as the receptor for IL-17F and discovered that human IL-17RC binds IL-17A with high affinity. A soluble version of IL-17RC has been shown to neutralize pro-inflammatory properties of IL-17A and IL-17F in vitro and therefore may have beneficial therapeutic effects in patients suffering from autoimmune diseases. IL-17RC is being developed as a potential treatment for inflammatory diseases such as inflammatory bowel disease, rheumatoid arthritis and multiple sclerosis.

About IL-31 mAb

IL-31 is a newly discovered T-cell cytokine that, when overexpressed in mice, results in pruritus and skin dermatitis resembling human atopic dermatitis (AD). Comparisons between skin from patients with AD and healthy skin show IL-31RA expression at higher levels on epidermal keratinocytes in AD samples. In addition, circulating CLA(+) T cells from patients with AD are capable of producing higher levels of IL-31 compared with CLA(+) T cells from healthy individuals. IL-31 expression is associated with CLA(+) T cells and could contribute to the development of AD-induced skin inflammation and pruritus. IL-31mAb is being developed as a potential treatment for AD and other diseases where itch response is involved.

About ZymoGenetics

ZymoGenetics discovers and develops novel protein therapeutics that are based on the company’s research and biological insights into key disease pathways. The Company developed

and markets RECOTHROM^® Thrombin, topical (Recombinant), which is the first recombinant, plasma-free thrombin. Other product candidates span a wide array of clinical opportunities that include cancer, autoimmune and viral diseases. ZymoGenetics intends to commercialize product candidates through internal development, collaborations with partners, and out-licensing of patents from its extensive patent portfolio. For further information, visit www.zymogenetics.com.

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current intent and expectations of the management of ZymoGenetics. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. ZymoGenetics’ actual results and the timing and outcome of events may differ materially from those expressed in or implied by the forward-looking statements because of risks associated with our unproven product sales and marketing abilities, discovery strategy, preclinical and clinical development, strategic partnering, regulatory oversight, intellectual property claims and litigation and other risks detailed in the company’s public filings with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K for the year ended December 31, 2007. Except as required by law, ZymoGenetics undertakes no obligation to update any forward-looking or other statements in this press release, whether as a result of new information, future events or otherwise.

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