News Release

ZymoGenetics Reports Second Quarter 2008 Financial Results

August 5, 2008

    - RECOTHROM(R) 20,000-IU Vial and Spray Kit Approved by FDA -

       - $100 Million Funding Commitment Secured from Deerfield
                             Management -

SEATTLE--(BUSINESS WIRE)--Aug. 5, 2008--ZymoGenetics, Inc. (NASDAQ:ZGEN) today reported its financial results for the second quarter ended June 30, 2008. The company reported a net loss for the quarter of $37.4 million, or $0.54 per share, compared to a net loss of $37.3 million, or $0.55 per share, in the prior year quarter.

"With FDA approval of the RECOTHROM(R) 20,000-IU vial and the spray kit co-packaged with this larger vial, we now have a full line of product presentations available for sale. This, together with contracts now in place with several large group purchasing organizations, should help to accelerate market conversion in the second half of the year," said Bruce L.A. Carter, Ph.D., chief executive officer of ZymoGenetics. "Further, we have increased our financial strength through the $100 million funding commitment from Deerfield Management."

ZymoGenetics reported significantly higher revenues for the second quarter of 2008 compared to the prior year quarter, primarily due to increased collaboration revenues and product sales of RECOTHROM. Overall, revenues were $12.6 million in the second quarter of 2008, compared to $4.2 million in the prior year quarter. The $8.3 million increase resulted from revenues related to the RECOTHROM collaboration with Bayer Healthcare, milestone payments related to rFactor XIII, continuing sales of the 5,000-IU vials of RECOTHROM (which was approved by the FDA in January 2008), and initial wholesaler stocking of the 20,000-IU vials and spray kits of RECOTHROM (which were approved by the FDA in May 2008). Net sales of RECOTHROM totaled $1.4 million in the second quarter.

Costs of product sales included only the costs of packaging and distributing RECOTHROM that were incurred subsequent to the initial FDA approval in January 2008. All other costs of manufacturing RECOTHROM were incurred prior to the initial FDA approval and were expensed to research and development.

Research and development expenses were $33.1 million in the second quarter of 2008, compared to $32.0 million in the prior year quarter. The increase was primarily due to incremental clinical development costs associated with atacicept. This increase was partially offset by reduced contract manufacturing expenses, as all RECOTHROM manufacturing costs are now recorded as inventory and expensed as costs of product sales when product is sold, and by reduced salary and benefit costs resulting from the company's February 2008 restructuring.

Selling, general and administrative expenses were $16.0 million in the second quarter of 2008, a $5.8 million increase from the prior year quarter. The increase was largely related to the deployment of the RECOTHROM sales force in the second half of 2007 and marketing costs related to the U.S. launch of RECOTHROM.

Net other expense in the second quarter of 2008 was $753,000 compared to $672,000 of net other income in the second quarter of 2007. The decrease reflects lower investment income, which resulted from lower cash balances to invest and decreased interest rates.

The company ended the quarter with $116.9 million of cash, cash equivalents and short-term investments. In addition to these funds, the company received a $100 million loan commitment in June from Deerfield Management, a leading healthcare investment organization and a significant ZymoGenetics shareholder. The funds generally can be drawn in $25 million installments at any time until January 2010 at ZymoGenetics' discretion and will be repayable five years from the date of the funding arrangement.

Business Highlights

During the second quarter and to date in the third quarter, ZymoGenetics' product development and commercialization programs continued to advance, including the following highlights:

    RECOTHROM

    --  Received FDA approval for, and began shipments of,
        RECOTHROM(R) Thrombin, topical (Recombinant) 20,000
        international unit (IU) vial and co-packaging of the 20,000-IU
        vial with ZymoGenetics' Spray Applicator Kit.

    --  Executed contracts with four of six key group purchasing
        organizations, the federal government and other hospital
        networks.

    --  Presented data from the Phase 2 spray application clinical
        trial in burn patients, showing that topical application of
        RECOTHROM using a pump spray device demonstrated a similar
        safety profile and rate of antibody formation to that observed
        in the RECOTHROM Phase 3 clinical trial.

    Atacicept

    --  ZymoGenetics and Merck Serono began patient treatment in the
        Phase 2/3 general systemic lupus erythematosus clinical trial.

    --  ZymoGenetics and Merck Serono initiated Phase 2 clinical
        trials evaluating the safety and efficacy of atacicept in
        patients with relapsing multiple sclerosis and in patients
        with optic neuritis.

    IL-21

    --  Completed patient enrollment in a Phase 2 study in combination
        with Nexavar(R) (sorafenib) tablets in renal cell carcinoma
        patients.

    PEG-Interferon lambda

    --  Completed enrollment of the second patient cohort and began
        enrollment of the third cohort in a Phase 1b study evaluating
        safety, tolerability and antiviral activity in chronic
        genotype-1 hepatitis C patients who have relapsed after prior
        therapy.

    Conference Call and Webcast Information

ZymoGenetics Q2 2008 Financial Results Conference Call will be held on August 5, 2008 at 4:30 p.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 60 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 #: 290450

    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(R) 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 capabilities, manufacturing and commercialization capabilities, product safety, 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 most recent 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.

Nexavar(R) (sorafenib) tablets is a registered trademark of Bayer HealthCare Pharmaceuticals, Inc.

                          ZYMOGENETICS, INC.
                       STATEMENTS OF OPERATIONS
               (in thousands, except per share amounts)
                             (Unaudited)

                               Three Months Ended   Six Months Ended
                                    June 30,            June 30,
                               ------------------- -------------------
                                 2008      2007      2008      2007
                               --------- --------- --------- ---------
Revenues:
  Product sales, net           $  1,384  $     --  $  2,370  $     --
  Royalties                       1,700     1,751     3,234     3,702
  Collaborations and licenses     9,498     2,486    20,490     5,718
                               --------- --------- --------- ---------
    Total revenues               12,582     4,237    26,094     9,420
Costs and expenses:
  Costs of product sales            194        --       300        --
  Research and development       33,060    32,043    72,308    61,811
  Selling, general and
   administrative                15,955    10,121    30,582    19,816
                               --------- --------- --------- ---------
    Total costs and expenses     49,209    42,164   103,190    81,627
                               --------- --------- --------- ---------
Loss from operations            (36,627)  (37,927)  (77,096)  (72,207)
Other income (expense), net        (753)      672    (1,180)    1,644
                               --------- --------- --------- ---------
Net loss                       $(37,380) $(37,255) $(78,276) $(70,563)
                               ========= ========= ========= =========
Basic and diluted net loss per
 share                         $  (0.54) $  (0.55) $  (1.14) $  (1.04)
                               ========= ========= ========= =========
Weighted-average number of
 shares used in computing net
 loss per share                  68,705    68,140    68,613    67,930

                            BALANCE SHEETS
                            (in thousands)

                                               June 30,   December 31,
                                                  2008         2007
                                              ----------- ------------
                                              (unaudited)
Cash, cash equivalents and short-term
 investments                                   $  116,886   $  170,941
Inventory                                          15,682           --
Other current assets                               23,132       11,841
Property and equipment, net                        65,366       70,701
Deferred financing costs                            7,326           --
Other assets                                        8,253        9,598
                                              ----------- ------------
   Total assets                                $  236,645   $  263,081
                                              =========== ============

Current liabilities                            $   69,711   $   63,960
Lease obligations                                  67,492       67,044
Other non-current liabilities                      47,074       17,247
Shareholders' equity                               52,368      114,830
                                              ----------- ------------

   Total liabilities and shareholders' equity  $  236,645   $  263,081
                                              =========== ============

    CONTACT: ZymoGenetics, Inc.
             Investor and Media Relations
             Director, Corporate Communications
             Susan W. Specht, MBA, 206-442-6592
             or
             Associate Director, Corporate Communications
             Michael Fitzpatrick, 206-442-6702

    SOURCE: ZymoGenetics, Inc.