Zymeworks Inc. 10-K

Item 8. Financial Statements and Supplementary Data Zymeworks Inc. Index to Consolidated Financial Statements Year ended December 31, 2022 Page Report of Independent Registered Public Accounting Firm (PCAOB ID 85 ) 100 Consolidated Balance Sheets as at December 31, 202 2 and 20 21 102 Consolidated Statements of Income ( Loss ) and Comprehensive Income ( Loss ) for the years ended December 31, 202 2 , 202 1 and 2 02 0 103 Consolidated Statements of Changes in S tock holders’ Equity for the years ended December 31, 202 2 , 202 1 and 2020 104 Consolidated Statements of Cash Flows for the years ended December 31, 202 2 , 202 1 and 2020 105 Notes to the Consolidated Financial Statements 106 99 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, 2022 and 2021, the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three ‑ year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. 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 Public Company Accounting Oversight Board (United States) (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 a 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 separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 100 Table of Contents Evaluation of distinct performance obligations related to the license and collaboration agreement with Jazz Pharmaceuticals Ireland Limited As discussed in Note 12 to the consolidated financial statements, the Company entered into a license and collaboration agreement with Jazz Pharmaceuticals Ireland Limited (“Jazz”). The Company recognized upfront consideration of $375.0 million related to the license of intellectual property and $24.3 million related to performance of ongoing clinical research activities during the year ended December 31, 2022. As discussed in Note 2, the accounting for the Company’s contracts with customers arising from licensing and collaboration arrangements requires the Company 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. We identified the evaluation of distinct performance obligations, including understanding the nature and significance of the contractual obligations and their standalone selling prices, related to the license and collaboration agreement with Jazz as a critical audit matter. Subjective and complex auditor judgment was required to assess the Company’s determination of distinct performance obligations, including evaluating the rights and obligations described in the agreement, their benefit to the customer, and the level of interdependence between the promised goods and services in the agreement. Complex auditor judgment was also required in determining the significance of the contractual obligations to assess if these were immaterial performance obligations. The primary procedures we performed to address this critical audit matter included the following. We evaluated the design of an internal control over the Company’s revenue recognition process. This included a control over the Company’s accounting analysis of licensing and collaboration agreements, and the evaluation of distinct performance obligations. We read the license and collaboration agreement with Jazz to gain an understanding of the contractual terms and conditions and the commitments being made in the agreement. We conducted interviews with the Company’s business development personnel to understand the specific functionalities of the license and to evaluate the nature of the commitments made to the customer. We evaluated management’s accounting analysis and assessed the reasonableness of management’s judgments and assumptions in the determination of distinct performance obligations and the significance of the contractual obligations by comparing them to underlying documentation. We assessed the stand-alone selling price of a selection of certain of the performance obligations used by the Company by comparing them to the Company’s past pricing policies and practices. /s/ KPMG LLP Chartered Professional Accountants We have served as the Company’s auditor since 2015. Vancouver, Canada March 7, 2023 101 Table of Contents ZYMEWORKS INC. Consolidated Balance Sheets (Expressed in thousands of U.S. dollars except share data) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 400,912 $ 201,867 Short-term investments (note 5) 91,320 50,741 Accounts receivable 33,400 15,614 Prepaid expenses and other current assets 19,074 19,998 Total current assets 544,706 288,220 Deferred financing fees 10 1,214 Long-term investments (note 5) 886 886 Long-term prepaid assets 15,729 12,490 Deferred tax asset (note 14) 1,345 3,070 Property and equipment, net (note 7) 24,713 22,783 Operating lease right-of-use assets (note 15) 22,937 26,987 Intangible assets, net (note 8) 8,755 3,838 Acquired in-process research and development (note 6) 17,628 17,628 Goodwill (note 6) 12,016 12,016 Total assets $ 648,725 $ 389,132 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued liabilities (note 9) $ 87,468 $ 62,789 Income tax payable (note 14) 840 — Fair value of liability-classified stock options 1,642 7,754 Current portion of operating lease liability (note 15) 3,322 1,310 Deferred revenue (note 12) 2,353 — Total current liabilities 95,625 71,853 Long-term portion of operating lease liability (note 15) 24,667 30,923 Deferred revenue (note 12) 30,588 32,941 Other long-term liabilities (note 9) 3,101 2,748 Deferred tax liability (note 14) 1,788 1,573 Total liabilities 155,769 140,038 Stockholders’ equity: Common shares, $ 0.00001 par value; 900,000,000 authorized shares of common stock at December 31, 2022 (no par value, unlimited shares at December 31, 2021; 63,059,501 and 46,633,935 shares issued and outstanding at December 31, 2022 and 2021, respectively (note 10b). 886,322 741,147 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, 2022 (December 31, 2021: nil ) (note 10b). — — Exchangeable shares, no par value, 1,424,533 issued and outstanding shares at December 31, 2022 (December 31, 2021: nil ) (note 10b). 20,442 — Additional paid-in capital 151,614 197,710 Accumulated other comprehensive loss ( 6,659 ) ( 6,659 ) Accumulated deficit ( 558,763 ) ( 683,104 ) Total stockholders’ equity 492,956 249,094 Total liabilities and stockholders’ equity $ 648,725 $ 389,132 Research collaboration and licensing agreements (note 12) Commitments and contingencies (note 17) The accompanying notes are an integral part of these financial statements 102 Table of Contents ZYMEWORKS INC. Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Expressed in thousands of U.S. dollars except share and per share data) Year Ended December 31, 2022 2021 2020 Revenue: Research and development collaborations (note 12) $ 412,482 $ 26,680 $ 38,951 Operating expenses: Research and development 208,596 199,752 171,203 General and administrative 73,358 42,561 55,216 Total operating expenses 281,954 242,313 226,419 Income (loss) from operations 130,528 ( 215,633 ) ( 187,468 ) Other income (expense): Interest income 3,596 1,965 5,697 Other income, net (note 13) 1,110 1,309 1,648 Total other income, net 4,706 3,274 7,345 Income (loss) before income taxes 135,234 ( 212,359 ) ( 180,123 ) Income tax recovery (expense), net (note 14) ( 10,893 ) 516 ( 429 ) Net income (loss) and comprehensive income (loss) $ 124,341 $ ( 211,843 ) $ ( 180,552 ) Net income (loss) per common share (note 4): Basic $ 1.91 $ ( 4.11 ) $ ( 3.58 ) Diluted $ 1.90 $ ( 4.61 ) $ ( 3.58 ) Weighted-average common stock outstanding (note 4): Basic 65,194,775 51,553,869 50,382,497 Diluted 65,249,184 52,131,596 50,382,497 The accompanying notes are an integral part of these financial statements 103 Table of Contents 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 Accumulated deficit Accumulated other comprehensive loss Additional paid-in capital Total stockholders' equity Shares Amount Shares Amount Shares Amount Balance at December 31, 2019 — $ — — $ — 39,564,529 $ 450,210 $ ( 290,709 ) $ ( 6,659 ) $ 92,839 $ 245,681 Issuance of common stock on exercise of stock options (note 10e) — — — — 602,158 18,373 — — ( 2,943 ) 15,430 Issuance of common stock through employee stock purchase plan (note 10f) — — — — 43,973 1,618 — — — 1,618 Fair value adjustments upon reclassification of stock options to liabilities — — — — — — — — ( 110 ) ( 110 ) Stock-based compensation — — — — — — — — 26,945 26,945 Issuance of common stock and pre-funded warrants in connection with public offering, net of offering costs (note 10a and 10c) — — — — 5,824,729 254,018 — — 46,892 300,910 Net loss — — — — — — ( 180,552 ) — — ( 180,552 ) Balance at December 31, 2020 — $ — — $ — 46,035,389 $ 724,219 $ ( 471,261 ) $ ( 6,659 ) $ 163,623 $ 409,922 Issuance of common stock on exercise stock options (note 10e) — — — — 502,019 12,878 — — ( 3,218 ) 9,660 Issuance of common stock through employee stock purchase plan (note 10f) — — — — 68,964 3,080 — — — 3,080 Issuance of common stock upon vesting of restricted stock units ("RSUs") (note 10e) — — — — 27,563 970 — — ( 970 ) — Stock-based compensation — — — — — — — — 38,275 38,275 Net loss — — — — — — ( 211,843 ) — — ( 211,843 ) Balance at December 31, 2021 — $ — — $ — 46,633,935 $ 741,147 $ ( 683,104 ) $ ( 6,659 ) $ 197,710 $ 249,094 Issuance of common stock on exercise of stock options (note 10e) — — — — 39,220 359 — — ( 79 ) 280 Issuance of common stock through employee share purchase plan (note 10f) — — — — 179,238 2,191 — — — 2,191 Issuance of common stock upon vesting of RSUs (note 10e) — — — — 93,966 2,350 — — ( 2,350 ) — Issuance of common stock upon exercise of pre-funded warrants (note 10c) — — — — 6,502,675 78,168 — — ( 78,168 ) — The Redomicile Transactions (note 1, note 10b) 1 — 1,424,533 20,442 ( 1,424,533 ) ( 20,442 ) — — — — Stock-based compensation — — — — — — — — 9,516 9,516 Issuance of common stock and pre-funded warrants in connection with public offering, net of offering costs (note 10a and 10c) — — — — 11,035,000 82,549 — — 24,985 107,534 Net income — — — — — — 124,341 — — 124,341 Balance at December 31, 2022 1 $ — 1,424,533 $ 20,442 63,059,501 $ 886,322 $ ( 558,763 ) $ ( 6,659 ) $ 151,614 $ 492,956 The accompanying notes are an integral part of these financial statements 104 Table of Contents ZYMEWORKS INC. Consolidated Statements of Cash Flows (Expressed in thousands of U.S. dollars) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net income (loss) $ 124,341 $ ( 211,843 ) $ ( 180,552 ) Items not involving cash: Depreciation of property and equipment (note 7) 6,220 3,739 3,355 Amortization of intangible assets (note 8) 1,015 2,793 4,160 Stock-based compensation (note 10e) 4,015 10,756 29,116 Amortization and impairment of operating lease right-of-use assets 4,769 3,051 2,764 Deferred income tax expense (recovery) 1,940 ( 953 ) 266 Non-cash consideration from licensing agreement — — ( 218 ) Change in fair value of contingent consideration liability (note 17) ( 250 ) 213 307 Change in fair value of investments in equity instruments — ( 167 ) — Unrealized foreign exchange gain ( 1,956 ) ( 433 ) ( 453 ) Changes in non-cash operating working capital: Accounts receivable ( 17,509 ) ( 266 ) ( 13,107 ) Prepaid expenses and other current assets ( 2,059 ) ( 15,792 ) ( 3,519 ) Accounts payable and accrued liabilities 26,479 16,477 7,618 Operating lease liabilities ( 3,736 ) ( 26 ) ( 1,140 ) Income taxes payable 840 — — Net cash provided by / (used in) operating activities $ 144,109 $ ( 192,451 ) $ ( 151,403 ) Cash flows from financing activities: Proceeds from public offerings, net of issuance costs (note 10a) 107,534 — 300,910 Issuance of common stock on exercise of stock options (note 10e) 255 6,428 7,111 Issuance of common stock through employee stock purchase plan (note 10f) 1,403 2,070 1,111 Deferred financing fees ( 596 ) ( 470 ) ( 113 ) Finance lease payments ( 14 ) ( 17 ) ( 41 ) Net cash provided by financing activities $ 108,582 $ 8,011 $ 308,978 Cash flows from investing activities: Net redemptions (purchases) of short-term investments ( 40,724 ) 157,881 13,325 Purchases of long-term investments — — ( 50,500 ) Acquisition of property and equipment ( 8,150 ) ( 12,404 ) ( 4,310 ) Acquisition of intangible assets ( 4,975 ) ( 881 ) ( 1,955 ) Net cash (used in) / provided by investing activities $ ( 53,849 ) $ 144,596 $ ( 43,440 ) Effect of exchange rate changes on cash and cash equivalents 203 ( 325 ) ( 550 ) Net change in cash and cash equivalents 199,045 ( 40,169 ) 113,585 Cash and cash equivalents, beginning of year 201,867 242,036 128,451 Cash and cash equivalents, end of year $ 400,912 $ 201,867 $ 242,036 Supplemental disclosure of non-cash investing and finance items: Leased assets obtained in exchange for operating lease liabilities $ 72 $ 24,609 $ 2,407 Acquisition of property and equipment and intangible assets in accounts payable and accrued liabilities 957 1,933 130 The accompanying notes are an integral part of these financial statements 105 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. (the “Company” or “Zymeworks”) is a clinical-stage biopharmaceutical company dedicated to the development of next-generation multifunctional biotherapeutics. Zymeworks BC Inc. (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 July 15, 2022, the Company announced its intention to become a Delaware corporation, subject to receipt of necessary shareholder, stock exchange, and court approvals (the "Redomicile Transactions"). The Redomicile Transactions were completed on October 13, 2022. On October 13, 2022, the Company changed its name to Zymeworks BC Inc. 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 and Zymeworks ExchangeCo Ltd., 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 CallCo ULC, Zymeworks ExchangeCo Ltd., Zymeworks Management Inc. (including this entity's branch in the United Kingdom) and Zymeworks Zanidatamab Inc. Al l 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. 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 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). 106 Table of Contents 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, benefits under the Scientific Research and Experimental Development (“SR&ED”) program, 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 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 107 Table of Contents over time. 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. 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. 108 Table of Contents 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. Cash and 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 are recorded at cost plus accrued interest. Investments The Company’s short-term and long-term investments include guaranteed investment certificates and term deposits with original maturities exceeding three months. These investments are recorded at cost plus accrued interest, which approximates their fair value. The Company also holds a limited number of equity securities in private entities which are accounted for as available for sale financial instruments with changes in fair value recorded through other comprehensive income or at cost subject to impairment (note 5). Accounts Receivable and Expected Credit Losses Accounts receivable are recorded at invoiced amounts, net of any allowance for doubtful accounts. The allowance for doubtful accounts 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, 2022 and 2021. Deferred Financing Fees Deferred financing fees consist of amounts charged by underwriters, attorneys, accountants and printers that are directly attributable to future financing transactions. 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. 109 Table of Contents The Company records depreciation using the straight-line method over the estimated useful lives of the property and equipment as follows: Asset Class Rate Computer hardware 3 years Office equipment 3 years Furniture and fixtures 5 years Laboratory equipment 7 years Leasehold improvements Shorter of the initial 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, 2022 and 2021, 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 110 Table of Contents 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. 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 income and expenses (ASC 815 awards) for the period, while fair value changes below the grant date fair value of the original awards are recorded in additional paid-in capital. 111 Table of Contents ASC 718 “Compensation—Stock Options” (“ASC 718”), with an 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. Certain option awards which were classified as equity on grant dates were subsequently reclassified to liability upon the change of the compensation currency for certain executives and employees holding these option awards from Canadian dollars to U.S. dollars. Total fair value of these options on reclassification date were recorded as liability awards. Accumulated expense amount to the reclassification date was reversed from additional paid-in capital and the remaining amount was recorded to the statement of loss on reclassification date. 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 evaluated for impairment on an annual basis or more frequently if an indicator of impairment is present. 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 Rate Software 3 years Licensing agreements Shorter of the licensing term or useful life Net income (loss) per share 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 112 Table of Contents 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 Income (Loss) per Share Net income (loss) per share for the years ended December 31, 2022, 2021 and 2020 was as follows: Year Ended December 31, 2022 2021 2020 Numerator : Net income (loss) attributable to common stockholders: Basic $ 124,341 $ ( 211,843 ) $ ( 180,552 ) Adjustment for change in fair value of liability classified stock options ( 231 ) ( 28,534 ) — Diluted $ 124,110 $ ( 240,377 ) $ ( 180,552 ) Denominator: Weighted-average common stock outstanding: Basic 65,194,775 51,553,869 50,382,497 Adjustment for dilutive effect of equity classified stock options and RSUs 53,535 — — Adjustment for dilutive effect of liability classified stock options 874 577,727 — Diluted 65,249,184 52,131,596 50,382,497 Net income (loss) per common share – basic $ 1.91 $ ( 4.11 ) $ ( 3.58 ) Net income (loss) per common share – diluted $ 1.90 $ ( 4.61 ) $ ( 3.58 ) Weighted average number of common shares 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 and January 2020 offerings as the warrants are exercisable at any time for nominal cash consideration. 5. Investments Short-term Investments Short-term investments are denominated in U.S. dollars or Canadian dollars and consist of guaranteed investment certificates (“GICs”) acquired from financial institutions in accordance with the Company’s cash investment policy. Short-term GICs are classified as held to maturity and available for sale and are accounted for at amortized cost or at fair value. Long-term Investments Long-term investments at December 31, 2022 consist of equity securities of $ 886 acquired for strategic purposes or in connection with licensing and collaboration agreements (December 31, 2021 - $ 886 which included both equity and debt securities). 113 Table of Contents 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: Acquired IPR&D Accumulated Impairment Net Balance at December 31, 2019 $ 20,700 $ ( 3,072 ) $ 17,628 Change during the period — — — Balance at December 31, 2020 $ 20,700 $ ( 3,072 ) $ 17,628 Change during the period — — — Balance at December 31, 2021 $ 20,700 $ ( 3,072 ) $ 17,628 Change during the period — — — Balance at December 31, 2022 $ 20,700 $ ( 3,072 ) $ 17,628 For the years ended December 31, 2022, December 31, 2021 and December 31, 2020, the Company did no t record any impairment charge related to the fair value of IPR&D. The Company performed a qualitative test and concluded that IPR&D was not impaired as of December 31, 2022. Goodwill The Company performed its annual impairment test of goodwill as of December 31, 2022 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, 2022, 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, the quantitative impairment test was not required. 7. Property and Equipment Property and equipment consist of the following: December 31, 2022 2021 Computer hardware $ 2,235 $ 3,554 Furniture and fixtures 2,976 1,558 Office equipment 2,067 1,045 Laboratory equipment 9,698 8,326 Leasehold improvements 20,960 9,104 Construction in progress 76 13,257 Property and equipment $ 38,012 $ 36,844 Less accumulated depreciation ( 13,299 ) ( 14,061 ) Property and equipment, net $ 24,713 $ 22,783 Depreciation expense on property and equipment for the years ended December 31, 2022, 2021 and 2020 was $ 6,220 , $ 3,739 and $ 3,355 , respectively. 114 Table of Contents 8. Intangible Assets Intangible assets consist of the following: December 31, 2022 2021 Research licenses $ 14,936 $ 14,936 Computer software 7,522 1,494 Software implementation costs 469 1,289 Intangible assets 22,927 17,719 Less accumulated amortization ( 14,172 ) ( 13,881 ) Intangible assets, net $ 8,755 $ 3,838 Amortization expense on intangible assets for the years ended December 31, 2022, 2021 and 2020 was $ 1,015 , $ 2,793 and $ 4,160 , respectively. At December 31, 2022, amortization expense on capitalized intangible assets is estimated to be as follows for each of the next five years: Amortization expense 2023 $ 2,702 2024 2,683 2025 2,259 2026 427 2027 213 $ 8,284 9. Liabilities Accounts payable and accrued expenses consisted of the following: December 31, 2022 2021 Trade payables $ 7,863 $ 5,174 Accrued research and development expenses 39,358 50,963 Goods and services tax payable 16,244 — Employee compensation and vacation accruals 14,365 3,346 Accrued legal and professional fees 7,799 1,064 Other 1,839 2,242 Total $ 87,468 $ 62,789 Other long-term liabilities consisted of the following: December 31, 2022 2021 Liability for contingent consideration (note 17) $ 1,248 $ 1,498 Liability from in-licensing agreements 1,047 1,150 Finance lease liabilities 124 100 Other 682 — Total 3,101 2,748 115 Table of Contents 10. Stockholders’ Equity a. Equity Offerings 2020 Public Offering On January 27, 2020, the Company closed a public offering pursuant to which the Company sold 5,824,729 common shares, including the sale of 900,000 common shares to the underwriters upon their full exercise of their over-allotment option, at $ 46.50 per common share and 1,075,271 pre-funded warrants (note 10c) in lieu of common shares at $ 46.4999 per pre-funded warrant. Net proceeds were $ 300,910 , after underwriting discounts, commissions and offering expenses of $ 19,940 . 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, 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 outstanding (the “Special Voting Preferred Stock”), enabling the Share Trustee to exercise voting rights for the benefit of the Exchangeable Shareholders. 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 Exchangeab le Shares were issued to former Zymeworks BC shareholders. As of December 31, 2022, the re we re 1,424,533 Exchangeable Shares outstanding. We will issue shares of our common stock as consideration when a holder of Exchangeable Share s 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 a public offering completed on June 24, 2019, the Company issued 4,166,690 pre-funded warrants at a price of $ 17.9999 per pre-funded warrant which granted holders of warrants the right to purchase up to 4,166,690 common shares of the Company, at an exercise price of $ 0.0001 per share. In connection with a public offering completed on January 27, 2020 (note 10a), the Company issued 1,075,271 pre-funded warrants at a price of $ 46.4999 per pre-funded warrant which granted holders of warrants the right to purchase up to 1,075,271 common shares of the Company, at an exercise price of $ 0.0001 per share. In connection with a public offering completed on January 31, 2022 (note 10a), the Company issued 3,340,000 pre-funded warrants at a price of $ 7.9999 per pre-funded warrant which granted holders of warrants the right to purchase up to 3,340,000 common shares 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, 3,787,737 pre-funded warrants were exercised in a cashless transaction in exchange for issuance of 3,787,675 common shares upon which $ 57,858 has been transferred to common shares account from additional paid-in capital. On October 25, 2022, the Company issued an aggregate of 1,375,000 common shares, to a warrant holder upon the exercise of 1,375,000 pre-funded warrants. On October 27, 2022, the Company issued an additional 1,340,000 common shares to the same 116 Table of Contents warrant holder upon the exercise of 1,340,000 pre-funded warrants. Each pre-funded warrant had an exercise price of $ 0.0001 per share of Common Stock. 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. On October 13, 2022, the Rights Plan expired. The New Rights Plan has substantively similar terms as the Rights Plan. e. Stock-Based Compensation In connection with the Redomicile Transactions, Zymeworks BC Inc. assigned to the Company, and the Company assumed, all of Zymeworks BC Inc.’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 Inc. Original Stock Option Plan On July 14, 2006, the shareholders of the Company approved an employee stock option plan (the “Original Plan”). The Original Plan provides for the granting of options to directors, officers, employees and consultants. Options to purchase common shares may be granted at an exercise price of each option equal to the last private issuance of common shares immediately preceding the date of the grant. 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. Common shares are issued from treasury when options are exercised. The exercise prices of the Company’s stock options under the Original Plan are denominated in Canadian dollars. The Canadian dollar amounts have been translated to U.S. dollars using the period end rate or the average foreign exchange rate for the period, as applicable, and have been provided for information purposes. Upon the effectiveness of the Company’s New Stock Option 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. 117 Table of Contents 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 to directors, officers, employees and consultants in U.S. or Canadian dollars, 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, restricted share units (“RSUs”) and other share-based awards, in addition to stock options. On March 4, 2020, the board of directors approved certain minor amendments to the New Plan that did not require shareholder approval. The original maximum number of common shares reserved for issuance under the New Plan as of June 7, 2018 was 5,686,097 , which includes 3,686,097 shares issuable upon exercise of options outstanding as of March 31, 2018. 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. As of December 31, 2022, 3,205,132 common shares were available for future award grants under the New Plan (December 31, 2021: 952,632 common shares). ISOs may be granted with respect to a maximum fixed amount equal to 20 % of the shares reserved for issuance under the New Plan as of June 7, 2018. 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, 2022 , 50,000 common shares were available for future award grants under this plan. RSUs During the year ended December 31, 2020, the Company started granting RSUs to certain employees, which typically vest over a period of three years , in the amount of one-third each year on the anniversary of the grant date. RSUs are equity-settled on each vesting date, subject to the grantee’s continued employment with the Company on the vesting date. The fair value of RSUs granted was calculated by using the Company’s closing stock price on the grant date. Number of RSUs Weighted- average grant date fair value ($) Outstanding, December 31, 2021 354,269 25.85 Granted 110,400 8.67 Vested and settled ( 93,966 ) 25.01 Forfeited ( 143,480 ) 26.63 Outstanding, December 31, 2022 227,223 17.36 As of December 31, 2022, there was $ 1,738 of unamortized RSU expense that will be recognized over a weighted average period of 2.00 years. Stock Options All options granted under the New Plan will have an exercise price determined and approved by the board of directors on the date of the grant, which shall not be less than the market price of the common shares at such time. For the purposes of the New Plan, the market price of a common share shall be the closing sale price of a share on the grant date reported by the stock exchange with the greatest trading volume or, if such day is not a trading day, the closing sale price reported for the immediately preceding trading day. The Company may convert a market price denominated in Canadian dollars into United States dollars and vice versa and such converted amount shall be the market price. An option shall be exercisable during a period established by the board of directors which shall commence on the date of the grant and shall terminate not later than ten years after the date of the granting of the option. The New Plan provides that the exercise period shall automatically be extended if the date on which it is scheduled to terminate shall fall during a black-out period. In such cases, the extended exercise period shall terminate on the tenth business day after the last day of the black-out period, provided that the exercise period shall in no case be extended beyond the tenth anniversary of the date the option was granted. All options shall vest in accordance with the terms of their grant agreements. 118 Table of Contents The following table summarizes the Company’s stock options granted in Canadian dollars under the Original Plan and the New Plan: Number of Options Weighted- Average Exercise Price (C$) Weighted- Average Exercise Price ($) Weighted- Average Contractual Term (years) Aggregate intrinsic value (C$) Aggregate intrinsic value ($) Outstanding, December 31, 2020 2,285,569 22.00 17.27 6.46 87,545 68,664 Granted 480,117 42.83 34.12 Expired — — — Exercised ( 212,817 ) 14.77 11.69 Forfeited ( 64,214 ) 40.69 32.48 Outstanding, December 31, 2021 2,488,655 26.15 20.70 6.24 7,919 6,224 Granted 917,035 8.67 6.76 Expired ( 54,221 ) 17.30 13.08 Exercised ( 30,163 ) 7.60 5.79 Forfeited ( 1,174,165 ) 26.43 20.60 Outstanding, December 31, 2022 2,147,141 19.02 14.03 6.29 1,460 1,078 December 31, 2022 Exercisable 1,374,601 20.23 14.93 4.79 193 143 Vested and expected to vest 2,076,607 19.18 14.15 6.19 1,333 984 The following table summarizes the Company’s stock options granted in U.S. dollars under the New Plan and the Inducement Plan: Number of Options Weighted- Average Exercise Price ($) Weighted- Average Contractual Term (years) Aggregate intrinsic value ($) Outstanding, December 31, 2020 3,790,326 22.85 8.20 92,705 Granted 1,726,421 33.61 Expired — — Exercised ( 289,202 ) 13.66 Forfeited ( 310,631 ) 31.95 Outstanding, December 31, 2021 4,916,914 26.59 7.93 5,555 Granted 2,996,898 8.32 Expired — — Exercised ( 9,057 ) 7.17 Forfeited ( 2,339,610 ) 25.84 Outstanding, December 31, 2022 5,565,145 17.10 7.86 1,928 December 31, 2022 Exercisable 2,553,862 20.86 6.51 148 Vested and expected to vest 5,320,561 17.31 7.81 1,750 During the year ended December 31, 2022, the Company received cash proceeds of $ 255 (2021: $ 6,428 and 2020: $ 7,111 ) from stock options exercised. The stock options outstanding at December 31, 2022 expire at various dates from January 1, 2023 to December 20, 2032. 119 Table of Contents 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: Number of options Weighted-average grant date fair value (C$) Weighted- average grant date fair value (US$) Non-vested, December 31, 2021 773,593 27.97 21.98 Options granted 917,035 5.80 4.28 Options vested ( 355,428 ) 19.61 14.47 Options forfeited and cancelled ( 562,660 ) 19.83 14.64 Non-vested, December 31, 2022 772,540 11.40 8.41 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: Number of options Weighted- average grant date fair value (US$) Non-vested, December 31, 2021 2,601,916 21.85 Options granted 2,996,898 5.61 Options vested ( 997,572 ) 17.63 Options forfeited and cancelled ( 1,589,959 ) 17.45 Non-vested, December 31, 2022 3,011,283 9.41 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: Year Ended December 31, 2022 2021 2020 Research and development expense: Stock-based compensation for equity classified instruments $ 3,174 $ 20,090 $ 12,299 Change in fair value of liability classified instruments ( 781 ) ( 4,646 ) ( 6 ) $ 2,393 $ 15,444 $ 12,293 General and administrative expense: Stock-based compensation for equity classified instruments $ 4,102 $ 18,184 $ 14,645 Change in fair value of liability classified instruments ( 2,893 ) ( 23,758 ) 1,416 $ 1,209 $ ( 5,574 ) $ 16,061 Other expense (income): Change in fair value of liability classified instruments ( 11 ) ( 129 ) ( 41 ) $ ( 11 ) $ ( 129 ) $ ( 41 ) Amounts for equity classified instruments above include stock-based compensation expense relating to RSUs of $ 913 for the year ended December 31, 2022 (2021: $ 3,101 and 2020: $ 1,387 ). For the year ended December 31, 2022, stock-based compensation expense of $ 9,516 was recorded in additional paid-in capital and recovery of $ 3,261 was recorded in the 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, 2020: $ 26,945 in additional paid-in capital and $ 2,171 in liability classified stock options and ESPP liability accounts). 120 Table of Contents 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: Year ended December 31, 2022 2021 2020 Dividend yield 0 % 0 % 0 % Expected volatility 77.2 % 80.3 % 76.8 % Risk-free interest rate 2.12 % 1.02 % 0.66 % Expected average life of options 5.93 years 6.05 years 6.04 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. 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. Share Fair Value — Options granted after the Company’s IPO are issued with exercise price equal to the fair market value of the Company’s common stock on the grant date. Before the IPO, the Company granted stock options at exercise prices not less than the fair value of its common shares as determined by the board of directors, with input from management. Management estimated the fair value of its common shares based on a number of objective and subjective factors, including the most recently available valuation of common shares prepared by independent valuation specialists, external market considerations affecting the biotechnology industry and the historic prices at which the Company sold common shares. The weighted-average Black-Scholes option pricing assumptions for liability classified stock options outstanding at December 31, 2022 and 2021 are as follows: December 31, 2022 December 31, 2021 Dividend yield 0 % 0 % Expected volatility 78.6 % 74.3 % Risk-free interest rate 4.00 % 0.99 % Expected average option term 1.90 years 2.35 years Number of liability classified stock options outstanding 721,985 911,400 The total intrinsic value of stock options exercised during the years ended December 31, 2022, 2021 and 2020 was $ 53 , $ 10,998 and $ 19,446 respectively. At December 31, 2022, the unamortized compensation expense related to unvested options was $ 13,879 . The remaining unamortized compensation expense as of December 31, 2022 will be recognized over a weighted-average period of 1.5 years. f. Employee Stock Purchase Plan On April 10, 2017, the Company’s shareholders approved an employee stock purchase plan (“ESPP”) which became effective immediately prior to the consummation of the Company’s IPO. On June 7, 2018, certain amendments to the ESPP were approved by shareholders. Prior to these amendments, the ESPP allowed eligible employees to acquire common shares at a discounted purchase price of 85 % of the market value of the Company’s common shares on the purchase date. 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. 121 Table of Contents The Company currently holds offerings consisting of a single six-month purchase period commencing on January 1 and July 1 of each calendar year, with a single purchase date at the end of the purchase period on June 30 and December 31 of each calendar year. Eligible employees are able to contribute up to 15 % of their gross base earnings for purchases under the ESPP through regular payroll deductions. Purchases of shares under the ESPP are limited for each employee at twenty-five thousand dollars worth of the Company’s common shares (determined using the lesser of (i) the market price of a common share on the first day of the applicable purchase period and (ii) the market price of a common share on the purchase date) for each year such purchase right is outstanding. 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 income (loss) and comprehensive income (loss) on a straight-line basis over the requisite service period. For the year ended December 31, 2022, the Company recorded compensation expense of $ 424 (2021: $ 1,016 , 2020: 803 ) in research and development expense and general and administrative expense accounts. As of December 31, 2022, the total amount contributed by ESPP participants and not yet settled is $ 287 (December 31, 2021: $ 1,243 ). 11. Government Grants and Credits Year Ended December 31, 2022 2021 2020 CEWS and CERS subsidies $ 130 $ 3,402 $ 3,031 SR&ED credits, net — 78 142 Total $ 130 $ 3,480 $ 3,173 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 $ 130 (2021: $ 2,805 ) and nil (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 income (loss) and comprehensive income (loss). For the year ended December 31, 2022, the Company recognized refundable investment tax credits of nil as a reduction of research and development expense. Although the Company has used its best judgment and understanding of the related income tax legislation in determining its claims, it is possible the amounts could increase or decrease materially in the future, as the Canada Revenue Agency and Revenue Québec reserve the right to review and audit the investment tax credit claims. 122 Table of Contents 12. Research, Collaboration and Licensing Agreements Revenue recognized from the Company’s strategic partnerships is summarized as follows: Year ended December 31, 2022 2021 2020 Jazz: Recognition of licensing and technology transfer fee $ 375,000 $ — $ — Development support payments 24,281 — — Atreca: Recognition of licensing fee 5,000 — — BeiGene: Milestone revenue — 8,000 15,000 Janssen: Milestone revenue — 8,000 — Iconic: Partner revenue — 5,000 4,000 BMS: Upfront fee relating to amendment — — 12,000 Research and development support and other payments 8,201 5,680 7,951 $ 412,482 $ 26,680 $ 38,951 Contract Assets and Liabilities As at December 31, 2022, contract assets from research, collaboration and licensing agreements were $ 3,000 , which is presented within accounts receivable (December 31, 2021: nil ) and contract liabilities were $ 32,941 (December 31, 2021: $ 32,941 ). As at December 31, 2022 and 2021, $ 2,353 and nil respectively, of the contract liabilities is classified as short term. Contract liabilities relate to deferred revenue from the BeiGene agreement described below. 2022 Agreements: Jazz 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. 123 Table of Contents 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. Accordingly, the Company recognized $ 24.3 million in relation to recovery of cost of development work for zanidatamab, for the year ended December 31, 2022. Remaining deliverables of Manufacturing Technology Transfer, Development Drug Supply, Commercial Drug Supply are considered individually distinct and did not result in a performance obligation during the year ended December 31, 2022 and the revenue related to these deliveries will be recognized upon completion of future deliveries to Jazz. 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. Atreca In April 2022, the Company entered into a new 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. 2021 and prior agreements: Research and License Agreement with Merck Sharp & Dohme Research Ltd. (“Merck”) On August 22, 2011, the Company entered into a research and license agreement with Merck, which was amended and restated in December 2014, to develop and commercialize three bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms. Under the terms of the agreement, the Company granted Merck a worldwide, royalty-bearing antibody sequence pair exclusive license to research, develop and commercialize certain licensed products. The amendments did not impact the determination of units of accounting or the allocation of the arrangement consideration. From contract inception to December 31, 2022, the Company has received an upfront payment of $ 1.25 million and research and development related payments totaling $ 5.5 million. Currently, there are no active programs under development pursuant to this agreement. 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 Eli Lilly and Company (“Lilly”) On December 17, 2013, the Company entered into a licensing and collaboration agreement with Lilly to develop novel bispecific antibody therapeutics using the Company’s proprietary Azymetric platform. The Company will apply its Azymetric platform in combination with Lilly’s proprietary targets to create novel bispecific antibodies which Lilly will have the right to develop and commercialize worldwide. From contract inception to December 31, 2022, the Company has received an upfront payment of $ 1.0 million and research and development related payments of $ 3.0 million. There are no active programs under development pursuant to this agreement. Licensing and Collaboration Agreement with Lilly On October 22, 2014, the Company entered into a second licensing and collaboration agreement with Lilly to develop novel bispecific antibody therapeutics using the Company’s proprietary Azymetric platform. This agreement did not alter or amend the initial agreement entered into on December 17, 2013. Under the terms of this agreement Lilly was granted a worldwide, royalty-bearing antibody sequence pair-specific license to research, develop and commercialize certain licensed products. Each of the two agreements with Lilly were negotiated independently and the deliverables covered by the respective contracts are 124 Table of Contents unrelated to one another as they cover different product candidates. Accordingly, the second Licensing and Collaboration Agreement with Lilly has been accounted for as a new arrangement. From contract inception to December 31, 2022, the Company has received research and development related payments totaling $ 10.0 million. There are no active programs under development pursuant to this agreement. 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. BMS has the right to exercise options on up to ten programs and 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), 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, 2022, 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 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. 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. 125 Table of Contents 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, 2022, 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. Collaboration and Cross License Agreement with Daiichi Sankyo, Co., Ltd. (“Daiichi Sankyo”) On September 26, 2016, the Company entered into a collaboration and cross license agreement with Daiichi Sankyo for the research, development, and commercialization of one bispecific antibody enabled using the Company’s Azymetric and EFECT platforms. Additionally, the Company will license immuno-oncology antibodies from Daiichi Sankyo, with the right to research, develop and commercialize multiple products globally in exchange for royalties on product sales. Under the agreement, Daiichi Sankyo will have the option to develop and commercialize a single bispecific immuno-oncology therapeutic. The Company is also eligible to $ 149.9 million in milestone and other payments. From contract inception to December 31, 2022, 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. The Company is also eligible to receive additional development milestone payments of up to $ 63.4 million, and commercial milestone payments of up to $ 80.0 million. In addition, the Company is eligible to receive tiered royalties ranging from the low single digits up to 10 % on product sales. The Company also has non-exclusive rights to develop and commercialize up to six products 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. Daiichi Sankyo is solely responsible for the research, development, manufacturing and commercialization of the products. Under the non-exclusive immuno-oncology antibody license to Zymeworks, Zymeworks is solely responsible for all research, development and commercialization of the resulting products. Second License 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. The Company is also eligible to receive up to $ 484.7 million in various milestone and other payments. From contract inception to December 31, 2022, the Company has received an upfront technology access fee payment of $ 18.0 million. The Company is also eligible to receive development milestone payments totaling up to $ 126.7 million and commercial milestone payments of up to $ 340.0 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. 126 Table of Contents 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 is eligible to receive up to $ 1.45 billion in various license and milestone payments. From contract inception to December 31, 2022, 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. The Company is also eligible to receive development milestone payments of up to $ 274.0 million and commercial milestone payments of up to $ 1.12 billion. 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. 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. In addition, (i) for the first therapeutic candidate, the Company is 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 digits elsewhere, and (ii) for the second therapeutic candidate, the Company is 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 digits globally. For products developed by the Company outside of dermatology, LEO is eligible to receive commercial milestone payments and up to single-digit royalties on future sales. No development or commercial milestone payments or royalties have been received to date. 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”) (“Zanidatamab Agreement”) and zanidatamab zovodotin (formerly known as “ZW49”) (“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 bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms. 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. 127 Table of Contents License and Collaboration Agreements for Zanidatamab and Z anidatamab Zovodotin The Company is also eligible to receive development and commercial milestone payments of up to $ 390.0 million, together with tiered royalties from high single digits and up to 20 % on future sales of the products. Under the agreements, the Company and BeiGene are collaborating on certain global clinical studies and both the Company and BeiGene will be independently conducting clinical studies in their own respective territories. Each of the Company and BeiGene are responsible for all the development and commercialization costs in their own territories. 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 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. 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. No performance obligations were completed by the Company as of December 31, 2022 as the initial transfer of technologies and relevant know-how is 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. As of December 31, 2022, the Company recorded $ 32,941 of the upfront fees from the zanidatamab and zanidatamab zovodotin agreements as deferred revenue on the Company’s consolidated balance sheet (December 31, 2021: $ 32,941 ). 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 is also eligible to 128 Table of Contents receive development and commercial milestone payments of up to $ 702.0 million. In addition, the Company is 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. BeiGene is solely responsible for the research, development, manufacturing, and commercialization of the products. 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, 2022, the Company has received $ 1.0 million in milestone payments. In December 2020, Exelixis, Inc. 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. 13. Other Income, net Other income, net consists of the following: Year ended December 31, 2022 2021 2020 Foreign exchange gain $ 1,152 $ 1,191 $ 1,683 Other ( 42 ) 118 ( 35 ) $ 1,110 $ 1,309 $ 1,648 14. Income Taxes a. Income tax (expense) recovery is comprised of the following: Year Ended December 31, 2022 2021 2020 Current income tax expense $ ( 8,953 ) $ ( 437 ) $ ( 292 ) Deferred income tax (expense) recovery ( 1,940 ) 953 ( 137 ) Income tax (expense) recovery $ ( 10,893 ) $ 516 $ ( 429 ) Current income tax expense for the years ended December 31, 2022, 2021 and 2020 arose from the operations of the Company as well as its wholly owned subsidiaries in Canada and in the United States, as well as withholding taxes paid by the Company abroad in 2022, 2021 and 2020. 129 Table of Contents b. Following the Redomicile Transactions, the applicable statutory tax rate is the U.S. federal income tax at the statutory rate. Income tax (expense) recovery varies from the amounts that would be computed by apply the expected U.S. statutory income tax rate of 21 % (2021: 21 % and 2020: 21 %) to income (loss) before income taxes as shown in the following table: Year Ended December 31, 2022 2021 2020 Computed taxes at United States statutory income tax rate $ ( 28,429 ) $ 44,620 $ 37,821 Non-deductible expenses ( 9,745 ) ( 798 ) ( 7,149 ) Difference between domestic and foreign tax rate ( 8,365 ) 12,175 8,949 Adjustments to prior year ( 826 ) ( 33 ) ( 441 ) Change in valuation allowance 33,526 ( 60,260 ) ( 48,411 ) Share issuance costs in equity — 2 5,385 Changes due to SR&ED and research credits 3,238 5,096 4,067 Other ( 292 ) ( 286 ) ( 650 ) Income tax (expense) recovery $ ( 10,893 ) $ 516 $ ( 429 ) 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: December 31, 2022 December 31, 2021 Deferred tax assets: Non-capital losses carried forward $ 84,948 $ 123,554 Deferred revenue 8,893 8,894 Share issue costs 4,549 6,058 Property and equipment 565 1,219 Intangible assets 5,930 2,911 Research and development deductions and credits 39,957 35,401 Contingent consideration 404 421 Stock options 4,344 4,330 Operating lease liability 7,008 7,871 Other 302 351 $ 156,900 $ 191,010 Deferred tax liabilities: Property and equipment ( 967 ) ( 1,085 ) IPR&D ( 4,759 ) ( 4,760 ) Operating lease right-of-use assets ( 5,758 ) ( 6,685 ) Outside basis difference in foreign subsidiary ( 1,788 ) ( 1,573 ) $ ( 13,272 ) $ ( 14,103 ) 143,628 176,907 Less: valuation allowance ( 144,071 ) ( 175,410 ) Net deferred tax (liabilities) assets $ ( 443 ) $ 1,497 Deferred tax assets $ 1,345 $ 3,070 Deferred tax liabilities ( 1,788 ) ( 1,573 ) Net deferred tax (liabilities) assets $ ( 443 ) $ 1,497 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. 130 Table of Contents d. At December 31, 2022, 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 $ 314.7 million (December 31, 2021: $ 457.6 million) expiring commencing 2040 through 2041. At December 31, 2022, the Company also has unclaimed tax deductions for scientific research and experimental development expenditures of approximately $ 89.0 million (December 31, 2021: $ 81.4 million) available to reduce taxable income of future years in Canada, with no expiry. At December 31, 2022, the Company has approximately $ 18.5 million (December 31, 2021: $ 15.8 million) of investment tax credits available to offset Canadian federal and provincial taxes payable expiring commencing in 2029 through 2042, and has approximately $ 1.2 million (December 31, 2021: $ 1.1 million) of research tax credit available to offset US federal taxes payable expiring commencing in 2041 through 2042. e. The investment tax credits and non-capital losses for income tax purposes expire as follows: Expiry date Investment tax credits Research tax credits Non-capital losses 2029 $ 1,169 $ — $ — 2030 1,242 — — 2031 1,424 — — 2032 1,357 — — 2033 — — — 2034 229 — — 2035 1,068 — — 2036 862 — — 2037 1,586 — — 2038 1,485 — — 2039 1,818 — — 2040 1,903 — 121,729 2041 2,222 1,057 192,924 2042 2,126 96 — $ 18,491 $ 1,153 $ 314,653 f. A reconciliation of total unrecognized tax benefits for the years ended December 31, 2022, 2021, and 2020 are as follows: Year Ended December 31, 2022 2021 2020 Balance, beginning of year $ 3,063 $ 3,063 $ 3,063 Increases related to prior year tax positions — — — Increases related to current year tax positions — — — Balance, end of year $ 3,063 $ 3,063 $ 3,063 Included in the balance of unrecognized tax benefits at December 31, 2022, 2021 and 2020 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 income (loss) and comprehensive income (loss). The Company currently files income tax returns in Canada, the United States, the United Kingdom, and Ireland, 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 131 Table of Contents any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2006 to 2022 remain subject to Canadian income tax examinations. Tax years ranging from 2019 to 2022 remain subject to U.S. income tax examinations. Tax year 2022 remain subject to U.K and Ireland income tax examinations. 15. Leases The Company leased separate office and laboratory spaces in Vancouver, British Columbia, which expired in February 2022. On January 25, 2019, the Company entered into a lease for a new building in Vancouver, including both office and laboratory space. This lease commenced for accounting purposes in May 2021 and construction of leasehold improvements was completed during the year ended December 31, 2022. This lease has an initial term of ten years , with two five-year extension options. In addition, the Company leases office space in Seattle, Washington with lease terms expiring in 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: December 31, 2022 December 31, 2021 Operating lease liabilities: Current portion $ 3,322 $ 1,310 Long-term portion 24,667 30,923 Total operating lease liabilities 27,989 $ 32,233 Finance lease liabilities: Current portion included in other current liabilities 16 22 Long-term portion included in other long-term liabilities 124 100 Total finance lease liabilities 140 122 Total lease liabilities $ 28,129 $ 32,355 Cash paid for amounts included in the measurement of operating lease liabilities for fixed lease payments for the year ended December 31, 2022 was $ 4,471 and was included in net cash used in operating activities in the consolidated statement of cash flows. As of December 31, 2022, the maturities of the Company’s operating lease liabilities were as follows: Operating leases Within 1 year $ 4,435 1 to 2 years 4,493 2 to 3 years 4,611 3 to 4 years 4,589 4 to 5 years 3,357 Thereafter 11,653 Total operating lease payments 33,138 Less: Imputed interest ( 5,149 ) Operating lease liabilities $ 27,989 As of December 31, 2022, the weighted average remaining lease term is 7.8 years and the discount rate used to determine the operating lease liability was 4.8 % for leases in Canadian dollars and 2.8 % for leases in U.S. dollars. During the year ended December 31, 2022, the Company incurred total operating lease expenses of $ 7,795 (2021 - $ 5,658 , 2020 - $ 3,595 ), which included lease expenses associated with fixed lease payments of $ 6,609 (2021 - $ 5,323 and 2020 - 132 Table of Contents $ 3,156 ), and variable payments associated with common area maintenance and similar expenses of $ 1,186 (2021 - $ 335 and 2020 - $ 439 ). During the year ended December 31, 2022, the Company did no t recognize any impairment losses on its right-of-use assets (2021: nil ). 16. 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, short-term investments in marketable securities, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the near-term maturities of these financial instruments. As at December 31, 2022, 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. The following tables present information about the Company’s assets and liabilities 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: December 31, 2022 Level 1 Level 2 Level 3 Assets Cash equivalents: GICs $ 200,289 $ — $ 200,289 $ — Investments: GICs 91,320 — 91,320 — Total $ 291,609 $ — $ 291,609 $ — Liabilities Liability for contingent consideration 1,248 — — 1,248 Total $ 1,248 $ — $ — $ 1,248 133 Table of Contents December 31, 2021 Level 1 Level 2 Level 3 Assets Cash equivalents: Commercial paper $ 61,387 $ — $ 61,387 $ — Investments: GICs 50,741 — 50,741 — Total $ 112,128 $ — $ 112,128 $ — Liabilities Liability for contingent consideration 1,498 — — 1,498 Total $ 1,498 $ — $ — $ 1,498 The following table presents the changes in fair value of the Company’s liability for contingent consideration: Liability at the beginning of the period Increase (decrease) in fair value of liability for contingent consideration Amounts paid or transferred to payables Liability at end of the period Year ended December 31, 2022 $ 1,498 $ — $ ( 250 ) $ 1,248 Year ended December 31, 2021 $ 1,285 $ 213 $ — $ 1,498 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 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, short-term investments and long-term investments with high credit quality financial institutions. At December 31, 2022, the maximum exposure to credit risk for accounts receivable was $ 33,400 (December 31, 2021: $ 15,614 ) and all accounts receivable are due within the next 12 months. As at December 31, 2022 and December 31, 2021, 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 and short-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, and potentially beyond. 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 due to the low volume of transactions denominated in foreign currencies. At December 31, 2022, the Company’s net monetary liabilities denominated in Canadian dollars were $ 1,593 (C$ 2,144 ). 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 134 Table of Contents impact on the reported balances for net assets, net income (loss) and stockholders’ equity in the Company’s consolidated financial statements. 17. 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$ 8.5 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 CDRD Ventures Inc. (“CVI”) upon the direct achievement of certain development milestones for products incorporating certain Kairos intellectual property. 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, 2022, the contingent consideration had an estimated fair value of $ 1,248 , which has been recorded within other long-term liabilities on the Company’s consolidated balance sheet (December 31, 2021: $ 1,498 ). 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 statement of income (loss) and comprehensive income (loss). Contingencies 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. 18. Restructuring In January 2022, the Company started implementing a restructuring program (the “Restructuring”) as part of its renewed focus on achieving its key strategic priorities and to help create a more cost-efficient organization in order to execute on its strategic priorities. 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 three months period ended March 31, 2022. 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 • 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 income (loss) and comprehensive income (loss). 135 Table of Contents As of December 31, 2022, the net outstanding liability related to employee severance termination benefits and other contract liabilities was approximately $ 678 . The Company recognized the majority of these charges during the year ended December 31, 2022 and does not expect to incur any material additional costs related to the Restructuring. 136 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.