Zymeworks Inc. 10-K

Item 8. Financial Statements and Supplementary Data Zymeworks Inc. Index to Consolidated Financial Statements Year ended December 31, 2023 Page Report of Independent Registered Public Accounting Firm (PCAOB ID 85 ) 105 Consolidated Balance Sheets as at December 31, 202 3 and 202 2 108 Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended December 31, 202 3 , 202 2 and 2021 109 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 202 3 , 202 2 and 20 21 110 Consolidated Statements of Cash Flows for the years ended December 31, 202 3 , 202 2 and 20 21 111 Notes to the Consolidated Financial Statements 112 104 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, 2023 and 2022, the related consolidated statements of (loss) income and comprehensive (loss) income, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 6, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. 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 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. 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 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of the contract modification related to the amended collaboration agreement with Jazz Pharmaceuticals Ireland Limited (“Jazz”) As discussed in Note 12 to the consolidated financial statements, the Company and Jazz amended the license and collaboration agreement (amended collaboration agreement). As part of the amended collaboration agreement, the Company agreed to provide a credit note to Jazz of $20,100 thousand, which has been recognized as a reduction to revenue for the year ended December 31, 2023. As discussed in Note 2 to the consolidated financial statements, the accounting for the Company’s modification to existing contracts with customers arising from licensing and collaboration arrangements requires the Company to apply significant judgment when evaluating whether the modification to financial terms is related to distinct performance obligations remaining in the amended collaboration agreement. 105 Table of Contents We identified the evaluation of the contract modification related to the amended collaboration agreement with Jazz as a critical audit matter. Subjective and complex auditor judgment was required to assess the Company’s evaluation of the contract modification, including determining the rights and obligations described in the amended collaboration agreement and whether the remaining goods and services are distinct from the goods and services transferred before the modification. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control over the Company’s revenue recognition process. This included a control over the Company’s accounting analysis of amendments to licensing and collaboration agreements. We read the amended collaboration agreement to gain an understanding of the contractual terms and conditions and the commitments being made in the agreement. We evaluated management’s accounting analysis and assessed the reasonableness of management’s judgments, including assumptions relating to the level of interdependence between the promised goods and services in the original and amended collaboration agreements. /s/ KPMG LLP Chartered Professional Accountants We have served as the Company’s auditor since 2015. Vancouver, Canada March 6, 2024 106 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Zymeworks Inc.: Opinion on Internal Control Over Financial Reporting We have audited Zymeworks Inc. ’s (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of (loss) income and comprehensive (loss) income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated March 6, 2024 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Chartered Professional Accountants Vancouver, Canada March 6, 2024 107 Table of Contents ZYMEWORKS INC. Consolidated Balance Sheets (Expressed in thousands of U.S. dollars except share data) December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 157,557 $ 400,912 Short-term investments (note 5) 216,770 91,320 Accounts receivable 19,477 33,400 Prepaid expenses and other current assets 19,122 19,074 Total current assets 412,926 544,706 Deferred financing fees 108 10 Long-term investments (note 5) 82,148 886 Long-term prepaid assets 7,240 15,729 Deferred tax asset (note 14) 3,615 1,345 Property and equipment, net (note 7) 19,847 24,713 Operating lease right-of-use assets (note 15) 17,696 22,937 Intangible assets, net (note 8) 7,656 8,755 Acquired in-process research and development (note 6) 17,628 17,628 Goodwill (note 6) 12,016 12,016 Total assets $ 580,880 $ 648,725 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued liabilities (note 9) $ 45,032 $ 87,468 Income tax payable (note 14) 1,811 840 Fair value of liability-classified stock options 960 1,642 Current portion of operating lease liability (note 15) 4,261 3,322 Deferred revenue and other consideration (note 12) 3,699 2,353 Total current liabilities 55,763 95,625 Long-term portion of operating lease liability (note 15) 22,369 24,667 Deferred revenue (note 12) 32,941 30,588 Other long-term liabilities (note 9) 1,701 3,101 Deferred tax liability (note 14) 3,300 1,788 Total liabilities 116,074 155,769 Stockholders’ equity: Common shares, $ 0.00001 par value; 900,000,000 authorized shares of common stock at December 31, 2023 and December 31, 2022 ( 70,115,997 and 63,059,501 shares issued and outstanding at December 31, 2023 and 2022, respectively (note 10b). 997,227 886,322 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, 2023 and December 31, 2022 (note 10b). — — Exchangeable shares, no par value, 651,219 issued and outstanding shares at December 31, 2023 (December 31, 2022: 1,424,533 ) (note 10b). 9,345 20,442 Additional paid-in capital 142,274 151,614 Accumulated other comprehensive loss ( 6,603 ) ( 6,659 ) Accumulated deficit ( 677,437 ) ( 558,763 ) Total stockholders’ equity 464,806 492,956 Total liabilities and stockholders’ equity $ 580,880 $ 648,725 Research collaboration and licensing agreements (note 12) Commitments and contingencies (note 16) The accompanying notes are an integral part of these financial statements 108 Table of Contents ZYMEWORKS INC. Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income (Expressed in thousands of U.S. dollars except share and per share data) Year Ended December 31, 2023 2022 2021 Revenue: Research and development collaborations (note 12) $ 76,012 $ 412,482 $ 26,680 Operating expenses: Research and development 143,619 208,596 199,752 General and administrative 70,446 73,358 42,561 Total operating expenses 214,065 281,954 242,313 (Loss) income from operations ( 138,053 ) 130,528 ( 215,633 ) Other income: Interest income 19,705 3,596 1,965 Other (expense) income, net (note 13) ( 894 ) 1,110 1,309 Total other income, net 18,811 4,706 3,274 (Loss) income before income taxes ( 119,242 ) 135,234 ( 212,359 ) Income tax recovery (expense), net (note 14) 568 ( 10,893 ) 516 Net (loss) income $ ( 118,674 ) $ 124,341 $ ( 211,843 ) Other comprehensive income: Unrealized income on available for sale securities, net of tax of nil (note 5) 56 — — Total other comprehensive income 56 — — Comprehensive (loss) income $ ( 118,618 ) $ 124,341 $ ( 211,843 ) Net (loss) income per common share (note 4): Basic $ ( 1.72 ) $ 1.91 $ ( 4.11 ) Diluted $ ( 1.72 ) $ 1.90 $ ( 4.61 ) Weighted-average common stock outstanding (note 4): Basic 68,863,010 65,194,775 51,553,869 Diluted 68,863,010 65,249,184 52,131,596 The accompanying notes are an integral part of these financial statements 109 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, 2020 — $ — — $ — 46,035,389 $ 724,219 $ ( 471,261 ) $ ( 6,659 ) $ 163,623 $ 409,922 Issuance of common stock on exercise of 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 stock options (note 10e) — — — — 39,220 359 — — ( 79 ) 280 Issuance of common stock through employee stock 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 ) — — — — 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 Stock-based compensation — — — — — — — — 9,516 9,516 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 Issuance of common stock on exercise of stock options (note 10e) — — — — 641,129 6,958 — — ( 1,736 ) 5,222 Issuance of common stock through employee share purchase plan (note 10f) — — — — 111,911 955 — — — 955 Issuance of common stock upon vesting of RSUs (note 10e) — — — — 100,949 1,887 — — ( 1,887 ) — Issuance of common stock upon exercise of pre-funded warrants (note 10c) — — — — 2,079,193 63,775 — — ( 63,775 ) — Issuance of common stock for retracted exchangeable shares — — ( 773,314 ) ( 11,097 ) 773,314 11,097 — — — — Issuance of common stock in connection with At-The-Market ("ATM") sale (note 10a) — — — — 3,350,000 26,233 — — — 26,233 Private placement (note 10a) — — — — — — — — 49,862 49,862 Stock-based compensation — — — — — — — — 8,196 8,196 Net loss — — — — — — ( 118,674 ) — — ( 118,674 ) Other comprehensive income — — — — — — — 56 — 56 Balance at December 31, 2023 1 $ — 651,219 $ 9,345 70,115,997 $ 997,227 $ ( 677,437 ) $ ( 6,603 ) $ 142,274 $ 464,806 The accompanying notes are an integral part of these financial statements 110 Table of Contents ZYMEWORKS INC. Consolidated Statements of Cash Flows (Expressed in thousands of U.S. dollars) Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net (loss) income $ ( 118,674 ) $ 124,341 $ ( 211,843 ) Items not involving cash: Depreciation of property and equipment (note 7) 7,462 6,220 3,739 Amortization of intangible assets (note 8) 2,702 1,015 2,793 Stock-based compensation (note 10e) 8,102 4,015 10,756 Amortization and impairment of operating lease right-of-use assets 7,141 4,769 3,051 Deferred income tax (recovery) expense (note 14) ( 757 ) 1,940 ( 953 ) Change in fair value of contingent consideration liability (note 16) 630 ( 250 ) 213 Change in fair value of investments in equity instruments 667 — ( 167 ) Unrealized foreign exchange gain ( 31 ) ( 1,956 ) ( 433 ) Changes in non-cash operating working capital: Accounts receivable 13,922 ( 17,509 ) ( 266 ) Prepaid expenses and other current assets 4,295 ( 2,059 ) ( 15,792 ) Accounts payable and accrued liabilities ( 44,768 ) 26,479 16,477 Operating lease liabilities ( 3,663 ) ( 3,736 ) ( 26 ) Deferred revenue and other consideration 3,699 — — Income taxes payable 970 840 — Net cash (used in) / provided by operating activities $ ( 118,303 ) $ 144,109 $ ( 192,451 ) Cash flows from financing activities: Proceeds from issuance of common stock under at-the-market program and from public offerings, net of issuance costs (notes 10a) 26,233 107,534 — Private placement (note 10a) 49,862 — — Issuance of common stock on exercise of stock options (note 10e) 5,006 255 6,428 Issuance of common stock through employee stock purchase plan (note 10f) 820 1,403 2,070 Deferred financing fees ( 53 ) ( 596 ) ( 470 ) Finance lease payments ( 21 ) ( 14 ) ( 17 ) Net cash provided by financing activities $ 81,847 $ 108,582 $ 8,011 Cash flows from investing activities: Purchases of marketable securities ( 553,249 ) ( 113,005 ) ( 35,081 ) Proceeds from marketable securities 350,073 72,281 192,962 Acquisition of property and equipment ( 2,474 ) ( 8,150 ) ( 12,404 ) Acquisition of intangible assets ( 1,603 ) ( 4,975 ) ( 881 ) Net cash (used in) / provided by investing activities $ ( 207,253 ) $ ( 53,849 ) $ 144,596 Effect of exchange rate changes on cash and cash equivalents 354 203 ( 325 ) Net change in cash and cash equivalents ( 243,355 ) 199,045 ( 40,169 ) Cash and cash equivalents, beginning of year 400,912 201,867 242,036 Cash and cash equivalents, end of year $ 157,557 $ 400,912 $ 201,867 Supplemental disclosure of non-cash investing and finance items: Leased assets obtained in exchange for operating lease liabilities $ 1,900 $ 72 $ 24,609 Acquisition of property and equipment and intangible assets in accounts payable and accrued liabilities 122 957 1,933 The accompanying notes are an integral part of these financial statements 111 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. together with its subsidiaries (collectively the “Company” or “Zymeworks”) is a clinical-stage biopharmaceutical company dedicated to the development of next-generation multifunctional biotherapeutics. Zymeworks BC Inc. ("Zymeworks BC") (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 October 13, 2022, the Company completed an internal reorganization transaction resulting in a Delaware incorporated entity becoming the listed company (the “Redomicile Transactions”). Prior to the Redomicile Transactions, the shares of Zymeworks BC Inc. (formerly known as Zymeworks Inc.) were publicly listed. 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 ("CallCo") and Zymeworks ExchangeCo Ltd., ("ExchangeCo") 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 Lifesciences Pte. Ltd. (Singapore), Zymeworks CallCo ULC, Zymeworks ExchangeCo Ltd., Zymeworks Management Inc. (including this entity's branch in the United Kingdom) and Zymeworks Zanidatamab Inc. (refer to note 12). 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. Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. 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 112 Table of Contents 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). 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, measurement of contingent consideration liabilities, 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 113 Table of Contents 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 over time. The accounting for the modification to existing contracts with customers arising from licensing and collaboration arrangements requires management to apply significant judgment when evaluating whether the modification to financial terms is related to distinct performance obligations remaining in the amended collaboration agreement. 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. Supply of clinical trial drugs and comparator drugs Amounts receivable by the Company for the provision of drugs to licensee or to clinical trials on behalf of licensee are recognized in revenue at a point in time when title to drugs has transferred to the licensee, which generally occurs upon shipment. 114 Table of Contents 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. 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. Modifications of contracts with customers The Company accounts for a modification to a contract with a customer as a separate contract if both the scope of the contract increases because of the addition of promised goods or services that are distinct, and the price of the contract increases by an amount of consideration that reflects the Company’s stand-alone selling price of the additional promised goods or services. A modification that does not meet this criteria is accounted for as an adjustment to the existing contract, either prospectively or through a cumulative catch-up adjustment. The Company accounts for a contract modification prospectively if the remaining goods or services are distinct from the goods or services transferred before the modification, but the consideration for those goods or services does not reflect their stand-alone selling prices. Any changes in the transaction price that arise as a result of a contract modification that are not allocated to remaining goods or services are recognized as a cumulative catch-up adjustment. 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 include guaranteed investment certificates (“GICs”) acquired from financial institutions and money market funds which are recorded at cost plus accrued interest. Investments Marketable Securities The Company's investments include high credit quality investment grade debt securities which comprise investments in U.S. Treasury notes and corporate debt securities. The Company classifies all of its investment grade debt securities as available-for-sale (note 5). Marketable securities also include GICs with original maturities of greater than 90 days. These investments are recorded at cost plus accrued interest, which approximates their fair value. Unrealized fair value gains and losses for investments classified as available-for-sale are recorded through other comprehensive income (loss) in stockholders' equity. When the fair value of an available-for-sale security falls below the amortized cost basis it is evaluated to determine if any of the decline in value is attributable to credit loss. Decreases in fair value attributable to credit loss are recorded directly to the consolidated statement of (loss) income with a corresponding allowance for credit losses, limited to the amount that the fair value is below the amortized cost basis. If the credit quality subsequently improves the allowance is reversed up to a maximum of the previously recorded credit losses. When the Company intends to sell an impaired available-for-sale security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the amortized cost basis, the entire fair value adjustment will immediately be recognized in the consolidated statement of (loss) income with no corresponding allowance for credit losses. Realized gains and losses and credit losses, if any, on available-for-sale securities are included in interest income (expense), based on the specific identification method. Available-for-sale securities are also adjusted for amortization of premiums and accretion of discounts to maturity, with such amortization and accretion included within interest income. Marketable securities with remaining maturities of less than one year from the balance sheet date are classified as short-term investments and greater than one year from the balance sheet date are classified as long-term investments. 115 Table of Contents Equity Securities The Company’s long-term investments include equity securities acquired for strategic purposes or in connection with licensing and collaboration agreements. As the Company's investments in equity securities do not have readily determinable fair value, they are carried at cost, less any impairment, including any adjustments resulting from observable price changes (note 5). Accounts Receivable and Expected Credit Losses Accounts receivable are recorded at invoiced amounts, net of any allowance for expected credit losses. The allowance for expected credit losses 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, 2023 and 2022. 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, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the near-term maturities of these financial instruments. All marketable securities are classified as available-for-sale and are recorded at fair value. As at December 31, 2023, 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. 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 116 Table of Contents 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 and investments with high credit quality financial institutions. At December 31, 2023, the maximum exposure to credit risk for accounts receivable was $ 19,477 , 85 % of which was from Jazz Pharmaceuticals Ireland Limited or Jazz Pharmaceuticals, Inc. (subsidiaries of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”) (December 31, 2022: $ 33,400 73 % of which was from Jazz Pharmaceuticals Ireland Limited) and all accounts receivable are due within the next 12 months. As at December 31, 2023 and December 31, 2022, 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, short-term and long-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. 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 and therefore assumes the risk of future gains or losses in its consolidated statements of (loss) income. At December 31, 2023, the Company’s net monetary assets denominated in Canadian dollars were $ 1,392 (C$ 1,844 ). 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 impact on the reported balances for net assets, net loss and stockholders’ equity in the Company’s consolidated financial statements. Deferred Financing Fees Deferred financing fees consist of amounts charged by underwriters, attorneys, accountants and printers that are directly attributable to future financing transactions that are probable to occur. 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. 117 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 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, 2023 and 2022, 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 118 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 in 2022 and 2021. Both CEWS and CERS programs ended in 2021, with application deadlines in 2022. 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 (expense) income (ASC 815 awards) for 119 Table of Contents the period, while fair value changes below the grant date fair value of the original awards are recorded in additional paid-in capital. Under ASC 718 Compensation—Stock Options (“ASC 718”), warrants or stock options with 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. 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 reviewed for impairment on an annual basis or more frequently if an indicator of impairment is present. The Company may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. 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 120 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 (Loss) Income per Share Net (loss) income per share for the years ended December 31, 2023, 2022 and 2021 was as follows: Year Ended December 31, 2023 2022 2021 Numerator : Net (loss) income attributable to common stockholders: Basic $ ( 118,674 ) $ 124,341 $ ( 211,843 ) Adjustment for change in fair value of liability classified stock options — ( 231 ) ( 28,534 ) Diluted $ ( 118,674 ) $ 124,110 $ ( 240,377 ) Denominator: Weighted-average common stock outstanding: Basic 68,863,010 65,194,775 51,553,869 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 68,863,010 65,249,184 52,131,596 Net (loss) income per common share – basic $ ( 1.72 ) $ 1.91 $ ( 4.11 ) Net (loss) income per common share – diluted $ ( 1.72 ) $ 1.90 $ ( 4.61 ) Weighted average number of shares of common stock 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, January 2020 and January 2022 offerings and December 2023 private placement as the warrants were exercisable at any time for nominal cash consideration. The Company’s potentially dilutive securities, which include stock options and RSUs, have been excluded from the computation of diluted net loss per share for the year ended December 31, 2023 as the effect would be to reduce the net loss per share. 121 Table of Contents 5. Cash, Cash Equivalents and Investments The following table summarizes the Company's investments as of December 31, 2023: December 31, 2023 Amortized Cost Unrealized Gain (Loss) Fair Value Short-term investments: Contractual maturity of one year or less: GICs $ 75,066 $ — $ 75,066 U.S. Treasury notes 46,416 136 46,552 Corporate debt securities 94,900 252 95,152 216,382 388 216,770 Long-term investments: Contractual maturity of one to three years: Corporate debt securities 70,181 ( 321 ) 69,860 Contractual maturity of three to four years: Corporate debt securities 12,081 ( 11 ) 12,070 Equity securities 218 — 218 82,480 ( 332 ) 82,148 $ 298,862 $ 56 $ 298,918 The following table summarizes the Company's investments as of December 31, 2022: December 31, 2022 Amortized Cost Unrealized Gain (Loss) Fair Value Short-term investments: Contractual maturity of one year or less: GICs $ 91,320 $ — $ 91,320 91,320 — 91,320 Long-term investments: Equity securities 886 — 886 886 — 886 $ 92,206 $ — $ 92,206 122 Table of Contents The following tables present information about the Company’s assets 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, 2023 December 31, 2022 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Cash and cash equivalents: Cash $ 23,126 $ 200,623 Cash equivalents: Money market funds $ 64,247 $ — $ — $ 64,247 $ — $ — $ — $ — GICs 70,184 — — 70,184 200,289 — — 200,289 134,431 — — 157,557 200,289 — — 400,912 Investments: GICs 75,066 — — 75,066 91,320 — — 91,320 U.S. Treasury notes 46,552 — — 46,552 — — — — Corporate debt securities — 177,082 — 177,082 — — — — 121,618 177,082 — 298,700 91,320 — — 91,320 Total $ 256,049 $ 177,082 $ — $ 456,257 $ 291,609 $ — $ — $ 492,232 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, 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 Change during the period — — — Balance at December 31, 2023 $ 20,700 $ ( 3,072 ) $ 17,628 For the years ended December 31, 2023, December 31, 2022 and December 31, 2021, the Company did no t record any impairment charge related to the fair value of IPR&D. The Company performed a quantitative test and concluded that IPR&D was not impaired as of December 31, 2023. Goodwill The Company performed its annual impairment test of goodwill as of December 31, 2023 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, 2023, 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, a quantitative impairment test was not required. 123 Table of Contents 7. Property and Equipment Property and equipment consist of the following: December 31, 2023 2022 Computer hardware $ 2,464 $ 2,235 Furniture and fixtures 2,976 2,976 Office equipment 2,142 2,067 Laboratory equipment 11,807 9,698 Leasehold improvements 20,992 20,960 Construction in progress 122 76 Property and equipment $ 40,503 $ 38,012 Less accumulated depreciation ( 20,656 ) ( 13,299 ) Property and equipment, net $ 19,847 $ 24,713 Depreciation expense on property and equipment for the years ended December 31, 2023, 2022 and 2021 was $ 7,462 , $ 6,220 and $ 3,739 , respectively. 8. Intangible Assets Intangible assets consist of the following: December 31, 2023 2022 Research licenses $ 14,936 $ 14,936 Computer software 7,878 7,522 Costs for in-progress software implementations 1,717 469 Intangible assets 24,531 22,927 Less accumulated amortization ( 16,875 ) ( 14,172 ) Intangible assets, net $ 7,656 $ 8,755 Amortization expense on intangible assets for the years ended December 31, 2023, 2022 and 2021 was $ 2,702 , $ 1,015 and $ 2,793 , respectively. At December 31, 2023, amortization expense on capitalized intangible assets is estimated to be as follows for each of the next five years: Amortization expense 2024 $ 2,802 2025 2,378 2026 545 2027 213 2028 — $ 5,938 124 Table of Contents 9. Liabilities Accounts payable and accrued liabilities consisted of the following: December 31, 2023 2022 Trade payables $ 6,212 $ 7,863 Accrued research and development expenses 26,661 39,358 Goods and services tax payable — 16,244 Employee compensation and vacation accruals 6,153 14,365 Accrued legal and professional fees 3,707 7,799 Liability for contingent consideration (note 16) 1,570 — Other 729 1,839 Total $ 45,032 $ 87,468 Other long-term liabilities consisted of the following: December 31, 2023 2022 Liability for contingent consideration (note 16) $ 308 $ 1,248 Liability from in-licensing agreements 747 1,047 Finance lease liability 92 124 Other 554 682 Total $ 1,701 $ 3,101 10. Stockholders’ Equity a. Equity Offerings 2023 Private Placement On December 28, 2023, the Company completed a private placement pursuant to which the Company sold 5,086,521 pre-funded warrants to purchase 5,086,521 shares of common stock at $ 9.8299 per pre-funded warrant. The Company received gross proceeds of $ 50,000 and net proceeds were $ 49,862 , after expenses. 2023 ATM financing On June 16, 2023, the Company sold 3,350,000 shares of common stock pursuant to the Company's at-the-market sale program, at $ 8.12 per common share. Net proceeds were $ 26,233 after underwriting commissions and offering expenses. 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, the Company issued to Computershare Trust Company of Canada, a trust company existing under the laws of Canada (the “Share Trustee”), one share of the Company's 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. 125 Table of Contents 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 Exchangeable Shares were issued to former Zymeworks BC shareholders. As of December 31, 2023, there were 651,219 Exchangeable Shares held by former Zymeworks BC shareholders (December 31, 2022: 1,424,533 ). The Company will issue shares of its common stock as consideration when a holder of Exchangeable Shares 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 simil ar in substance to the Company’s common stock. c. Pre-Funded Common Share Warrants In connection with the public offerings completed on June 24, 2019, January 27, 2020 and January 31, 2022 and private placement completed on December 28, 2023 (note 10a), the Company issued a total of 13,668,482 pre-funded warrants which granted holders of warrants the right to purchase up to 13,668,482 common shares or shares of common stock 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, October 25, 2022, October 27, 2022 and October 19, 2023, a total of 8,581,961 pre-funded warrants were exercised in exchange for issuance of 8,581,868 common shares. As a result of the December 28, 2023 private placement, as of December 31, 2023, there were 5,086,521 pre-funded warrants outstanding (December 31, 2022: 2,079,224 ). 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. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series B Participating Preferred Stock, par value $ 0.00001 per share, of the Company (“ Series B Preferred Stock”) at an exercise price of $ 74.00 per one one-thousandth of a share of Series 126 Table of Contents B Preferred Stock, subject to adjustment. On October 13, 2022, the Rights Plan expired. The New Rights Plan has substantively similar terms as the Rights Plan. On June 8, 2023 the New Rights Plan expired by its terms. Upon effectiveness of the Company's filing of a Certificate of Elimination with the Secretary of State of the State of Delaware on June 12, 2023, the shares that were previously designated as Series B Preferred Stock resumed the status of authorized but unissued shares of preferred stock of the Company. e. Stock-Based Compensation In connection with redomicile transactions in 2022, Zymeworks BC. assigned to the Company, and the Company assumed, all of Zymeworks BC’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. Original Stock Option Plan On July 14, 2006, the shareholders of the Company approved an employee stock option plan (the “Original Plan”). 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. The exercise prices of the Company’s stock options under the Original Plan are denominated in Canadian dollars. Upon the effectiveness of the Company’s New 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. 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, 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, RSU and other share-based awards, in addition to stock options. As of December 31, 2023, 4,594,639 shares of common stock were available for future award grants under the New Plan (December 31, 2022: 3,205,132 shares of common stock). 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, 2023, 50,000 shares of common stock were available for future award grants under this plan (December 31, 2022: 50,000 ). 127 Table of Contents RSUs The following table summarizes the Company's RSU activity under the New Plan: 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 Granted 864,100 8.03 Vested and settled ( 100,949 ) 18.69 Forfeited ( 218,961 ) 10.65 Outstanding, December 31, 2023 771,413 8.63 As of December 31, 2023, there was $ 2,236 of unamortized RSU expense that will be recognized over a weighted average period of 1.62 years. Stock Options 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, 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 Granted — — — Expired ( 29,158 ) 18.29 13.55 Exercised ( 339,230 ) 11.31 8.44 Forfeited ( 289,275 ) 25.20 18.76 Outstanding, December 31, 2023 1,489,478 19.59 14.39 5.50 2,987 2,255 December 31, 2023 Exercisable 1,286,234 20.46 15.45 4.77 1,814 1,369 Vested and expected to vest 1,463,464 19.70 14.87 5.46 2,867 2,165 128 Table of Contents 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, 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 Granted 2,691,325 8.25 Expired — — Exercised ( 302,052 ) 7.39 Forfeited ( 1,885,176 ) 19.39 Outstanding, December 31, 2023 6,069,242 12.97 7.67 9,213 December 31, 2023 Exercisable 2,925,788 17.09 6.23 2,377 Vested and expected to vest 5,720,112 13.24 7.49 8,451 During the year ended December 31, 2023, the Company received cash proceeds of $ 5,006 (2022: $ 255 and 2021: $ 6,428 ) from stock options exercised. The stock options outstanding at December 31, 2023 expire at various dates from January 1, 2024 to December 10, 2033. 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, 2022 772,540 11.40 8.41 Options granted — — — Options vested ( 362,479 ) 11.61 8.76 Options forfeited and cancelled ( 130,306 ) 12.51 9.44 Non-vested, December 31, 2023 279,755 10.65 8.04 129 Table of Contents 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, 2022 3,011,283 9.41 Options granted 2,691,325 5.23 Options vested ( 1,507,708 ) 8.89 Options forfeited and cancelled ( 1,057,317 ) 9.83 Non-vested, December 31, 2023 3,137,583 5.93 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, 2023 2022 2021 Research and development expense: Stock-based compensation expense for equity classified instruments $ 2,112 $ 3,174 $ 20,090 Change in fair value of liability classified instruments 292 ( 781 ) ( 4,646 ) $ 2,404 $ 2,393 $ 15,444 General and administrative expense: Stock-based compensation expense for equity classified instruments $ 6,621 $ 4,102 $ 18,184 Change in fair value of liability classified instruments ( 1,305 ) ( 2,893 ) ( 23,758 ) $ 5,316 $ 1,209 $ ( 5,574 ) Finance income: Change in fair value of liability classified instruments ( 5 ) ( 11 ) ( 129 ) $ ( 5 ) $ ( 11 ) $ ( 129 ) Amounts for equity classified instruments above include stock-based compensation expense relating to RSUs of $ 3,369 for the year ended December 31, 2023 (2022: $ 913 and 2020: $ 3,101 ). For the year ended December 31, 2023, stock-based compensation expense of $ 8,196 was recorded in additional paid-in capital and recovery of $ 630 was recorded in the liability classified stock options and ESPP liability accounts (2022: $ 9,516 in additional paid-in capital and recovery of $ 3,261 in 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). 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, 2023 2022 2021 Dividend yield 0 % 0 % 0 % Expected volatility 68.1 % 77.2 % 80.3 % Risk-free interest rate 3.94 % 2.12 % 1.02 % Expected average life of options 5.89 years 5.93 years 6.05 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. 130 Table of Contents 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. The weighted-average Black-Scholes option pricing assumptions for liability classified stock options outstanding at December 31, 2023 and 2022 are as follows: December 31, 2023 December 31, 2022 Dividend yield 0 % 0 % Expected volatility 50.6 % 78.6 % Risk-free interest rate 3.80 % 4.00 % Expected average option term 0.91 years 1.90 years Number of liability classified stock options outstanding 442,198 721,985 The total intrinsic value of stock options exercised during the years ended December 31, 2023, 2022 and 2021 was $ 758 , $ 53 and $ 10,998 respectively. At December 31, 2023, the unamortized compensation expense related to unvested options was $ 8,424 . The remaining unamortized compensation expense as of December 31, 2023 will be recognized over a weighted-average period of 1.6 years. f. Employee Stock Purchase Plan ("ESPP") 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. 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 (loss) income and comprehensive (loss) income on a straight-line basis over the requisite service period. For the year ended December 31, 2023, the Company recorded compensation expense of $ 387 (2022: $ 424 , 2020: 803 ) in research and development expense and general and administrative expense accounts. As of December 31, 2023, the total amount contributed by ESPP participants and not yet settled is $ 384 (December 31, 2022: $ 287 ). 11. Government Grants and Credits Year Ended December 31, 2023 2022 2021 CEWS and CERS subsidies $ — $ 130 $ 3,402 SR&ED credits, net 99 — 78 Total $ 99 $ 130 $ 3,480 For the year ended December 31, 2023, the Company recognized refundable investment tax credits of $ 99 as a reduction of research and development expense. 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 nil (2022: $ 130 and 2021: $ 2,805 ) and nil (2022: nil and 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 (loss) income. Both CEWS and CERS programs ended at the end of 2021 with submission deadlines in 2022. 131 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, 2023 2022 2021 Jazz: Recognition of licensing and technology transfer fee $ — $ 375,000 $ — Development support payments 52,619 20,671 — Drug supply for ongoing studies 25,662 3,610 — Credit note for amendment of program ( 20,100 ) — — Other drug supply 13,350 — — Atreca: Recognition of licensing fee — 5,000 — BeiGene: Milestone revenue — — 8,000 Janssen: Milestone revenue — — 8,000 Iconic: Partner revenue — — 5,000 Research and development support and other payments 4,481 8,201 5,680 $ 76,012 $ 412,482 $ 26,680 Contract Assets and Liabilities As at December 31, 2023, contract assets from research, collaboration and licensing agreements were nil , which is presented within accounts receivable (December 31, 2022: $ 3,000 which is presented within accounts receivable) and contract liabilities were $ 36,640 (December 31, 2022: $ 32,941 ). As at December 31, 2023 and 2022, $ 3,699 and $ 2,353 respectively, of the contract liabilities is classified as short term. Contract liabilities relate to deferred revenue from the BeiGene and Jazz agreements described below. Jazz Collaboration Agreement Original Jazz Collaboration Agreement: 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. 132 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. Remaining deliverables of Manufacturing Technology Transfer, Development Drug Supply, Commercial Drug Supply were considered individually distinct and the revenue related to these deliveries are to be recognized upon completion of future deliveries to Jazz. Amendment of Jazz Collaboration Agreement: On April 25, 2023, Zymeworks BC, a subsidiary of the Company, Zymeworks Biopharmaceuticals Inc. (“ZBI”), a subsidiary of Zymeworks BC, Zymeworks Zanidatamab Inc. (“ZZI”), a subsidiary of ZBI formed in December 2022 focused on the Company’s development program for zanidatamab, and Jazz Pharmaceuticals, Inc. (“Jazz Inc.”), entered into a Stock and Asset Purchase Agreement (the “Transfer Agreement”). Under the Transfer Agreement, (i) Jazz Inc. acquired from ZBI 100 % of the issued and outstanding capital stock of ZZI, (ii) Jazz Inc. engaged certain Zymeworks BC and ZZI employees associated with the development of zanidatamab, and (iii) Zymeworks BC and ZBI transferred to Jazz Inc. or one of its affiliates contracts with respect to the engagement of certain independent contractors of Zymeworks BC and ZBI that work on the Program (as defined below). In addition, Jazz Inc. acquired from Zymeworks BC and ZBI certain contracts related to the Program, organizational documents and other records of ZZI, certain regulatory filings related to the Program, certain other books, records and other files, documents and information related to the Program, and certain employment records of service providers to be employed by Jazz Inc. and its affiliates following the Closing (as defined below). Subject to the terms and conditions of the Transfer Agreement, Jazz Inc. assumed certain liabilities that arise following the Closing related to the acquired assets and the Program, including with respect to transferred service providers. Zymeworks BC and Jazz Pharmaceuticals Ireland Limited (an affiliate of Jazz Inc.) (a subsidiary of Jazz Pharmaceuticals plc, collectively referred to as “Jazz”) amended and restated the license and collaboration agreement dated October 18, 2022 by and between Zymeworks BC and Jazz (the “Original Jazz Collaboration Agreement”) (as amended the “Amended Jazz Collaboration Agreement”) to reflect the transfer of responsibility for the Program. Under the Amended Jazz Collaboration Agreement, the financial terms of the Original Jazz Collaboration Agreement, as previously disclosed, was unchanged, except that the costs of the Program (including ongoing costs related to the transferred service providers) incurred following the Closing was directly borne by Jazz instead of being incurred by Zymeworks BC and charged back to Jazz for reimbursement, though Zymeworks BC will remain eligible for reimbursement of certain costs for activities where Zymeworks BC maintains responsibility under the Amended Jazz Collaboration Agreement. As part of the amendments to the Amended Collaboration Agreement, the Company agreed to provide a credit note to Jazz of $ 20.1 million, which has been recognized as a reduction to revenue for the year ended December 31, 2023. “Program” refers to (i) ongoing clinical trials in certain sites in South Korea that are the responsibility of Zymeworks BC under the Original Jazz Collaboration Agreement and (ii) clinical trials for zanidatamab, other than the studies referenced in (i), initiated by Zymeworks BC in the Territory (as defined in the Original Jazz Collaboration Agreement) prior to the execution of the Original Jazz Collaboration Agreement. The consummation of the transactions contemplated by the Transfer Agreement, including the execution of the Amended Jazz Collaboration Agreement, occurred in May 2023 (the “Closing”). In connection with the Closing, the parties entered into a transition services agreement pursuant to which Zymeworks BC and ZBI provide to Jazz Inc. and Jazz Inc. provides to Zymeworks BC and ZBI certain services to support the transfer of the acquired assets and the Program on a transitional basis. 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. As at December 31, 2023, contract liabilities under the Amended Jazz Collaboration Agreement include $ 3,699 received in relation to drug supply provided to Jazz. 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”) ( as amended on March 29, 2021 and August 10, 2021, collectively “Zanidatamab Agreement”) and zanidatamab zovodotin (formerly known as “ZW49”) ( as amended on May 25, 2020 and June 2, 2021, collectively “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 133 Table of Contents bispecific antibodies generated through the use of the Company’s Azymetric and EFECT platforms, which agreement expired in November 2023. 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. Original License and Collaboration Agreements for Zanidatamab and Zanidatamab Zovodotin 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 were distinct together and the continuing technology transfer and the Company’s participation to the JSC and other sub-committees’ activities were 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. Termination of BeiGene License and Collaboration Agreement Regarding Zanidatamab Zovodotin and Amendment of BeiGene License and Collaboration Agreement Regarding Zanidatamab: On September 18, 2023, Zymeworks BC and BeiGene entered into a Termination Agreement (the “Termination Agreement”) relating to the Zanidatamab Zovodotin Agreement . The Termination Agreement does not terminate the Zanidatamab Agreement (as defined below). Pursuant to the Termination Agreement, the Zanidatamab Zovodotin Agreement is terminated, effective as of September 18, 2023, and is no longer in effect, except that the termination does not relieve the parties from obligations under the Zanidatamab 134 Table of Contents Zovodotin Agreement that accrued prior to the termination and certain other provisions expressly indicated to survive the termination, including certain licenses to BeiGene intellectual property with respect to zanidatamab zovodotin. Under the Zanidatamab Zovodotin Agreement, no performance obligations were completed by the Company as of December 31, 2023 as the initial transfer of technologies and relevant know-how was 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. In connection with the entry into the Termination Agreement, on September 18, 2023, Zymeworks BC and BeiGene also entered into the Third Amendment to License and Collaboration Agreement (the “Amendment”) relating to the Zanidatamab Agreement. Pursuant to the Amendment, Zymeworks BC is eligible to receive development and commercial milestone payments of up to $ 172.0 million, together with tiered royalties up to 19.5 % of net sales in BeiGene territories increasing up to 20 % when cumulative amounts forgone as a result of a royalty reduction of 0.5 % reaches a cap in the low double-digit millions of dollars. Pursuant to the Amendment, the remaining provisions of the Zanidatamab Agreement remain unchanged. The Termination Agreement and the Amendment did not have any financial impact on the Company's financial statements as of and for the year ended December 31, 2023, other than allocation of consideration and performance obligations under the Zanidatamab Zovodotin Agreement to Zanidatamab Agreement. As of December 31, 2023, the Company has $ 32,941 of the upfront fees from the Zanidatamab Agreement as deferred revenue on the Company’s consolidated balance sheet (December 31, 2022: $ 32,941 from the Zanidatamab Agreement and Zanidatamab Zovodotin Agreement). 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 was also eligible to receive development and commercial milestone payments of up to $ 702.0 million. In addition, the Company was 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. Under this agreement, BeiGene was solely responsible for the research, development, manufacturing, and commercialization of the products. This agreement expired in November 2023. 2020 Research and License Agreement with Merck 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 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. This agreement was expanded in 2018 to increase the number of programs from eight to ten and to extend BMS’s research period. BMS has the right to exercise options on up to ten programs, but in 2023 BMS stopped further development of one of the ten programs. 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, or $ 1.48 billion not including the one program for which BMS has stopped development), 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, 2023, 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 135 Table of Contents 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. 2015 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. 2016 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, 2023, 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. 2016 Collaboration Agreement with Daiichi Sankyo, Co., Ltd. (“Daiichi Sankyo”) On September 26, 2016, the Company and Daiichi Sankyo entered into a collaboration and cross license agreement which was amended on September 25, 2018, July 2, 2021, and June 6, 2022 (collectively, the “2016 Daiichi Collaboration Agreement”) for the research, development, and commercialization of one bispecific antibody enabled using the Company’s Azymetric and EFECT platforms. Additionally, the Company was able to license immuno-oncology antibodies from Daiichi Sankyo, with the 136 Table of Contents right to research, develop and commercialize multiple products globally in exchange for royalties on product sales. Under the agreement, Daiichi Sankyo had the option to develop and commercialize a single bispecific immuno-oncology therapeutic. From contract inception to the termination of 2016 Daiichi Collaboration agreement as defined below, 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. Termination of the 2016 Daiichi Sankyo Collaboration Agreement In March 2023, Zymeworks BC and Daiichi Sankyo terminated the Daiichi Collaboration Agreement and is no longer in effect, except that the termination does not relieve the parties from obligations under the Daiichi Collaboration Agreement that have accrued prior to the termination or provisions of the Daiichi Collaboration Agreement expressly indicated in the Daiichi Collaboration Agreement or the Termination and License Agreement to survive the termination. The termination of the 2016 Daiichi Collaboration Agreement did not have any financial impact during the year ended December 31, 2023. 2018 Licensing 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. Under the terms of the agreement, the Company was eligible to receive up to $ 484.7 million in various milestone and other payments. From contract inception to December 31, 2023, the Company has received an upfront technology access fee payment of $ 18.0 million. The Company remains eligible to receive development milestone payments totaling up to $ 63.4 million and commercial milestone payments of up to $ 170.0 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. 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 was originally eligible to receive up to $ 1.45 billion in various license and milestone payments. From contract inception to December 31, 2023, 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. Janssen has deprioritized the development of one of those two bispecific antibodies, and in 2023 the research program term under the agreement ended with respect to the remaining four bispecific antibodies. As a result, the Company remains eligible to receive development milestone payments of up to $ 86.0 million and commercial milestone payments of up to $ 373.0 million ($ 43.0 million and $ 186.5 million, respectively, not including the bispecific antibody that Janssen has deprioritized). 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. 137 Table of Contents 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. No development or commercial milestone payments or royalties have been received to date. Termination of LEO Research and License Agreement On October 27, 2023, Zymeworks BC received written notice from LEO Pharma A/S (“LEO”), stating that LEO elected to terminate, in its entirety, the Research and License Agreement. In accordance with the terms of the Research and License Agreement, the termination of such agreement was effective on January 25, 2024. The termination of the LEO Research and License Agreement did not have any financial impact during the year ended December 31, 2023. 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, 2023, the Company has received $ 1.0 million in milestone payments. In December 2020, Exelixis, Inc. (“Exelixis”) 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. Atreca In April 2022, the Company entered into a 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. There are no active programs under development pursuant to this agreement. 13. Other (Expense) Income, net Other (expense) income, net consists of the following: Year ended December 31, 2023 2022 2021 Foreign exchange (loss) gain $ ( 1,185 ) $ 1,152 $ 1,191 Other 291 ( 42 ) 118 $ ( 894 ) $ 1,110 $ 1,309 138 Table of Contents 14. Income Taxes a. Income tax recovery (expense) is comprised of the following: Year Ended December 31, 2023 2022 2021 Current income tax expense $ ( 189 ) $ ( 8,953 ) $ ( 437 ) Deferred income tax recovery (expense) 757 ( 1,940 ) 953 Income tax recovery (expense) $ 568 $ ( 10,893 ) $ 516 Current income tax recovery (expense) for the years ended December 31, 2023, 2022 and 2021 arose from the operations of the Company as well as its wholly owned subsidiaries in Canada, in the United States, in Ireland and in Singapore, as well as withholding taxes paid by the Company abroad in 2023, 2022 and 2021. b. Income tax recovery (expense) varies from the amounts that would be computed by applying the expected U.S. statutory income tax rate of 21 % (2022: 21 % and 2021: 21 %) to income (loss) before income taxes as shown in the following table: Year Ended December 31, 2023 2022 2021 Computed taxes at United States statutory income tax rate $ 25,041 $ ( 28,429 ) $ 44,620 Non-deductible expenses ( 2,696 ) ( 9,745 ) ( 798 ) Difference between domestic and foreign tax rate 5,976 ( 8,365 ) 12,175 Adjustments to prior year 48,724 ( 826 ) ( 33 ) Change in valuation allowance ( 78,668 ) 33,526 ( 60,260 ) Share issuance costs in equity — — 2 Change in recognition and measurement of tax positions ( 14 ) — — Changes due to SR&ED and research credits 2,661 3,238 5,096 Other ( 456 ) ( 292 ) ( 286 ) Income tax recovery (expense) $ 568 $ ( 10,893 ) $ 516 139 Table of Contents 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, 2023 December 31, 2022 Deferred tax assets: Non-capital losses carried forward $ 162,545 $ 84,948 Deferred revenue 9,893 8,893 Share issuance costs 2,972 4,549 Property and equipment 291 565 Intangible assets 1,902 5,930 Research and development deductions and credits 44,635 39,957 Contingent consideration 111 404 Stock options 5,936 4,344 Operating lease liability 6,596 7,008 Other 465 302 $ 235,346 $ 156,900 Deferred tax liabilities: Property and equipment ( 231 ) ( 967 ) IPR&D ( 4,760 ) ( 4,759 ) Operating lease right-of-use assets ( 4,531 ) ( 5,758 ) Outside basis difference in foreign subsidiary ( 2,125 ) ( 1,788 ) Stock options ( 1,177 ) — Other ( 186 ) — $ ( 13,010 ) $ ( 13,272 ) 222,336 143,628 Less: valuation allowance ( 222,021 ) ( 144,071 ) Net deferred tax (liabilities) assets $ 315 $ ( 443 ) Deferred tax assets $ 3,615 $ 1,345 Deferred tax liabilities ( 3,300 ) ( 1,788 ) Net deferred tax (liabilities) assets $ 315 $ ( 443 ) 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. d. At December 31, 2023, 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 $ 597.2 million (December 31, 2022: $ 314.7 million) expiring commencing 2035 through 2043. At December 31, 2023, the Company also has unclaimed tax deductions for scientific research and experimental development expenditures of approximately $ 99.1 million (December 31, 2022: $ 89.0 million) available to reduce taxable income of future years in Canada, with no expiry. At December 31, 2023, the Company has approximately $ 21.7 million (December 31, 2022: $ 18.5 million) of investment tax credits available to offset Canadian federal and provincial taxes payable expiring commencing in 2029 through 2043, and has approximately $ 0.4 million (December 31, 2022: $ 1.2 million) of research tax credits available to offset U.S. federal taxes payable expiring commencing in 2042 through 2043. 140 Table of Contents 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 1,277 — — 2034 229 — — 2035 1,068 — 3,961 2036 862 — 24,578 2037 1,586 — 10,625 2038 1,485 — — 2039 1,818 — 81,253 2040 1,903 — 146,611 2041 2,222 — 192,924 2042 2,126 19 39,632 2043 1,934 343 97,644 $ 21,702 $ 362 $ 597,228 f. A reconciliation of total unrecognized tax benefits for the years ended December 31, 2023, 2022, and 2021 are as follows: Year Ended December 31, 2023 2022 2021 Balance, beginning of year $ 3,063 $ 3,063 $ 3,063 Increases related to prior year tax positions — — — Increases related to current year tax positions 14 — — Balance, end of year $ 3,077 $ 3,063 $ 3,063 Included in the balance of unrecognized tax benefits at December 31, 2023, 2022 and 2021 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 (loss) income and comprehensive (loss) income. The Company currently files income tax returns in Canada, the United States, the United Kingdom, Ireland and Singapore, 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 any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2006 to 2023 remain subject to Canadian income tax examinations. Tax years ranging from 2020 to 2023 remain subject to U.S. income tax examinations. Tax years ranging from 2022 to 2023 remain subject to United Kingdom and Ireland income tax examinations. Tax year 2023 remains subject to Singapore income tax examinations. 141 Table of Contents 15. Leases The lease for the Company's office and laboratory spaces in Vancouver, British Columbia, which was entered into in January 2019, has an initial term expiring in February 2032, with two five-year extension options. In addition, the Company leases office spaces in Bellevue and Seattle, Washington and in Redwood City, California with lease terms expiring between December 2024 and 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, 2023 December 31, 2022 Operating lease liabilities: Current portion $ 4,261 $ 3,322 Long-term portion 22,369 24,667 Total operating lease liabilities $ 26,630 $ 27,989 Finance lease liabilities: Current portion included in other current liabilities 30 16 Long-term portion included in other long-term liabilities 92 124 Total finance lease liabilities 122 140 Total lease liabilities $ 26,752 $ 28,129 Weighted average remaining lease term: Operating leases 6.7 years 7.8 years Weighted average discount rate: Operating leases in U.S. dollars 3.6 % 2.8 % Operating leases in Canadian dollars 4.8 % 4.8 % Cash paid for amounts included in the measurement of operating lease liabilities for fixed lease payments for the year ended December 31, 2023 was $ 4,896 and was included in net cash used in operating activities in the consolidated statement of cash flows. As of December 31, 2023, the maturities of the Company’s operating lease liabilities were as follows: Operating leases Within 1 year $ 5,542 1 to 2 years 5,113 2 to 3 years 5,021 3 to 4 years 3,811 4 to 5 years 3,174 Thereafter 8,730 Total operating lease payments 31,391 Less: Imputed interest ( 4,761 ) Operating lease liabilities $ 26,630 142 Table of Contents The cost components of the operating leases were as follows: Year Ended December 31, 2023 2022 2021 Lease expenses: Operating lease expense $ 7,292 6,609 $ 5,323 Variable lease expense 1,637 1,186 335 $ 8,929 $ 7,795 $ 5,658 During the year ended December 31, 2023, the Company did no t recognize any impairment losses on its right-of-use assets (2022: nil and 2021: nil ). 16. 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$ 8,500 , consisting of (i) a C$ 2,500 payment when the first patient is dosed in the first Phase 2 trial and (ii) a C$ 6,000 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 (such as zanidatamab zovodotin or other product candidates using our ZymeLink technology). 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, 2023, the contingent consideration had an estimated fair value of $ 1,878 , which has been recorded in accounts payable and accrued liabilities and in other long-term liabilities on the Company’s consolidated balance sheet (December 31, 2022: $ 1,248 ) (note 9). 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 consolidated statement of loss (income). 143 Table of Contents 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 in fair value of liability for contingent consideration Amounts paid or transferred to payables Liability at end of the period Year ended December 31, 2023 $ 1,248 630 — $ 1,878 Year ended December 31, 2022 $ 1,498 — ( 250 ) $ 1,248 The following tables present information about the Company’s liability for contingent consideration measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation technique used to determine such fair value: December 31, 2023 Level 1 Level 2 Level 3 Liability for contingent consideration $ 1,878 — — $ 1,878 Total $ 1,878 $ — $ — $ 1,878 December 31, 2022 Level 1 Level 2 Level 3 Liability for contingent consideration $ 1,248 — — $ 1,248 Total $ 1,248 $ — $ — $ 1,248 The Company used the following assumptions to estimate fair value of contingent consideration liability as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Weighted assessment of the likelihood of the milestones 33.5 % 16.3 % Weighted average estimated period for achievement of milestones 0.92 years 1.36 years Discount rate 17.0 % 12.0 % 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. 17. Restructuring During the year ended December 31, 2022, the Company completed a restructuring program (the “Restructuring”) to focus on achieving its key strategic priorities and to help create a more cost-efficient organization. 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 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 144 Table of Contents • 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 (loss) income and comprehensive (loss) income for the year ended December 31, 2022. As of December 31, 2023, the net outstanding liability related to employee severance termination benefits and other contract liabilities was nil (December 31, 2022: $ 678 ). No costs for the Restructuring were recognized during the year ended December 31, 2023. 145 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.