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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
______________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                 
Commission file number: 001-41535
______________________________________
ZYMEWORKS INC.
(Exact name of registrant as specified in its charter)
______________________________________
Delaware
88-3099146
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
108 Patriot Drive, Suite A
Middletown, Delaware 19709
(Address of principal executive offices, including zip code)
(302) 274-8744
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par value per share Preferred Stock Purchase Rights
ZYME
N/A
New York Stock Exchange
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes      No  
The number of outstanding common shares of the registrant, no par value per share, as of November 4, 2022 was 62,996,314.



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ZYMEWORKS INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2022
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” or information within the meaning of applicable securities legislation, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements can often be identified by the use of terminology such as “subject to,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “estimate,” “project,” “may,” “will,” “should,” “would,” “could,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking. In particular, these forward-looking statements include, but are not limited to, statements about:
the size of our addressable markets and our ability to commercialize product candidates;
the achievement of advances in and expansion of our therapeutic platforms and antibody engineering expertise;
the likelihood of product candidate development and clinical trial progression, initiation or success;
our ability to predict and manage government regulation;
the impact of the COVID-19 pandemic on our business and operations; and
the expected benefits and other impacts of the Redomicile Transactions.
All forward-looking statements, including, without limitation, those related to our examination of historical operating trends, are based upon our current expectations and various assumptions. Certain assumptions made in preparing the forward-looking statements include:
our ability to implement our restructuring announced in January 2022 and to manage the size of our organization effectively;
the absence of material adverse changes in our industry or the global economy;
our ability to understand and predict trends in our industry and markets;
our ability to maintain good business relationships with our strategic partners;
our ability to comply with current and future regulatory standards;
our ability to protect our intellectual property rights;
our continued compliance with third-party license terms and the non-infringement of third-party intellectual property rights;
our ability to manage and integrate acquisitions;
our ability to retain key personnel; and
our ability to raise sufficient debt or equity financing to support our continued growth.
We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. The following uncertainties and factors, among others (including those referred to in the section titled “Risk Factors”), could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements:
our ability to obtain regulatory approval for our product candidates without significant delays;
the predictive value of our current or planned clinical trials;
delays with respect to the development and commercialization of our product candidates, which may cause increased costs or delay receipt of product revenue;
our or any of our partners’ ability to enroll subjects in clinical trials and thereby complete trials on a timely basis;
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the design or our execution of clinical trials may not support regulatory approval, including where clinical trials are conducted outside the United States;
our ability to receive the upfront payments pursuant to the Jazz Collaboration Agreement (as defined below), which payments are contingent upon receipt of clearance relating to the United States Hart-Scott Rodino Antitrust Improvements Act of 1976 (“HSR Clearance”) and upon Jazz’s decision to continue the collaboration following its receipt of topline data from our HERIZON-BTC-01 trial;
our ability to achieve milestones and receive associated milestone payments pursuant to the terms of our collaboration agreements;
the extent to which our business may be adversely affected by the COVID-19 pandemic;
global economic and political conditions, including as a result of the Russian invasion of Ukraine, and the related impact on our business and the markets generally;
expected benefits of the Redomicile Transactions may not materialize as expected or at all;
unanticipated tax consequences in connection with the Redomicile Transactions;
negative publicity resulting from the Redomicile Transactions and its potential effect on our business and market price of our common stock;
costs related to the Redomicile Transactions could be greater than expected;
the Fast Track and Breakthrough Therapy designations for any of our product candidates may not expedite regulatory review or approval;
the U.S. Food and Drug Administration (the “FDA”) may not accept data from trials we conduct outside the United States;
disruptions at the FDA and other government agencies caused by funding shortages or global health concerns;
our discretion to discontinue or reprioritize the development of any of our product candidates;
the potential for our product candidates to have undesirable side effects;
no regulatory agency has made a determination that any of our product candidates are safe or effective for use by the general public or for any indication;
our ability to face significant competition, including biosimilar products;
the likelihood of broad market acceptance of our product candidates;
our ability to obtain Orphan Drug Designation or exclusivity for some or all of our product candidates;
our ability to commercialize products outside of the United States;
the outcome of reimbursement decisions by third-party payors relating to our products;
our expectations with respect to the market opportunities for any product that we or our strategic partners develop;
our ability to pursue product candidates that may be profitable or have a high likelihood of success;
our ability to use our therapeutic platforms to build a pipeline of product candidates;
our ability to meet the requirements of ongoing regulatory review;
the threat of product liability lawsuits against us or any of our strategic partners;
changes in product candidate manufacturing or formulation that may result in additional costs or delay;
the potential disruption of our business and dilution of our shareholdings associated with acquisitions and joint ventures;
the potential for governments to impose strict price controls;
the risk of security breaches and incidents or data loss, which could compromise sensitive business or health information;
current and future legislation that may increase the difficulty and cost of commercializing our product candidates;
economic, political, regulatory and other risks associated with international operations;
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our exposure to legal and reputational penalties as a result of any of our current and future relationships with various third parties;
our ability to comply with export control and import laws and regulations;
our history of significant losses since inception;
our ability to generate revenue from product sales and achieve profitability;
our requirement for substantial additional funding;
the potential dilution to our stockholders associated with future financings;
restrictions on our ability to seek financing, which may be imposed by future debt;
our ability to maintain existing and future strategic partnerships;
our ability to realize the anticipated benefits of our strategic partnerships;
our ability to secure future strategic partners;
our reliance on third-party manufacturers to produce our product candidate supplies and on other third parties to provide supplies and store, monitor and transport bulk drug substance and drug product;
our reliance on third parties to oversee clinical trials of our product candidates and, in some cases, maintain regulatory files for those product candidates;
our reliance on third parties for various operational and administrative aspects of our business including our reliance on third parties’ cloud-based software platforms;
our ability to operate without infringing the patents and other proprietary rights of third parties;
our ability to obtain and enforce patent protection for our product candidates and related technology;
our patents could be found invalid or unenforceable if challenged;
our intellectual property rights may not necessarily provide us with competitive advantages;
we may become involved in expensive and time-consuming patent lawsuits;
the risk that the duration of our patents will not adequately protect our competitive position;
our ability to obtain protection under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Amendments”) and similar legislation;
we may be unable to protect the confidentiality of our proprietary information;
our ability to comply with procedural and administrative requirements relating to our patents;
the risk of claims challenging the inventorship of our patents and other intellectual property;
our intellectual property rights for some of our product candidates are dependent on the abilities of third parties to assert and defend such rights;
patent reform legislation and court decisions can diminish the value of patents in general, thereby impairing our ability to protect our products;
we may not be able to protect our intellectual property rights throughout the world;
we will require FDA approval for any proposed product candidate names and any failure or delay associated with such approval may adversely affect our business;
our election to rely on reduced reporting and disclosure requirements available to smaller reporting companies may make our common stock less attractive to investors;
the risk of employee misconduct including noncompliance with regulatory standards and insider trading;
our ability to market our products in a manner that does not violate the law and subject us to civil or criminal penalties;
if we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected;
our ability to retain key executives and attract and retain qualified personnel;
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our exposure to potential securities class action litigation; and
if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
Consequently, forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events, except as required by law. Our Risk Factors are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are our service marks or trademarks. Azymetric, Zymeworks, ZymeCAD, EFECT, ZymeLink and the phrase “Building Better Biologics” are our registered trademarks. The other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks, service marks, tradenames and copyrights referred to in this Quarterly Report on Form 10-Q are listed without the ©, ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames.
We express all amounts in this Quarterly Report on Form 10-Q in U.S. dollars, except where otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” are to Canadian dollars.
Unless the context otherwise requires or otherwise expressly states, all references in this Quarterly Report on Form 10-Q to “Zymeworks,” the “Company,” “we,” “us” and “our” (i) for periods until the Redomicile Transactions (as defined below), refer to Zymeworks BC Inc. and its subsidiaries and (ii) for periods after the Redomicile Transactions, refer to Zymeworks Inc. and its subsidiaries.
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PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements
Zymeworks Inc.
Index to Interim Condensed Consolidated Financial Statements (unaudited)
As of and for the three and nine months ended September 30, 2022
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ZYMEWORKS INC.
Condensed Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars except share data)
September 30,
2022
December 31,
2021
(unaudited)
Assets
Current assets:
Cash and cash equivalents$96,082 $201,867 
Short-term investments (note 5)70,160 50,741 
Accounts receivable6,728 15,614 
Prepaid expenses and other current assets17,686 19,998 
Total current assets190,656 288,220 
Deferred financing fees1,293 1,214 
Long-term investments (note 5)886 886 
Long-term prepaid assets16,454 12,490 
Deferred tax asset 3,028 3,070 
Property and equipment, net 25,717 22,783 
Operating lease right-of-use assets23,564 26,987 
Intangible assets, net 9,021 3,838 
Acquired in-process research and development (note 6)17,628 17,628 
Goodwill (note 6) 12,016 12,016 
Total assets$300,263 $389,132 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (note 7)$52,271 $62,767 
Fair value of liability classified stock options830 7,754 
Current portion of operating lease liability (note 11)4,605 1,310 
Other current liabilities  22 
Total current liabilities57,706 71,853 
Long-term portion of operating lease liability (note 11)25,334 30,923 
Deferred revenue (note 9)32,941 32,941 
Other long-term liabilities (note 7)2,934 2,748 
Deferred tax liability 1,590 1,573 
Total liabilities120,505 140,038 
Shareholders’ equity:
Common shares, no par value; unlimited authorized shares at September 30, 2022 and December 31, 2021, respectively; 61,694,387 and 46,633,935 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively (note 8)
885,349 741,147 
Additional paid-in capital169,262 197,710 
Accumulated other comprehensive loss(6,659)(6,659)
Accumulated deficit(868,194)(683,104)
Total shareholders’ equity179,758 249,094 
Total liabilities and shareholders’ equity$300,263 $389,132 
Research collaboration and licensing agreements (note 9)
Commitments and contingencies (note 13)
Subsequent events (note 15)
The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Condensed Consolidated Statements of Loss and Comprehensive Loss
(Expressed in thousands of U.S. dollars except share and per share data)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue
Research and development collaborations (note 9)$2,631 $4,395 $9,989 $6,810 
Operating expenses:
Research and development37,097 49,893 155,629 144,887 
General and administrative15,892 15,466 43,227 36,707 
Total operating expenses52,989 65,359 198,856 181,594 
Loss from operations(50,358)(60,964)(188,867)(174,784)
Other income:
Interest income1,125 340 1,863 1,669 
Other income, net (note 10)1,358 809 1,802 1,279 
Total other income, net2,483 1,149 3,665 2,948 
Loss before income taxes(47,875)(59,815)(185,202)(171,836)
Income tax recovery (expense)29 (764)112 (855)
Net loss and comprehensive loss$(47,846)$(60,579)$(185,090)$(172,691)
Net loss per common share (note 4):
Basic$(0.72)$(1.17)$(2.86)$(3.35)
Diluted$(0.72)$(1.25)$(2.86)$(3.66)
Weighted-average common shares outstanding (note 4):
Basic66,477,016 51,657,371 64,751,271 51,483,428 
Diluted66,478,157 52,238,901 64,756,063 52,125,929 

The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in thousands of U.S. dollars except share data)
(unaudited)
Common sharesAccumulated
deficit
Accumulated
other
comprehensive
loss
Additional
paid-in
capital
Total
shareholders’
equity
SharesAmount
Balance at January 1, 202246,633,935 $741,147 $(683,104)$(6,659)$197,710 $249,094 
Issuance of common shares on exercise of options2,112 20 — — (8)12 
Issuance of common shares through employee stock purchase plan61,801 1,361 — — — 1,361 
Issuance of common shares upon vesting of restricted stock units (RSUs)
37,398 1,382 — — (1,382) 
Stock-based compensation (recovery)— — — — (2,932)(2,932)
Issuance of common shares and pre-funded warrants in connection with public offering, net of offering costs (notes 8a and 8d)11,035,000 82,549 — — 24,985 107,534 
Net loss— — (72,625)— — (72,625)
Balance at March 31, 202257,770,246 $826,459 $(755,729)$(6,659)$218,373 $282,444 
Issuance of common shares on exercise of options1,257 11 — — (4)7 
Issuance of common shares upon vesting of RSUs958 27 — — (27) 
Stock-based compensation expense— — — — 4,450 4,450 
Net loss— — (64,619)— — (64,619)
Balance at June 30, 202257,772,461 $826,497 $(820,348)$(6,659)$222,792 $222,282 
Issuance of common shares on exercise of options15,914 132 — — (25)107 
Issuance of common shares through employee stock purchase plan117,437 830 — — — 830 
Issuance of common shares upon vesting of RSUs900 32 — — (32) 
Issuance of common shares upon exercise of pre-funded warrants (note 8d)3,787,675 57,858 — — (57,858) 
Stock-based compensation expense— — — — 4,385 4,385 
Net loss— — (47,846)— — (47,846)
Balance at September 30, 202261,694,387 $885,349 $(868,194)$(6,659)$169,262 $179,758 

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Common sharesAccumulated
deficit
Accumulated
other
comprehensive
loss
Additional
paid-in
capital
Total
shareholders’
equity
SharesAmount
Balance at January 1, 202146,035,389 $724,219 $(471,261)$(6,659)$163,623 $409,922 
Issuance of common shares on exercise of options78,736 2,624 — — (662)1,962 
Issuance of common shares through employee stock purchase plan26,807 1,321 — — — 1,321 
Issuance of common shares upon vesting of restricted stock units RSUs23,956 843 — — (843) 
Stock-based compensation expense— — — — 8,530 8,530 
Net loss— — (44,590)— — (44,590)
Balance at March 31, 202146,164,888 $729,007 $(515,851)$(6,659)$170,648 $377,145 
Issuance of common shares on exercise of options67,583 $1,218 $— $— $(455)$763 
Issuance of common shares upon vesting of RSUs2,266 86 — — (86) 
Stock-based compensation expense— — — — 11,086 11,086 
Net loss— — (67,522)— (67,522)
Balance at June 30, 202146,234,737 $730,311 $(583,373)$(6,659)$181,193 $321,472 
Issuance of common shares on exercise of options275,425 $7,449 $— $— $(1,506)$5,943 
Issuance of common shares through employee stock purchase plan42,157 1,759 — — — 1,759 
Issuance of common shares upon vesting of restricted stock units RSUs1,341 41 — — (41) 
Stock-based compensation expense— — — 10,334 10,334 
Net loss— (60,579)— — (60,579)
Balance at September 30, 202146,553,660 $739,560 $(643,952)$(6,659)$189,980 $278,929 

The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(unaudited)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net loss$(185,090)$(172,691)
Items not involving cash:
Depreciation of property and equipment5,068 2,894 
Amortization of intangible assets486 2,643 
Stock-based compensation (recovery) expense(483)12,446 
Amortization of operating lease right-of-use assets4,142 2,604 
Deferred income tax expense59 303 
Change in fair value of contingent consideration liability(250)31 
Change in fair value of investments in equity instruments (167)
Unrealized foreign exchange gain(2,255)(200)
Changes in non-cash operating working capital:
Accounts receivable9,163 10,421 
Prepaid expenses and other current assets(1,417)(11,586)
Accounts payable and accrued liabilities(11,088)10,713 
Operating lease liabilities(1,586)647 
Net cash used in operating activities(183,251)(141,942)
Cash flows from financing activities:
Proceeds from public offering, net of issuance costs (notes 8a, 8d)107,534  
Issuance of common shares on exercise of stock options (note 8f)116 5,436 
Issuance of common shares through employee stock purchase plan1,403 2,070 
Deferred financing fees(80)(172)
Finance lease payments(14)(12)
Net cash provided by financing activities108,959 7,322 
Cash flows from investing activities:
Net (purchases)/redemptions of short-term investments(19,542)154,114 
Acquisition of property and equipment(7,802)(7,621)
Acquisition of intangible assets(4,440)(40)
Net cash (used in) provided by investing activities(31,784)146,453 
Effect of exchange rate changes on cash and cash equivalents291 (430)
Net change in cash and cash equivalents(105,785)11,403 
Cash and cash equivalents, beginning of period201,867 242,036 
Cash and cash equivalents, end of period$96,082 $253,439 
Supplemental disclosure of non-cash investing and financing items:
Leased assets obtained in exchange for operating lease liabilities$72 $21,748 
Acquisition of property and equipment in accounts payable and accrued liabilities1,431 1,649 
The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Notes to the Interim Condensed Consolidated Financial Statements
(unaudited)
(Expressed in thousands of U.S. dollars except share and per share data)

1. Nature of Operations
Zymeworks Inc. (the “Company” or “Zymeworks”) is a clinical-stage biopharmaceutical company dedicated to the development of next-generation multifunctional biotherapeutics. Zymeworks was incorporated on September 8, 2003 under the laws of the Canada Business Corporations Act. On October 22, 2003, the Company was registered as an extra-provincial company under the Company Act (British Columbia). On May 2, 2017, the Company continued under the Business Corporations Act (British Columbia).
Since its inception, the Company has devoted substantially all of its resources to research and development activities, including developing its therapeutic platforms, and identifying and developing potential product candidates by undertaking preclinical studies and clinical trials. The Company supports these activities through general and administrative support, as well as by raising capital, conducting business planning and protecting its intellectual property.
On July 15, 2022, the Company announced its intention to become a Delaware corporation, subject to receipt of necessary shareholder, stock exchange, and court approvals (the “Redomicile Transactions”). The Redomicile Transactions were completed on October 13, 2022. On October 13, 2022, the Company changed its name to Zymeworks BC Inc. Unless the context otherwise requires or otherwise expressly states, all references in the accompanying interim condensed consolidated financial statements to “Zymeworks,” the “Company,” “we,” “us” and “our” (i) for periods until completion of the 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. These transactions are described further in note 15.

2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim condensed 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”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these financial statements do not include all the information and footnotes required for complete financial statements and should be read in conjunction with the audited consolidated financial statements of the Company and the accompanying notes thereto for the year ended December 31, 2021.
These unaudited interim condensed consolidated financial statements reflect all adjustments, consisting solely of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the three and nine months ended September 30, 2022 and 2021 are not necessarily indicative of results that can be expected for a full year. These unaudited interim condensed consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2021.
All amounts expressed in the interim condensed 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.
Use of Estimates
The preparation of interim condensed consolidated financial statements in accordance with U.S. GAAP requires the Company to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, most notably those related to revenue recognition including estimated timing of completion of performance obligations required to meet revenue recognition criteria, accrual of expenses including clinical and preclinical study expense accruals, stock-based compensation, valuation allowance for deferred taxes, benefits under the Scientific Research and Experimental Development
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(“SR&ED”) program, and other contingencies. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from these estimates.
The full extent to which the COVID-19 pandemic may directly or indirectly impact the Company’s business, results of operations and financial condition, including revenues, expenses, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are evolving and highly uncertain, such as the duration and severity of outbreaks, including potential future waves or cycles, and the effectiveness of actions taken to contain and treat COVID-19. The Company considered the potential impact of COVID-19 when making certain estimates and judgments relating to the preparation of these interim condensed consolidated financial statements. While there was no material impact to the Company’s interim condensed consolidated financial statements as of and for the three and nine months ended September 30, 2022, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in a material impact to the Company’s consolidated financial statements in future reporting periods.
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 to the business, or that no material effect is expected on the consolidated financial statements as a result of future adoption.

4. Net loss per share
Net loss per share for the three and nine months ended September 30, 2022 and 2021 was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Numerator:
Net loss attributable to common shareholders:
Basic$(47,846)$(60,579)$(185,090)$(172,691)
Adjustment for change in fair value of liability classified stock options(18)(4,538)(217)(18,270)
Diluted$(47,864)$(65,117)$(185,307)$(190,961)
Denominator:
Weighted-average common shares outstanding:
Basic66,477,016 51,657,371 64,751,271 51,483,428 
Adjustment for dilutive effect of liability classified stock options1,141 581,530 4,792 642,501 
Diluted66,478,157 52,238,901 64,756,063 52,125,929 
Net loss per common share – basic$(0.72)$(1.17)$(2.86)$(3.35)
Net loss per common share – diluted$(0.72)$(1.25)$(2.86)$(3.66)
Weighted average number of common shares used in the basic and diluted earnings per share calculations include the pre-funded warrants issued in connection with the Company’s June 2019, January 2020 and January 2022 offerings as the warrants are exercisable at any time for nominal cash consideration.
5. Investments
Short-term Investments
Short-term investments are denominated in U.S. dollars or Canadian dollars and consist of guaranteed investment certificates (“GICs”) acquired from financial institutions in accordance with the Company’s cash investment policy. Short-term GICs are classified as held to maturity and are accounted for at amortized cost.
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Long-term Investments
Long-term investments at September 30, 2022 consist of equity securities of $886 acquired for strategic purposes or in connection with licensing and collaboration agreements (December 31, 2021 - $886). Long-term investments are accounted for as available for sale financial instruments with changes in fair value recorded through net income.
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 carrying value of IPR&D, net of impairment was $17,628 at both September 30, 2022 and December 31, 2021. The Company concluded that there were no impairment indicators related to IPR&D as of September 30, 2022.
Goodwill
The Company performed its most recent annual impairment test of goodwill as of December 31, 2021. 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, 2021, 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. The Company concluded that there were no impairment indicators related to goodwill as of September 30, 2022.
7. Liabilities
Accounts payable and accrued expenses consisted of the following:
September 30,
2022
December 31,
2021
Trade payables$317 $5,174 
Accrued research and development expenses35,794 50,963 
Employee compensation and vacation accruals9,364 3,346 
Accrued legal and professional fees2,995 1,064 
Other3,801 2,220 
Total$52,271 $62,767 

Other long-term liabilities consisted of the following:
September 30,
2022
December 31,
2021
Liability for contingent consideration (note 12)$1,248 $1,498 
Liability from in-licensing agreements850 1,150 
Finance lease liability (note 11)155 100 
Other681  
Total$2,934 $2,748 
8. Shareholders’ Equity
a.Equity Offerings
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
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per common share and 3,340,000 Pre-Funded Warrants (note 8d) 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
As of September 30, 2022, the Company has an unlimited authorized number of voting common shares, preferred shares and Series A Participating Preferred Shares, all without par value.
c.Preferred Shares
As of September 30, 2022 and December 31, 2021, no preferred shares were issued or outstanding, respectively.
d.Pre-Funded Common Share Warrants
In connection with a public offering completed on June 24, 2019, the Company issued 4,166,690 Pre-Funded Warrants at a price of $17.9999 per Pre-Funded Warrant which granted holders of warrants the right to purchase up to 4,166,690 common shares of the Company, at an exercise price of $0.0001 per share.
In connection with a public offering completed on January 27, 2020, the Company issued 1,075,271 Pre-Funded Warrants at a price of $46.4999 per Pre-Funded Warrant which granted holders of warrants the right to purchase up to 1,075,271 common shares of the Company, at an exercise price of $0.0001 per share.
In connection with a public offering completed on January 31, 2022 (note 8a), the Company issued 3,340,000 Pre-Funded Warrants at a price of $7.9999 per Pre-Funded Warrant which granted holders of warrants the right to purchase up to 3,340,000 common shares of the Company, at an exercise price of $0.0001 per share.
The Pre-Funded Warrants are exercisable by the holders at any time on or after the original issue date. The Pre-Funded Warrants do not expire unless they are exercised or settled in accordance with the Pre-Funded Warrant agreement. As the Pre-Funded Warrants meet the condition for equity classification, proceeds from issuance of the Pre-Funded Warrants, net of any transaction costs, are recorded in additional paid-in capital. Upon exercise of the Pre-Funded Warrants, the historical costs recorded in additional paid-in capital along with exercise price collected from holders will be recorded in common shares. On August 23, 2022, 3,787,737 warrants were exercised in a cashless transaction in exchange for issuance of 3,787,675 common shares upon which $57,858 has been transferred to common shares account from additional paid-in capital.
e.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
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(as defined in the New Rights Plan) and the expiration of the Rights. On October 13, 2022, the Rights Plan expired. The New Rights Plan has substantively similar terms as the Rights Plan. Refer to note 15 for additional details.
f.Stock-Based Compensation
Original Stock Option Plan
On July 14, 2006, the shareholders of the Company approved an employee stock option plan (the “Original Plan”). The Original Plan provides for the granting of options to directors, officers, employees and consultants. Options to purchase common shares may be granted at an exercise price of each option equal to the last private issuance of common shares immediately preceding the date of the grant. The total number of options outstanding is not to exceed 20% of the issued common shares of the Company.
Options granted under the Original Plan are exercisable at various dates over their 10-year life. Common shares are issued from treasury when options are exercised.
The exercise prices of the Company’s stock options under the Original Plan are denominated in Canadian dollars. The Canadian dollar amounts have been translated to U.S. dollars using the period end rate or the average foreign exchange rate for the period, as applicable, and have been provided for information purposes. Upon the effectiveness of the Company’s New 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 to directors, officers, employees and consultants in U.S. or Canadian dollars, and also permits the Company to grant incentive stock options (“ISOs”), within the meaning of Section 422 of the Internal Revenue Code, to its employees. On June 7, 2018, the Company’s shareholders approved an amendment and restatement of this plan (this plan, as amended and restated, the “New Plan”), which includes an article that allows the Company to grant restricted shares, restricted share units (“RSUs”) and other share-based awards, in addition to stock options. On March 4, 2020, the board of directors approved certain minor amendments to the New Plan that did not require shareholder approval.
The original maximum number of common shares reserved for issuance under the New Plan as of June 7, 2018 was 5,686,097, which includes 3,686,097 shares issuable upon exercise of options outstanding as of March 31, 2018. Beginning in 2019 and ending in 2028, this maximum number may be increased on the first day of each calendar year by up to 4.0% of the number of outstanding shares on the last day of the immediately preceding calendar year. As of September 30, 2022, 3,275,576 common shares were available for future award grants under the New Plan (December 31, 2021: 952,632 common shares). ISOs may be granted with respect to a maximum fixed amount equal to 20% of the shares reserved for issuance under the New Plan as of June 7, 2018.
On January 5, 2022, board of directors approved the Zymeworks Inc. Inducement Stock Option and Equity Compensation Plan (the "Inducement Plan") and reserved 750,000 of the Company’s common shares for issuance pursuant to equity awards granted thereunder. As of September 30, 2022, 50,000 common shares were available for future award grants under this plan.
RSUs
During the year-ended December 31, 2020, the Company started granting RSUs to certain employees, which typically vest over a period of three years, in the amount of one-third each year on the anniversary of the grant date. RSUs are equity-settled on each vesting date, subject to the grantee’s continued employment with the Company on the vesting date. The fair value of RSUs granted was calculated by using the Company's closing stock price on the grant date.
Number of RSUsWeighted-
average grant
date fair value
($)
Outstanding, December 31, 2021354,269 25.85 
Granted10,400 7.55 
Vested and settled(39,256)36.70 
Forfeited(142,880)26.68 
Outstanding, September 30, 2022182,533 21.82 
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As of September 30, 2022, there was $1,335 of unamortized RSU expense that will be recognized over a weighted average period of 1.06 years.
Stock Options
All options granted under the New Plan will have an exercise price determined and approved by the board of directors on the date of the grant, which shall not be less than the market price of the common shares at such time. For the purposes of the New Plan, the market price of a common share shall be the closing sale price of a share on the grant date reported by the stock exchange with the greatest trading volume or, if such day is not a trading day, the closing sale price reported for the immediately preceding trading day. The Company may convert a market price denominated in Canadian dollars into United States dollars and vice versa and such converted amount shall be the market price.
An option shall be exercisable during a period established by the board of directors which shall commence on the date of the grant and shall terminate not later than ten years after the date of the granting of the option. The New Plan provides that the exercise period shall automatically be extended if the date on which it is scheduled to terminate shall fall during a black-out period. In such cases, the extended exercise period shall terminate on the tenth business day after the last day of the black-out period, provided that the exercise period shall in no case be extended beyond the tenth anniversary of the date the option was granted. All options shall vest in accordance with the terms of their grant agreements.
The following table summarizes the Company’s stock options granted in Canadian dollars under the Original Plan and the New Plan:
Number
of Options
Weighted-
Average
Exercise Price
(C$)
Weighted-
Average
Exercise Price
($)
Weighted-
Average
Contractual
Term
(years)
Aggregate
intrinsic value
(C$)
Aggregate
intrinsic value
($)
Outstanding, December 31, 20212,488,655 26.15 20.70 6.247,919 6,224 
Granted874,585 8.73 6.83 
Exercised(16,968)7.58 5.92 
Forfeited(1,128,103)26.32 20.58 
Outstanding, September 30, 20222,218,169 19.34 13.98 6.47149 109 
The following table summarizes the Company’s stock options granted in U.S. dollars under the New Plan and the Inducement Plan:
Number
of Options
Weighted-
Average
Exercise Price
($)
Weighted-
Average
Contractual
Term
(years)
Aggregate
intrinsic value
($)
Outstanding, December 31, 20214,916,914 26.59 7.935,555 
Granted2,740,148 8.34 
Exercised(2,315)7.00 
Forfeited(2,111,737)26.86 
Outstanding, September 30, 20225,543,010 17.48 8.0398 
During the nine months ended September 30, 2022, the Company received cash proceeds of $116 from stock options exercised.
The stock options outstanding at September 30, 2022 expire at various dates from January 1, 2023 to September 11, 2032.
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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, are recorded in research and development expense, general and administration expense and finance expense as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Research and development expense:
Stock-based compensation expense for equity classified instruments$2,226 $5,562 $1,450 $15,688 
Change in fair value of liability classified instruments2 (916)(772)(3,185)
$2,228 $4,646 $678 $12,503 
General and administrative expense:
Stock-based compensation expense for equity classified instruments$2,473 $4,773 $1,522 $14,260 
Change in fair value of liability classified instruments29 (3,600)(3,010)(15,006)
$2,502 $1,173 $(1,488)$(746)
Finance expense (income):
Change in fair value of liability classified instruments2 (22)(30)(80)
$2 $(22)$(30)$(80)
Amounts for equity classified instruments above include stock-based compensation expense relating to RSUs of $533 and $407 for the three and nine months ended September 30, 2022 (2021: $856 and $2,180).
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:
Nine Months Ended September 30,
20222021
Dividend yield0 %0 %
Expected volatility77.3 %80.7 %
Risk-free interest rate1.98 %0.98 %
Expected average life of options5.95 years6.05 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. As the Company does not yet have sufficient history of its own volatility, the Company has identified several public entities of similar complexity and stage of development and calculates historical volatility using the volatility of these companies together with volatility of its own stock.
Risk-Free Interest Rate — This rate is from the Government of Canada and U.S. Federal Reserve marketable bonds for the month prior to each option grant during the year, having a term that most closely resembles the expected life of the option.
Expected Term — This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years. The Company uses the simplified method to calculate the average expected term, which represents the average of the vesting period and the contractual term.
Share Fair Value — Options granted after the Company’s IPO, are issued with exercise price equal to the fair market value of the Company’s common stock on the grant date. Before the IPO, the Company granted stock options at exercise prices not less than the fair value of its common shares as determined by the board of directors, with input from management. Management estimated the fair value of its common shares based on a number of objective and subjective factors, including the most recently available valuation of common shares prepared by independent valuation specialists, external market considerations affecting the biotechnology industry and the historic prices at which the Company sold common shares.
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The weighted-average Black-Scholes option pricing assumptions for liability classified stock options outstanding at September 30, 2022 and 2021 are as follows:
September 30,
2022
September 30,
2021
Dividend yield
0 %0 %
Expected volatility
71.4 %73.4 %
Risk-free interest rate
3.70 %0.62 %
Expected average option term
2.01 years2.38 years
Number of liability classified stock options outstanding
741,685911,400
At September 30, 2022, the unamortized compensation expense related to unvested options was $17,309. The remaining unamortized compensation expense as of September 30, 2022 will be recognized over a weighted-average period of 1.61 years.
g.Employee Stock Purchase Plan
On April 10, 2017, the Company’s shareholders approved an employee stock purchase plan (“ESPP”) which became effective immediately prior to the consummation of the Company’s IPO. On June 7, 2018, certain amendments to the ESPP were approved by shareholders. Prior to these amendments, the ESPP allowed eligible employees to acquire common shares at a discounted purchase price of 85% of the market value of the Company’s common shares on the purchase date. The ESPP, as amended, allows eligible employees to acquire common shares at a discounted purchase price of the lesser of (i) 85% of the market price of a common share on the first day of the applicable purchase period and (ii) 85% of the market price of a common share on the purchase date. The ESPP qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code for employees who are United States taxpayers.
The Company currently holds offerings consisting of a single six-month purchase period commencing on January 1 and July 1 of each calendar year, with a single purchase date at the end of the purchase period on June 30 and December 31 of each calendar year.
Eligible employees are able to contribute up to 15% of their gross base earnings for purchases under the ESPP through regular payroll deductions. Purchases of shares under the ESPP are limited for each employee at twenty-five thousand dollars worth of the Company’s common shares (determined using the lesser of (i) the market price of a common share on the first day of the applicable purchase period and (ii) the market price of a common share on the purchase date) for each year such purchase right is outstanding.
As this plan is considered compensatory, the Company recognizes compensation expense on these awards based on their estimated grant date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense in the consolidated statements of loss and comprehensive loss on a straight-line basis over the requisite service period. For the three and nine months ended September 30, 2022, the Company recorded compensation expense of $67 and $357 (2021: $249 and $767) in research and development expense and general and administrative expense accounts. As of September 30, 2022, the total amount contributed by ESPP participants and not yet settled is $153 (December 31, 2021: $1,243).
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9. Research, Collaboration and Licensing Agreements
Revenue recognized from the Company’s strategic partnerships is summarized as follows: 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Atreca, Inc. (“Atreca”):
Research license fee relating to licensing agreement$ $ $5,000 $ 
Janssen Biotech, Inc. ("Janssen"):
Milestone revenue 4,000  4,000 
Research support and other payments2,631 395 4,989 2,810 
$2,631 $4,395 $9,989 $6,810 
Since December 31, 2021, there have not been any material changes to the key terms of our collaboration and license agreements with the exception of a new licensing agreement with Atreca as described below, and our agreement with Jazz Pharmaceuticals Ireland Limited (“Jazz”), as described in note 15. For further information on the terms and conditions of our existing collaboration and license agreements, please refer to the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year-ended December 31, 2021.
In April 2022, the Company entered into a new licensing agreement with 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 during the three months ended June 30, 2022. Accordingly, the research license fee was recognized as revenue during the nine months ended September 30, 2022.
At September 30, 2022, contract assets from research, collaboration and licensing agreements were $3,000, which is presented within accounts receivable (December 31, 2021: nil) and contract liabilities were $32,941 (December 31, 2021: $32,941). Contract liabilities include deferred revenue relating to an upfront payment received in 2018 under the licensing and collaboration agreement with BeiGene. During the three and nine months ended September 30, 2022, the Company did not recognize any revenue from performance obligations satisfied in relation to the deferred revenue (three and nine months ended September 30, 2021: nil). Amounts not expected to be recognized as revenue in the next twelve months from September 30, 2022 have been classified as long-term deferred revenue.
10. Other income, net
Other income, net, consists of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Foreign exchange gain, net $1,456 $813 $1,817 $1,185 
Other(98)(4)(15)94 
$1,358 $809 $1,802 $1,279 

11. Leases
The Company leased separate office and laboratory spaces in Vancouver, British Columbia, which expired in February 2022. On January 25, 2019, the Company entered into a lease for a new building in Vancouver to serve as the Company’s future headquarters, including both office and laboratory space. This lease commenced for accounting purposes in May 2021 and construction of leasehold improvements was completed during the nine months ended September 30, 2022. This lease has an initial term of ten years, with two five-year extension options. In addition, the Company leases office space in Seattle, Washington
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with lease terms expiring in May 2027. None of the optional extension periods have been included in the determination of the right-of-use assets or the lease liabilities for operating leases as the Company did not consider it reasonably certain that the Company would exercise any such options. The Company also leases office equipment under capital lease agreements.
The balance sheet classification of the Company’s lease liabilities was as follows:
September 30,
2022
December 31,
2021
Operating lease liabilities:
Current portion
$4,605 $1,310 
Long-term portion
25,334 30,923 
Total operating lease liabilities
29,939 $32,233 
Finance lease liabilities:
Current portion included in other current liabilities
 22 
Long-term portion included in other long-term liabilities
155 100 
Total finance lease liabilities
155 122 
Total lease liabilities
$30,094 $32,355 
Cash paid for amounts included in the measurement of operating lease liabilities for the nine months ended September 30, 2022 was $3,368 and was included in net cash used in operating activities in the consolidated statement of cash flows.
As of September 30, 2022, the maturities of the Company’s operating lease liabilities were as follows:
Operating
leases
Within 1 year$5,696 
1 to 2 years4,454 
2 to 3 years4,579 
3 to 4 years4,548 
4 to 5 years3,705 
Thereafter