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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, 2023
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
ZYME
The Nasdaq Stock Market LLC
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 shares of common stock of the registrant, $0.00001 par value per share, as of November 6, 2023 was 70,001,987.



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ZYMEWORKS INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2023
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Page



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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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). 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; and
the expected benefits and other impacts of the Redomicile Transactions (as defined below).
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 manage our growth 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 enter into and 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 any acquisitions we may pursue;
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 or our partners ability to obtain regulatory approval for 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;
the design or our execution of clinical trials may not support regulatory approval, including where clinical trials are conducted outside the United States;
i

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our ability to achieve milestones and receive associated milestone payments pursuant to the terms of our collaboration agreements, including the Amended Jazz Collaboration Agreement (as defined below);
the extent to which our business may be adversely affected by pandemics or other health crises;
global economic and political conditions, including as a result of the Russian invasion of Ukraine and the conflict in Israel and the Gaza Strip, as well as social and political unrest in the locations where our clinical trials are held, 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;
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 and expand 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 foreign 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;
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;
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unstable market and economic conditions;
currency fluctuations and changes in foreign currency exchange rates;
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 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;
risks related to the manufacture of product candidates and difficulties in production;
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 reliance on the performance of independent clinical investigators and contract research organizations (“CROs”);
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 foreign 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 certain 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;
our ability to manage any organizational growth;
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.
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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, 2023
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ZYMEWORKS INC.
Condensed Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars except share data)
September 30,
2023
December 31,
2022
Assets
(unaudited)
Current assets:
Cash and cash equivalents$94,332 $400,912 
Short-term investments (note 5)201,074 91,320 
Accounts receivable67,273 33,400 
Prepaid expenses and other current assets11,955 19,074 
Total current assets374,634 544,706 
Deferred financing fees49 10 
Long-term investments (note 5)95,674 886 
Long-term prepaid assets8,286 15,729 
Deferred tax asset 1,315 1,345 
Property and equipment, net 20,904 24,713 
Operating lease right-of-use assets17,857 22,937 
Intangible assets, net 8,003 8,755 
Acquired in-process research and development (note 6)17,628 17,628 
Goodwill (note 6) 12,016 12,016 
Total assets$556,366 $648,725 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (note 7)$67,789 $87,468 
Income tax payable831 840 
Fair value of liability classified stock options293 1,642 
Current portion of operating lease liability (note 11)3,841 3,322 
Deferred revenue and other consideration (note 9)93 2,353 
Total current liabilities72,847 95,625 
Long-term portion of operating lease liability (note 11)22,408 24,667 
Deferred revenue (note 9)32,941 30,588 
Other long-term liabilities (note 7)1,858 3,101 
Deferred tax liability 1,968 1,788 
Total liabilities132,022 155,769 
Stockholders’ equity:
Common stock, $0.00001 par value; 900,000,000 authorized shares at September 30, 2023 and December 31, 2022, respectively; 67,922,559 and 63,059,501 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively (note 8)
932,138 886,322 
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 September 30, 2023 and December 31, 2022 (note 8b).
  
Exchangeable shares, no par value, 651,219 and 1,424,533 issued and outstanding shares at September 30, 2023 and December 31, 2022, respectively (note 8b)
9,345 20,442 
Additional paid-in capital154,114 151,614 
Accumulated other comprehensive loss(8,298)(6,659)
Accumulated deficit(662,955)(558,763)
Total stockholders’ equity424,344 492,956 
Total liabilities and stockholders’ equity$556,366 $648,725 
Research collaboration and licensing agreements (note 9)
Commitments and contingencies (note 13)
Subsequent events (note 14)
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,
2023202220232022
Revenue
Research and development collaborations (note 9)$16,506 $2,631 $59,086 $9,989 
Operating expenses:
Research and development32,775 37,097 118,095 155,629 
General and administrative16,968 15,892 55,623 43,227 
Total operating expenses49,743 52,989 173,718 198,856 
Loss from operations(33,237)(50,358)(114,632)(188,867)
Other income:
Interest income5,026 1,125 14,656 1,863 
Other income (expense), net (note 10)
634 1,358 (62)1,802 
Total other income, net5,660 2,483 14,594 3,665 
Loss before income taxes(27,577)(47,875)(100,038)(185,202)
Income tax (expense) recovery(1,110)29 (4,154)112 
Net loss(28,687)(47,846)(104,192)(185,090)
Other comprehensive loss:
Unrealized loss on available for sale securities, net of tax of nil (note 5)
(485) (1,639) 
Total other comprehensive loss(485) (1,639) 
Comprehensive loss$(29,172)$(47,846)$(105,831)$(185,090)
Net loss per common share (note 4):
Basic$(0.41)$(0.72)$(1.53)$(2.86)
Diluted$(0.41)$(0.72)$(1.53)$(2.86)
Weighted-average common stock outstanding (note 4):
Basic70,575,773 66,477,016 68,212,756 64,751,271 
Diluted70,575,773 66,478,157 68,214,482 64,756,063 

The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
(Expressed in thousands of U.S. dollars except share data)
(unaudited)
Preferred stockExchangeable sharesCommon stockAccumulated
deficit
Accumulated
other
comprehensive
 income (loss)
Additional
paid-in
capital
Total
stockholders’
equity
SharesAmountSharesAmountSharesAmount
Balance at January 1, 20231 $ 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 options— — — — 203,239 2,649 — — (1,001)1,648 
Issuance of common stock through employee stock purchase plan— — — — 50,420 371 — — — 371 
Issuance of common stock upon vesting of restricted stock units (RSUs)
— — — — 2,965 132 — — (132) 
Issuance of common stock for retracted exchangeable shares (note 8b)
— — (767,645)(11,016)767,645 11,016 — — —  
Stock-based compensation— — — — — — — — 2,196 2,196 
Net loss— — — — — — (24,353)— — (24,353)
Other comprehensive income (note 5)— — — — — — — 720 — 720 
Balance at March 31, 20231 $ 656,888 $9,426 64,083,770 $900,490 $(583,116)$(5,939)$152,677 $473,538 
Issuance of common stock on exercise of options— — — — 202,048 2,129 — — (697)1,432 
Issuance of common stock upon vesting of RSUs
— — — — 46,066 465 — — (465) 
Issuance of common stock for retracted exchangeable shares (note 8b)
— — (5,500)(79)5,500 79 — — —  
Issuance of common stock in connection with at-the-market ("ATM") program, net of issue costs (note 8a)— — — — 3,350,000 26,233 — — — 26,233 
Stock-based compensation— — — — — — — — 742 742 
Net loss— — — — — — (51,152)— — (51,152)
Other comprehensive loss (note 5)— — — — — — — (1,874)— (1,874)
Balance at June 30, 20231 $ 651,388 $9,347 67,687,384 $929,396 $(634,268)$(7,813)$152,257 $448,919 
Issuance of common stock on exercise of options— — — — 172,615 2,124 — — (796)1,328 
Issuance of common stock through employee stock purchase plan— — — — 61,491 584 — — — 584 
Issuance of common stock upon vesting of RSUs
— — — — 900 32 — — (32) 
Issuance of common stock for retracted exchangeable shares (note 8b)
— — (169)(2)169 2 — — —  
Stock-based compensation— — — — — — — — 2,685 2,685 
Net loss— — — — — — (28,687) — (28,687)
Other comprehensive loss (note 5)
— — — — — — — (485)— (485)
Balance at September 30, 20231 $ 651,219 $9,345 67,922,559 $932,138 $(662,955)$(8,298)$154,114 $424,344 
The accompanying notes are an integral part of these financial statements
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Preferred stockExchangeable sharesCommon stockAccumulated
deficit
Accumulated
other
comprehensive
loss
Additional
paid-in
capital
Total
stockholders’
equity
SharesAmountSharesAmountSharesAmount
Balance at January 1, 2022 $  $ 46,633,935 $741,147 $(683,104)$(6,659)$197,710 $249,094 
Issuance of common stock on exercise of options— — — — 2,112 20 — — (8)12 
Issuance of common stock through employee stock purchase plan— — — — 61,801 1,361 — — — 1,361 
Issuance of common stock upon vesting of restricted stock units RSUs— — — — 37,398 1,382 — — (1,382) 
Issuance of common stock and pre-funded warrants in connection with public offering, net of offering costs (notes 8a and 8c)— — — — 11,035,000 82,549 — — 24,985 107,534 
Stock-based compensation recovery— — — — — — — — (2,932)(2,932)
Net loss— — — — — — (72,625)— — (72,625)
Balance at March 31, 2022 $  $ 57,770,246 $826,459 $(755,729)$(6,659)$218,373 $282,444 
Issuance of common stock on exercise of options— — — — 1,257 11 — — (4)7 
Issuance of common stock upon vesting of restricted stock units RSUs— — — — 958 27 — — (27) 
Stock-based compensation expense— — — — — — — — 4,450 4,450 
Net loss— — — — — — (64,619)— (64,619)
Balance at June 30, 2022 $  $ 57,772,461 $826,497 $(820,348)$(6,659)$222,792 $222,282 
Issuance of common stock on exercise of options— — — — 15,914 132 — — (25)107 
Issuance of common stock through employee stock purchase plan— — — — 117,437 830 — — — 830 
Issuance of common stock upon vesting of restricted stock units RSUs— — — — 900 32 — — (32) 
Issuance of common shares upon exercise of pre-funded warrants (note 8c)— — — — 3,787,675 57,858 — — (57,858) 
Stock-based compensation recovery— — — — — — — — 4,385 4,385 
Net loss— — — — — — (47,846)— — (47,846)
Balance at September 30, 2022 $  $ 61,694,387 $885,349 $(868,194)$(6,659)$169,262 $179,758 
The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(unaudited)
Nine Months Ended September 30,
20232022
Cash flows from operating activities:
Net loss$(104,192)$(185,090)
Items not involving cash:
Depreciation of property and equipment5,926 5,068 
Amortization of intangible assets2,029 486 
Stock-based compensation expense (recovery)4,732 (483)
Amortization of operating lease right-of-use assets6,002 4,142 
Deferred income tax expense210 59 
Change in fair value of contingent consideration liability331 (250)
Unrealized foreign exchange gain
(384)(2,255)
Changes in non-cash operating working capital:
Accounts receivable(33,873)9,163 
Prepaid expenses and other current assets11,976 (1,417)
Accounts payable and accrued liabilities(22,468)(11,088)
Operating lease liabilities(2,630)(1,586)
Deferred revenue and other consideration93  
Income taxes payable(9) 
Net cash used in operating activities(132,257)(183,251)
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 8a)26,233 107,534 
Issuance of common stock on exercise of stock options (note 8d)4,236 116 
Issuance of common stock through employee stock purchase plan (note 8e)820 1,403 
Deferred financing fees(39)(80)
Finance lease payments(14)(14)
Net cash provided by financing activities31,236 108,959 
Cash flows from investing activities:
Purchases of marketable securities(491,340)(138,005)
Proceeds from marketable securities287,747 118,463 
Acquisition of property and equipment(2,118)(7,802)
Acquisition of intangible assets(205)(4,440)
Net cash used in investing activities(205,916)(31,784)
Effect of exchange rate changes on cash and cash equivalents357 291 
Net change in cash and cash equivalents(306,580)(105,785)
Cash and cash equivalents, beginning of period400,912 201,867 
Cash and cash equivalents, end of period$94,332 $96,082 
Supplemental disclosure of non-cash investing and financing items:
Leased assets obtained in exchange for operating lease liabilities$922 $72 
Acquisition of property and equipment and intangible assets in accounts payable and accrued liabilities
1,073 1,431 
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. 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 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. 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 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 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, 2022.
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, 2023 and 2022 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, 2022.
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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.
Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
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 (“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.
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, 2023 and 2022 was as follows:

Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Numerator:
Net loss attributable to common stockholders:
Basic$(28,687)$(47,846)$(104,192)$(185,090)
Adjustment for change in fair value of liability classified stock options (18)(12)(217)
Diluted$(28,687)$(47,864)$(104,204)$(185,307)
Denominator:
Weighted-average common stock outstanding:
Basic70,575,773 66,477,016 68,212,756 64,751,271 
Adjustment for dilutive effect of liability classified stock options 1,141 1,726 4,792 
Diluted70,575,773 66,478,157 68,214,482 64,756,063 
Net loss per common share – basic$(0.41)$(0.72)$(1.53)$(2.86)
Net loss per common share – diluted$(0.41)$(0.72)$(1.53)$(2.86)
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 and January 2020 offerings as the warrants are exercisable at any time for nominal cash consideration.
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5. Investments
Short-term investments are high credit quality investment grade debt securities with original maturities exceeding three months and accrue interest based on a fixed interest rate for the term. Short-term investments also consist of guaranteed investment certificates (“GICs”) acquired from financial institutions. The Company classifies its marketable securities as available-for-sale securities and are carried at fair value.
Long-term investments at September 30, 2023 consist of debt securities with remaining maturities exceeding twelve months and equity securities of $886 acquired for strategic purposes or in connection with licensing and collaboration agreements (December 31, 2022 - $886). 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.
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 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 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.

September 30, 2023
Amortized Cost
Unrealized Gain (Loss)
Fair Value
Short-term investments:
GICs and mutual funds$74,064 $ $74,064 
U.S. Treasury notes38,077 (13)38,064 
Corporate debt securities88,928 18 88,946 
201,069 5 201,074 
Long-term investments:
U.S. Treasury notes15,053 15 15,068 
Corporate debt securities81,379 (1,659)79,720 
Equity securities886  886 
97,318 (1,644)95,674 
$298,387 $(1,639)$296,748 
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, 2023 and December 31, 2022. The Company concluded that there were no impairment indicators related to IPR&D as of September 30, 2023.
Goodwill
The Company performed its most recent annual impairment test of goodwill as of December 31, 2022. As part of the evaluation of the recoverability of goodwill, the Company identified only one reporting unit to which the total carrying amount of goodwill has been assigned. As at December 31, 2022, the Company performed a qualitative assessment for its annual impairment test of goodwill after concluding that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. Consequently, a quantitative impairment test was not required. The Company concluded that there were no impairment indicators related to goodwill as of September 30, 2023.
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7. Liabilities
Accounts payable and accrued expenses consisted of the following:
September 30,
2023
December 31,
2022
Trade payables$11,008 $7,863 
Accrued research and development expenses42,934 39,358 
Goods and services tax payable 16,244 
Employee compensation and vacation accruals5,507 14,365 
Accrued legal and professional fees6,280 7,799 
Liability for contingent consideration (note 13)
1,271  
Other789 1,839 
Total$67,789 $87,468 
Other long-term liabilities consisted of the following:
September 30,
2023
December 31,
2022
Liability for contingent consideration (note 13)$308 $1,248 
Liability from in-licensing agreements747 1,047 
Finance lease liability (note 11)120 124 
Other683 682 
Total$1,858 $3,101 
8. Stockholders’ Equity
a.Equity Offerings
2023 ATM financing
On June 16, 2023, the Company sold 3,350,000 common shares 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 8c) in lieu of common shares at $7.9999 per pre-funded warrant. Net proceeds were $107,534, after underwriting discounts, commissions and offering expenses.
b.Authorized Share Capital and Preferred Stock
The Company’s authorized share capital consists of 1,000,000,000 shares of stock, consisting of (i) 900,000,000 shares of common stock, par value $0.00001 per share, and (ii) 100,000,000 shares of preferred stock, par value $0.00001 per share.
In connection with the Plan of Arrangement, we issued to Computershare Trust Company of Canada, a trust company existing under the laws of Canada (the “Share Trustee”), one share of our preferred stock, par value $0.00001 per share, which has certain variable voting rights in proportion to the number of Exchangeable Shares outstanding (the “Special Voting Preferred Stock”), enabling the Share Trustee to exercise voting rights for the benefit of the Exchangeable Shareholders.
Immediately prior to the completion of the Redomicile Transactions, there were 61,699,387 Zymeworks BC 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 September 30, 2023, there were 651,219 Exchangeable Shares held by former Zymeworks BC shareholders (December 31, 2022: 1,424,533). We will issue shares of our 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
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from the Exchangeable Shareholder under CallCo’s overriding call rights. These Exchangeable Shares and the Special Voting Preferred Stock, when taken together, are similar in substance to the Company’s common stock.
c.Pre-Funded Common Share Warrants
In connection with the public offerings completed on June 24, 2019, January 27, 2020 and January 31, 2022 (note 8a), the Company issued a total of 8,581,961 pre-funded warrants which granted holders of warrants the right to purchase up to 8,581,961 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, 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 of September 30, 2023, there were 2,079,224 pre-funded warrants outstanding (December 31, 2022: 2,079,224).
d.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 September 30, 2023, 5,060,802 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 September 30, 2023, 50,000 shares of common stock were available for future award grants under this plan (December 31, 2022: 50,000).
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RSUs
The following table summarizes the Company's RSU activity under the New Plan since December 31, 2022:
Number of RSUsWeighted-
average grant
date fair value
($)
Outstanding, December 31, 2022227,223 17.36 
Granted864,100 8.03 
Vested and settled(79,599)19.40 
Forfeited(218,461)10.66 
Outstanding, September 30, 2023793,263 8.83 
As of September 30, 2023, there was $3,014 of unamortized RSU expense that will be recognized over a weighted average period of 1.61 years.
Stock Options
The following table summarizes the Company’s stock options granted in Canadian dollars under the Original Plan and the New Plan:
Number
of Options
Weighted-
Average
Exercise Price
(C$)
Weighted-
Average
Exercise Price
($)
Weighted-
Average
Contractual
Term
(years)
Aggregate
intrinsic value
(C$)
Aggregate
intrinsic value
($)
Outstanding, December 31, 20222,147,141 19.02 14.03 6.291,460 1,078 
Granted   
Exercised(267,954)11.29 8.40 
Forfeited(311,755)24.81 18.46 
Outstanding, September 30, 20231,567,432 19.19 14.12 5.62155 114 
The following table summarizes the Company’s stock options granted in U.S. dollars under the New Plan and the Inducement Plan:
Number
of Options
Weighted-
Average
Exercise Price
($)
Weighted-
Average
Contractual
Term
(years)
Aggregate
intrinsic value
($)
Outstanding, December 31, 20225,565,145 17.10 7.861,928 
Granted2,134,450 8.09 
Exercised(280,433)7.03 
Forfeited(1,801,624)19.80 
Outstanding, September 30, 20235,617,538 13.31 7.70149 
During the nine months ended September 30, 2023, the Company received cash proceeds of $4,236 from stock options exercised.
The stock options outstanding at September 30, 2023 expire at various dates from January 1, 2024 to September 10, 2033.
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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,
2023202220232022
Research and development expense:
Stock-based compensation expense for equity classified instruments
$1,324 $2,226 $684 $1,450 
Change in fair value of liability classified instruments(7)2 (7)(772)
$1,317 $2,228 $677 $678 
General and administrative expense:
Stock-based compensation expense for equity classified instruments
$824 $2,473 $4,935 $1,522 
Change in fair value of liability classified instruments(177)29 (1,145)(3,010)
$647 $2,502 $3,790 $(1,488)
Finance (income) expense:
Change in fair value of liability classified instruments(19)2 (27)(30)
$(19)$2 $(27)$(30)
Amounts for equity classified instruments above include stock-based compensation expense relating to RSUs of $795 and $2,538 for the three and nine months ended September 30, 2023 (2022: $533 and recovery of $407).
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,
20232022
Dividend yield0 %0 %
Expected volatility68.9 %77.3 %
Risk-free interest rate3.86 %1.98 %
Expected average life of options5.92 years5.95 years
The weighted-average Black-Scholes option pricing assumptions for liability classified stock options outstanding at September 30, 2023 and 2022 are as follows:
September 30,
2023
September 30,
2022
Dividend yield
0 %0 %
Expected volatility
72.6 %71.4 %
Risk-free interest rate
4.80 %3.70 %
Expected average option term
1.52 years2.01 years
Number of liability classified stock options outstanding
503,166741,685
At September 30, 2023, the unamortized compensation expense related to unvested options was $8,380. The remaining unamortized compensation expense as of September 30, 2023 will be recognized over a weighted-average period of 1.64 years.
e.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. 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
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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, 2023, the Company recorded compensation expense of $96 and $293, respectively (2022: $67 and $357) in research and development expense and general and administrative expense accounts. As of September 30, 2023, the total amount contributed by ESPP participants and not yet settled is $194 (December 31, 2022: $287).
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,
2023202220232022
Jazz Pharmaceuticals Ireland Limited ("Jazz")
Development support payments$10,037 $ $67,496 $ 
Credit for program amendments  (20,100) 
Drug supply5,391  8,919  
Atreca, Inc. ("Atreca")
Research license fee relating to licensing agreement  5,000 
Research support and other payments from other partners1,078 2,631 2,771 4,989 
$16,506 $2,631 $59,086 $9,989 
Since December 31, 2022, there have not been any material changes to the key terms of our collaboration and license agreements, except the amendment of Jazz Collaboration Agreement, the termination of the Collaboration and Cross License Agreement between Zymeworks BC and Daiichi Sankyo, dated September 26, 2016 (“2016 Daiichi Collaboration Agreement”), and Termination of BeiGene License and Collaboration Agreement Regarding Zanidatamab Zovodotin and Amendment of BeiGene License and Collaboration Agreement Regarding Zanidatamab as described below:
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 to Jazz of $20,100, which has been recognized as a credit to revenue for the nine months ended September 30, 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
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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.
At September 30, 2023, contract liabilities under the Amended Jazz Collaboration Agreement include $93 received in relation to the transfer of prepaid contract costs to Jazz in accordance with the Transfer Agreement.
Termination of 2016 Daiichi Collaboration Agreement:
The termination of the 2016 Daiichi Collaboration Agreement did not have any financial impact during the nine months ended September 30, 2023, and it has no impact on the License Agreement, dated May 14, 2018, by and between Daiichi Sankyo and Zymeworks BC, which remains in full force and effect.
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 License and Collaboration Agreement between Zymeworks BC and BeiGene, relating to the research, development and commercialization of zanidatamab zovodotin, dated November 26, 2018, as amended on May 25, 2020 and June 2, 2021 (collectively, the “Zanidatamab Zovodotin License and Collaboration Agreement”). The Termination Agreement does not terminate the Zanidatamab License and Collaboration Agreement (as defined below).
Previously, Zymeworks BC and BeiGene entered into the Zanidatamab Zovodotin License and Collaboration Agreement, pursuant to which Zymeworks BC granted BeiGene a royalty-bearing exclusive license for the research, development and commercialization of zanidatamab zovodotin in Asia (excluding Japan but including the People’s Republic of China, South Korea and other countries), Australia and New Zealand (collectively, the "BeiGene Territory"). Pursuant to the Zanidatamab Zovodotin License and Collaboration Agreement, Zymeworks BC was eligible to receive up to $195,000 in development and commercial milestone payments and royalties ranging from the high single digit percentages up to 20% on product sales.
Pursuant to the Termination Agreement, the Zanidatamab Zovodotin License and Collaboration 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 Zovodotin License and Collaboration 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.
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 License and Collaboration Agreement between Zymeworks BC and BeiGene relating to the research, development and commercialization of zanidatamab, dated November 26, 2018, as amended on March 29, 2021 and August 10, 2021 (collectively, the “Zanidatamab License and Collaboration Agreement”). Pursuant to the Zanidatamab License and Collaboration Agreement, Zymeworks BC granted BeiGene a royalty-bearing exclusive license for the research, development and commercialization of zanidatamab in the BeiGene Territory. Pursuant to the Amendment, Zymeworks BC is eligible to receive tiered royalties ranging from the high single digit percentages up to 19.5% on net sales of zanidatamab, which amends the previous provision to uniformly reduce all such royalty rates by one-half of one percent (0.5%) (“Royalty Reduction”). The Royalty Reduction will apply until the cumulative reduction in royalties owed to Zymeworks BC as a result of the Royalty Reduction, relative to the royalties that would have been owed to Zymeworks BC absent the Royalty Reduction, reaches a dollar cap in the low double-digit millions of dollars. Thereafter, the Royalty Reduction will no longer apply to reduce any royalties owed to Zymeworks BC under the Zanidatamab License and Collaboration Agreement. Pursuant to the Amendment, the remaining provisions of the Zanidatamab License and Collaboration 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 three and nine months ended September 30, 2023.
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, 2022.
At September 30, 2023, total contract assets from research, collaboration and licensing agreements were $nil (December 31, 2022: $3,000 which is presented within accounts receivable) and total contract liabilities were $33,034 (December 31, 2022: $32,941).
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Contract liabilities include deferred revenue relating to an upfront payment received in 2018 under the licensing and collaboration agreement with BeiGene. During the nine months ended September 30, 2023, the Company did not recognize any revenue from performance obligations satisfied in relation to the deferred revenue (nine months ended September 30, 2022: $nil). Amounts not expected to be recognized as revenue in the next twelve months from September 30, 2023 have been classified as long-term deferred revenue.
10. Other income (expense), net
Other income (expense), net, consists of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Foreign exchange gain (loss), net
$264 $1,456 $(631)$1,817 
Other370 (98)569 (15)
$634 $1,358 $(62)$1,802 

11. Leases
The lease for our Vancouver location, which we 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 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:
September 30,
2023
December 31,
2022
Operating lease liabilities:
Current portion
$3,841 $3,322 
Long-term portion
22,408 24,667 
Total operating lease liabilities
26,249 $27,989 
Finance lease liabilities:
Current portion12 16 
Long-term portion120 124 
Total finance lease liabilities
132 140 
Total lease liabilities
$26,381 $28,129 
Cash paid for amounts included in the measurement of operating lease liabilities for the three and nine months ended September 30, 2023 were $1,228 and $3,543, respectively, and were included in net cash used in operating activities in the consolidated statement of cash flows.
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As of September 30, 2023, the maturities of the Company’s operating lease liabilities were as follows:
Operating
leases
Within 1 year$5,070 
1 to 2 years4,820 
2 to 3 years4,609 
3 to 4 years4,130 
4 to 5 years3,108 
Thereafter9,300 
Total operating lease payments31,037 
Less:
Imputed interest(4,788)
Operating lease liabilities$26,249 
As of September 30, 2023, the weighted average remaining lease term is 7.0 years and the weighted average discount rate used to determine the operating lease liability was 4.8% for leases in Canadian dollars and 3.0% for leases in U.S. dollars.
The cost components of the operating leases were as follows for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Lease expenses:
Operating lease expense$4,675 $479 $6,010 $5,316 
Variable lease expense
358 718 1,193 878 
$5,033 $1,197 $7,203 $6,194 
12. 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.
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The carrying values of cash and cash equivalents, investments in marketable securities, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the near-term maturities of these financial instruments. As at September 30, 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.
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques used to determine such fair value:
September 30,
2023
Level 1Level 2Level 3
Assets
Cash and cash equivalents:
Cash and GICs$94,332 $94,332 $ $ 
Investments:
GICs and mutual funds74,064 74,064   
U.S. Treasury notes53,132 53,132   
Corporate debt securities168,666  168,666  
Total$390,194 $221,528 $168,666 $ 
Liabilities
Liability for contingent consideration (note 13)1,579   1,579 
Total$1,579 $ $