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, 2021
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: 001-38068
______________________________________
(Exact name of registrant as specified in its charter)
______________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | ||||
(Address of principal executive offices, including zip code)
(604 ) 678-1388
(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 class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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.
| ☒ | 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 October 31, 2021 was 46,553,964 .
ZYMEWORKS INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2021
Table of Contents
Page | ||||||||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of Canadian securities laws, or collectively, forward-looking statements. 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 “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 impact of the COVID-19 pandemic on our business and operations.
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 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 set forth under “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;
•the design or our execution of clinical trials may not support regulatory approval, including where clinical trials are conducted outside the United States;
•the extent to which our business may be adversely affected by the COVID-19 pandemic;
i
•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 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 shareholders 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;
ii
•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 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;
•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 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.
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.
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,
iii
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.
Except as otherwise indicated, references in this Quarterly Report on Form 10-Q to “Zymeworks,” the “Company,” “we,” “us” and “our” refer to Zymeworks Inc. and its subsidiary.
iv
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, 2021
Page | |||||
1
ZYMEWORKS INC.
Condensed Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars except share data)
| September 30, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments (note 5) | |||||||||||
| Accounts receivable | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Deferred financing fees | |||||||||||
| Long-term investments (note 5) | |||||||||||
| Long-term prepaid assets | |||||||||||
| Deferred tax asset | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Intangible assets, net | |||||||||||
| Acquired in-process research and development (note 6) | |||||||||||
| Goodwill (note 6) | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and shareholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities (note 7) | $ | $ | |||||||||
| Fair value of liability classified stock options (note 12) | |||||||||||
| Current portion of operating lease liability (note 11) | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term portion of operating lease liability (note 11) | |||||||||||
| Deferred revenue (note 9) | |||||||||||
| Other long-term liabilities (note 7) | |||||||||||
| Deferred tax liability | |||||||||||
| Total liabilities | |||||||||||
| Shareholders’ equity: | |||||||||||
Common shares, no par value; unlimited authorized shares at September 30, 2021 and December 31, 2020, respectively; | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
| Research collaboration and licensing agreements (note 9) | |||||||||||
| Commitments and contingencies (note 13) | |||||||||||
The accompanying notes are an integral part of these financial statements
2
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, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Research and development collaborations (note 9) | $ | $ | $ | $ | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Other income (expense), net (note 10) | ( | ||||||||||||||||||||||
| Total other income, net | |||||||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Income tax recovery (expense) | ( | ( | ( | ||||||||||||||||||||
| Net loss and comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per common share (note 4): | |||||||||||||||||||||||
| Basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average common shares outstanding (note 4): | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements
3
ZYMEWORKS INC.
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in thousands of U.S. dollars except share data)
(unaudited)
| Common shares | Accumulated deficit | Accumulated other comprehensive loss | Additional paid-in capital | Total shareholders’ equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options | — | — | ( | ||||||||||||||||||||||||||||||||
| Issuance of common shares through employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common shares upon vesting of restricted stock units ("RSUs") | — | — | ( | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options | $ | $ | — | $ | — | $ | ( | $ | |||||||||||||||||||||||||||
| Issuance of common shares upon vesting of RSUs | $ | $ | — | $ | — | $ | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | — | $ | — | $ | — | $ | — | $ | $ | ||||||||||||||||||||||||||
| Net loss | — | $ | — | $ | ( | $ | — | $ | — | $ | ( | ||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options | $ | $ | — | $ | — | $ | ( | $ | |||||||||||||||||||||||||||
| Issuance of common shares through employee stock purchase plan | $ | $ | — | $ | — | $ | — | $ | |||||||||||||||||||||||||||
| Issuance of common shares upon vesting of RSUs | $ | $ | — | $ | — | $ | ( | $ | |||||||||||||||||||||||||||
| Stock-based compensation | — | $ | — | $ | — | $ | — | $ | $ | ||||||||||||||||||||||||||
| Net loss | — | $ | — | $ | ( | $ | — | $ | — | $ | ( | ||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||
4
| Common shares | Accumulated deficit | Accumulated other comprehensive loss | Additional paid-in capital | Total shareholders’ equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options | — | — | ( | ||||||||||||||||||||||||||||||||
| Issuance of common shares through employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Fair value adjustments upon reclassification of options to liabilities | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common shares and pre-funded warrants in connection with public offering (Note 8) | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options | $ | $ | — | $ | — | $ | ( | $ | |||||||||||||||||||||||||||
| Stock-based compensation | — | $ | — | $ | — | $ | — | $ | $ | ||||||||||||||||||||||||||
| Net loss | — | $ | — | $ | ( | $ | — | $ | — | $ | ( | ||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Issuance of common shares on exercise of options | $ | $ | — | $ | — | $ | ( | $ | |||||||||||||||||||||||||||
| Issuance of common shares through employee stock purchase plan | $ | $ | — | $ | — | $ | — | $ | |||||||||||||||||||||||||||
| Stock-based compensation | — | $ | — | $ | — | $ | — | $ | $ | ||||||||||||||||||||||||||
| Net loss | — | $ | — | $ | ( | $ | — | $ | — | $ | ( | ||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements
5
ZYMEWORKS INC.
Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Items not involving cash: | |||||||||||
| Depreciation and amortization of property and equipment | |||||||||||
| Amortization of intangible assets | |||||||||||
| Stock-based compensation expense | |||||||||||
| Amortization and impairment of operating lease right-of-use assets | |||||||||||
| Deferred income tax expense | |||||||||||
| Non-cash consideration from licensing agreement | ( | ||||||||||
| Change in fair value of contingent consideration liability | |||||||||||
| Change in fair value of investments in equity instruments | ( | ||||||||||
| Unrealized foreign exchange gain | ( | ( | |||||||||
| Changes in non-cash operating working capital: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Accounts payable and accrued liabilities | |||||||||||
| Operating lease liabilities | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from public offering, net of issuance costs (note 8a) | |||||||||||
| Issuance of common shares on exercise of stock options (note 8e) | |||||||||||
| Issuance of common shares through employee stock purchase plan | |||||||||||
| Deferred financing fees | ( | ( | |||||||||
| Finance lease payments | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Net redemptions (purchases) of short-term and long-term investments | ( | ||||||||||
| Acquisition of property and equipment | ( | ( | |||||||||
| Acquisition of intangible assets | ( | ( | |||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||||||||
| Net change in cash and cash equivalents | |||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| Supplemental disclosure of non-cash investing and financing items: | |||||||||||
| Leased assets obtained in exchange for operating lease liabilities | $ | $ | |||||||||
| Acquisition of property and equipment in accounts payable and accrued liabilities | |||||||||||
The accompanying notes are an integral part of these financial statements
6
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.
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, 2020.
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, 2021 and 2020 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, 2020.
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 from general and administrative expenses to research and development expenses to conform to the current period's presentation. These reclassifications had no effect on previously reported operating expenses, net loss, shareholders' equity, and cash flows from operating activities.
Use of Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires the Company to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, most notably those related to revenue recognition including estimated timing of completion of performance obligations required to meet revenue recognition criteria, accrual of expenses including clinical and preclinical study expense accruals, stock-based compensation, valuation allowance for deferred taxes, benefits under the Scientific Research and Experimental Development (“SR&ED”) program, and other contingencies. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from these estimates.
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 highly uncertain and cannot be predicted with confidence, such as the location, duration and severity of outbreaks, including potential future waves or cycles, and the effectiveness of actions taken to
7
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
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss attributable to common shareholders: | |||||||||||||||||||||||
| Basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Adjustment for change in fair value of liability classified stock options | ( | ( | |||||||||||||||||||||
| Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Adjustment for dilutive effect of liability classified stock options | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Net loss per common share - basic | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per common share - diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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 and January 2020 public 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”), term deposits and commercial paper acquired from financial institutions in accordance with the Company’s cash investment policy. Short-term GICs, term deposits and commercial paper bear interest at rates of 0.3 %-1.0 % per annum, and are classified as held to maturity and are accounted for at amortized cost or available for sale.
Long-term Investments
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
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IPR&D, net of impairment was $17,628 no impairment indicators related to IPR&D as of September 30, 2021.
Goodwill
7. Liabilities
| September 30, 2021 | December 31, 2020 | ||||||||||
| Trade payables | $ | $ | |||||||||
| Accrued research and development expenses | |||||||||||
| Employee compensation and vacation accruals | |||||||||||
| Accrued legal and professional fees | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| Liability for contingent consideration (note 12) | $ | $ | |||||||||
| Liability from in-licensing agreement | |||||||||||
| Total | $ | $ | |||||||||
8. Shareholders’ Equity
a.Equity Offerings
2020 Public Offering
On January 27, 2020, the Company closed a public offering pursuant to which the Company sold 5,824,729 common shares, including the sale of 900,000 common shares to the underwriters upon their full exercise of their over-allotment option, at $46.50 per common share and 1,075,271 Pre-Funded Warrants (note 8d) in lieu of common shares at $46.4999 per Pre-Funded Warrant. Net proceeds were $300,910 , after underwriting discounts, commissions and offering expenses of $19,940 .
b.Authorized
The Company has an unlimited authorized number of voting Common Shares and Preferred Shares without par value.
c.Preferred Shares
As of September 30, 2021 and December 31, 2020, no
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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 (note 8a), 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.
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. No Pre-Funded Warrants have been exercised to date.
e.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 Stock Option and Equity Compensation 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 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, 2021, 1,152,206 common shares were available for future award grants under the New Plan (December 31, 2020: 1,242,038 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.
Restricted Stock Units (“RSUs”)
During the nine months ended September 30, 2021, the Company granted 128,905 RSUs to certain employees that 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
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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 closing stock price on the grant date. As of September 30, 2021, there was unamortized RSU expense of $3,517 that will be recognized over a weighted average period of 1.55 years.
| Number of RSUs | Weighted- average grant date fair value ($) | ||||||||||
| Outstanding, December 31, 2020 | |||||||||||
| Granted | |||||||||||
| Vested and settled | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Outstanding, September 30, 2021 | |||||||||||
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, 2020 | |||||||||||||||||||||||||||||||||||
| Granted | |||||||||||||||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||||||||||||||
| Outstanding, September 30, 2021 | |||||||||||||||||||||||||||||||||||
The following table summarizes the Company’s stock options granted in U.S. dollars under the New Plan:
| Number of Options | Weighted- Average Exercise Price ($) | Weighted- Average Contractual Term (years) | Aggregate intrinsic value ($) | ||||||||||||||||||||
| Outstanding, December 31, 2020 | |||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Outstanding, September 30, 2021 | |||||||||||||||||||||||
During the nine months ended September 30, 2021, the Company received cash proceeds of $5,436 from stock options exercised (nine months ended September 30, 2020: $4,393 ).
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The stock options outstanding at September 30, 2021 expire at various dates from January 1, 2022 to September 9, 2031.
The estimated fair values of options granted to officers, directors, employees and consultants are amortized over the relevant vesting periods. Stock-based compensation expense for equity classified instruments, as well as the financial statement impact of the amortization and periodic revaluation of liability classified instruments (note 12), are recorded in research and development expenses, general and administration expenses and finance expense (income) as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Research and development expense: | |||||||||||||||||||||||
| Stock-based compensation for equity classified instruments | $ | $ | $ | $ | |||||||||||||||||||
| Change in fair value of liability classified instruments | ( | ( | |||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| General and administrative expense: | |||||||||||||||||||||||
| Stock-based compensation for equity classified instruments | $ | $ | $ | $ | |||||||||||||||||||
| Change in fair value of liability classified instruments | ( | ( | |||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
| Finance expense (income): | |||||||||||||||||||||||
| Change in fair value of liability classified instruments | ( | ( | |||||||||||||||||||||
| $ | ( | $ | $ | ( | $ | ||||||||||||||||||
Amounts for equity classified instruments above include stock-based compensation expense relating to RSUs of $856 and $2,180 for the three and nine months ended September 30, 2021, respectively (three and nine months ended September 30, 2020: $436 and $939 , respectively).
The estimated fair value of stock options granted in Canadian dollars under the Original Plan and the New Plan was determined using the Black-Scholes option pricing model with the following weighted-average assumptions:
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Dividend yield | % | % | |||||||||
| Expected volatility | % | % | |||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected average life of options | |||||||||||
The estimated fair value of stock options granted in U.S. dollars under the New Plan was determined using the Black-Scholes option pricing model with the following weighted-average assumptions:
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Dividend yield | % | % | |||||||||
| Expected volatility | % | % | |||||||||
| Risk-free interest rate | % | % | |||||||||
| Expected average life of options | |||||||||||
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.
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.
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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.
| September 30, 2021 | September 30, 2020 | ||||||||||
Dividend yield | % | % | |||||||||
Expected volatility | % | % | |||||||||
Risk-free interest rate | % | % | |||||||||
Expected average option term | |||||||||||
Number of liability classified stock options outstanding | |||||||||||
At September 30, 2021, the unamortized compensation expense related to unvested options was $42,109 (C$53,591 ). The remaining unamortized compensation expense as of September 30, 2021 will be recognized over a weighted-average period of 1.93 years.
f.Employee Stock Purchase Plan:
On April 10, 2017, the Company’s shareholders approved an employee stock purchase plan (“ESPP”) which became effective immediately prior to the consummation of the Company’s IPO. On June 7, 2018, certain amendments to the ESPP were approved by shareholders. Prior to these amendments, the ESPP allowed eligible employees to acquire common shares at a discounted purchase price of 85% of the market value of the Company's common shares on the purchase date. The ESPP, as amended, allows eligible employees to acquire common shares at a discounted purchase price of the lesser of (i) 85% of the market price of a common share on the first day of the applicable purchase period and (ii) 85% of the market price of a common share on the purchase date. The ESPP qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code for employees who are United States taxpayers.
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 dollar 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 nine months ended September 30, 2021, the Company recorded compensation expense of $767 (nine months ended September 30, 2020: $559 ) in research and development expense and general and administrative expense accounts. As of September 30, 2021, the total amount contributed by ESPP participants and not yet settled is $615 (December 31, 2020: $926 ).
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9. Research, Collaboration and Licensing Agreements
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Janssen Biotech, Inc. ("Janssen"): | |||||||||||||||||||||||
| Milestone revenue | $ | $ | $ | $ | |||||||||||||||||||
| Celgene Corporation and Celgene Alpine Investment Co. LLC (formerly “Celgene” and now a Bristol-Myers Squibb company, “BMS”) | |||||||||||||||||||||||
| Upfront fee relating to amendment | |||||||||||||||||||||||
| BeiGene, Ltd ("BeiGene"): | |||||||||||||||||||||||
| Milestone revenue | |||||||||||||||||||||||
| Research support and other payments | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Since December 31, 2020, there have not been any material changes to the key terms of the Company's collaboration and license agreements. For further information on the terms and conditions of the Company's existing collaboration and license agreements, please refer to the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year-ended December 31, 2020.
In July 2021, the Company recognized milestone revenue of $4,000 under a license agreement with Janssen upon Janssen's dosing of the first patient with a bispecific antibody developed using Zymeworks' Azymetric and EFECT platforms. The Company did not have any performance obligations in relation to this milestone on the date it was achieved. Accordingly, it was recognized as revenue during the nine months ended September 30, 2021.
In June 2020, the Company's existing collaboration agreement with BMS was amended to expand the license grant to include the use of the Company's EFECT platform for the development of product candidates and to extend the research term. The amendment included an upfront fee of $12,000 and all other financial terms were unchanged. The Company's performance obligations in relation to the upfront fee were met on the date of amendment. Accordingly, the upfront payment was recognized as revenue during the nine months ended September 30, 2020.
In March 2020, the Company recognized milestone revenue of $5,000 under a license and collaboration agreement with BeiGene upon BeiGene's dosing of zanidatamab in the first patient in a clinical study in its territory. The Company did not have any performance obligations in relation to this milestone on the date it was achieved. Accordingly, it was recognized as revenue during the nine months ended September 30, 2020.
At September 30, 2021, contract assets from research, collaboration and licensing agreements were nil (December 31, 2020: nil ) and contract liabilities were $32,941 (December 31, 2020: $32,941 ). Contract liabilities include deferred revenue relating to an upfront payment received in 2018 under the licensing and collaboration agreement with BeiGene referred to above. During the nine months ended September 30, 2021, the Company did no t recognize any revenue from performance obligations satisfied in relation to the deferred revenue (nine months ended September 30, 2020: nil ). Amounts not expected to be recognized as revenue in the next twelve months from September 30, 2021 have been classified as long-term deferred revenue.
10. Other (expense) income, net
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Foreign exchange gain (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Other | ( | ( | ( | ||||||||||||||||||||
| $ | $ | ( | $ | $ | |||||||||||||||||||
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11. Leases
The Company leases separate office and laboratory spaces in Vancouver, British Columbia, with terms of each lease expiring 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 is in progress. This lease has an initial term of ten years , with two five-year extension options. In addition, the Company leases office space in Seattle, Washington with lease terms expiring in February 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.
| September 30, 2021 | December 31, 2020 | ||||||||||
Operating lease liabilities: | |||||||||||
Current portion | $ | $ | |||||||||
Long-term portion | |||||||||||
Total operating lease liabilities | $ | ||||||||||
Finance lease liabilities: | |||||||||||
Long-term portion included in other long-term liabilities | |||||||||||
Total finance lease liabilities | |||||||||||
Total lease liabilities | $ | $ | |||||||||
Cash paid for amounts included in the measurement of operating lease liabilities for the nine months ended September 30, 2021 was $2,343 and was included in net cash used in operating activities in the consolidated statement of cash flows (nine months ended September 30, 2020: $1,871 ).
| Operating leases | |||||
| Within 1 year | $ | ||||
| 1 to 2 years | |||||
| 2 to 3 years | |||||
| 3 to 4 years | |||||
| 4 to 5 years | |||||
| Thereafter | |||||
| Total operating lease payments | |||||
| Less: | |||||
| Imputed interest | ( | ||||
| Operating lease liabilities | $ | ||||
As of September 30, 2021, the weighted average remaining lease term is 8.6 years and the discount rate used to determine the operating lease liability was 4.8 % for leases in Canadian dollars and 2.2 % for leases in U.S. dollars.
During the nine months ended September 30, 2021, the Company incurred total operating lease expenses of $4,030 , which included lease expenses associated with fixed lease payments of $3,756 , and variable payments associated with common area maintenance and similar expenses of $274 .
In addition to the operating lease liabilities included in the table above, the Company has commitments for future operating lease payments of $3,900 under the terms of the lease for the Company’s additional lab space in Seattle, which is expected to commence in November 2021.
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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, amounts receivable, accounts payable and accrued liabilities, finance and operating lease obligations, and other long-term liabilities.
The carrying values of cash and cash equivalents, short-term investments in marketable securities, amounts 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, 2021, 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 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, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Liability for contingent consideration (note 13) | $ | $ | — | $ | — | $ | |||||||||||||||||
| Total | $ | $ | — | $ | — | $ | |||||||||||||||||
| December 31, 2020 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Liability for contingent consideration (note 13) | |||||||||||||||||||||||