Financial Instruments

3 Months Ended

Mar. 31, 2020

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, liability classified stock options and other long-term liabilities.

The carrying values of cash and cash equivalents, short-term and long-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 quoted prices for the liability classified stock options are not readily available, the Company has uses a Black-Scholes pricing model to estimate fair value, which utilizes level 3 inputs as defined above. 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:


	March 31, 2020		Level 1		Level 2		Level 3
Liabilities
Liability classified stock options	$	33,899	$	—	$	—	$	33,899
Liability for contingent consideration (note 13)	978		—		—		978
Total	$	34,877	$	—	$	—	$	34,877


	December 31, 2019		Level 1		Level 2		Level 3
Liabilities
Liability classified stock options	$	45,569	$	—	$	—	$	45,569
Liability for contingent consideration (note 13)	978						978
Total	$	46,547	$	—	$	—	$	46,547

The following table presents the changes in fair value of the liability classified stock options:


	Liability at beginning of the period		Reclassification to liabilities from equity		Increase (decrease) in fair value of liability classified stock options		Exercise of options		Unrealized foreign currency loss (gain)		Liability at end of the period
Three months ended March 31, 2020	$	45,569	$	110	$	(7,317)	$	(566)	$	(3,897)	$	33,899

The change in fair value of liability classified stock options for the period is presented within research and development expenses and general and administrative expenses.

The following table presents the changes in fair value of the Company’s liability for contingent consideration:


	Liability at the beginning of the period		Increase (decrease) in fair value of liability for contingent consideration		Liability at end of the period
Three months ended March 31, 2020	$	978	$	—	$	978

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, short-term investments, long-term investments and accounts receivable. Cash and cash equivalents and investments in marketable securities are invested in accordance with the Company’s treasury policy with the primary objective being the preservation of capital and maintenance of liquidity. The treasury policy includes guidelines on the quality of financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk. The Company limits its exposure to credit loss by placing its cash and cash equivalents, short-term investments and long-term investments with high credit quality financial institutions.

The Company does not currently maintain a provision for bad debts on accounts receivable. At March 31, 2020, the maximum exposure to credit risk for accounts receivable was $9,942 (December 31, 2019: $2,185) and all account receivables are due within the next 12 months.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s short-term cash requirements are primarily to settle its financial liabilities, which consist primarily of accounts payable and accrued liabilities falling due within 45 days and current portion of lease obligations falling due within the next 12 months, with medium term requirements to invest in property and equipment and research and development. The Company’s principal sources of liquidity to settle its financial liabilities are

cash, cash equivalents and short-term investments, collection of accounts receivable relating to research collaboration and license agreements and additional public equity offerings as required. The Company believes that these principal sources of liquidity are sufficient to fund its operations for at least the next 12 months.

Foreign Currency Risk

The Company incurs certain operating expenses in currencies other than the U.S. dollar and accordingly is subject to foreign exchange risk due to fluctuations in exchange rates. The Company does not use derivative instruments to hedge exposure to foreign exchange risk due to the low volume of transactions denominated in foreign currencies.

The operating results and financial position of the Company are reported in U.S. dollars in the Company’s consolidated financial statements. The fluctuation of the U.S. dollar relative to the Canadian dollar and other foreign currencies will have an impact on the reported balances for net assets, net loss and shareholders’ equity in the Company’s consolidated financial statements