false2020Q1000140375212-31P10Y8585P5Y00014037522020-01-012020-03-31xbrli:shares00014037522020-05-05iso4217:USD00014037522020-03-3100014037522019-12-3100014037522019-01-012019-03-31iso4217:USDxbrli:shares0001403752us-gaap:CommonStockMember2019-12-310001403752us-gaap:RetainedEarningsMember2019-12-310001403752us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001403752us-gaap:AdditionalPaidInCapitalMember2019-12-310001403752us-gaap:CommonStockMember2020-01-012020-03-310001403752us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001403752us-gaap:RetainedEarningsMember2020-01-012020-03-310001403752us-gaap:CommonStockMember2020-03-310001403752us-gaap:RetainedEarningsMember2020-03-310001403752us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001403752us-gaap:AdditionalPaidInCapitalMember2020-03-310001403752us-gaap:CommonStockMember2018-12-310001403752us-gaap:RetainedEarningsMember2018-12-310001403752us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001403752us-gaap:AdditionalPaidInCapitalMember2018-12-3100014037522018-12-310001403752us-gaap:CommonStockMember2019-01-012019-03-310001403752us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310001403752us-gaap:RetainedEarningsMember2019-01-012019-03-310001403752us-gaap:CommonStockMember2019-03-310001403752us-gaap:RetainedEarningsMember2019-03-310001403752us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310001403752us-gaap:AdditionalPaidInCapitalMember2019-03-3100014037522019-03-31xbrli:pure0001403752srt:MinimumMemberzyme:ShortTermGuaranteedInvestmentCertificatesMember2020-01-012020-03-310001403752srt:MaximumMemberzyme:ShortTermGuaranteedInvestmentCertificatesMember2020-01-012020-03-310001403752zyme:LongTermGuaranteedInvestmentCertificatesMember2020-03-310001403752zyme:LongTermGuaranteedInvestmentCertificatesMember2019-12-310001403752zyme:LongTermGuaranteedInvestmentCertificatesMembersrt:MinimumMember2020-01-012020-03-310001403752zyme:LongTermGuaranteedInvestmentCertificatesMembersrt:MaximumMember2020-01-012020-03-310001403752zyme:IndefiniteLivedIntangibleAssetsInProcessResearchAndDevelopmentMember2019-12-310001403752zyme:IndefiniteLivedIntangibleAssetsInProcessResearchAndDevelopmentMember2020-03-310001403752zyme:IndefiniteLivedIntangibleAssetsInProcessResearchAndDevelopmentMember2020-01-012020-03-310001403752zyme:OfferingMember2019-06-242019-06-240001403752us-gaap:OverAllotmentOptionMember2019-06-242019-06-2400014037522019-06-240001403752zyme:OfferingMember2019-06-240001403752zyme:OfferingMember2020-01-272020-01-270001403752us-gaap:OverAllotmentOptionMember2020-01-272020-01-2700014037522020-01-270001403752zyme:OfferingMember2020-01-2700014037522020-01-272020-01-2700014037522006-07-142006-07-140001403752srt:DirectorMember2006-07-142006-07-140001403752zyme:USDollarsUnderTheNewStockOptionPlanMember2020-03-310001403752srt:ScenarioForecastMemberzyme:USDollarsUnderTheNewStockOptionPlanMember2019-01-012028-12-310001403752zyme:USDollarsUnderTheNewStockOptionPlanMember2018-06-072018-06-070001403752us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-03-310001403752zyme:USDollarsUnderTheNewStockOptionPlanMember2020-01-012020-03-310001403752zyme:CADDollarsUnderTheNewStockOptionPlanMember2019-12-31iso4217:CADxbrli:shares0001403752zyme:CADDollarsUnderTheNewStockOptionPlanMember2019-01-012019-12-31iso4217:CAD0001403752zyme:CADDollarsUnderTheNewStockOptionPlanMember2020-01-012020-03-310001403752zyme:CADDollarsUnderTheNewStockOptionPlanMember2020-03-310001403752zyme:USDollarsUnderTheNewStockOptionPlanMember2019-12-310001403752zyme:USDollarsUnderTheNewStockOptionPlanMember2019-01-012019-12-310001403752us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-03-310001403752us-gaap:ResearchAndDevelopmentExpenseMember2019-01-012019-03-310001403752us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-03-310001403752us-gaap:GeneralAndAdministrativeExpenseMember2019-01-012019-03-310001403752zyme:FinanceExpenseIncomeMember2020-01-012020-03-310001403752zyme:FinanceExpenseIncomeMember2019-01-012019-03-310001403752us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-03-310001403752zyme:USDollarsUnderTheNewStockOptionPlanMember2019-01-012019-03-310001403752zyme:LiabilityClassifiedStockOptionsMember2020-01-012020-03-310001403752zyme:LiabilityClassifiedStockOptionsMember2019-01-012019-03-310001403752zyme:LiabilityClassifiedStockOptionsMember2020-03-310001403752zyme:LiabilityClassifiedStockOptionsMember2019-03-310001403752zyme:EmployeesStockPurchasePlanMember2020-01-012020-03-310001403752zyme:EmployeesStockPurchasePlanMember2020-03-310001403752zyme:EmployeesStockPurchasePlanMember2019-01-012019-03-310001403752zyme:EmployeesStockPurchasePlanMembersrt:ScenarioPreviouslyReportedMember2018-06-072018-06-070001403752srt:RestatementAdjustmentMemberzyme:EmployeesStockPurchasePlanMember2018-06-072018-06-070001403752zyme:PerformanceMilestoneMemberzyme:BeiGeneMember2020-01-012020-03-310001403752zyme:PerformanceMilestoneMemberzyme:BeiGeneMember2019-01-012019-03-310001403752zyme:BeiGeneMemberzyme:DrugSupplyRevenueMember2020-01-012020-03-310001403752zyme:BeiGeneMemberzyme:DrugSupplyRevenueMember2019-01-012019-03-310001403752zyme:BeiGeneMemberzyme:UpFrontTechnologyAccessFeeMember2020-01-012020-03-310001403752zyme:BeiGeneMemberzyme:UpFrontTechnologyAccessFeeMember2019-01-012019-03-310001403752zyme:PerformanceMilestoneMemberzyme:EliLillyAndCompanyMember2020-01-012020-03-310001403752zyme:PerformanceMilestoneMemberzyme:EliLillyAndCompanyMember2019-01-012019-03-310001403752zyme:OtherProductMemberzyme:OtherMember2020-01-012020-03-310001403752zyme:OtherProductMemberzyme:OtherMember2019-01-012019-03-310001403752zyme:PerformanceMilestoneMemberzyme:BeiGeneMember2020-03-012020-03-310001403752zyme:PerformanceMilestoneMemberzyme:EliLillyAndCompanyMember2019-01-012019-01-310001403752zyme:BeiGeneMember2020-03-310001403752zyme:BeiGeneMember2019-12-310001403752stpr:CA-BCus-gaap:BuildingMember2019-01-25zyme:renewal_option0001403752stpr:CA-BCus-gaap:BuildingMember2019-01-252019-01-250001403752currency:CAD2020-03-310001403752currency:USD2020-03-310001403752zyme:LiabilityClassifiedStockOptionsMemberus-gaap:FairValueInputsLevel3Member2020-03-310001403752zyme:LiabilityForContingentConsiderationMember2020-03-310001403752us-gaap:FairValueInputsLevel3Memberzyme:LiabilityForContingentConsiderationMember2020-03-310001403752us-gaap:FairValueInputsLevel3Member2020-03-310001403752zyme:LiabilityClassifiedStockOptionsMember2019-12-310001403752zyme:LiabilityClassifiedStockOptionsMemberus-gaap:FairValueInputsLevel3Member2019-12-310001403752zyme:LiabilityForContingentConsiderationMember2019-12-310001403752us-gaap:FairValueInputsLevel3Memberzyme:LiabilityForContingentConsiderationMember2019-12-310001403752us-gaap:FairValueInputsLevel3Member2019-12-310001403752us-gaap:AccountsReceivableMember2020-03-312020-03-310001403752us-gaap:AccountsReceivableMember2019-12-312019-12-31
Table of Contents

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 March 31, 2020
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
______________________________________
ZYMEWORKS INC.
(Exact name of registrant as specified in its charter)
______________________________________
British Columbia, Canada
47-2569713
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
Suite 540—1385 West 8th Avenue
Vancouver, BC V6H 3V9
(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
Common Shares, no par value per share
ZYME
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes      No  
The number of outstanding common shares of the registrant, no par value per share, as of May 5, 2020 was 45,539,805.



Table of Contents
ZYMEWORKS INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2020
Table of Contents
Page



Table of Contents
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:

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

Table of Contents
the Fast Track designations for any of our product candidates may not expedite regulatory review or approval;
The U.S. Food and Drug Administration (“FDA”) may not accept data from trials we conduct outside the United States;
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;
the competitive threat of 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;
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 clinical product candidate supplies and on other third parties to store, monitor and transport bulk drug substance and drug product;
risk related to the manufacture of product candidates and difficulties in production;
ii

Table of Contents
our reliance on third parties to oversee clinical trials of our product candidates and, in some cases, maintain regulatory files for those product candidates;
our reliance on the performance of independent clinical investigators and contract research organizations (“CROs”);
our reliance on third parties for various operational and administrative aspects of our business including our reliance on third parties’ cloud-based software platforms;
the risk that natural disasters, public health crises, political crises, and other catastrophic events may damage the facilities or disrupt the operations of third parties upon which we rely;
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;
additional costs and expenses related to no longer being considered an emerging growth company or a smaller reporting company;
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.
iii

Table of Contents

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.

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 consolidated subsidiaries.
iv

Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Zymeworks Inc.
Index to Interim Condensed Consolidated Financial Statements (unaudited)
As of and for the three months ended March 31, 2020
Page

1

Table of Contents
ZYMEWORKS INC.
Condensed Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars except share data)
March 31,
2020
December 31,
2019
(unaudited)
Assets
Current assets:
Cash and cash equivalents$189,485  $128,451  
Short-term investments (note 5)298,179  170,453  
Accounts receivable8,653  2,185  
Prepaid expenses and other current assets8,291  10,741  
Total current assets504,608  311,830  
Deferred financing fees590  650  
Long-term investments (note 5)75,758    
Long-term prepaid assets2,277  2,306  
Deferred tax asset 459  1,218  
Property and equipment, net 11,032  11,100  
Operating lease right-of-use assets6,320  5,400  
Intangible assets, net 5,890  6,057  
Acquired in-process research and development (note 6)17,628  17,628  
Goodwill (note 6) 12,016  12,016  
Total assets$636,578  $368,205  
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (note 7)$37,234  $35,691  
Fair value of liability classified options (note 12)33,899  45,569  
Current portion of operating lease liability (note 11)1,749  1,282  
Other current liabilities 23  10  
Total current liabilities72,905  82,552  
Long-term portion of operating lease liability (note 11)7,258  5,599  
Long-term portion of deferred revenue (note 9)32,941  32,941  
Other long-term liabilities (note 7)1,055  1,024  
Deferred tax liability   408  
Total liabilities114,159  122,524  
Shareholders’ equity:
Common shares, no par value; unlimited authorized shares at March 31, 2020 and December 31, 2019, respectively; 45,533,201 and 39,564,529 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively (note 8b)
707,610  450,210  
Additional paid-in capital143,313  92,839  
Accumulated other comprehensive loss(6,659) (6,659) 
Accumulated deficit(321,845) (290,709) 
Total shareholders’ equity522,419  245,681  
Total liabilities and shareholders’ equity$636,578  $368,205  
Research collaboration and licensing agreements (note 9)
Commitments and contingencies (note 13)
The accompanying notes are an integral part of these financial statements
2

Table of Contents
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 March 31,
20202019
Revenue
Research and development collaborations (note 9)$8,269  $11,925  
Operating expenses:
Research and development36,526  17,475  
General and administrative7,623  9,003  
Total operating expenses44,149  26,478  
Loss from operations(35,880) (14,553) 
Other income (expense):
Interest income1,869  1,262  
Other income (expenses), net (note 10)3,250  (157) 
Total other income (expense), net5,119  1,105  
Loss before income taxes(30,761) (13,448) 
Income tax expense(375) (193) 
Net loss and comprehensive loss$(31,136) $(13,641) 
Net loss per common share (note 4):
Basic and diluted(0.64) (0.43) 
Weighted-average common shares outstanding (note 4):
Basic and diluted48,686,718  32,020,437  
The accompanying notes are an integral part of these financial statements
3

Table of Contents
ZYMEWORKS INC.
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in thousands of U.S. dollars except share data)
(unaudited)
Common sharesAccumulated
deficit
Accumulated
other
comprehensive
loss
Additional
paid-in
capital
Total
shareholders’
equity
SharesAmount
Balance at January 1, 202039,564,529  $450,210  $(290,709) $(6,659) $92,839  $245,681  
Issuance of common shares on exercise of options
122,492  2,767  —  —  (754) 2,013  
Issuance of common shares through employee stock purchase plan
21,451  615  —  —  —  615  
Fair value adjustments upon reclassification of options to liabilities
—  —  —  —  (110) (110) 
Stock-based compensation—  —  —  —  4,446  4,446  
Issuance of common shares and pre-funded warrants in connection with public offering (Note 8)5,824,729  254,018  —  —  46,892  300,910  
Net loss—  —  (31,136) —  —  (31,136) 
Balance at March 31, 202045,533,201  $707,610  $(321,845) $(6,659) $143,313  $522,419  

Common sharesAccumulated
deficit
Accumulated
other
comprehensive
loss
Additional
paid-in
capital
Total
shareholders’
equity
SharesAmount
Balance at January 1, 201931,977,668  $320,074  $(145,272) $(6,659) $12,347  $180,490  
Issuance of common shares on exercise of options
52,130  549  —  —  (130) 419  
Issuance of common shares through employee stock purchase plan
18,681  325  —  —  —  325  
Fair value adjustments upon reclassification of options to liabilities
—  —  —  —  (119) (119) 
Stock-based compensation—  —  —  —  2,533  2,533  
Net loss(13,641) (13,641) 
Balance at March 31, 201932,048,479  $320,948  $(158,913) $(6,659) $14,631  $170,007  

The accompanying notes are an integral part of these financial statements
4

Table of Contents
ZYMEWORKS INC.
Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(unaudited)
Three Months Ended March 31,
20202019
Cash flows from operating activities:
Net loss$(31,136) $(13,641) 
Items not involving cash:
Depreciation and amortization of property and equipment775  496  
Amortization of intangible assets980  653  
Stock-based compensation (recovery) expense(2,716) 4,378  
Amortization and impairment of operating lease right-of-use assets1,062  329  
Deferred income tax expense351    
Non-cash consideration from licensing agreement(218)   
Change in fair value of contingent consideration  22  
Unrealized foreign exchange (gain) loss(4,037) 451  
Changes in non-cash operating working capital:
Accounts receivable(6,467) (345) 
Prepaid expenses and other current assets2,602  (7,660) 
Accounts payable and accrued liabilities1,065  (2,368) 
Operating lease liabilities252  (280) 
Deferred revenue  (3,530) 
Income taxes payable  193  
Net cash used in operating activities(37,487) (21,302) 
Cash flows from financing activities:
Proceeds from public offering, net of issuance costs (note 8a)300,910    
Issuance of common shares on exercise of options (note 8e)1,447  362  
Issuance of common shares through employee stock purchase plan419  233  
Deferred financing fees60  (18) 
Finance lease payments(4) (8) 
Net cash provided by financing activities302,832  569  
Cash flows from investing activities:
Net (purchases) redemptions of short-term and long-term investments(203,822) 22,036  
Acquisition of property and equipment(530) (31) 
Acquisition of intangible assets(419)   
Net cash (used in) provided by investing activities(204,771) 22,005  
Effect of exchange rate changes on cash and cash equivalents460  (303) 
Net change in cash and cash equivalents61,034  969  
Cash and cash equivalents, beginning of period128,451  42,205  
Cash and cash equivalents, end of period$189,485  $43,174  
Supplemental disclosure of non-cash investing and financing items:
Leased assets obtained in exchange for operating lease liabilities1,982  8,012  
Acquisition of property and equipment in accounts payable and accrued liabilities570  242  
The accompanying notes are an integral part of these financial statements
5

Table of Contents
ZYMEWORKS INC.
Notes to the Interim Condensed Consolidated Financial Statements
(unaudited)
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 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 financial statements and notes for the year ended December 31, 2019.
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 months ended March 31, 2020 and 2019 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, 2019, except for the new accounting guidance adopted during the period (note 3).
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 year presentation. These reclassifications had no effect on the reported results of operations.

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 evolving and highly uncertain, such as the duration and severity of the outbreak and the effectiveness of actions taken to contain and treat COVID-19. The Company considered the potential impact of COVID-19 when making certain estimates and judgments relating to the preparation of these consolidated financial statements. While there was no material impact to the Company’s consolidated financial statements as of and for the three months ended March 31, 2020, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in a material impact to the Company’s consolidated financial statements in future reporting periods.
6

Table of Contents
3. Recent Accounting Pronouncements
Initial adoption of new accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses (Topic 326), in order to improve financial reporting of expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in prior GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The adoption of this standard did not have any impact to the Company's consolidated financial statements as credit losses are not expected to be significant, based on the evaluation of the financial condition of payment partners, and external market factors.
In August 2018, the FASB issued ASU 2018–13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU eliminate, add and modify certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for the Company in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this accounting standard as of January 1, 2020. Adoption of this new accounting standard did not have a significant impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018–15, Intangibles — Goodwill and Other — Internal Use Software (Subtopic 350–40). This ASU addresses the accounting for implementation costs incurred by a customer in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this accounting standard as of January 1, 2020 and has applied it prospectively to all implementation costs incurred after January 1, 2020. Adoption of this new accounting standard did not have a significant impact on the Company’s consolidated financial statements.
Recent accounting pronouncements not yet adopted
The Company has reviewed other 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 months ended March 31, 2020 and 2019 was as follows:
Three Months Ended
March 31,
20202019
Numerator:  
Net loss attributable to common shareholders:  
Basic and diluted  $(31,136) $(13,641) 
Denominator:  
Weighted-average common shares outstanding:  
Basic and diluted (*) 48,686,718  32,020,437  
Net loss per common share—basic and diluted  $(0.64) $(0.43) 
(*): Weighted average number of common shares used in the basic and diluted earnings per share calculation for the three months ended March 31, 2020 includes 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 and for nominal cash consideration.
7

Table of Contents
5. Investments
Short-term Investments
Short-term investments consist of guaranteed investment certificates (“GICs”), term deposits and commercial paper acquired from financial institutions in accordance with the Company’s treasury policy. Short-term GICs, term deposits and commercial paper bear interest at rates of 0.9%-2.1% per annum with maturities of up to 12 months.
Long-term Investments
Long-term investments at March 31, 2020 consist of GIC's and term deposits of $75,040 (December 31, 2019 -$nil) acquired from financial institutions in accordance with the Company’s treasury policy and other debt and equity securities of $718 (December 31, 2019 - $nil) acquired for strategic purposes or in connection with licensing and collaboration agreements. Long-term GICs and term deposits bear interest at rates of 0.9%-1.6% per annum with maturities ranging from 12 to 24 months and are accounted for at amortized cost. Other long-term investments are accounted for as available for sale financial instruments with changes in fair value recorded through other comprehensive income or at cost subject to impairment.
6. IPR&D and Goodwill
Acquired IPR&D
In-process research and development assets (“IPR&D”) acquired in the 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 March 31, 2020 and December 31, 2019.
The Company concluded that there were no impairment indicators related to IPR&D as of March 31, 2020.
Goodwill
The Company performed its most recent annual impairment test of goodwill as of December 31, 2019. 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, 2019, 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 March 31, 2020.
7. Liabilities
Accounts payable and accrued expenses consisted of the following:
March 31,
2020
December 31,
2019
Trade payables$12,450  $5,349  
Accrued research expenses19,660  24,262  
Employee compensation and vacation accruals2,899  5,009  
Accrued legal and professional fees1,327  231  
Other898  840  
Total$37,234  $35,691  
Other current liabilities consisted of the following:
March 31,
2020
December 31,
2019
Current portion of finance lease liability (note 11)$23  $10  
Total$23  $10  



8

Table of Contents
Other long-term liabilities consisted of the following:
March 31,
2020
December 31,
2019
Liability for contingent consideration (note 12)$978  $978  
Finance lease liability (note 11)77  46  
Total$1,055  $1,024  

8. Shareholders’ Equity
The number of shares and per share amounts are presented in actual amounts.
a.Equity Offerings
2019 Public Offering
On June 24, 2019, the Company closed an offering pursuant to which the Company sold 7,013,892 common shares including the sale of 1,458,336 common shares to the underwriters upon their full exercise of their over-allotment option at an offering price of $18.00 per common share and 4,166,690 Pre-Funded Warrants (note 8d) in lieu of common shares at $17.9999 per Pre-Funded Warrant. Net proceeds were approximately $188.0 million, after underwriting discounts, commissions and offering expenses of $13.3 million.
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 approximately $300.9 million, after underwriting discounts, commissions and offering expenses of $19.9 million.
b.Authorized
The Company has an unlimited authorized number of voting Common Shares and Preferred Shares without par value.
c.Preferred Shares
As of March 31, 2020 and December 31, 2019, no preferred shares were issued or outstanding, respectively.
d.Pre-funded common share warrants
On June 24, 2019, the Company completed a public offering of 7,013,892 common shares at $18.00 per share and 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 (the “Exercise Price”).
On January 27, 2020, the Company completed a subsequent public offering of 5,824,729 common shares at $46.50 per share and 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 “Exercise Price”).
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 the Exercise Price collected from holders will be recorded in common shares.

9

Table of Contents
e.Stock-Based Compensation
Original Stock Option Plan
On July 14, 2006, the shareholders 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 ten-year life. Common shares are issued from treasury when options are exercised.
Options issued to employees under the Original Plan vest over 4 years. Options issued to directors under the Original Plan vest over 3 years, and options issued to consultants and members of the Scientific Advisory Board under the Original Plan vest immediately upon issuance.
The exercise prices of the Company’s stock options under the Original Plan are denominated in Canadian dollars. The U.S. dollar amounts have been translated 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 Stock Option 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 IPO. This plan allowed for the grant of options to directors, officers, employees and consultants in U.S. or Canadian dollars, 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. 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 was further amended on March 4, 2020, that 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.
The maximum number of common shares reserved for issuance under the New Plan is 8,654,682, which includes 6,106,531 shares issuable upon exercise of options outstanding as of March 31, 2020. Beginning in 2020 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. 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 three months ended March 31, 2020, the Company granted 71,879 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 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. The grant date fair value for the RSUs granted in the three month period ended March 31, 2020 was $2,530.
Stock Options
All options granted under the New Plan will have an exercise price determined and approved by the Board 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.

10

Table of Contents
An option shall be exercisable during a period established by the Board 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, 20192,356,413  16.21  12.46  6.70101,404  77,807  
Granted320,400  48.70  35.65  
Exercised(89,288) 15.63  11.85  
Forfeited(30,505) 25.13  18.82  
Outstanding, March 31, 20202,557,020  20.20  14.36  6.8777,253  54,431  
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, 20192,853,346  15.85  8.6684,481  
Granted800,800  36.36  
Exercised(33,204) 11.80  
Forfeited(71,431) 13.58  
Outstanding, March 31, 20203,549,511  20.56  8.7654,011  
During the three months ended March 31, 2020, the Company received cash proceeds of $1,447 (C$1,946) from stock options exercised.
The stock options expire at various dates from December 31, 2020 to March 15, 2030.
The estimated fair value of options granted to officers, directors, employees and consultants is amortized over the vesting period. Stock-based compensation expense for equity classified instruments, as well as the financial statement impact of the periodic revaluation of liability classified equity instruments (note 12), is recorded in research and development expense, general and administrative expense and finance expense (income) as follows:
11

Table of Contents
Three Months Ended March 31,
20202019
Research and development expense:
Stock-based compensation for equity classified instruments (*)
$2,016  $1,127  
Change in fair value of liability classified equity instruments
(1,794) 420  
$222  $1,547  
General and administrative expense:
Stock-based compensation for equity classified instruments (*)
$2,228  $1,490  
Change in fair value of liability classified equity instruments
(5,379) 1,326  
$(3,151) $2,816  
Finance expense (income):
Change in fair value of liability classified equity instruments
(34) 15  
$(34) $15  
(*) Amounts include stock-based compensation expense relating to RSUs of $91 for the three months ended March 31, 2020 (three months ended March 31, 2019: nil)

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:
Three Months Ended March 31,
20202019
Dividend yield0 %0 %
Expected volatility75.2 %73.8 %
Risk-free interest rate0.66 %1.46 %
Expected average life of options6.07 years6.05 years
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:
Three Months Ended March 31,
20202019
Dividend yield0 %0 %
Expected volatility75.3 %72.7 %
Risk-free interest rate0.80 %2.49 %
Expected average life of options6.06 years6.06 years
Expected Volatility — Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. As the Company does not yet have sufficient history of its own volatility, the Company has identified several public entities of similar complexity and stage of development and calculates historical volatility using the volatility of these companies.
Risk-Free Interest Rate — This rate is from the Government of Canada and U.S. Federal Reserve marketable bonds for the month prior to each option grant during the year, having a term that most closely resembles the expected life of the option.
Expected Term — This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years. The Company uses the simplified method to calculate the average expected term, which represents the average of the vesting period and the contractual term.
Share Fair Value — Options granted after the Company’s IPO, are issued at the fair market value of the Company’s stock at the date the grant is approved by the Board. 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, with input from management. Management estimated the fair value
12

Table of Contents
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.
The weighted-average Black-Scholes option pricing assumptions for liability classified stock options are as follows:
March 31,
2020
March 31,
2019
Dividend yield
0 %0 %
Expected volatility
80.2 %76.8 %
Risk-free interest rate
0.51 %1.53 %
Expected average option term
3.20 years3.57 years
Number of liability classified stock options outstanding
1,252,604  1,452,666  
At March 31, 2020, the unamortized compensation expense related to unvested options was $35,650 (C$50,598). The remaining unamortized compensation expense as of March 31, 2020 will be recognized over a weighted-average period of 1.92 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 $25 thousand worth of the Company’s common shares (determined using the lesser of (i) the market price of a common share on the first day of the applicable purchase period and (ii) the market price of a common share on the purchase date) for each year such purchase right is outstanding.
As this plan is considered compensatory, the Company recognizes compensation expense on these awards based on their estimated grant date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense in the consolidated statements of loss and comprehensive loss on a straight-line basis over the requisite service period. For the three months ended March 31, 2020, the Company recorded compensation expense of $155 (2019: $83) in research and development expense and general and administrative expense accounts. As of March 31, 2020, total amount contributed by the ESPP participants and not yet settled is $357 (December 31, 2019: $435).







13

Table of Contents
9. Research, Collaboration and Licensing Agreements

Revenue recognized from the Company’s strategic partnerships is summarized as follows: 
Three Months Ended
March 31,
20202019
BeiGene, Ltd ("BeiGene"):
Milestone revenue$5,000  $  
          Drug supply revenue 2,159    
Recognition of upfront fee
  3,530  
Eli Lilly and Company ("Lilly"):
Milestone revenue  8,000  
Research support and other payments1,110  395  
8,269  11,925  
Since December 31, 2019, there have not been any material changes to the key terms of our collaboration and license agreements. 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, 2019.
In March 2020, the Company recognized milestone revenue of $5,000 under a license and collaboration agreement with BeiGene upon BeiGene's dosing of ZW25 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 three months ended March 31, 2020.

In January 2019, the Company recognized revenue of $8,000 for achieving a development milestone under a licensing and collaboration agreement with Lilly upon Lilly’s filing of an IND application for a bispecific antibody enabled by the Company's Azymetric platform.

At March 31, 2020, contract assets from research, collaboration and licensing agreements were nil (December 31, 2019: nil) and contract liabilities were $32,941 (December 31, 2019: $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 three months ended March 31, 2020, the Company did not recognize any revenue from performance obligations satisfied in relation to the deferred revenue (three months ended March 31, 2019: $3,530). Amounts not expected to be recognized as revenue in the next twelve months from March 31, 2020 have been classified as long-term deferred revenue.
10. Other income (expenses), net
Other income (expenses), net consists of the following:
Three Months Ended
March 31,
20202019
Foreign exchange gain (loss) $3,223  $(139) 
Other  27  (18) 
$3,250  $(157) 

11. Leases
The Company leases separate office and laboratory space in Vancouver, British Columbia, with terms of both leases expiring in August 2021. On January 25, 2019, the Company entered into a lease for a new building in Vancouver to serve as the Company’s future head office, including both office and laboratory space. The commencement date of this lease depends upon completion of construction of the building and is currently estimated to be no later than September 1, 2021. 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 2022 and September 2025. None of the optional extension periods have been included in the determination
14

Table of Contents
of the right-of-use asset or the lease liability for operating leases as the Company did not consider it reasonably certain that the Company would exercise any such options.

The balance sheet classification of the Company’s lease liabilities was as follows:
March 31,
2020
December 31,
2019
Operating lease liabilities:
Current portion
$1,749  $1,282  
Long-term portion
7,258  5,599  
Total operating lease liabilities
9,007  $6,881  
Finance lease liabilities:
Current portion included in other current liabilities
23  10  
Long-term portion included in other long-term liabilities
77  46  
Total finance lease liabilities
100  56  
Total lease liabilities
$9,107  $6,937  
Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2020 was $0.6 million and was included in net cash used in operating activities in the consolidated statements of cash flows.
As of March 31, 2020, the maturities of the Company’s operating lease liabilities were as follows:
Operating
leases
Within 1 year
$2,003  
1 to 2 years
2,212  
2 to 3 years
1,472  
3 to 4 years
1,514  
4 to 5 years
1,556  
Thereafter
794  
Total operating lease payments
9,551  
Less:
Imputed interest
(544) 
Operating lease liabilities
$9,007  
As of March 31, 2020, the weighted average remaining lease term is 4.6 years and the discount rate used to determine the operating lease liability was 4.6% for leases in Canadian dollars and 2.7% for leases in U.S. dollars.
During the three months ended March 31, 2020, the Company incurred total operating lease expenses of $912, which included lease expenses associated with fixed lease payments of $824, and variable payments associated with common area maintenance and similar expenses of $88.
In addition to the operating lease liabilities included in the table above, the Company has commitments for future operating lease payments of $20.3 million under the terms of the lease for the Company’s future head office, which is expected to commence in September 2021.

15

Table of Contents
The Company also leases office equipment under finance lease agreements. As of March 31, 2020, the maturities of the Company’s finance lease liabilities were as follows:
Finance leases
Within 1 year
$25  
1 to 2 years
20  
2 to 3 years
14  
3 to 4 years
10  
4 to 5 years36  
Total finance lease payments105  
Less:
Imputed interest(5) 
Finance lease liabilities100  

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, 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.

16

Table of Contents
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 1Level 2Level 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