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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
______________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
______________________________________
ZYMEWORKS INC.
(Exact name of registrant as specified in its charter)
______________________________________
British Columbia, Canada
98-1398788
(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 October 31, 2021 was 46,553,964.



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ZYMEWORKS INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2021
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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;
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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;
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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,
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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.
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PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements
Zymeworks Inc.
Index to Interim Condensed Consolidated Financial Statements (unaudited)
As of and for the three and nine months ended September 30, 2021
Page

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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$253,439 $242,036 
Short-term investments (note 5)54,318 184,318 
Accounts receivable4,927 15,293 
Prepaid expenses and other current assets24,080 13,429 
Total current assets336,764 455,076 
Deferred financing fees962 805 
Long-term investments (note 5)886 25,921 
Long-term prepaid assets4,280 2,290 
Deferred tax asset 1,990 1,723 
Property and equipment, net 18,560 12,185 
Operating lease right-of-use assets24,574 5,429 
Intangible assets, net 2,700 5,303 
Acquired in-process research and development (note 6)17,628 17,628 
Goodwill (note 6) 12,016 12,016 
Total assets$420,360 $538,376 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (note 7)$56,068 $43,655 
Fair value of liability classified stock options (note 12)18,015 39,284 
Current portion of operating lease liability (note 11)1,323 2,710 
Other current liabilities 22 17 
Total current liabilities75,428 85,666 
Long-term portion of operating lease liability (note 11)28,742 5,812 
Deferred revenue (note 9)32,941 32,941 
Other long-term liabilities (note 7)2,571 2,857 
Deferred tax liability 1,749 1,178 
Total liabilities141,431 128,454 
Shareholders’ equity:
Common shares, no par value; unlimited authorized shares at September 30, 2021 and December 31, 2020, respectively; 46,553,660 and 46,035,389 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively (note 8b)
739,560 724,219 
Additional paid-in capital189,980 163,623 
Accumulated other comprehensive loss(6,659)(6,659)
Accumulated deficit(643,952)(471,261)
Total shareholders’ equity278,929 409,922 
Total liabilities and shareholders’ equity$420,360 $538,376 
Research collaboration and licensing agreements (note 9)
Commitments and contingencies (note 13)
The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Condensed Consolidated Statements of Loss and Comprehensive Loss
(Expressed in thousands of U.S. dollars except share and per share data)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue
Research and development collaborations (note 9)$4,395 $2,643 $6,810 $23,271 
Operating expenses:
Research and development49,893 54,401 144,887 131,128 
General and administrative15,466 21,936 36,707 42,066 
Total operating expenses65,359 76,337 181,594 173,194 
Loss from operations(60,964)(73,694)(174,784)(149,923)
Other income (expense):
Interest income340 1,302 1,669 4,660 
Other income (expense), net (note 10)809 (213)1,279 2,872 
Total other income, net1,149 1,089 2,948 7,532 
Loss before income taxes(59,815)(72,605)(171,836)(142,391)
Income tax recovery (expense)(764)43 (855)(268)
Net loss and comprehensive loss$(60,579)$(72,562)$(172,691)$(142,659)
Net loss per common share (note 4):
Basic$(1.17)$(1.43)$(3.35)$(2.85)
Diluted$(1.25)$(1.43)$(3.66)$(2.85)
Weighted-average common shares outstanding (note 4):
Basic51,657,371 50,903,633 51,483,428 50,129,181 
Diluted52,238,901 50,903,633 52,125,929 50,129,181 
The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in thousands of U.S. dollars except share data)
(unaudited)

Common sharesAccumulated
deficit
Accumulated
other
comprehensive
loss
Additional
paid-in
capital
Total
shareholders’
equity
SharesAmount
Balance at January 1, 202146,035,389 $724,219 $(471,261)$(6,659)$163,623 $409,922 
Issuance of common shares on exercise of options78,736 2,624 — — (662)1,962 
Issuance of common shares through employee stock purchase plan26,807 1,321 — — — 1,321 
Issuance of common shares upon vesting of restricted stock units ("RSUs")23,956 843 — — (843) 
Stock-based compensation— — — — 8,530 8,530 
Net loss— — (44,590)— — (44,590)
Balance at March 31, 202146,164,888 $729,007 $(515,851)$(6,659)$170,648 $377,145 
Issuance of common shares on exercise of options67,583 $1,218 $— $— $(455)$763 
Issuance of common shares upon vesting of RSUs2,266 $86 $— $— $(86)
Stock-based compensation— $— $— $— $11,086 $11,086 
Net loss— $— $(67,522)$— $— $(67,522)
Balance at June 30, 202146,234,737 $730,311 $(583,373)$(6,659)$181,193 $321,472 
Issuance of common shares on exercise of options275,425 $7,449 $— $— $(1,506)$5,943 
Issuance of common shares through employee stock purchase plan42,157 $1,759 $— $— $— $1,759 
Issuance of common shares upon vesting of RSUs1,341 $41 $— $— $(41)$ 
Stock-based compensation— $— $— $— $10,334 $10,334 
Net loss— $— $(60,579)$— $— $(60,579)
Balance at September 30, 202146,553,660 $739,560 $(643,952)$(6,659)$189,980 $278,929 

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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 options122,492 2,767 — — (754)2,013 
Issuance of common shares through employee stock purchase plan21,451 615 — — — 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 
Issuance of common shares on exercise of options29,954 $709 $— $— $(152)$557 
Stock-based compensation— $— $— $— $7,238 $7,238 
Net loss— $— $(38,961)$— $— $(38,961)
Balance at June 30, 202045,563,155 $708,319 $(360,806)$(6,659)$150,399 $491,253 
Issuance of common shares on exercise of options216,127 $5,982 $— $— $(1,022)$4,960 
Issuance of common shares through employee stock purchase plan22,522 $1,003 $— $— $— $1,003 
Stock-based compensation— $— $— $— $7,700 $7,700 
Net loss— $— $(72,562)$— $— $(72,562)
Balance at September 30, 202045,801,804 $715,304 $(433,368)$(6,659)$157,077 $432,354 

The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)
(unaudited)
Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net loss$(172,691)$(142,659)
Items not involving cash:
Depreciation and amortization of property and equipment2,894 2,436 
Amortization of intangible assets2,643 3,066 
Stock-based compensation expense12,446 22,828 
Amortization and impairment of operating lease right-of-use assets2,604 2,253 
Deferred income tax expense303 8 
Non-cash consideration from licensing agreement (218)
Change in fair value of contingent consideration liability31 68 
Change in fair value of investments in equity instruments(167) 
Unrealized foreign exchange gain(200)(2,252)
Changes in non-cash operating working capital:
Accounts receivable10,421 (1,506)
Prepaid expenses and other current assets(11,586)(1,538)
Accounts payable and accrued liabilities10,713 15,117 
Operating lease liabilities647 (1,103)
Net cash used in operating activities(141,942)(103,500)
Cash flows from financing activities:
Proceeds from public offering, net of issuance costs (note 8a) 300,910 
Issuance of common shares on exercise of stock options (note 8e)5,436 4,393 
Issuance of common shares through employee stock purchase plan2,070 1,111 
Deferred financing fees(172)(93)
Finance lease payments(12)(37)
Net cash provided by financing activities7,322 306,284 
Cash flows from investing activities:
Net redemptions (purchases) of short-term and long-term investments154,114 (81,600)
Acquisition of property and equipment(7,621)(3,285)
Acquisition of intangible assets(40)(1,955)
Net cash provided by (used in) investing activities146,453 (86,840)
Effect of exchange rate changes on cash and cash equivalents(430)(275)
Net change in cash and cash equivalents11,403 115,669 
Cash and cash equivalents, beginning of period242,036 128,451 
Cash and cash equivalents, end of period$253,439 $244,120 
Supplemental disclosure of non-cash investing and financing items:
Leased assets obtained in exchange for operating lease liabilities$21,748 $1,817 
Acquisition of property and equipment in accounts payable and accrued liabilities1,649 568 
The accompanying notes are an integral part of these financial statements
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ZYMEWORKS INC.
Notes to the Interim Condensed Consolidated Financial Statements
(unaudited)
(Expressed in thousands of U.S. dollars except share and per share data)

1. Nature of Operations
Zymeworks Inc. (the “Company” or “Zymeworks”) is a clinical-stage biopharmaceutical company dedicated to the development of next-generation multifunctional biotherapeutics. Zymeworks was incorporated on September 8, 2003 under the laws of the Canada Business Corporations Act. On October 22, 2003, the Company was registered as an extra-provincial company under the Company Act (British Columbia). On May 2, 2017, the Company continued under the Business Corporations Act (British Columbia).
Since its inception, the Company has devoted substantially all of its resources to research and development activities, including developing its therapeutic platforms, and identifying and developing potential product candidates by undertaking preclinical studies and clinical trials. The Company supports these activities through general and administrative support, as well as by raising capital, conducting business planning and protecting its intellectual property.
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
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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 and nine months ended September 30, 2021, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in a material impact to the Company’s consolidated financial statements in future reporting periods.
3. Recent Accounting Pronouncements
Recent accounting pronouncements not yet adopted
The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to the business, or that no material effect is expected on the consolidated financial statements as a result of future adoption.

4. Net loss per share
Net loss per share for the three and nine months ended September 30, 2021 and 2020 was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Numerator:
Net loss attributable to common shareholders:
Basic$(60,579)$(72,562)$(172,691)$(142,659)
Adjustment for change in fair value of liability classified stock options(4,538) (18,270) 
Diluted$(65,117)$(72,562)$(190,961)$(142,659)
Denominator:
Weighted-average common shares outstanding:
Basic51,657,371 50,903,633 51,483,428 50,129,181 
Adjustment for dilutive effect of liability classified stock options581,530  642,501  
Diluted52,238,901 50,903,633 52,125,929 50,129,181 
Net loss per common share - basic$(1.17)$(1.43)$(3.35)$(2.85)
Net loss per common share - diluted$(1.25)$(1.43)$(3.66)$(2.85)
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
Long-term investments at September 30, 2021 consist of equity instruments of $886 acquired for strategic purposes or in connection with licensing and collaboration agreements with changes in fair value recorded through net income.
6. IPR&D and Goodwill
Acquired IPR&D
In-process research and development assets (“IPR&D”) acquired in the 2016 Kairos Therapeutics Inc. (“Kairos”) business combination are classified as indefinite-lived intangible assets and are not currently being amortized. The carrying value of
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IPR&D, net of impairment was $17,628 at both September 30, 2021 and December 31, 2020. The Company concluded that there were no impairment indicators related to IPR&D as of September 30, 2021.
Goodwill
The Company performed its most recent annual impairment test of goodwill as of December 31, 2020. 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, 2020, the Company performed a qualitative assessment for its annual impairment test of goodwill after concluding that it was not more likely than not that the fair value of the reporting unit was less than its carrying value. Consequently, a quantitative impairment test was not required. The Company concluded that there were no impairment indicators related to goodwill as of September 30, 2021.
7. Liabilities
Accounts payable and accrued expenses consisted of the following:
September 30,
2021
December 31,
2020
Trade payables$5,046 $6,244 
Accrued research and development expenses36,768 25,962 
Employee compensation and vacation accruals10,320 9,439 
Accrued legal and professional fees1,665 859 
Other2,269 1,151 
Total$56,068 $43,655 

Other long-term liabilities consisted of the following:
September 30,
2021
December 31,
2020
Liability for contingent consideration (note 12)$1,316 $1,285 
Liability from in-licensing agreement1,150 1,450 
Finance lease liability (note 11)105 122 
Total$2,571 $2,857 

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 preferred shares were issued or outstanding, respectively.
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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 $3,517 that will be recognized over a weighted average period of 1.55 years.
Number of RSUsWeighted-
average grant
date fair value
($)
Outstanding, December 31, 202082,704 35.19 
Granted128,905 36.57 
Vested and settled(27,563)35.19 
Forfeited(13,125)34.96 
Outstanding, September 30, 2021170,921 36.25 
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, 20202,285,569 22.00 17.27 6.4687,545 68,664 
Granted466,117 43.20 34.41 
Exercised(176,260)14.23 11.23 
Forfeited(47,845)40.38 32.31 
Outstanding, September 30, 20212,527,581 26.10 20.58 6.4821,268 16,712 
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, 20203,790,326 22.85 8.2092,705 
Granted1,506,778 35.36 
Exercised(245,484)14.11 
Forfeited(109,583)33.18 
Outstanding, September 30, 20214,942,037 26.87 8.0930,405 
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,
2021202020212020
Research and development expense:
Stock-based compensation for equity classified instruments$5,562 $3,389 $15,688 $8,680 
Change in fair value of liability classified instruments(916)2,379 (3,185)479 
$4,646 $5,768 $12,503 $9,159 
General and administrative expense:
Stock-based compensation for equity classified instruments$4,773 $4,311 $14,260 $10,703 
Change in fair value of liability classified instruments(3,600)8,195 (15,006)2,395 
$1,173 $12,506 $(746)$13,098 
Finance expense (income):
Change in fair value of liability classified instruments(22)49 (80)13 
$(22)$49 $(80)$13 
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,
20212020
Dividend yield0 %0 %
Expected volatility80.8 %76.2 %
Risk-free interest rate1.01 %0.61 %
Expected average life of options6.07 years6.07 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:
Nine Months Ended September 30,
20212020
Dividend yield0 %0 %
Expected volatility80.7 %76.6 %
Risk-free interest rate0.97 %0.69 %
Expected average life of options6.04 years6.02 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.
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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.
The weighted-average Black-Scholes option pricing assumptions for liability classified stock options outstanding at September 30, 2021 and 2020 are as follows:
September 30,
2021
September 30,
2020
Dividend yield
0 %0 %
Expected volatility
73.4 %85.4 %
Risk-free interest rate
0.62 %0.27 %
Expected average option term
2.38 years2.95 years
Number of liability classified stock options outstanding
911,4001,158,677
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
Revenue recognized from the Company’s strategic partnerships is summarized as follows: 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Janssen Biotech, Inc. ("Janssen"):
Milestone revenue$4,000 $ $4,000 $ 
Celgene Corporation and Celgene Alpine Investment Co. LLC (formerly “Celgene” and now a Bristol-Myers Squibb company, “BMS”)
Upfront fee relating to amendment   12,000 
BeiGene, Ltd ("BeiGene"):
Milestone revenue   5,000 
Research support and other payments395 2,643 2,810 6,271 
$4,395 $2,643 $6,810 $23,271 
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 not 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
Other (expense) income consist of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Foreign exchange gain (loss)$813 $(148)$1,185 $2,910 
Other(4)(65)94 (38)
$809 $(213)$1,279 $2,872 

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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.
The balance sheet classification of the Company’s lease liabilities was as follows:
September 30,
2021
December 31,
2020
Operating lease liabilities:
Current portion
$1,323 $2,710 
Long-term portion
28,742 5,812 
Total operating lease liabilities
30,065 $8,522 
Finance lease liabilities:
Current portion included in other current liabilities
22 17 
Long-term portion included in other long-term liabilities
105 122 
Total finance lease liabilities
127 139 
Total lease liabilities
$30,192 $8,661 
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).
As of September 30, 2021, the maturities of the Company’s operating lease liabilities were as follows:
Operating
leases
Within 1 year$2,482 
1 to 2 years4,655 
2 to 3 years4,588 
3 to 4 years4,699 
4 to 5 years4,659 
Thereafter15,415 
Total operating lease payments36,498 
Less:
Imputed interest(6,433)
Operating lease liabilities$30,065 
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 1Level 2Level 3
Liabilities
Liability for contingent consideration (note 13)$1,316 $— $— $1,316 
Total$1,316 $— $— $1,316 
December 31,
2020
Level 1Level 2Level 3
Liabilities
Liability for contingent consideration (note 13)$1,285 $— $— $1,285 
Total$1,285 $— $— $1,285 
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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 September 30, 2021$1,316 $ $1,316 
Nine Months Ended September 30, 2021$1,285 $31 $1,316 

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 cash investment policy with the primary objective being the preservation of capital and maintenance of liquidity. The cash investment 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 and short-term investments with high credit quality financial institutions.

At September 30, 2021, the maximum exposure to credit risk for accounts receivable was $4,927 (December 31, 2020: $15,293) and all accounts receivable are due within the next 12 months. As at September 30, 2021, accounts receivable included $2,871 in lease incentive receivable in relation to the lease for the Company’s future headquarters (December 31, 2020: nil). As at September 30, 2021 and December 31, 2020, the Company has not recognized any provision for expected credit losses in relation to accounts receivable.

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. At September 30, 2021, the Company’s net monetary assets denominated in Canadian dollars were $8,569 (C$10,908).

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.
13. Commitments and Contingencies
Commitments
The Company has entered into research collaboration agreements with strategic partners in the ordinary course of operations that may include contractual milestone payments related to the achievement of pre-specified research, development, regulatory and commercialization events and indemnification provisions, which are common in such agreements. Pursuant to the agreements, the Company is obligated to make research and development and regulatory milestone payments upon the occurrence of certain events and royalty payments based on net sales. The maximum amount of potential future indemnification is unlimited, however, the Company currently holds commercial and product liability insurance that limits the Company’s liability and may enable it to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under such
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agreements and believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to indemnification obligations for any period presented in the consolidated financial statements.
In connection with the Company's 2016 Kairos acquisition, the Company may be required to make future payments to CDRD Ventures Inc. (“CVI”) upon the direct achievement of certain development milestones for products incorporating certain Kairos intellectual property, as well as royalty payments on the net sales of such products. For out-licensed products and technologies incorporating certain Kairos intellectual property, the