| Shareholders' Equity | Shareholders’ Equity a. Equity Offerings 2022 Public Offering On January 31, 2022, the Company closed a public offering pursuant to which the Company sold 11,035,000 common shares, including the sale of 1,875,000 common shares to the underwriters upon their full exercise of their over-allotment option, at $8.00 per common share and 3,340,000 Pre-Funded Warrants (note 8d) in lieu of common shares at $7.9999 per Pre-Funded Warrant. Net proceeds were $107,534, after underwriting discounts, commissions and offering expenses. b. Authorized As of September 30, 2022, the Company has an unlimited authorized number of voting common shares, preferred shares and Series A Participating Preferred Shares, all without par value. c. Preferred Shares As of September 30, 2022 and December 31, 2021, no preferred shares were issued or outstanding, respectively. 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, 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. In connection with a public offering completed on January 31, 2022 (note 8a), the Company issued 3,340,000 Pre-Funded Warrants at a price of $7.9999 per Pre-Funded Warrant which granted holders of warrants the right to purchase up to 3,340,000 common shares of the Company, at an exercise price of $0.0001 per share. The Pre-Funded Warrants are exercisable by the holders at any time on or after the original issue date. The Pre-Funded Warrants do not expire unless they are exercised or settled in accordance with the Pre-Funded Warrant agreement. As the Pre-Funded Warrants meet the condition for equity classification, proceeds from issuance of the Pre-Funded Warrants, net of any transaction costs, are recorded in additional paid-in capital. Upon exercise of the Pre-Funded Warrants, the historical costs recorded in additional paid-in capital along with exercise price collected from holders will be recorded in common shares. On August 23, 2022, 3,787,737 warrants were exercised in a cashless transaction in exchange for issuance of 3,787,675 common shares upon which $57,858 has been transferred to common shares account from additional paid-in capital. e. Adoption of a Shareholder Rights Plan On June 9, 2022, the board of directors authorized and declared a dividend distribution of one right (each, a “Right”) for each outstanding common share of the Company to shareholders of record as of the close of business on June 21, 2022. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Participating Preferred Share, of the Company, at an exercise price of $74.00, subject to adjustment. The complete terms of the Rights are set forth in a Preferred Shares Rights Agreement (the “Rights Plan”), dated as of June 9, 2022, between the Company and Computershare Trust Company, N.A., as rights agent. In general terms, the Rights Plan works by imposing a significant penalty upon any person or group that acquires 10 percent or more (or 20 percent or more in the case of certain institutional investors who report their holdings on Schedule 13G) of the common shares without the approval of the board of directors. As a result, the overall effect of the Rights Plan and the issuance of the Rights may be to render more difficult or discourage a merger, amalgamation, arrangement, take-over bid, tender or exchange offer or other business combination involving the Company that is not approved by the board of directors. However, neither the Rights Plan nor the Rights should interfere with any merger, amalgamation, arrangement, take-over bid, tender or exchange offer or other business combination approved by the board of directors. The issuance of Rights does not affect reported earnings per share. On October 12, 2022, Zymeworks Inc. (a Delaware corporation) and Computershare Trust Company, N.A., as rights agent, entered into a Preferred Stock Rights Agreement (the “New Rights Plan”) and on October 13, 2022, the board of directors of Zymeworks Inc. (a Delaware corporation) declared a dividend distribution of one right (each, a “Right”) for each share of common stock outstanding at 12:01 a.m. (Pacific Time) on October 13, 2022 (the “Record Date”) and for each share of common stock that becomes outstanding, including any shares of common stock issued in connection with the Redomicile Transactions and as consideration for the Exchangeable Shares, as applicable, between the Record Date and the earlier of the Distribution Date (as defined in the New Rights Plan) and the expiration of the Rights. On October 13, 2022, the Rights Plan expired. The New Rights Plan has substantively similar terms as the Rights Plan. Refer to note 15 for additional details. f. 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 Plan and Inducement Plan On April 10, 2017, the Company’s shareholders approved a new stock option plan, which became effective immediately prior to the consummation of the Company’s initial public offering (“IPO”). This plan allows for the grant of options 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, 2022, 3,275,576 common shares were available for future award grants under the New Plan (December 31, 2021: 952,632 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. On January 5, 2022, board of directors approved the Zymeworks Inc. Inducement Stock Option and Equity Compensation Plan (the "Inducement Plan") and reserved 750,000 of the Company’s common shares for issuance pursuant to equity awards granted thereunder. As of September 30, 2022, 50,000 common shares were available for future award grants under this plan. RSUs During the year-ended December 31, 2020, the Company started granting RSUs to certain employees, which typically 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 Company's closing stock price on the grant date. Number of RSUs Weighted- Outstanding, December 31, 2021 354,269 25.85 Granted 10,400 7.55 Vested and settled (39,256) 36.70 Forfeited (142,880) 26.68 Outstanding, September 30, 2022 182,533 21.82 As of September 30, 2022, there was $1,335 of unamortized RSU expense that will be recognized over a weighted average period of 1.06 years. 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 Weighted- Weighted- Weighted- Aggregate Aggregate Outstanding, December 31, 2021 2,488,655 26.15 20.70 6.24 7,919 6,224 Granted 874,585 8.73 6.83 Exercised (16,968) 7.58 5.92 Forfeited (1,128,103) 26.32 20.58 Outstanding, September 30, 2022 2,218,169 19.34 13.98 6.47 149 109 The following table summarizes the Company’s stock options granted in U.S. dollars under the New Plan and the Inducement Plan: Number Weighted- Weighted- Aggregate Outstanding, December 31, 2021 4,916,914 26.59 7.93 5,555 Granted 2,740,148 8.34 Exercised (2,315) 7.00 Forfeited (2,111,737) 26.86 Outstanding, September 30, 2022 5,543,010 17.48 8.03 98 During the nine months ended September 30, 2022, the Company received cash proceeds of $116 from stock options exercised. The stock options outstanding at September 30, 2022 expire at various dates from January 1, 2023 to September 11, 2032. The estimated fair values of options granted to officers, directors, employees and consultants are amortized over the relevant vesting periods. Stock-based compensation expense for equity classified instruments, as well as the financial statement impact of the amortization and periodic revaluation of liability classified instruments, are recorded in research and development expense, general and administration expense and finance expense as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Research and development expense: Stock-based compensation expense for equity classified instruments $ 2,226 $ 5,562 $ 1,450 $ 15,688 Change in fair value of liability classified instruments 2 (916) (772) (3,185) $ 2,228 $ 4,646 $ 678 $ 12,503 General and administrative expense: Stock-based compensation expense for equity classified instruments $ 2,473 $ 4,773 $ 1,522 $ 14,260 Change in fair value of liability classified instruments 29 (3,600) (3,010) (15,006) $ 2,502 $ 1,173 $ (1,488) $ (746) Finance expense (income): Change in fair value of liability classified instruments 2 (22) (30) (80) $ 2 $ (22) $ (30) $ (80) Amounts for equity classified instruments above include stock-based compensation expense relating to RSUs of $533 and $407 for the three and nine months ended September 30, 2022 (2021: $856 and $2,180). The estimated fair value of stock options granted under the New Plan was determined using the Black-Scholes option pricing model with the following weighted-average assumptions: Nine Months Ended September 30, 2022 2021 Dividend yield 0 % 0 % Expected volatility 77.3 % 80.7 % Risk-free interest rate 1.98 % 0.98 % Expected average life of options 5.95 years 6.05 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 together with volatility of its own stock. 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 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, 2022 and 2021 are as follows: September 30, September 30, Dividend yield 0 % 0 % Expected volatility 71.4 % 73.4 % Risk-free interest rate 3.70 % 0.62 % Expected average option term 2.01 years 2.38 years Number of liability classified stock options outstanding 741,685 911,400 At September 30, 2022, the unamortized compensation expense related to unvested options was $17,309. The remaining unamortized compensation expense as of September 30, 2022 will be recognized over a weighted-average period of 1.61 years. g. 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 dollars 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 and nine months ended September 30, 2022, the Company recorded compensation expense of $67 and $357 (2021: $249 and $767) in research and development expense and general and administrative expense accounts. As of September 30, 2022, the total amount contributed by ESPP participants and not yet settled is $153 (December 31, 2021: $1,243). |
