PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(Expressed inIn thousands of U.S. dollars,Dollars, except share and per share amounts)
(Prepared in accordance with US GAAP) | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 30,954 | | | $ | 52,251 | |
Investments in marketable securities, current | 47,425 | | | 71,017 | |
Accounts receivable | 1,298 | | | 1,312 | |
Prepaid expenses and other current assets | 3,789 | | | 3,124 | |
Total current assets | 83,466 | | | 127,704 | |
Property and equipment, net of accumulated depreciation of $(8,499) (December 31, 2020: $7,621) | 6,779 | | | 6,927 | |
Investments in marketable securities, non-current | 42,906 | | | 0 | |
Right of use asset | 2,225 | | | 2,405 | |
Other non-current assets | 0 | | | 44 | |
Total assets | $ | 135,376 | | | $ | 137,080 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities | $ | 8,352 | | | $ | 8,901 | |
Liability-classified options | 132 | | | 250 | |
Lease liability, current | 357 | | | 390 | |
Total current liabilities | 8,841 | | | 9,541 | |
Liability related to sale of future royalties | 18,982 | | | 19,554 | |
Contingent consideration | 4,249 | | | 3,426 | |
Lease liability, non-current | 2,475 | | | 2,593 | |
Total liabilities | 34,547 | | | 35,114 | |
Stockholders’ equity | | | |
Preferred shares | | | |
Authorized: unlimited number without par value | | | |
Issued and outstanding: 1,164,000 (December 31, 2020: 1,164,000) | 155,886 | | | 149,408 | |
Common shares | | | |
Authorized: unlimited number without par value | | | |
Issued and outstanding: 97,700,016 (December 31, 2020: 89,678,722) | 1,017,416 | | | 985,939 | |
Additional paid-in capital | 63,933 | | | 60,751 | |
Deficit | (1,088,207) | | | (1,045,961) | |
Accumulated other comprehensive loss | (48,199) | | | (48,171) | |
Total stockholders’ equity | 100,829 | | | 101,966 | |
Total liabilities and stockholders’ equity | $ | 135,376 | | | $ | 137,080 | |
|
| | | | | | | |
| September 30, | | December 31, |
| 2017 | | 2016 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 15,225 |
| | $ | 23,413 |
|
Short-term investments (note 2) | 72,954 |
| | 107,146 |
|
Accounts receivable | 846 |
| | 273 |
|
Accrued revenue | 128 |
| | 128 |
|
Investment tax credits receivable | 160 |
| | 293 |
|
Prepaid expenses and other assets | 1,500 |
| | 1,311 |
|
Total current assets | 90,813 |
| | 132,564 |
|
Restricted investment (note 2) | 12,601 |
| | 12,601 |
|
Property and equipment | 24,747 |
| | 17,683 |
|
Less accumulated depreciation | (12,125 | ) | | (10,738 | ) |
Property and equipment, net of accumulated depreciation | 12,622 |
| | 6,945 |
|
Intangible assets (note 3) | 99,445 |
| | 99,445 |
|
Goodwill (note 3) | 24,364 |
| | 24,364 |
|
Total assets | $ | 239,845 |
| | $ | 275,919 |
|
Liabilities and stockholders' equity | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities (note 5) | $ | 6,403 |
| | $ | 9,910 |
|
Deferred revenue (note 4) | 15 |
| | 15 |
|
Liability-classified options (note 2) | 1,817 |
| | 553 |
|
Warrants | — |
| | 107 |
|
Total current liabilities | 8,235 |
| | 10,585 |
|
Deferred lease incentives, net of current portion | 744 |
| | — |
|
Loan payable | 12,001 |
| | 12,001 |
|
Contingent consideration (notes 2 and 6) | 10,211 |
| | 9,065 |
|
Deferred tax liability | 41,263 |
| | 41,263 |
|
Total liabilities | 72,454 |
| | 72,914 |
|
Stockholders’ equity: | | | |
Common shares | |
| | |
|
Authorized - unlimited number with no par value | |
| | |
|
Issued and outstanding: 55,051,983 (December 31, 2016 - 54,841,494) | 876,049 |
| | 867,393 |
|
Additional paid-in capital | 40,755 |
| | 36,543 |
|
Deficit | (699,631 | ) | | (651,149 | ) |
Accumulated other comprehensive loss | (49,782 | ) | | (49,782 | ) |
Total stockholders' equity | 167,391 |
| | 203,005 |
|
Total liabilities and stockholders' equity | $ | 239,845 |
| | $ | 275,919 |
|
Nature of business and future operations (note 1)
Contingencies and commitments (note 6)
Subsequent events (note 8)
See accompanying notes to the condensed consolidated financial statements.
ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(Expressed inIn thousands of U.S. dollars,Dollars, except share and per share amounts)
(Prepared in accordance with US GAAP) |
| | | | | | | | | | | | | | |
| Three months ended | Nine months ended |
| September 30, | September 30, |
| 2017 |
| | 2016 |
| 2017 |
| | 2016 |
|
| | | | | | |
Revenue (note 4) | 6,892 |
| | 774 |
| 8,166 |
| | 1,686 |
|
| | | | | | |
Expenses | | | | | | |
Research, development, collaborations and contracts | 15,537 |
| | 15,738 |
| 44,854 |
| | 44,097 |
|
General and administrative | 3,659 |
| | 3,720 |
| 12,586 |
| | 34,705 |
|
Depreciation of property and equipment | 593 |
| | 291 |
| 1,407 |
| | 760 |
|
Impairment of intangible assets (note 3) | — |
| | — |
| — |
| | 156,324 |
|
Total expenses | 19,789 |
| | 19,749 |
| 58,847 |
| | 235,886 |
|
| | | | | | |
Loss from operations | (12,897 | ) | | (18,975 | ) | (50,681 | ) | | (234,200 | ) |
| | | | | | |
Other income (losses) | | | | | | |
Interest income | 337 |
| | 425 |
| 1,095 |
| | 1,104 |
|
Interest expense | (76 | ) | | — |
| (186 | ) | | — |
|
Foreign exchange gain (loss) | 1,233 |
| | (795 | ) | 2,458 |
| | 2,180 |
|
Gain on disposition of financial instrument | — |
| | — |
| — |
| | 1,000 |
|
Decrease (increase) in fair value of warrant liability (note 2) | — |
| | 10 |
| (22 | ) | | 339 |
|
Increase in fair value of contingent consideration (note 6) | (197 | ) | | (260 | ) | (1,146 | ) | | (756 | ) |
Total other income (losses) | 1,297 |
| | (620 | ) | 2,199 |
| | 3,867 |
|
| | | | | | |
Loss before income taxes | (11,600 | ) | | (19,595 | ) | (48,482 | ) | | (230,333 | ) |
Income tax benefit | — |
| | — |
| — |
| | 64,864 |
|
Net and comprehensive loss | $ | (11,600 | ) | | $ | (19,595 | ) | $ | (48,482 | ) | | $ | (165,469 | ) |
| | | | | | |
Loss per common share | | | | | | |
Basic and diluted | $ | (0.21 | ) | | $ | (0.37 | ) | $ | (0.89 | ) | | $ | (3.15 | ) |
Weighted average number of common shares | | | | | | |
Basic and diluted | 54,877,103 |
| | 53,652,007 |
| 54,612,081 |
| | 52,588,505 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenue | | | | | | | |
Collaborations and licenses | $ | 1,185 | | | $ | 825 | | | $ | 2,339 | | | $ | 1,660 | |
Non-cash royalty revenue | 1,144 | | | 689 | | | 2,103 | | | 1,345 | |
Total Revenue | 2,329 | | | 1,514 | | | 4,442 | | | 3,005 | |
Operating expenses | | | | | | | |
Research and development | 15,396 | | | 10,465 | | | 28,766 | | | 20,881 | |
General and administrative | 4,445 | | | 3,566 | | | 8,292 | | | 7,119 | |
Depreciation | 436 | | | 501 | | | 879 | | | 1,001 | |
Change in fair value of contingent consideration | 694 | | | 116 | | | 823 | | | 228 | |
Site consolidation | 0 | | | 7 | | | 0 | | | 64 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total operating expenses | 20,971 | | | 14,655 | | | 38,760 | | | 29,293 | |
Loss from operations | (18,642) | | | (13,141) | | | (34,318) | | | (26,288) | |
Other income (loss) | | | | | | | |
Interest income | 31 | | | 200 | | | 70 | | | 545 | |
Interest expense | (763) | | | (1,099) | | | (1,535) | | | (2,140) | |
Foreign exchange (loss) gain | (13) | | | (47) | | | 15 | | | (65) | |
| | | | | | | |
Total other loss | (745) | | | (946) | | | (1,450) | | | (1,660) | |
Loss before income taxes | (19,387) | | | (14,087) | | | (35,768) | | | (27,948) | |
| | | | | | | |
Net loss | (19,387) | | | (14,087) | | | (35,768) | | | (27,948) | |
Items applicable to preferred shares: | | | | | | | |
Dividend accretion of convertible preferred shares | (3,266) | | | (2,995) | | | (6,478) | | | (5,973) | |
Net loss attributable to common shares | $ | (22,653) | | | $ | (17,082) | | | $ | (42,246) | | | $ | (33,921) | |
| | | | | | | |
Loss per share | | | | | | | |
Basic and diluted | $ | (0.23) | | | $ | (0.25) | | | $ | (0.44) | | | $ | (0.49) | |
Weighted average number of common shares | | | | | | | |
Basic and diluted | 96,869,805 | | | 69,604,726 | | | 95,153,545 | | | 68,656,566 | |
| | | | | | | |
Comprehensive income (loss) | | | | | | | |
Unrealized (loss) gain on available-for-sale securities | $ | (31) | | | $ | 122 | | | $ | (28) | | | $ | 130 | |
| | | | | | | |
Comprehensive loss | $ | (19,418) | | | $ | (13,965) | | | $ | (35,796) | | | $ | (27,818) | |
See accompanying notes to the condensed consolidated financial statements.
ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(Expressed inIn thousands of U.S. dollars,Dollars, except share and per share amounts)
(Prepared in accordance with US GAAP)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Convertible Preferred Shares | | Common Shares | | | | | | | | |
| Number of Shares | | Share Capital | | Number of Shares | | Share Capital | | Additional Paid-In Capital | | Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
Balance December 31, 2020 | 1,164,000 | | | $ | 149,408 | | | 89,678,722 | | | $ | 985,939 | | | $ | 60,751 | | | $ | (1,045,961) | | | $ | (48,171) | | | $ | 101,966 | |
Accretion of accumulated dividends on Preferred Shares | — | | | 3,212 | | | — | | | — | | | — | | | (3,212) | | | — | | | 0 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,647 | | | — | | | — | | | 1,647 | |
Certain fair value adjustments to liability stock option awards | — | | | — | | | — | | | — | | | 40 | | | — | | | — | | | 40 | |
Issuance of common shares pursuant to the Open Market Sale Agreement | — | | | — | | | 6,395,780 | | | 26,419 | | | — | | | — | | | — | | | 26,419 | |
Issuance of common shares pursuant to exercise of options | — | | | — | | | 65,952 | | | 335 | | | (127) | | | — | | | — | | | 208 | |
Issuance of common shares pursuant to ESPP | — | | | — | | | 104,917 | | | 425 | | | (178) | | | — | | | — | | | 247 | |
Unrealized gain on available-for-sale securities | — | | | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (16,381) | | | — | | | (16,381) | |
Balance March 31, 2021 | 1,164,000 | | | $ | 152,620 | | | 96,245,371 | | | $ | 1,013,118 | | | $ | 62,133 | | | $ | (1,065,554) | | | $ | (48,168) | | | $ | 114,149 | |
Accretion of accumulated dividends on Preferred Shares | — | | | 3,266 | | | — | | | — | | | — | | | (3,266) | | | — | | | 0 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,758 | | | — | | | — | | | 1,758 | |
Certain fair value adjustments to liability stock option awards | — | | | — | | | — | | | — | | | 51 | | | — | | | — | | | 51 | |
Issuance of common shares pursuant to the Open Market Sale Agreement | — | | | — | | | 1,450,145 | | | 4,274 | | | — | | | — | | | — | | | 4,274 | |
Issuance of common shares pursuant to exercise of options | — | | | — | | | 4,500 | | | 24 | | | (9) | | | — | | | — | | | 15 | |
| | | | | | | | | | | | | | | |
Unrealized loss on available-for-sale securities | — | | | — | | | — | | | — | | | — | | | — | | | (31) | | | (31) | |
Net loss | — | | | — | | | — | | | — | | | — | | | (19,387) | | | — | | | (19,387) | |
Balance June 30, 2021 | 1,164,000 | | | $ | 155,886 | | | 97,700,016 | | | $ | 1,017,416 | | | $ | 63,933 | | | $ | (1,088,207) | | | $ | (48,199) | | | $ | 100,829 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Number of shares | | Share capital | | Additional paid-in capital | | Deficit | | Accumulated other comprehensive loss | | Total stockholders' equity |
December 31, 2016 | 54,841,494 |
| | $ | 867,393 |
| | $ | 36,543 |
| | $ | (651,149 | ) | | $ | (49,782 | ) | | $ | 203,005 |
|
Stock-based compensation | — |
| | 7,972 |
| | 5,198 |
| | — |
| | — |
| | 13,170 |
|
Certain fair value adjustments to liability stock option awards | — |
| | — |
| | (962 | ) | | — |
| | — |
| | (962 | ) |
Issuance of common shares pursuant to exercise of options | 31,489 |
| | 203 |
| | (24 | ) | | — |
| | — |
| | 179 |
|
Issuance of common shares pursuant to exercise of warrants | 179,000 |
| | 481 |
| | — |
| | — |
| | — |
| | 481 |
|
Net loss | — |
| | — |
| | — |
| | (48,482 | ) | | — |
| | (48,482 | ) |
Balance, September 30, 2017 | 55,051,983 |
| | $ | 876,049 |
| | $ | 40,755 |
| | $ | (699,631 | ) | | $ | (49,782 | ) | | $ | 167,391 |
|
See accompanying notes to the condensed consolidated financial statements.
ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(In thousands of U.S. Dollars, except share and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Convertible Preferred Shares | | Common Shares | | | | | | | | |
| Number of Shares | | Share Capital | | Number of Shares | | Share Capital | | Additional Paid-In Capital | | Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
Balance December 31, 2019 | 1,164,000 | | | 137,285 | | | 64,780,314 | | | $ | 898,535 | | | $ | 55,246 | | | $ | (970,093) | | | $ | (48,229) | | | $ | 72,744 | |
Accretion of accumulated dividends on Preferred Shares | — | | | 2,978 | | | — | | | — | | | — | | | (2,978) | | | — | | | 0 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,460 | | | — | | | — | | | 1,460 | |
Certain fair value adjustments to liability stock option awards | — | | | — | | | — | | | — | | | 180 | | | — | | | — | | | 180 | |
Issuance of common shares pursuant to the Open Market Sale Agreement | — | | | — | | | 4,147,081 | | | 12,315 | | | — | | | — | | | — | | | 12,315 | |
Issuance of common shares pursuant to exercise of options | — | | | — | | | 34,000 | | | 249 | | | (83) | | | — | | | — | | | 166 | |
Unrealized gain on available-for-sale securities | — | | | — | | | — | | | — | | | — | | | — | | | 252 | | | 252 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (13,861) | | | — | | | (13,861) | |
Balance March 31, 2020 | 1,164,000 | | | $ | 140,263 | | | 68,961,395 | | | $ | 911,099 | | | $ | 56,803 | | | $ | (986,932) | | | $ | (47,977) | | | $ | 73,256 | |
Accretion of accumulated dividends on Preferred Shares | — | | | 2,995 | | | — | | | — | | | — | | | (2,995) | | | — | | | 0 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,597 | | | — | | | — | | | 1,597 | |
Certain fair value adjustments to liability stock option awards | — | | | — | | | — | | | — | | | (92) | | | — | | | — | | | (92) | |
Issuance of common shares pursuant to the Open Market Sale Agreement | — | | | — | | | 2,291,184 | | | 5,045 | | | — | | | — | | | — | | | 5,045 | |
Issuance of common shares pursuant to exercise of options | — | | | — | | | 4,000 | | | (78) | | | (8) | | | — | | | — | | | (86) | |
Unrealized gain on available-for-sale securities | — | | | — | | | — | | | — | | | — | | | — | | | (122) | | | (122) | |
Net loss | — | | | — | | | — | | | — | | | — | | | (14,087) | | | — | | | (14,087) | |
Balance June 30, 2020 | 1,164,000 | | | $ | 143,258 | | | 71,256,579 | | | $ | 916,066 | | | $ | 58,300 | | | $ | (1,004,014) | | | $ | (48,099) | | | $ | 65,511 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See accompanying notes to the condensed consolidated financial statements.
ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(Expressed inIn thousands of U.S. dollars)Dollars)
(Prepared in accordance with US GAAP) |
| | | | | | | | | | | | | | |
| Three months ended | Nine months ended |
| September 30, | September 30, |
| 2017 | | 2016 | 2017 | | 2016 |
OPERATING ACTIVITIES | | | | | | |
Net loss for the period | $ | (11,600 | ) | | $ | (19,595 | ) | $ | (48,482 | ) | | $ | (165,469 | ) |
Items not involving cash: | | | | | | |
Deferred income taxes | — |
| | — |
| — |
| | (64,864 | ) |
Depreciation of property and equipment | 593 |
| | 291 |
| 1,407 |
| | 760 |
|
Stock-based compensation - research, development, collaborations and contract expenses | 2,468 |
| | 2,759 |
| 8,145 |
| | 8,225 |
|
Stock-based compensation - general and administrative expenses | 1,511 |
| | 1,695 |
| 5,440 |
| | 26,253 |
|
Unrealized foreign exchange (gains) losses | (1,328 | ) | | 826 |
| (2,578 | ) | | (2,130 | ) |
Change in fair value of warrant liability | — |
| | (10 | ) | 22 |
| | (339 | ) |
Change in fair value of contingent consideration | 197 |
| | 260 |
| 1,146 |
| | 756 |
|
Impairment of intangible assets (note 3) | — |
| | — |
| — |
| | 156,324 |
|
Net change in non-cash operating items: | | | | | | |
Accounts receivable | 196 |
| | 61 |
| (573 | ) | | 613 |
|
Investment tax credits receivable | — |
| | — |
| 133 |
| | 98 |
|
Prepaid expenses and other assets | 83 |
| | 584 |
| (189 | ) | | (263 | ) |
Accounts payable and accrued liabilities | (1,805 | ) | | (887 | ) | (3,513 | ) | | (1,961 | ) |
Deferred revenue | (6,739 | ) | | (696 | ) | — |
| | (1,066 | ) |
Deferred lease incentives | 744 |
| | — |
| 744 |
| | — |
|
Net cash used in operating activities | (15,680 | ) | | (14,712 | ) | (38,298 | ) | | (43,063 | ) |
INVESTING ACTIVITIES | | | | | | |
Disposition (acquisition) of short and long-term investments, net | 5,843 |
| | (712 | ) | 34,192 |
| | (98,457 | ) |
Acquisition of property and equipment | (538 | ) | | (168 | ) | (7,076 | ) | | (1,397 | ) |
Net cash provided by (used) in investing activities | 5,305 |
| | (880 | ) | 27,116 |
| | (99,854 | ) |
FINANCING ACTIVITIES | | | | | | |
Issuance of common shares pursuant to exercise of options | 61 |
| | 76 |
| 66 |
| | 192 |
|
Issuance of common shares pursuant to exercise of warrants | — |
| | — |
| 353 |
| | 445 |
|
Net cash provided by financing activities | 61 |
| | 76 |
| 419 |
| | 637 |
|
Effect of foreign exchange rate changes on cash and cash equivalents | 1,327 |
| | (824 | ) | 2,575 |
| | 2,131 |
|
(Decrease) Increase in cash and cash equivalents | (8,987 | ) | | (16,340 | ) | (8,188 | ) | | (140,149 | ) |
Cash and cash equivalents, beginning of period | 24,212 |
| | 42,970 |
| 23,413 |
| | 166,779 |
|
Cash and cash equivalents, end of period | $ | 15,225 |
| | $ | 26,630 |
| $ | 15,225 |
| | $ | 26,630 |
|
Supplemental cash flow information | | | | | | |
Non-cash transactions: | | | | | | |
Investment tax credit received | 108 |
| | $ | — |
| 108 |
| | — |
|
Acquired property and equipment in trade payables | — |
| | (266 | ) | 6 |
| | (266 | ) |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
OPERATING ACTIVITIES | | | |
Net loss | $ | (35,768) | | | $ | (27,948) | |
Non-cash items: | | | |
Depreciation | 879 | | | 1,001 | |
| | | |
Stock-based compensation expense | 3,378 | | | 3,042 | |
Unrealized foreign exchange losses (gains) | 44 | | | 56 | |
Change in fair value of contingent consideration | 823 | | | 228 | |
Non-cash royalty revenue | (2,103) | | | (1,345) | |
Non-cash interest expense | 1,531 | | | 2,092 | |
Net accretion and amortization of investments in marketable securities | 453 | | | 40 | |
Net change in operating items: | | | |
Accounts receivable | 14 | | | 96 | |
Prepaid expenses and other assets | (441) | | | 33 | |
Accounts payable and accrued liabilities | (582) | | | (1,398) | |
Other liabilities | (118) | | | (151) | |
Net cash used in operating activities | (31,890) | | | (24,254) | |
INVESTING ACTIVITIES | | | |
Purchase of investments | (54,145) | | | (25,912) | |
Disposition of investments | 34,350 | | | 46,948 | |
| | | |
| | | |
Acquisition of property and equipment | (731) | | | (66) | |
Net cash (used) provided by investing activities | (20,526) | | | 20,970 | |
FINANCING ACTIVITIES | | | |
| | | |
Issuance of common shares pursuant to the Open Market Sale agreement | 30,693 | | | 17,360 | |
Issuance of common shares pursuant to exercise of options | 223 | | | 80 | |
Issuance of common shares pursuant to ESPP | 247 | | | 0 | |
Net cash provided by financing activities | 31,163 | | | 17,440 | |
Effect of foreign exchange rate changes on cash and cash equivalents | (44) | | | (56) | |
(Decrease) increase in cash and cash equivalents | (21,297) | | | 14,100 | |
Cash and cash equivalents, beginning of period | 52,251 | | | 31,799 | |
Cash and cash equivalents, end of period | $ | 30,954 | | | $ | 45,899 | |
| | | |
Supplemental cash flow information | | | |
Preferred shares dividends accrued | $ | (6,478) | | | $ | (5,973) | |
See accompanying notes to the condensed consolidated financial statements.
ARBUTUS BIOPHARMA CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands of USU.S. Dollars, except share and per share amounts)
1.Nature of business and future operations
Description of the Business
Arbutus Biopharma Corporation (the “Company” or “Arbutus”) is a clinical-stage, biopharmaceutical business dedicated tocompany primarily focused on discovering, developing and commercializing a cure for patients suffering frompeople with chronic hepatitis B infection, a disease of the liver caused by the hepatitis B virus (“HBV”) infection. The Company is advancing multiple product candidates with distinct mechanisms of action that it believes have the potential to provide a new curative regimen for chronic HBV infection. The Company has also initiated a drug discovery and development effort for treating coronaviruses, including COVID-19.
The Company’s 2 lead product candidates are AB-729, the Company’s proprietary subcutaneously-delivered RNA interference (“RNAi”) product candidate that suppresses HBsAg expression, and AB-836, the Company’s proprietary next-generation oral capsid inhibitor that suppresses HBV DNA replication. AB-729 is currently in an ongoing Phase 1a/1b clinical trial and a Phase 2a proof-of-concept clinical trial in collaboration with Assembly Biosciences, Inc. (“Assembly”). The Company's portfolioCompany is also evaluating AB-729 in combination with other agents with potentially complementary mechanisms of assets includesaction in multiple Phase 2a proof-of-concept clinical trials. Additionally, the Company is enrolling subjects in a broad pipelinePhase 1a/1b clinical trial for AB-836 with initial data expected in the second half of drug candidates2021.
Liquidity
At June 30, 2021, the Company had an aggregate of $121.3 million in cash, cash equivalents and investments in marketable securities. The Company believes that these cash resources will be sufficient to develop a cure for HBV and leveragesfund its operations through the Company’s expertise in Lipid Nanoparticle ("LNP") technology.third quarter of 2022.
The success of the Company is dependent on obtaining the necessary regulatory approvals to bring its products to market and achieve profitable operations. The continuation of theCompany’s research and development activities and the commercialization of its products are dependent on the Company’sits ability to successfully complete these activities and to obtain adequate financing through a combination of financing activities and operations. It is not possible to predict either the outcome of the Company’s existing or future research and development programs or the Company’s ability to continue to fund these programs in the future.
COVID-19 Impact
In December 2019 an outbreak of a novel strain of coronavirus (COVID-19) was identified in Wuhan, China. This virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to nearly every country in the world. The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society. The pandemic has resulted in and will likely continue to result in significant disruptions to businesses. A number of countries and other jurisdictions around the world have implemented extreme measures to try and slow the spread of the virus. These measures include the closing of businesses and requiring people to stay in their homes, the latter of which raises uncertainty regarding the ability to travel to hospitals in order to participate in clinical trials. Additional measures that have had, and will likely continue to have, a major impact on clinical development, at least in the near-term, include shortages and delays in the supply chain, and prohibitions in certain countries on enrolling subjects in new clinical trials. While the Company has been able to progress with our clinical and pre-clinical activities to date, it is not possible to predict if the COVID-19 pandemic will materially impact the Company’s plans and timelines in the future.
2.Significant accounting policies
Basis of presentation
These unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles of the United States of America (“U.S. GAAP”) for interim financial statements and, accordingly, do not include all disclosures required for annual financial statements. These statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2016 and2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The2020 (the “2020 Form 10-K”). These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments and reclassifications necessary to fairly present fairly the Company’s financial position as of June 30, 2021 and 2020, the Company’s results of operations for the three and six months ended June 30, 2021 and 2020, and the Company’s cash flows at Septemberfor the six months ended June 30, 20172021 and for all periods presented.2020. Such adjustments are of a normal recurring nature. The results of operations for the three and ninesix months ended SeptemberJune 30, 2017 and September 30, 20162021 are not necessarily indicative of the results for the full year. These unaudited 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, 2016,2020, except as described below.below under Recent Accounting Pronouncements.
Principles of Consolidationconsolidation
These unaudited condensed consolidated financial statements include the accounts of the Company and its two1 wholly-owned subsidiaries,subsidiary, Arbutus Biopharma Inc. ("(“Arbutus Inc.") and Protiva Biotherapeutics Inc. ("Protiva"”). All intercompany transactions and balances have been eliminated on consolidation.eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.
Income orNet loss attributable to common shareholders per share
Income orThe Company follows the two-class method when computing net loss attributable to common shareholders per share as the Company has issued Series A participating convertible preferred shares (“Preferred Shares”), as further described in note 10. The Company’s Preferred Shares are participating securities, as they entitle the holders to participate in dividends. However, the Company’s Preferred Shares do not require the holders to participate in losses of the Company and accordingly, if the Company reports a net loss attributable to holders of the Company’s common shares, net losses are not allocated to holders of the Preferred Shares.
Net loss attributable to common shareholders per share is calculated based on the weighted average number of common shares outstanding. Diluted net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders per share since the effect of the Company’s stock options liability-classifiedand convertible preferred stock option awards, and warrants arewas anti-dilutive. During the ninesix months ended SeptemberJune 30, 2017,2021 and 2020, potential common shares of 5,339,714 (September 30, 2016 – 4,978,101)35.4 million and 31.3 million, respectively, consisting of the “if-converted” number of Preferred Shares and outstanding stock options, were excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive.
Revenue recognition
Accounting Standards Codification 606, Revenue From Contracts with Customers (“ASC 606”) requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under a five-step model: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as a performance obligation is satisfied.
The Company generates revenue through certain collaboration agreements and license agreements. Such agreements may require the Company to deliver various rights and/or services, including intellectual property rights or licenses and research and development services. Under such agreements, the Company is generally eligible to receive non-refundable upfront payments, funding for research and development services, milestone payments and royalties.
In contracts where the Company has more than one performance obligation to provide its customer with goods or services, each performance obligation is evaluated to determine whether it is distinct based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The consideration under the contract is then allocated between the distinct performance obligations based on their respective relative stand-alone selling prices. The estimated stand-alone selling price of each deliverable reflects the Company’s best estimate of what the selling price would be if the deliverable was
regularly sold on a stand-alone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if the selling price on a stand-alone basis is not available.
The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services. Consideration associated with at-risk substantive performance milestones, including sales-based milestones, is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur. Sales-based royalties received in connection with licenses of intellectual property are subject to a specific exception in the revenue standards, whereby the consideration is not included in the transaction price and recognized in revenue until the customer’s subsequent sales or usages occur.
Segment information
The Company operates as a single segment.
Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC 326). The guidance is effective for the Company beginning January 1, 2023 and it changes how entities account for credit losses on financial assets and other instruments that are not measured at fair value through net income, including available-for-sale debt securities. The Company is currently evaluating the impact of the new standard on its consolidated financial statements.
3. Fair value of financial instrumentsmeasurements
The Company measures certain financial instruments and other items at fair value.
To determine the fair value, the Company uses the fair value hierarchy for inputs used in measuring fair value that maximizesmaximize the use of observable inputs and minimizesminimize the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use to value an asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs based on assumptions about the factors market participants would use to value an asset or liability. The three levels of inputs that may be used to measure fair value are as follows:
•Level 1 inputs are quoted market prices for identical instruments available in active markets.
•Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability 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 assumptions about market assumptions that would be used to price the asset or liability.
The following table presents information about the Company’s assetsAssets and liabilities are classified based on the lowest level of input that are measured at fair value on a recurring basis, and indicatesis significant to the fair value hierarchymeasurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the valuation techniques used to determine such fair value:value hierarchy.
|
| | | | | | | | | | | | | | |
| Level 1 |
| | Level 2 |
| | Level 3 |
| | September 30, 2017 |
|
Assets | | | | | | | |
Cash and cash equivalents | $ | 15,225 |
| | — |
| | — |
| | $ | 15,225 |
|
Short-term investments | 72,954 |
| | — |
| | — |
| | 72,954 |
|
Restricted investment | 12,601 |
| | — |
| | — |
| | 12,601 |
|
Total | $ | 100,780 |
| | — |
| | — |
| | $ | 100,780 |
|
Liabilities | | | | | | | |
Liability-classified options | — |
| | — |
| | $ | 1,817 |
| | $ | 1,817 |
|
Contingent consideration | — |
| | — |
| | 10,211 |
| | 10,211 |
|
Total | — |
| | — |
| | $ | 12,028 |
| | $ | 12,028 |
|
|
| | | | | | | | | | | | | | |
| Level 1 |
| | Level 2 |
| | Level 3 |
| | December 31, 2016 |
|
Assets | | | | | | | |
Cash and cash equivalents | $ | 23,413 |
| | — |
| | — |
| | $ | 23,413 |
|
Short-term investments | 107,146 |
| | — |
| | — |
| | 107,146 |
|
Restricted investment | 12,601 |
| | — |
| | — |
| | 12,601 |
|
Total | $ | 143,160 |
| | — |
| | — |
| | $ | 143,160 |
|
Liabilities | | | | | | | |
Warrants | — |
| | — |
| | $ | 107 |
| | $ | 107 |
|
Liability-classified options | | | | | 553 |
| | 553 |
|
Contingent consideration | — |
| | — |
| | 9,065 |
| | 9,065 |
|
Total | — |
| | — |
| | $ | 9,725 |
| | $ | 9,725 |
|
The following table presents the changes in fair valuecarrying values of the Company’s warrants:
|
| | | | | | | | | | | | | | | |
| Liability at beginning of the period | | Fair value of warrants exercised in the period | | Increase (decrease) in fair value of warrants | | Liability at end of the period |
Nine months ended September 30, 2016 | $ | 883 |
| | $ | (247 | ) | | $ | (339 | ) | | $ | 297 |
|
Nine months ended September 30, 2017 | $ | 107 |
| | $ | (129 | ) | | $ | 22 |
| | $ | — |
|
On March 1, 2017, the remaining balance of the Company's warrants of 22,000 expired, resulting in a nil liability balance for the period-ended September 30, 2017. The change in fair value of warrant liability for the nine months ended September 30, 2017 is recorded in the statement of operations and comprehensive loss.
The following table presents the changes in fair value of the Company’s liability-classified stock option awards:
|
| | | | | | | | | | | | | | | |
| Liability at beginning of the period | | Fair value of liability-classified options exercised in the period | | Increase (decrease) in fair value of liability | | Liability at end of the period |
Nine months ended September 30, 2016 | $ | 1,909 |
| | $ | (54 | ) | | $ | (907 | ) | | $ | 948 |
|
Nine months ended September 30, 2017 | $ | 553 |
| | $ | (103 | ) | | $ | 1,367 |
| | $ | 1,817 |
|
The following table presents the changes in fair value of the Company’s contingent consideration:
|
| | | | | | | | | | | |
| Liability at beginning of the period | | Increase in fair value of Contingent Consideration | | Liability at end of the period |
Nine months ended September 30, 2016 | $ | 7,497 |
| | $ | 756 |
| | $ | 8,253 |
|
Nine months ended September 30, 2017 | $ | 9,065 |
| | $ | 1,146 |
| | $ | 10,211 |
|
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606). The standard, as subsequently amended, is intended to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS by creating a new Topic 606, Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The core principle of the accounting standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those good or services. The amendments should be applied by either (1) retrospectively to each prior reporting period presented; or (2) retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application ("modified retrospective method"). The new guidance would be effective for fiscal years beginning after December 15, 2017, which for the Company means January 1, 2018. The Company anticipates applying the modified retrospective method for its implementation, and continues to evaluate the expected impact that the standard could have on its consolidated financial statements and related disclosures, which the Company believes most materially relates to the timing and recognition of its licensing and collaboration contracts that are described in note 4.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842): Recognition and Measurement of Financial Assets and Financial Liabilities. The update supersedes Topic 840, Leases and requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases, with cash payments from operating leases classified within operating activities in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 15, 2018 for public business entities, which for the Company means January 1, 2019. The Company does not plan to early adopt this update. The extent of the impact of this adoption has not yet been determined. The Company currently has no assets that meet the definition of restricted cash.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. Under this update, the classification of cash receipts and payments that have aspects of more than one class of cash flows should be determined first by applying specific guidance in GAAP. In the absence of specific guidance, an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. An entity should then classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The amendments in this update are effective for public business entities for fiscal years beginning after December 31, 2017, which for the Company means January 1, 2018, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the extent of the impact of this adoption.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Statement of Cash Flows: Restricted Cash. The update requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents, when reconciling the beginning-of-periodaccounts receivable, accounts payable and end-of-period total amounts shown on the statement of cash flows. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, which for the Company means January 1, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that included that interim period. The amendments in this update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the extent of the impact of this adoption.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the impliedaccrued liabilities approximate their fair value of goodwill under the existing standard, an entity had to perform procedures to determine the fair value at impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets required and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The amendments in this update are effective for public business entities should be adopted for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, which for the Company means January 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the extent of the impact of this adoption.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this Update provide guidance about which changesvalues due to the termsimmediate or conditionsshort-term maturity of a share-based payment award require an entity to apply modification accounting under Topic 718. An entity should account for effects of a modification unless all of the following are met: (1)these financial instruments.
To determine the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in this Update are effective for all entities for annual periods and interim periods within those annual periods, beginning after December 15, 2017, which forcontingent consideration (note 8), the Company means January 1, 2018. Early adoption is permitted, including adoption in any interim period for public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company early adopted the amendments in this Update effective April 1, 2017. This adoption did not have an effect in the Company's statement of operations and comprehensive loss for the period beginning on the adoption date, to the period ended September 30, 2017, as no award modifications occurred.
3.Intangible assets and goodwill
All in-process research and development (IPR&D) acquired is currently classified as indefinite-lived and is not currently being amortized. IPR&D becomes definite-lived upon the completion or abandonment of the associated research and development efforts, and will be amortized from that time over an estimated useful life based on respective patent terms. The Company evaluates the recoverable amount of intangible assets on an annual basis and performs an annual evaluation of goodwill as of December 31 each year, unless there is an event or change in the business that could indicate impairment, in which case earlier testing is performed.
The following table summarizes the carrying values of the intangible assets as at September 30, 2017:
|
| | | | | | |
| September 30, 2017 |
| December 31, 2016 |
|
IPR&D – Immune Modulators | $ | 40,798 |
| $ | 40,798 |
|
IPR&D – Antigen Inhibitors | 14,811 |
| 14,811 |
|
IPR&D – cccDNA Sterilizers | 43,836 |
| 43,836 |
|
Total Intangible Assets | $ | 99,445 |
| $ | 99,445 |
|
Impairment evaluation of goodwill
At September 30, 2017, the Company did not identify any new indicators of impairment. No impairment charge on intangible assets or goodwill was recorded for the period ended September 30, 2017 (three months ended September 30, 2016 - nil; nine months ended September 30, 2016 - $156,324,000).
4.Collaborations, contracts and licensing agreements
The following table set forth revenue recognized under collaborations, contracts and licensing agreements, in thousands:
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 |
| | 2016 |
| | 2017 |
| | 2016 |
|
Alexion (a) | $ | 6,859 |
| | $ | — |
| | $ | 7,956 |
| | $ | — |
|
Dicerna (b) | — |
| | 727 |
| | — |
| | 1,292 |
|
Other milestone and royalty payments (c) | 33 |
| | 47 |
| | 210 |
| | 394 |
|
Total revenue | $ | 6,892 |
| | $ | 774 |
| | $ | 8,166 |
| | $ | 1,686 |
|
(a) License Agreement with Alexion Pharmaceuticals, Inc. ("Alexion")
On March 16, 2017, the Company signed a license agreement with Alexion that entitles Alexion to research, develop, manufacture, and commercialize products with the Company's lipid nanoparticle ("LNP") technology in their single orphan disease target. In consideration for the rights granted under the agreement, the Company received a $7,500,000 non-refundable upfront cash payment, as well as payments for services provided. This upfront payment was amortized over the period of expected benefit.
On July 27, 2017, the Company received notice of termination from Alexion for the Company's LNP license agreement. The termination was driven by a strategic review of Alexion's business and research and development portfolio, which included a decision to discontinue development of mRNA therapeutics. The $7,500,000 upfront payment received in March 2017 is non-refundable, and the Company has recorded the remaining deferred revenue balance of $6,739,000, as well as any revenue and costs related to closeout procedures in the statement of operations and comprehensive loss for the period ended September 30, 2017.
(b) License and Development and Supply Agreement with Dicerna Pharmaceuticals, Inc. (“Dicerna”)
On November 16, 2014, the Company signed a License Agreement and a Development and Supply Agreement (together, the “Agreements”) with Dicerna to develop, manufacture, and commercialize products directed to the treatment of Primary Hyperoxaluria 1 (“PH1”). In consideration for the rights granted under the Agreements, Dicerna paid the Company an upfront cash payment of $2,500,000, as well as payments for manufacturing and services provided.
In September 2016, Dicerna announced the discontinuation of their DCR-PH1 program using the Company's technology. As such, the Company revised the estimated completion date of performance period from March 2017 to September 30, 2016, at which time the Company had no further remaining performance obligations. This resulted in the recognition of $1,066,000 in Dicerna license fee revenue for year ended December 31, 2016 and no revenue thereafter.
(c) Agreements with Spectrum Pharmaceuticals, Inc. (“Spectrum”)
On May 6, 2006, the Company signed a number of agreements with Talon Therapeutics, Inc. (“Talon”, formerly Hana Biosciences, Inc.) including the grant of worldwide licenses (the “Talon License Agreement”) for three of the Company’s chemotherapy products, Marqibo®, Alocrest ™ (Optisomal Vinorelbine) and Brakiva ™ (Optisomal Topotecan).
On August 9, 2012, the Company announced that Talon had received accelerated approval for Marqibo from the FDA for the treatment of adult patients with Philadelphia chromosome negative acute lymphoblastic leukemia in second or greater relapse or whose disease has progressed following two or more anti-leukemia therapies. Marqibo is a liposomal formulation of the chemotherapy drug vincristine. In the year ended December 31, 2012, the Company received a milestone of $1,000,000 based on the FDA's approval of Marqibo and will receive royalty payments based on Marqibo's commercial sales. There are no further milestones related to Marqibo but the Company is eligible to receive total milestone payments of up to $18,000,000 on Alocrest and Brakiva.
Talon was acquired by Spectrum in July 2013. The acquisition does not affect the terms of the license between Talon and the Company. On September 3, 2013, Spectrum announced that they had shipped the first commercial orders of Marqibo. For the three and nine months ended September 30, 2017, the Company recorded $33,000 and $156,000 in Marqibo royalty revenue (three and nine months ended September 30, 2016 - $50,000 and $136,000 respectively). For the nine months ended September 30, 2017, the Company accrued 2.5% in royalties due to TPC in respect of the Marqibo royalty earned by the Company – see note 6, contingencies and commitments.
5. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities are comprised of the following, in thousands:
|
| | | | | | | |
| September 30, 2017 |
| | December 31, 2016 |
|
Trade accounts payable | $ | 2,291 |
| | $ | 3,215 |
|
Research and development accruals | 2,955 |
| | 3,131 |
|
Professional fee accruals | 226 |
| | 498 |
|
Deferred lease inducements | 38 |
| | 350 |
|
Payroll accruals | 189 |
| | 2,178 |
|
Other accrued liabilities | 704 |
| | 538 |
|
| $ | 6,403 |
| | $ | 9,910 |
|
6. Contingencies and commitments
Product development partnership with the Canadian Government
The Company entered into a Technology Partnerships Canada ("TPC") agreement with the Canadian Federal Government on November 12, 1999. Under this agreement, TPC agreed to fund 27% of the costs incurred by the Company, prior to March 31, 2004, in the development of certain oligonucleotide product candidates up to a maximum contribution from TPC of $7,179,000 (C$9,323,000). As at September 30, 2017, a cumulative contribution of $2,966,000 (C$3,702,000) had been received and the Company does not expect any further funding under this agreement. In return for the funding provided by TPC, the Company agreed to pay royalties on the share of future licensing and product revenue, if any, that is received by the Company on certain non-siRNA oligonucleotide product candidates covered by the funding under the agreement. These royalties are payable until a certain cumulative payment amount is achieved or until a pre-specified date. In addition, until a cumulative amount equal to the funding actually received under the agreement has been paid to TPC, the Company agreed to pay 2.5% royalties on any royalties the Company receives for Marqibo. For the three and nine months ended September 30, 2017, the Company earned royalties on Marqibo sales in the amount of $33,000 and $156,000 respectively (three and nine months ended September 30, 2016 – $50,000 and $136,000, respectively) (see note 4(c)), resulting in $4,000 being recorded by the Company as royalty payable to TPC (September 30, 2016 -$3,000). The cumulative amount paid or accrued up to September 30, 2017 was $21,000, therefore the remaining contingent amount due to TPC is $2,945,000 (C$3,675,000).
Arbitration with the University of British Columbia (“UBC”)
Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the Company and assigned to the University of British Columbia (UBC). These inventions are licensed to the Company by UBC under a license agreement, initially entered in 1998 as amended in 2001, 2006 and 2007. The Company has granted sublicenses under the UBC license to Alnylam. Alnylam has in turn sublicensed back to the Company under the licensed UBC patents for discovery, development and commercialization of siRNA products. Certain sublicenses to other parties were also granted.
On November 10, 2014, UBC filed a notice of arbitration against the Company and on January 16, 2015, filed a Statement of Claim, which alleges entitlement to $3,500,000 in allegedly unpaid royalties based on publicly available information, and an unspecified amount based on non-public information. UBC also seeks interest and costs, including legal fees. The Company filed its Statement of Defense to UBC's Statement of Claims, as well as filed a Counterclaim involving a patent application that Arbutus alleges UBC wrongly licensed to a third party rather than to Arbutus. The proceedings have been divided into three phases, with a first hearing that took place in June 2017. The arbitrator determined in the first phase which agreements are sublicense agreements within UBC's claim, and which are not. No finding was made as to whether any licensing fees are due to UBC under these agreements; this will be the subject of the second phase of arbitration. A schedule for the remaining phases has not yet been set. Arbitration and related matters are costly and may divert the attention of the Company’s management and other resources that would otherwise be engaged in other activities. The Company continues to dispute UBC's allegations, and seeks license payments for said application, and an exclusive worldwide license to said application. However, the Company notes that arbitration is subject to inherent uncertainty and an arbitrator could rule against the Company. The Company has not recorded an estimate of the possible loss associated with this arbitration, due to the uncertainties related to both the likelihood and amount of any possible loss or range of loss. Costs related to the arbitration are recorded by the Company as incurred.
Arbitration with Acuitas Therapeutics (“Acuitas”)
In August 2017, Arbutus provided Acuitas with notice that Arbutus considered Acuitas to be in material breach of the cross-license agreement. The cross-license agreement provides that it may be terminated upon any material breach by the other party 60 days after receipt of written notice of termination describing the material breach in reasonable detail. In October 2016, Acuitas filed a Notice of Civil Claim in the Supreme Court of British Columbia seeking an order that Arbutus perform its obligations under the Cross License Agreement, for damages ancillary to specific performance, injunctive relief, interest and costs. The Company disputes Acuitas’ position, and filed a Counterclaim seeking a declaration that Acuitas is in breach of the Cross License Agreement, and claiming injunctive relief, damages, interest and costs. In January 2017, the Company filed an application seeking an order to enjoin Acuitas from, among other things, entering into any further agreements purporting to sublicense Arbutus’ technology from the date of the order to the date of trial or further order from the Court. In February 2017, the Company announced that the Supreme Court of British Columbia granted its request for a pre-trial injunction against Acuitas, preventing Acuitas from further sublicensing of the Company's lipid nanoparticle (LNP) technology until the end of October, or further order of the Court. Under the terms of the pre-trial injunction, Acuitas is prevented from entering into any new agreements which include sublicensing of the Company's LNP. In March 2017, Acuitas sought leave to appeal from the injunction decision and in April 2017, the appeal was denied. On September 29, 2017, the injunction order was extended by consent to March 2, 2018. The contractual issues concerning the Cross License Agreement (excluding the claims for damages) are set for trial for 10 days commencing on February 19, 2018.
Arbitration and related matters are costly and may divert the attention of the Company’s management and other resources that would otherwise be engaged in other activities. Costs related to the arbitration are recorded by the Company as incurred. No contingency asset was recorded by the Company for the period ended September 30, 2017, as the damages, interest and costs are not determined until following the trial.
Contingent consideration from Arbutus Inc. acquisition of Enantigen and License Agreements between Enantigen and the Baruch S. Blumberg Institute (“Blumberg”) and Drexel University (“Drexel”)
In October 2014, Arbutus Inc. acquired all of the outstanding shares of Enantigen pursuant to a stock purchase agreement. Through this transaction, Arbutus Inc. acquired a HBV surface antigen secretion inhibitor program and a capsid assembly inhibitor program, each of which are now assets of the Company, following the Company’s merger with Arbutus Inc.
Under the stock purchase agreement, Arbutus Inc. agreed to pay up to a total of $21,000,000 to Enantigen’s selling stockholders upon the achievement of certain triggering events related to Enantigen’s two programs in pre-clinical development related to HBV therapies. The first triggering event is the enrollment of the first patient in a Phase 1b clinical trial in HBV patients, which the Company believes is likely to occur in the next twelve-month period.
The regulatory, development and sales milestone payments had an initial estimated fair value of approximately $6,727,000 as at the date of acquisition of Arbutus Inc., and have been treated as contingent consideration payable in the purchase price allocation, based on information available at the date of acquisition, usinguses a probability weighted assessment of the likelihood the milestones would be met and the estimated timing of such payments, and then the potential contingent payments were discounted to their present value using a probability adjusted discount rate that reflects the early stage nature of the development program, the time to complete the program development, and market comparative data.
Contingentoverall biotech indices. The Company determined the fair value of the contingent consideration iswas $4.2 million as of June 30, 2021 and the increase of $0.8 million from December 31, 2020 has been recorded as a component of total operating expenses in the statement of operations and comprehensive loss for the six months ended June 30, 2021. The assumptions used in the discounted cash flow model are level 3 inputs as defined above. The Company assessed the sensitivity of the fair value measurement to changes in these
unobservable inputs, and determined that changes within a reasonable range would not result in a materially different assessment of fair value.
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques used to determine such fair value:
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
As of June 30, 2021 | (in thousands) |
Assets | | | | | | | |
Cash and cash equivalents | $ | 30,954 | | | $ | 0 | | | $ | 0 | | | $ | 30,954 | |
Short-term investments | 47,425 | | | 0 | | | 0 | | | 47,425 | |
Long-term investments | 42,906 | | | 0 | | | 0 | | | 42,906 | |
Total | 121,285 | | | 0 | | | 0 | | | 121,285 | |
Liabilities | | | | | | | |
Liability-classified stock options | 0 | | | 0 | | | 132 | | | 132 | |
Contingent consideration | 0 | | | 0 | | | 4,249 | | | 4,249 | |
Total | $ | 0 | | | $ | 0 | | | $ | 4,381 | | | $ | 4,381 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
As of December 31, 2020 | (in thousands) |
Assets | | | | | | | |
Cash and cash equivalents | $ | 52,251 | | | $ | 0 | | | $ | 0 | | | $ | 52,251 | |
Short-term investments | 71,017 | | | 0 | | | 0 | | | 71,017 | |
Total | 123,268 | | | 0 | | | 0 | | | 123,268 | |
Liabilities | | | | | | | |
Liability-classified stock options | 0 | | | 0 | | | 250 | | | 250 | |
Contingent consideration | 0 | | | 0 | | | 3,426 | | | 3,426 | |
Total | $ | 0 | | | $ | 0 | | | $ | 3,676 | | | $ | 3,676 | |
The following table presents the changes in fair value of the Company’s liability-classified stock options:
| | | | | | | | | | | | | | | | | | | | | | | |
| Liability at beginning of the period | | Fair value of liability-classified options exercised in the period | | Increase (decrease) in fair value of liability | | Liability at end of the period |
| (in thousands) |
Six Months Ended June 30, 2021 | $ | 250 | | | $ | 0 | | | $ | (118) | | | $ | 132 | |
Six Months Ended June 30, 2020 | $ | 253 | | | $ | 0 | | | $ | (103) | | | $ | 150 | |
The following table presents the changes in fair value of the Company’s contingent consideration:
| | | | | | | | | | | | | | | | | |
| Liability at beginning of the period | | Increase (decrease) in fair value of liability | | Liability at end of the period |
| (in thousands) |
Six Months Ended June 30, 2021 | $ | 3,426 | | | $ | 823 | | | $ | 4,249 | |
Six Months Ended June 30, 2020 | $ | 2,953 | | | $ | 228 | | | $ | 3,181 | |
4. Investments in marketable securities
Investments in marketable securities consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gain(1) | | Gross Unrealized Loss(1) | | Fair Value |
As of June 30, 2021 | (in thousands) |
Cash equivalents | | | | | | | |
| | | | | | | |
US government money market fund | 13,406 | | | — | | | — | | | 13,406 | |
| | | | | | | |
Total | $ | 13,406 | | | $ | — | | | $ | — | | | $ | 13,406 | |
Investments in marketable short-term securities | | | | | | | |
US government agency bonds | $ | 2,043 | | | $ | 0 | | | $ | — | | | $ | 2,043 | |
US treasury bills | 7,999 | | | 1 | | | — | | | 8,000 | |
US government bonds | 37,377 | | | 5 | | | — | | | 37,382 | |
Total | $ | 47,419 | | | $ | 6 | | | $ | — | | | $ | 47,425 | |
Investments in marketable long-term securities | | | | | | | |
US government agency bonds | $ | 12,281 | | | $ | — | | | $ | (7) | | | $ | 12,274 | |
US treasury bills | $ | 0 | | | $ | — | | | $ | 0 | | | $ | 0 | |
US government bonds | $ | 30,644 | | | $ | — | | | $ | (12) | | | $ | 30,632 | |
Total | $ | 42,925 | | | $ | — | | | $ | (19) | | | $ | 42,906 | |
(1) Gross unrealized gain (loss) is pre-tax and is reported in other comprehensive loss.
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gain(1) | | Gross Unrealized Loss(1) | | Fair Value |
As of December 31, 2020 | (in thousands) |
Cash equivalents | | | | | | | |
US government money market fund | $ | 13,703 | | | $ | — | | | $ | — | | | $ | 13,703 | |
| | | | | | | |
US treasury bills | 2,000 | | | — | | | — | | | 2,000 | |
Total | $ | 15,703 | | | $ | — | | | $ | — | | | $ | 15,703 | |
Investments in marketable short-term securities | | | | | | | |
US government agency bonds | $ | 11,550 | | | $ | 7 | | | $ | 0 | | | $ | 11,557 | |
US treasury bills | 21,990 | | | 2 | | | 0 | | | 21,992 | |
US government bonds | 37,463 | | | 6 | | | (1) | | | 37,468 | |
Total | $ | 71,003 | | | $ | 15 | | | $ | (1) | | | $ | 71,017 | |
(1) Gross unrealized gain (loss) is pre-tax and is reported in other comprehensive loss.
The contractual term to maturity of the $47.4 million of short-term marketable securities held by the Company as of June 30, 2021 is less than one year. As of June 30, 2021, the Company held $42.9 million of long-term marketable securities with contractual maturities of more than one year, but less than five years. As of December 31, 2020, the Company’s $71.0 million of marketable securities had contractual maturities of less than one year.
There were 0 realized gains or losses for the three and six months ended June 30, 2021 or 2020.
5.Investment in Genevant
In April 2018, the Company entered into an agreement with Roivant Sciences Ltd. (“Roivant”), its largest shareholder, to launch Genevant Sciences Ltd. (“Genevant”), a company focused on the discovery, development, and commercialization of a broad range of RNA-based therapeutics enabled by the Company’s lipid nanoparticle (“LNP”) and ligand conjugate delivery technologies. The Company licensed exclusive rights to its LNP and ligand conjugate delivery platforms to Genevant for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties (the “Genevant License”). The Company retained all rights to its LNP and conjugate delivery platforms for HBV. Under the Genevant License, the Company is entitled to receive tiered low single-digit royalties on future sales of Genevant products covered by the licensed patents. If Genevant sub-licenses the intellectual property licensed by the Company to Genevant, the Company is entitled to receive under the Genevant License, upon the commercialization of a product developed by such sub-licensee, the lesser of (i) 20 percent of the revenue received by Genevant for such sublicensing and (ii) tiered low single-digit royalties on product sales by the sublicensee.
On July 31, 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant. In addition, the Company participated in the recapitalization of Genevant with an investment of $2.5 million. The Company determined that this $2.5 million additional investment in Genevant represented the funding of prior losses and accordingly, the Company recorded the amount as an equity investment loss on the Condensed Consolidated Statements of Operations and Comprehensive Loss in 2020.
Following the recapitalization, the Company owned approximately 16% of the common equity of Genevant. In connection with the recapitalization, Genevant, the Company and Roivant entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant. The Company has a non-voting observer seat on Genevant’s Board of Directors. Due to the Company’s loss of significant influence with respect to Genevant as a result of the recapitalization, the Company discontinued the use of the equity method of accounting for its interest in Genevant. Following the recapitalization, the Company accounts for its interest in Genevant as equity securities without readily determinable fair values. Accordingly, an estimate of the fair value of the securities is based on the original cost less previously recognized equity method losses, less impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or a similar Genevant securities. The Company’s entitlement to receive future royalties or sublicensing revenue under the Genevant License was not impacted by the recapitalization.
As of June 30, 2021, the carrying value of the Company’s investment in Genevant was 0 and the Company owned approximately 16% of the common equity of Genevant.
6. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities are comprised of the following:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| (in thousands) |
Trade accounts payable | $ | 2,063 | | | $ | 2,994 | |
Research and development accruals | 3,988 | | | 1,653 | |
Professional fee accruals | 443 | | | 679 | |
Payroll accruals | 1,856 | | | 3,566 | |
| | | |
Other accrued liabilities | 2 | | | 9 | |
Total accounts payable and accrued liabilities | $ | 8,352 | | | $ | 8,901 | |
7. Sale of future royalties
On July 2, 2019, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with the Ontario Municipal Employees Retirement System (“OMERS”), pursuant to which the Company sold to OMERS part of its royalty interest on future global net sales of ONPATTRO® (Patisiran) (“ONPATTRO”), an RNA interference therapeutic currently being sold by Alnylam Pharmaceuticals, Inc. (“Alnylam”).
ONPATTRO utilizes the Company’s LNP technology, which was licensed to Alnylam pursuant to the Cross-License Agreement, dated November 12, 2012, by and between the Company and Alnylam (the “LNP License Agreement”). Under the terms of the LNP License Agreement, the Company is entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00% to 2.33% after offsets, with the highest tier applicable to annual net sales above $500 million. This royalty interest was sold to OMERS, effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $30 million in royalties, at which point 100% of such royalty interest on future global net sales of ONPATTRO will revert to the Company. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and the Company is not obligated to reimburse OMERS if they fail to collect any such future royalties.
The $30 million in royalties to be paid to OMERS is accounted for as a liability, with the difference between the liability and the gross proceeds received accounted for as a discount. The discount, as well as $1.5 million of transaction costs, will be amortized as interest expense based on the projected balance of the liability as of the beginning of each period. As of June 30, 2021, the Company estimated an effective annual interest rate of approximately 16%. Over the course of the Agreement, the actual interest rate will be affected by the amount and timing of royalty revenue recognized and changes in the timing of forecasted royalty revenue. On a quarterly basis, the Company will reassess the expected timing of the royalty revenue, recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed.
The Company recognizes non-cash royalty revenue related to the sales of ONPATTRO during the term of the Agreement. As royalties are remitted to OMERS from Alnylam, the balance of the recognized liability is effectively repaid over the life of the Agreement. From the inception of the royalty sale through June 30, 2021, the Company has recorded an aggregate of $7.2 million of non-cash royalty revenue for royalties earned by OMERS. There are a number of factors that could materially affect the amount and timing of royalty payments from Alnylam, none of which are within the Company’s control.
The table below shows the activity related to the net liability for the six months ended June 30, 2021 and 2020:
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
| (in thousands) |
Net liability related to sale of future royalties - beginning balance | $ | 19,554 | | | $ | 18,992 | |
Non-cash royalty revenue | (2,103) | | | (1,345) | |
Non-cash interest expense | 1,531 | | | 2,092 | |
Net liability related to sale of future royalties - ending balance | $ | 18,982 | | | $ | 19,739 | |
In addition to the royalty from the LNP License Agreement, the Company is also receiving a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas Therapeutics, Inc. (“Acuitas”). The royalty from Acuitas has been retained by the Company and was not part of the royalty sale to OMERS.
8. Contingencies and commitments
Arbitration with the University of British Columbia
Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the University of British Columbia (“UBC”), as well as by the Company that was subsequently assigned to UBC. These inventions are licensed to the Company by UBC under a license agreement, initially entered into in 1998 and as amended in 2001, 2006 and 2007. The Company has granted sublicenses under the UBC license to certain third parties, including Alnylam. In November 2014, UBC filed a demand for arbitration against the Company which alleged entitlement to unpaid royalties. In August 2019, the arbitrator issued his decision for the second phase of the arbitration, awarding UBC $5.9 million, which included interest of approximately $2.6 million. The Company paid the $5.9 million award to UBC in September 2019 and paid an additional $0.2 million award for costs and attorneys’ fees in March 2021, and this matter is now fully resolved.
On December 18, 2020, UBC delivered to the Company a notice of arbitration alleging that under the cross license between UBC and Arbutus, it is due royalties of $2.0 million plus interest arising from the Company’s sale to OMERS of part of its royalty interest on future global net sales of ONPATTRO, currently being sold by Alnylam. Oral hearings for this matter are currently scheduled to begin on April 25, 2022. The Company does not believe that any royalties are due to UBC and the Company intends to vigorously contest UBC’s allegation.
Stock Purchase Agreement with Enantigen
In October 2014, Arbutus Inc., the Company’s wholly-owned subsidiary, acquired all of the outstanding shares of Enantigen Therapeutics, Inc. (“Enantigen”) pursuant to a stock purchase agreement. The amount paid to Enantigen’s selling shareholders could be up to an additional $102.5 million in sales performance milestones in connection with the sale of the first commercialized product by the Company for the treatment of HBV, regardless of whether such product is based upon assets acquired under this agreement, and a low single-digit royalty on net sales of such first commercialized HBV product, up to a maximum royalty payment of $1.0 million that, if paid, would be offset against the Company’s milestone payment obligations. Certain other development milestones related to the acquisition were tied to programs which are no longer under development by the Company, and therefore the contingency related to those development milestones is 0.
The contingent consideration is a financial liability and is measured at its fair value at each reporting date, based on an updated consideration of the probability-weighted assessment of expected milestone timing,period, with any changes in fair value from the previous reporting dateperiod recorded in the statements of operations and comprehensive loss (see note 3).
The fair value of the contingent consideration was $4.2 million as of June 30, 2021.
9.Collaborations, contracts and licensing agreements
Vaccitech plc
In July 2021, the Company entered into a clinical collaboration agreement with Vaccitech plc (“Vaccitech”) to evaluate the safety, pharmacokinetics, immunogenicity, and antiviral activity of AB-729 followed by Vaccitech’s proprietary immunotherapeutic, VTP-300, in nucleos(t)ide reverse transcriptase inhibitor-suppressed subjects with chronic HBV infection (“CHB”). The Phase 2a clinical trial will be managed by Arbutus, subject to oversight by a joint development committee comprised of representatives from Arbutus and Vaccitech. Arbutus and Vaccitech retain full rights to their respective product candidates and will split all costs associated with the clinical trial. Pursuant to the agreement, the parties intend to undertake a larger Phase 2b clinical trial depending on the results of the initial Phase 2a clinical trial. The collaboration with Vaccitech is within the scope of the collaborative arrangements guidance and reimbursements and cost-sharing proceeds will be reflected as reductions of research and development expense when realized in the Company’s condensed consolidated statements of operations.
Antios Therapeutics, Inc.
In June 2021, the Company entered into a clinical collaboration agreement with Antios Therapeutics, Inc. (“Antios”) to evaluate a triple combination of AB-729, Antios’ proprietary active site polymerase inhibitor nucleotide (ASPIN), ATI-2173, and Viread (tenofovir disoproxil fumarate), for the treatment of subjects with chronic HBV infection. Antios will be responsible for the costs of adding this single cohort to its ongoing Phase 2a ANTT201 clinical trial. Arbutus will be responsible for the manufacture and supply of AB-729. Except to the extent necessary to carry out Antios’ responsibilities with respect to the collaboration trial, the Company has not provided any license grant to Antios for use of its AB-729 compound.
Assembly Biosciences, Inc.
In August 2020, the Company entered into a clinical collaboration agreement with Assembly to evaluate AB-729 in combination with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate vebicorvir (“VBR”) and standard-of-care NA therapy for the treatment of subjects with chronic HBV infection. The Company and Assembly are sharing in the costs of the collaboration. The Company incurred $0.4 million and $1.2 million of costs related to the collaboration during the three and six months ended June 30, 2021 and reflected those costs in research and development in the statement of operations and comprehensive loss (see note 2).loss. Except to the extent necessary to carry out Assembly’s responsibilities with respect to the collaboration trial, the Company has not provided any license grant to Assembly for use of its AB-729 compound.
Drexel
X-Chem and BlumbergProteros
In March 2021, the Company, X-Chem, Inc. (“X-Chem”) and Proteros biostructures GmbH (“Proteros”) entered into a discovery research and license agreement focused on the discovery of novel inhibitors targeting the SARS-CoV-2 nsp5 main protease (Mpro). The agreement is designed to accelerate the development of pan-coronavirus agents to treat COVID-19 and potential future coronavirus outbreaks. This collaboration brings together the Company’s expertise in the discovery and development of antiviral agents with X-Chem’s industry leading DNA-encoded library (DEL) technology and Proteros’ protein sciences, biophysics and structural biology capabilities and provides important synergies to potentially identify safe and effective therapies against coronaviruses including SARS-CoV-2. The collaboration is expected to allow for the rapid screening of one of the largest small molecule libraries against Mpro (an essential protein required for the virus to replicate itself) and the use of state-of-the-art structure guided methods to rapidly optimize Mpro inhibitors, which the Company could potentially progress to clinical candidates. The agreement provides for payments by the Company to X-Chem and Proteros upon satisfaction of certain development, regulatory and commercial milestones, as well as royalties on sales.
Alnylam Pharmaceuticals, Inc. and Acuitas Therapeutics, Inc.
The Company has 2 royalty entitlements to Alnylam’s global net sales of ONPATTRO.
In February 2014, Arbutus Inc.2012, the Company entered into a license agreement with BlumbergAlnylam that entitles Alnylam to develop and Drexel that granted an exclusive, worldwide, sub-licensable license to three different compound series: cccDNA inhibitors, capsid assembly inhibitorscommercialize products with the Company’s LNP technology. Alnylam’s ONPATTRO, which represents the first approved application of the Company’s LNP technology, was approved by the United States Food and HCC inhibitors.
In partial consideration for this license, Arbutus Inc. paid a license initiation feeDrug Administration (“FDA”) and the European Medicines Agency (“EMA”) during the third quarter of $150,0002018 and issued warrants to Blumberg and Drexel. The warrants were exercised in 2014. Under this license agreement, Arbutus Inc. also agreed to pay up to $3,500,000 in development and regulatory milestones per licensed compound series, up to $92,500,000 in sales performance milestones per licensed product, and royaltieswas launched by Alnylam immediately upon approval in the mid-single digits based uponUnited States. Under the proportionate net salesterms of licensed products in any commercialized combination. The Company is obligated to pay Blumberg and Drexel a double digit percentage of all amounts received from the sub-licensees, subject to customary exclusions.
In November 2014, Arbutus Inc. entered into an additionalthis license agreement with Blumberg and Drexel pursuant to which it received an exclusive, worldwide, sub-licensable license under specified patents and know-how controlled by Blumberg and Drexel covering epigenetic modifiers of cccDNA and STING agonists. In consideration for these exclusive licenses, Arbutus Inc. made an upfront payment of $50,000. Under this agreement, the Company is requiredentitled to pay up to $1,200,000 for each licensed product upon the achievement of a specified regulatory milestone and a low single digittiered royalty based upon the proportionatepayments on global net sales of compounds covered byONPATTRO ranging from 1.00% - 2.33% after offsets, with the highest tier applicable to annual net sales above $500 million. This royalty interest was sold to OMERS, effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees. OMERS will retain this intellectual propertyentitlement until it has received $30 million in royalties, at which point 100% of this royalty entitlement on future global net sales of ONPATTRO will revert back to the Company. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and the Company is not obligated to reimburse OMERS if they fail to collect any commercialized combination. such future royalties. If this royalty entitlement reverts to the Company, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part.
The Company is also obligated to pay Blumberg and Drexel a double digit percentage of all amounts received from its sub-licensees, subject to exclusions.
Research Collaboration and Funding Agreement with Blumberg
In October 2014, Arbutus Inc. entered into a research collaboration and funding agreement with Blumberg under which the Company will provide $1,000,000 per year of research funding for three years, renewable at the Company’s option for an additional three years, for Blumberg to conduct research projects in HBV and liver cancer pursuanthas rights to a research plan to be agreed upon by the parties. Blumberg has exclusivity obligations to Arbutus with respect to HBV research funded under the agreement. In addition, the Company has the right to match any third party offer to fund HBV research that falls outside the scopesecond, lower royalty interest on global net sales of the research being funded under the agreement. Blumberg has granted the Company the right to obtain an exclusive, royalty bearing, worldwide license to any intellectual property generated by any funded research project. If the Company elects to exercise its right to obtain suchONPATTRO originating from a license, the Company will have a specified period of time to negotiatesettlement agreement and enter into a mutually agreeablesubsequent license agreement with Blumberg.Acuitas. This license agreement will include the following pre-negotiated upfront, milestone and royalty payments: an upfront payment in the amount of $100,000; up to $8,100,000 upon the achievement of specified development and regulatory milestones; up to $92,500,000 upon the achievement of specified commercialization milestones; and royalties at a low single to mid-single digit rates based upon the proportionate net sales of licensed productsentitlement from any commercialized combination.
On June 5, 2016,Acuitas has been retained by the Company and Blumbergwas not part of the royalty entitlement sale to OMERS.
Revenues are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands) | | (in thousands) |
Revenue from collaborations and licenses | | | | | | | |
Acuitas Therapeutics, Inc. | $ | 1,163 | | | $ | 761 | | | $ | 2,258 | | | $ | 1,514 | |
| | | | | | | |
Other milestone and royalty payments | 22 | | | 63 | | | 81 | | | 146 | |
Non-cash royalty revenue | | | | | | | |
Alnylam Pharmaceuticals, Inc. | 1,144 | | | 690 | | | 2,103 | | | 1,345 | |
Total revenue | $ | 2,329 | | | $ | 1,514 | | | $ | 4,442 | | | 3,005 | |
10. Stockholders’ equity
Open Market Sale Agreement
The Company has an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) dated December 20, 2018, as amended on December 20, 2019 (the “2019 Amended Sale Agreement”), under which it may issue and sell common shares, from time to time, under a shelf registration statement on Form S-3 (File No. 333-235674), filed with the SEC on December 23, 2019 (the “2019 Shelf Registration Statement”). In July 2020, the Company fully utilized the remaining availability under the 2019 Amended Sale Agreement. In August 2020, the Company entered into an amendment to the 2019 Amended Sale Agreement (as amended, the “2020 Amended Sale Agreement”) with Jefferies, whereby the Company may issue and restated research collaborationsell common shares, from time to time, for an aggregate sales price of up to $75 million, under the 2019 Shelf Registration Statement. On August 7, 2020, the Company filed a prospectus supplement with the SEC (the “August 2020 Prospectus Supplement”) under the 2019 Shelf Registration Statement in connection with the offering of up to an additional $75 million of its common shares pursuant to the 2020 Amended Sale Agreement.
The Company filed a new shelf registration statement on Form S-3 (File No. 333-248467) with the SEC on August 28, 2020 (the “2020 Shelf Registration Statement”). On March 4, 2021, the Company entered into an amendment to the 2020 Amended Sale Agreement with Jefferies to reflect that the Company may issue and funding agreement, primarily to: (i) increasesell additional common shares from time to time without a cap on the annual funding amountaggregate sales price (as amended, the “2021 Amended Sale Agreement”). Also, on March 4, 2021, the Company filed a prospectus supplement with the SEC (the “March 2021 Prospectus Supplement”) in connection with the offering of up to Blumberg from $1,000,000an additional $75.0 million of its common shares pursuant to $1,100,000; (ii) extend the initial term through2021 Amended Sale Agreement under the 2020 Shelf Registration Statement.
During the three and six months ended June 30, 2021, the Company issued 1,450,145 and 7,845,925 common shares pursuant to October 29, 2018; (iii) provide an optionthe 2020 Amended Sale Agreement, resulting in net proceeds of approximately $4.3 million and $30.7 million, respectively. For the three and six months ended June 30, 2020, the Company issued 2,291,184 and 6,438,265 common shares pursuant to the 2019 Amended Sale Agreement, resulting in net proceeds of approximately $5.0 million and $17.4 million, respectively.
As of June 30, 2021, there was approximately $9.8 million available under the August 2020 Prospectus Supplement and $75.0 million available under the March 2021 Prospectus Supplement.
Stock-based compensation
The table below summarizes information about the Company’s stock based compensation for the Company to extendthree and six months ended June 30, 2021 and 2020 and the term past October 29, 2018 for two additional one year terms; and (iv) expand our exclusive license under the Agreement to include the sole and exclusive right to obtain and exclusive, royalty-bearing, worldwide and all-fields license under Blumberg's rights in certain other inventions describedexpense recognized in the agreement.condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands, except share and per share data) |
Options granted during period | 230,800 | | | 566,513 | | | 3,127,350 | | | 2,667,550 | |
Weighted average exercise price | $ | 3.03 | | | $ | 3.00 | | | $ | 4.23 | | | $ | 3.27 | |
Stock compensation expense | | | | | | | |
Research and development | $ | 578 | | | $ | 681 | | | $ | 1,418 | | | $ | 1,533 | |
General and administrative | 1,165 | | | 916 | | | 1,960 | | | 1,509 | |
Total stock compensation expense | $ | 1,743 | | | $ | 1,597 | | | $ | 3,378 | | | $ | 3,042 | |
7. Concentrations of credit risk
Series A Preferred Shares
Credit risk is defined by the Company as an unexpected loss in cash and earnings if a collaborative partner is unable to pay its obligations on a timely basis. The Company’s main source of credit risk is related to its accounts receivable balance which principally represents temporary financing provided to collaborative partners in the normal course of operations.
The Company does not currently maintain a provision for bad debts as the majority of accounts receivable are from collaborative partners or government agencies and are considered low risk.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at September 30, 2017 was the accounts receivable balance of $846,000 (December 31, 2016 - $273,000).
All accounts receivable balances were current at September 30, 2017 and at December 31, 2016.
8. Subsequent events
Investment from Roivant Sciences Ltd ("Roivant")
On October 2, 2017, the Company announced that it entered into a subscription agreement with Roivant for the sale of Series A participating convertible preferred shares ("Preferred Shares:)Shares to Roivant for gross proceeds of $116,400,000.$116.4 million. The Preferred Shares are non-voting and are convertible into common shares at a conversion price of $7.13 per share (which represents a 15% premium to the closing price of $6.20 per share). The purchase price for the Preferred Shares plus an amount equal to 8.75% per annum, compounded annually, will be subject to mandatory conversion into approximately 23 million common shares on October 16,18, 2021 (subject to limited exceptions in the event of certain fundamental corporate transactions relating to Arbutus’the Company’s capital structure or assets, which would permit earlier conversion at Roivant’s option). AfterAssuming conversion of the Preferred Shares into common shares, based on the number of common shares outstanding on October 2, 2017,June 30, 2021 Roivant would hold 49.90%32% of the Company'sCompany’s common shares. Roivant has agreed to a four year lock-up period for this investment and its existing holdings in Arbutus.the Company. Roivant has also agreed to a four year standstill whereby Roivant will not acquire greater than 49.99% of the Company'sCompany’s common shares or securities convertible into common shares.
Both the lockup and standstill periods expire on October 18, 2021. Following the expiration of the standstill period, Roivant will no longer be contractually prohibited from acquiring control of the Company. The initial investment of $50,000,000$50.0 million closed on October 16, 2017, and the remaining amount of $66,400,000 is expected to close by the end of the year upon satisfaction of customary closing conditions including$66.4 million closed on January 12, 2018 following regulatory and shareholder approvals,approvals.
The Company records the Preferred Shares wholly as applicable, under Canadian securities law.
License agreementequity with Gritstone Oncology, Inc. ("Gritstone")
On October 16, 2017,no bifurcation of the Company entered into a license agreement with Gritstoneconversion feature from the host contract, given that entitles Gritstone to research, develop, manufacturethe Preferred Shares cannot be cash settled and commercialize products withthe redemption features are within the Company’s LNP technology.control, which include a fixed conversion ratio with predetermined timing and proceeds. The total potential payments under this arrangement include upfront,Company accrues for the 8.75% per annum compounding coupon at each reporting period end date as an increase to preferred share capital, and an increase to deficit (see statement of stockholders’ equity).
11. Related party transactions
During the three and six months ended June 30, 2021 and 2020, Genevant purchased certain administrative services from the Company. Income from these services was less than $0.1 million in both periods and is netted against research and development and commercial milestone payments and royalty payments on future product sales.expenses in the condensed consolidated statements of operations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis by our management of our financial position and results of operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 20162020 and our unaudited condensed consolidated financial statements for the three and nine month periodssix months ended SeptemberJune 30, 2017.2021. Our consolidated financial statements have been prepared in accordance with U.S.United States generally accepted accounting principles and are presented in U.S. dollars.
REFERENCES TO ARBUTUS BIOPHARMA CORPORATION
Throughout this Quarterly Report on Form 10-Q (“Form 10-Q”) , the “Company,” “Arbutus,” “we,” “us,” and “our,” except where the context requires otherwise, refer to Arbutus Biopharma Corporation and its consolidated subsidiaries, and “our board of directors” refers to the board of directors of Arbutus Biopharma Corporation.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information in this reportThis Form 10-Q contains forward-looking statements“forward-looking statements” or “forward-looking information” within the meaning of the Section 27A of the Securities Act of 1933applicable United States and Section 21E of the Securities Exchange Act of 1934, and forward looking information within the meaning of Canadian securities laws (collectively,(we collectively refer to these items as “forward-looking statements”). Forward-looking statements are generally identifiable by use of the words “believes,” “may,” “plans,” “will,” “anticipates,” “intends,” “budgets,” “could,” “estimates,” “expects,” “forecasts,” “projects” and similar expressions that are not based on historical fact or that are predictions of or indicate future events and trends, and the negative of such expressions. Forward-looking statements in this reportForm 10-Q, including the documents incorporated by reference, include statements about, among other things:
•our strategy, future operations, pre-clinical research, pre-clinical studies, clinical trials, prospects and the plans of management;
•the potential impact of the COVID-19 pandemic on our business and clinical trials;
•the discovery, development and commercialization of a curecurative combination regimen for HBV; chronic hepatitis B infection, a disease of the liver caused by the hepatitis B virus (“HBV”);
•our beliefs and development path and strategy to achieve a curecurative combination regimen for HBV;
•obtaining necessary regulatory approvals;
•obtaining adequate financing through a combination of financing activities and operations;
•using the possibilityresults from our HBV studies to adaptively design additional clinical trials to test the efficacy of receiving total milestone paymentsthe combination therapy and the duration of up to $18,000,000 on Alocrest and Brakiva; an additional investment of $66,400,000 from Roivant and the result in patients;
•the expected timing thereof; the filing of a proxy statement by the Company with respectand amount for payments related to the Enantigen Therapeutics, Inc.’s transaction and its programs;
•the potential of our product candidates to improve upon the standard of care and contribute to a functional curative combination treatment regimen;
•the potential benefits of the reversion of the Ontario Municipal Employees Retirement System (“OMERS”) royalty monetization transaction for our ONPATTRO® (Patisiran) (“ONPATTRO”) royalty interest;
•developing a suite of products that intervene at different points in the viral life cycle, with the potential to reactivate the host immune system;
•using pre-clinical results to adaptively design clinical trials for additional investment from Roivant; potential payments fromcohorts of patients, testing the Gritstone license agreement; evaluating different treatment durations to determinecombination and the optimal finite duration of therapy;
•selecting combination therapy regimens and treatment durations to conduct Phase III3 clinical trials intended to ultimately support regulatory filings for marketing approval; approval
•the potential of substantially increasing diagnosis and treatment rates for people with chronic HBV through the introduction of an HBV curative regimen with a single product from our pipeline by combining with available agents to improve upon the cure rate with the current standard of care; finite duration;
•expanding our HBV drugproduct candidate pipeline through internal development, acquisitions and in-licenses; initiating a 30-week
•our expectation for additional data from ongoing cohorts of the Phase II study1a/1b trial of ARB-1467 in combination with tenofovir and pegylated interferon in 4Q17, with interim results from this study expectedAB-729 to be available in the second half of 2018, followed by final results in 2019; initiating an AB-423 Phase II multi ascending dose (MAD) study2021 (including initial data from the 90 mg every 12-week dosing interval cohort in HBV DNA negative subjects and initial data from the 90 mg every 8-week dosing interval cohort in HBV DNA positive subjects);
•our expectation that AB-729 could be combined with our lead capsid inhibitor candidate, AB-836, and approved NAs, in our first combination therapy for HBV patients;
•our expectations regarding the anticipated trial design, timing, number of patients and dosing of our Phase 2a clinical trial of Assembly Biosciences, Inc.’s (“Assembly”) investigational HBV core inhibitor candidate, also known as a capsid inhibitor, vebicorvir, in 1Q18; an IND (or equivalent) filingcombination with our proprietary GalNAc delivered RNAi therapeutic candidate, AB-729, and standard-of-care nucleos(t)ide reverse transcriptase inhibitor (NrtI) therapy for AB-506the treatment of patients with chronic HBV infection;
•our expectation to undertake a larger Phase 2b clinical trial to evaluate AB-729 in mid-2018; an IND (or equivalent) filingcollaboration with Vaccitech plc (“Vaccitech”);
•our expectation to initiate two Phase 2a proof-of-concept clinical trials of AB-729 with Peg-IFNα-2a and Antios Therapeutics, Inc.’s (“Antios”) ATI-2173 in the second half of 2021;
•our expectation to file a Clinical Trial Application (CTA) for AB-452a Phase 2a proof-of-concept clinical trial of AB-729 with Vaccitech’s VTP-300 in mid-2018; nominating athe second half of 2021 and to initiate the clinical development candidatetrial in early 2018; possible low2022;
•the potential for an oral HBsAg-reducing agent and potential all-oral combination therapy;
•our expectation to mid-single-digit royalty payments escalating based on sales performanceobtain initial data from the ongoing Phase 1a/1b clinical trial for AB-836 in the second half of 2021;
•the potential for AB-836 to have increased potency and an enhanced resistance profile, compared to our previous capsid inhibitor candidate, AB-506, and other competitive capsid inhibitors;
•the potential for AB-836 to be once-daily dosing;
•the potential for AB-729 to have a dosing schedule as Alnylam’s LNP-enabled products are commercialized; infrequently as every 8 to 12 weeks;
•our expectation to pursue development of a next generation oral HBV RNA-destabilizer;
•the potential for us to discover and/or develop new molecular entities for treating coronaviruses, including COVID-19;
•the potential for our collaboration with X-Chem, Inc. (“X-Chem”) and Proteros biostructures GmbH (“Proteros”) to result in the rapid screening of one of the largest small molecule libraries against Mpro and the potential for us to progress related inhibitors to clinical candidates;
•payments from the Gritstone Oncology, Inc. licensing agreement;
•the belief that current legal proceedings will not have a material adverse effect on our consolidated results of operations, cash flows, or financial condition; potential for royalty payments from the agreement related to Genevant Sciences Ltd.;
•the expected return from strategic alliances, licensing agreements, and research collaborations;
•statements with respect to revenue and expense fluctuation and guidance;
•having sufficient cash resources to fund our operations through the third quarter of 2022 based on our expectation of a net cash burn between $70 million and $75 million in 2021; and
•obtaining funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, collaborative arrangements with pharmaceutical companies, other non-dilutive commercial arrangements and government grants and contracts,
as well as other statements relating to our future operations, financial performance or financial condition, prospects or other future events. Forward-looking statements appear primarily in the sections of this Form 10-Q entitled “Part I, Item 1- Financial Statements (Unaudited),” and “Part I, Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Forward-looking statements are based upon current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors that could cause actual results to differ materially and adversely from those expressed or implied by such statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-Q and our Annual Report on Form 10-K for at least the next 12 months;year ended December 31, 2020 (the “Form 10-K”), and in particular the risks and uncertainties discussed under “Item 1A-Risk Factors” of this Form 10-Q and the quantum and timing of potential funding.Form 10-K. As a result, you should not place undue reliance on forward-looking statements.
With respect toAdditionally, the forward-looking statements contained in this report, we have made numerous assumptions regarding, among other things: meetingForm 10-Q represent our views only as of the conditions to close the additional investmentdate of $66,400,000 from Roivant (including shareholder approval) LNP’s status as a leading RNAi delivery technology; our research and development capabilities and resources; the effectiveness of our products as a treatment for chronic HBV infection or other diseases; continued positive results from pre-clinical and clinical trials; the timing and quantum of payments to be received under contracts with our partners; assumptions related to our share price volatility, expected lives of warrants, and warrant issuances and/or exercises; and our financial position and its ability to execute our business strategy.this Form 10-Q (or any earlier date indicated in such statement). While we consider these assumptionsmay update certain forward-looking statements from time to be reasonable, these assumptions are inherently subjecttime, we specifically disclaim any obligation to significant business, economic, competitive, market and social uncertainties and contingencies.
Our actual results could differ materially from those discusseddo so, even if new information becomes available in the forward-looking statements as a result of a number of important factors, includingfuture. However, you are advised to consult any further disclosures we make on related subjects in the risk factors discussed in this reportperiodic and the risk factors discussed in our Annual Report on Form 10-K under the heading “Risk Factors,” and the risks discussed in our other filingscurrent reports that we file with the Securities and Exchange Commission and Canadian Securities Regulators. In addition, a further discussion with respectCommission.
The foregoing cautionary statements are intended to the risks and uncertainties related to the additional investment of $66,400,000 from Roivant willqualify all forward-looking statements wherever they may appear in the Company’s Management Proxy Circular and Proxy Statement onthis Form 14A, which will be available at www.sedar.com and www.sec.gov once filed. Readers are cautioned not to place undue reliance on these10-Q. For all forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only aswe claim protection of the date hereof. All forward-looking statements herein are qualified in their entirety by this cautionary statement, and we explicitly disclaim any obligation to revise or update any such forward-looking statements or to publicly announce the result of any revisions to any ofsafe harbor for the forward-looking statements contained hereinin the Private Securities Litigation Reform Act of 1995.
This Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to reflect future results,uncertainties and actual events or developments, except as requiredcircumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by law.market research firms and other third parties, industry, medical and general publications, government data and similar sources.
OVERVIEW
Arbutus Biopharma Corporation ("Arbutus"(“Arbutus”, the "Company"“Company”, "we"“we”, "us"“us”, and "our"“our”) is a publicly traded industry-leading Hepatitisclinical-stage, biopharmaceutical company focused primarily on discovering, developing and commercializing a cure for people with chronic hepatitis B Virus (HBV)virus (“HBV”) infection. We are advancing multiple product candidates with distinct mechanisms of action and we believe the combination of two or more of these product candidates has the potential to provide a new curative regimen for chronic HBV infection. We have also initiated a drug discovery and development effort for treating coronaviruses, including COVID-19.
Strategy
The core elements of our strategy include:
•Developing a broad portfolio of proprietary therapeutic solutions company.product candidates that target multiple elements of the HBV represents a significant, global unmet medical need.viral lifecycle. Our goal is to develop curative treatment regimensHBV product pipeline includes RNA interference (“RNAi”) therapeutics, oral capsid inhibitors, oral HBV RNA destabilizer compounds and oral compounds that inhibit PD-L1 with the intention of finite dosing duration.reawakening patients’ HBV-specific immune response. We believe that development cansuppressing HBV DNA replication and hepatitis B surface antigen (“HBsAg”) expression as well as reawakening patients’ HBV-specific immune response are the most important elements to achieving a functional cure. We define a functional cure as unquantifiable plasma HBV DNA and HBsAg levels greater than six months after end of therapy with or without quantifiable anti-HBsAg antibodies.
Our two lead product candidates are AB-729, our proprietary subcutaneously-delivered RNAi product candidate that suppresses HBsAg expression, which is thought to be accelerated when multiple componentsa key prerequisite to enable reawakening of a combination therapy regimenpatient’s immune system to respond to HBV, and AB-836, our proprietary next-generation oral capsid inhibitor that suppresses HBV DNA replication.
AB-729 is currently in an ongoing Phase 1a/1b clinical trial and a Phase 2a proof-of-concept clinical trial in collaboration with Assembly Biosciences, Inc.(“Assembly”). We have announced positive preliminary results in the Phase 1a/1b clinical trial from several single and multi-dose cohorts of subjects with chronic HBV infection, which have demonstrated that treatment with AB-729 resulted in meaningful declines in HBsAg while being well tolerated with no serious adverse events noted after both single and repeat dosing. We expect to provide additional data from ongoing cohorts of this Phase 1a/1b clinical trial in the second half of 2021, including initial data from the 90 mg every 12-week dosing interval cohort in HBV DNA negative subjects and initial data from the 90 mg every 8-week dosing interval cohort in HBV DNA positive subjects.
We are controlled byenrolling subjects in a Phase 1a/1b clinical trial for AB-836 with initial data from healthy volunteers and HBV subjects anticipated in the same company, thereforesecond half of 2021. AB-836 is from a novel chemical series differentiated from competitor compounds and has the potential to provide increased efficacy and an enhanced resistance profile.
Additionally, we have assembled aare in lead optimization with oral compounds that inhibit PD-L1 with the intention of reawakening patients’ HBV-specific immune response and next-generation oral HBV pipeline consistingRNA destabilizer compounds that are designed to destabilize and ultimately degrade HBV RNAs resulting in the reduction of multiple drugHBsAg.
• Creating combinations of therapeutic product candidates with complementary mechanisms of action designed to provide a functional cure for people with chronic HBV infection. We believe that our proprietary product candidates AB-729 and AB-836, along with existing approved therapies, may be combined into our first combination therapy for people with chronic HBV infection. To advance our efforts to position AB-729 as a potential cornerstone therapeutic in future HBV combination regimens, we have entered into several clinical collaborations to evaluate AB-729 in combination with other agents with potentially complementary mechanisms of action:
•Through our collaboration with Assembly, we are enrolling subjects in a Phase 2a proof-of-concept clinical trial with a triple combination of AB-729, our RNAi product candidate, Assembly’s lead HBV core inhibitor (capsid inhibitor) product candidate, vebicorvir (“VBR”), and nucleos(t)ide analog (“NA”) therapy for the treatment of people with chronic HBV infection.
•In July 2021, Arbutus received authorization from the U.S. Food and Drug Administration to proceed with its Investigational New Drug (IND) application for AB-729 in a Phase 2a proof-of-concept clinical trial to evaluate AB-729 in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in subjects with
chronic HBV infection. This Phase 2a proof-of-concept clinical trial is expected to initiate in the second half of 2021.
•In July 2021, we entered into a clinical collaboration with Vaccitech to evaluate a triple combination of AB-729 with Vaccitech’s proprietary immunotherapeutic, VTP-300, and standard-of-care NA therapy for the treatment of subjects with chronic HBV infection. We expect to file a Clinical Trial Application (CTA) in the second half of 2021 and initiate the clinical trial in early 2022.
•In June 2021, we entered into a clinical collaboration with Antios to evaluate a triple combination of AB-729, Antios’ proprietary active site polymerase inhibitor nucleotide (ASPIN), ATI-2173, and Viread (tenofovir disoproxil fumarate), for the treatment of subjects with chronic HBV infection. This Phase 2a proof-of-concept clinical trial is expected to initiate in the second half of 2021.
• Advancement of an internal research program focused on identifying new small molecule antiviral medicines to treat COVID-19 and future coronavirus outbreaks. This program is focused on the discovery and development of new molecular entities for treating coronaviruses (including COVID-19) that address specific viral targets including the nsp12 viral polymerase and the nsp5 viral protease. Our collaboration with X-Chem, Inc. (“X-Chem”) and Proteros biostructures GmbH (“Proteros”) is expected to allow for the rapid screening of one of the largest small molecule libraries against Mpro (an essential protein required for the virus to replicate itself) and use state-of-the-art structure guided methods to rapidly optimize Mpro inhibitors, which we could potentially progress to clinical candidates.
Our Product Candidates
Given the biology of HBV, we believe combination therapies are the key to more effective HBV treatment and a potential functional cure. Our product pipeline includes multiple product candidates that target various steps in the viral lifecycle. We believe each of whichthese mechanisms, when administered for a finite duration in combination with existing approved therapies, have the potential to improve upon the standard of care and contributepotentially lead to curative combination treatment regimen. In addition to our HBV pipeline, our lipid nanoparticle (LNP) delivery technology is a key asset that has the potential to generate significant value through both new and existing partnerships and licenses.functional cure.
HBV Product Pipeline
Our HBV product pipeline consists of multiple programs, with different mechanisms of action that have the objective of intervening at different points in the viral life cycle and reactivating the host immune system. For each program, we begin clinical development by evaluating the safety and activity of each drug individually in patients with chronic HBV infection. We will then study these new product candidates in combination with other treatments. While we will initially evaluate combinations with approved therapies, we also intend to study combinations of multiple complementary development stage agents that are proprietary to Arbutus. Once we have established a curative regimen with finite dosing duration, we will seek to improve that regimen in terms of efficacy, tolerability, duration, and convenience.following programs:
We intend to continue to expandexplore expansion of our HBV pipeline through internal discovery and development acquisitions,activities and in-licenses. We also have a research collaboration agreement with the Baruch S. Blumberg Institute that provides exclusive rights to in-license any intellectual property generated through the collaboration.potential strategic alliances.
GalNAc RNAi (AB-729)
RNAi (ARB-1467)
Our lead RNA interference (RNAi) HBV candidate, ARB-1467 (formerly TKM-HBV), istherapeutics represent a recent significant advancement in drug development. RNAi therapeutics utilize a natural pathway within cells to silence genes by eliminating the disease-causing proteins that they code for. We are developing RNAi therapeutics that are designed to reduce Hepatitis B surface antigen (HBsAg)HBsAg expression and other HBV antigens in patientspeople chronically infected with HBV. Reducing HBsAg is thoughtwidely believed to be a key prerequisite to enable a patient’s immune system to raise an adequate immune responsereawaken and respond against the virus. The ability of ARB-1467 to inhibit numerous viral elements in addition to HBsAg increases the likelihood of affecting the viral infection.
ARB-1467AB-729 is a multi-componentsubcutaneously-delivered RNAi therapeutic that simultaneously targets three sites on thetargeted to hepatocytes using our proprietary covalently conjugated GalNAc delivery technology. AB-729 reduces all HBV genome, including the HBsAg coding region. Targeting three distinctantigens and highly conserved sites on the HBV genome is intended to facilitate potent knockdown of allinhibits viral mRNA transcriptsreplication. In July 2019, we initiated a single- and viral antigens across a broad range of HBV genotypes and reduce the risk of developing antiviral resistance. In preclinical models, ARB-1467 treatment results in reductions in intrahepatic and serum HBsAg, HBV DNA, covalently closed circular DNA (cccDNA), Hepatitis B e antigen (HBeAg) and Hepatitis B c antigen (HBcAg). ARB-1467 was evaluated in amulti-dose Phase I Single Ascending Dose (SAD)1a/1b clinical trial for AB-729, designed to assessinvestigate the safety, tolerability, pharmacokinetics, and pharmacokineticspharmacodynamics of intravenous administration of the productAB-729 in healthy adult subjects. In the Phase I SAD study, healthy volunteer subjects were dosed up to a dose of 0.4 mg/kg but a defined maximum tolerated dose was not reached.
The Phase II trial is a multi-dose studyvolunteers and in chronic HBV patients who are also receiving nucleot(s)ide analog (NA) therapy. subjects and to determine the most appropriate doses and dosing intervals to take forward into Phase 2 clinical development.
The ongoing first-in-human clinical trial of AB-729 consists of four cohorts. The firstthree parts:
• In Part 1, three cohorts each enrolled eight subjects; six receiving three monthlyof healthy volunteers were randomized 4:2 to receive single doses (60 mg, 180 mg or 360 mg) of ARB-1467, and two receivingAB-729 or placebo. Cohort 4 enrolled twelve patients, all receiving five bi-weekly
• In Part 2, non-cirrhotic, hepatitis B e-antigen (“HBeAg”) positive or negative chronic HBV subjects (n=6) currently taking NA therapy with HBV DNA below the limit of quantitation received single doses (60 mg to 180 mg) of ARB-1467, followed by monthly dosing for the reminderAB-729. An additional cohort in Part 2 included 90 mg single-dose of a year for patients who meet a predefined response criteria. Cohorts 1, 2, and 4 enrolled HBeAg- patients and Cohort 3 enrolled HBeAg+ patients. ARB-1467 is administered at 0.2 mg/kg in Cohort 1 and 0.4 mg/kg in Cohorts 2, 3, and 4. Results from this trial based on multiple dose administration of ARB-1467 in Cohorts 1, 2 and 3 demonstrated significant reductions in serum HBsAg levels and showed a step-wise, additive reduction in serum HBsAg with each subsequent dose. The HBsAg reduction achieved after three monthly doses of 0.4mg/kg in Cohort 2 was greater than that seen at 0.2 mg/kg in Cohort 1, demonstrating a dose-response seen with repeat dosing. There were no significant differences in serum HBsAg reductions between HBeAg-negative and HBeAg-positive patients. In Cohort 4, five doses of ARB-1467 were administered on a bi-weekly dosing schedule. Initial results from the first three months demonstrated that all twelve patients had reductions in serum HBsAg levels with an average reduction of 1.4 log10, which was greater than that observed with monthly dosing in Cohorts 1-3. Seven of the twelve patients met the predefined response criteria at or before day 71 and five of the seven patients who met the response criteria had their serum HBsAg reduced to low absolute levels (below 50 IU/mL) during the bi-weekly dosing period. Initial results for the monthly dosing extension suggest that monthly dosing is not sufficient to maintain or improve upon these reductions in HBsAg levels. As a result, we have discontinued the monthly extension and new studies will utilize bi-weekly dosing. Overall treatment was well tolerated in all four cohorts (Cohorts 1, 2, 3, and 4).
We are initiating a triple combination study of our RNAi agent, ARB-1467, with current standard of care NAs and interferon (IFN) therapies, to evaluate the opportunity to improve current cure rates with a finite dosing period. The Phase II triple combination trial is a 30-week multi-dose studyAB-729 in HBV DNA positive chronic HBV patients. The trial will enroll 20 HBeAg- patients who willsubjects (n=6).
• In Part 3, chronic HBV subjects, HBV DNA negative first and HBV DNA positive later, receive bi-weeklymultiple doses of ARB-1467 at 0.4 mg/kgAB-729 for up to six months. Upon completion of six months of dosing, all subjects in the 60 mg dose every 4 weeks and daily oral tenofovir NA60 mg dose every 8 weeks cohorts elected the option to reconsent and receive an additional six months of dosing for a total of 48 weeks.
Part 1 of the trial, which dosed healthy volunteers, was completed and supported advancing doses for 30 weeks. Predefined treatment responders at 6 weeks will qualify forranging from 60 mg to 180 mg into Part 2. Part 2 of the addition of weekly pegylated interferon treatment, while continuing to receive bi-weeklytrial, which dosed subjects with chronic HBV infection with single doses of ARB-1467 and dailyAB-729, completed its 48 weeks of follow-up period in the second quarter of 2021. Additionally, several cohorts in Part 3 have received multiple doses of tenofovirAB-729. Results to date demonstrate that treatment of AB-729 has been safe and well tolerated.
Single doses of 60 mg, 90 mg and 180 mg resulted in comparable mean HBsAg declines at week 12 (-0.99 log10 IU/mL vs -1.23 log10 IU/mL, vs -1.10 log10 IU/mL, respectively) followed by a sustained plateau phase. In HBV DNA positive HBV subjects, a single 90 mg dose resulted in robust mean declines in HBsAg (-1.02 log10 IU/mL) and HBV DNA (-1.53 log10 IU/mL) at week 12, as well as decreases in HBV RNA and core-related antigen. Similar mean HBsAg reductions were observed in HBV DNA positive and negative chronic HBV subjects. These findings support complete target engagement by AB-729.
In June 2021, we presented three posters and a late breaker oral presentation at the 2021 EASL conference highlighting the most recent data from the multi-dose cohorts of this clinical trial. Repeat dosing of AB-729 resulted in a robust mean HBsAg decline followed by a sustained plateau phase. Repeat dosing using the 60 mg dose every 8 weeks resulted in comparable mean HBsAg declines relative to the 60 mg dose every 4 weeks. Repeat dosing using the 90 mg dose every 8 weeks resulted in comparable mean HBsAg declines relative to the 60 mg dose every 8 weeks. Additionally, based on 3/5 evaluable subjects, long term dosing of AB-729 demonstrated increased HBV specific immune responses, providing support for combination therapy including immunomodulatory agents.
Mean (range) change in HBsAg with repeat dosing of AB-729:
| | | | | | | | | | | | | | |
Visit | Cohort E AB-729 60 mg Q4W | Cohort F AB-729 60 mg Q8W | Cohort I AB-729 90 mg Q8W | p value between Cohorts |
Week 16 | ‘-1.44 (-0.71 to -1.95) | ‘-1.39 (-1.61 to -1.08) | ‘-1.63 (-0.89 to -2.44) | p ≥ 0.4 |
Week 24 | ‘-1.84 (-0.99 to -2.31) | ‘-1.57 (-1.24 to -2.01) | ‘-1.79 (-1.22 to -2.46) | p ≥ 0.2 |
Week 32 | ‘-1.84 (-0.94 to -2.36) | ‘-1.68 (-1.37 to -2.15) | --- | p = 0.5 |
| | | | | | | | | | | | | | |
Week 40 | ‘-1.84 (-0.88 to -2.47) | ‘-1.78* (-1.40 to -2.14) | --- | p = 0.7 |
Week 44 | ‘-1.81* (-0.93 to -2.43) | ‘-1.87* (-1.32 to -2.34) [N=6] | --- | p = 0.8 |
Week 48 | ‘-1.89* (-0.91 to -2.44) | --- | --- | --- |
ⱡ subjects switched to AB-729 60 mg Q12W after Week 20 dose
* Data updated since EASL ILCTM presentation
We expect to provide additional data from the remaining 24 weeks. Patients will be followed for 24 weeks after the treatment period concludes. Interim on-treatment results fromongoing cohorts of this Phase 1a/1b clinical trial are expected in the second half of 20182021, including initial data from the 90 mg every 12-week dosing interval cohort in HBV DNA negative subjects and initial data from the 90 mg every 8-week dosing interval cohort in HBV DNA positive subjects.
The efficacy and safety data for AB-729, derived from up to one year of dosing, support our view that 60 mg every 8 weeks is an appropriate dose to move forward in our upcoming Phase 2a clinical trials. To advance our efforts to position AB-729 as a potential cornerstone therapeutic in future HBV combination regimens, we are evaluating AB-729 in several Phase 2a proof-of-concept combination clinical trials with other agents with potentially complementary mechanisms of action, including Peg-IFNα-2a and several investigational agents via clinical collaborations with other companies as described below.
Collaboration with Assembly
In August 2020, we entered into a clinical collaboration agreement with Assembly to evaluate AB-729 in combination with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate vebicorvir (“VBR”) and standard-of-care NA therapy for the treatment of subjects with chronic HBV infection. We are currently enrolling subjects in a randomized, multi-center, open-label Phase 2a proof-of-concept clinical trial is evaluating the safety, pharmacokinetics, and antiviral activity of the triple combination of AB-729, VBR, and an NA compared to the double combinations of VBR with an NA and AB-729 with an NA. We expect to enroll approximately 60 virologically-suppressed subjects with HBeAg negative chronic HBV infection in the first cohort of this trial. Patients will be dosed for 48 weeks with AB-729 60 mg subcutaneously every 8 weeks and VBR 300 mg orally once daily, with a 48-week follow-up period. We and Assembly will share in the costs of the collaboration. Under the terms of the collaboration, we and Assembly may also add additional cohorts in the future to evaluate other patient populations and/or combinations. Except to the extent necessary to carry out Assembly’s responsibilities with respect to the collaboration trial, we have not provided any license grant to Assembly for use of our AB-729 compound.
Collaboration with Vaccitech plc
In July 2021, we entered into a clinical collaboration agreement with Vaccitech plc (“Vaccitech”) to evaluate the safety, pharmacokinetics, immunogenicity, and antiviral activity of AB-729 followed by finalVaccitech’s proprietary immunotherapeutic, VTP-300, in NrtI-suppressed subjects with CHB. Pending regulatory approval, the trial is expected to enroll 40 NA-suppressed, Hepatitis B e-antigen negative or positive, non-cirrhotic CHB subjects. Subjects are expected to receive AB-729 + NA for 24 weeks. At Week 24, subjects will be randomized 1:1 to receive either NA + VTP-300 or NA + VTP-300 sham. At Week 48, all subjects are expected to be evaluated for eligibility to either discontinue all treatments or remain on their NrtI only. Subjects are expected to be followed for an additional 48 weeks. The Phase 2a proof-of-concept clinical trial will be managed by us, subject to oversight by a joint development committee comprised of representatives from us and Vaccitech. We and Vaccitech retain full rights to their respective product candidates and will split all costs associated with the clinical trial. We expect to file a CTA in the second half of 2021 and initiate the clinical trial in early 2022. Pursuant to the agreement, the parties intend to undertake a larger Phase 2b clinical trial depending on the results of the initial Phase 2a clinical trial.
Collaboration with Antios Therapeutics, Inc.
In June 2021, we entered into a clinical collaboration agreement with Antios Therapeutics, Inc. (“Antios”) to evaluate a triple combination of AB-729, Antios’ proprietary active site polymerase inhibitor nucleotide (ASPIN), ATI-2173, and Viread (tenofovir disoproxil fumarate), for the treatment of subjects with chronic HBV infection. ATI-2173, AB-729 and Viread will be evaluated in 2019. Combination treatment has the potential to result in sustained HBV DNA and HBsAg loss in patients. Achieving thiscombination in a significant proportionsingle cohort in the ongoing Antios Phase 2a ANTT201 clinical trial. The multi-center, double-blinded, placebo-controlled, multiple‑dose cohort will evaluate the safety, pharmacokinetics, immunogenicity, and antiviral activity of patients would putthe combination of ATI-2173, AB-729 and Viread. This cohort is expected to initiate in the second half of 2021. Antios will be responsible for the costs of adding this single cohort to its ongoing clinical trial. Arbutus therapeuticwill be responsible for the manufacture and supply of AB-729. Except to the extent necessary to carry out Antios’ responsibilities with
respect to the collaboration trial, we have not provided any license grant to Antios for use of our AB-729 compound.
Phase 2a proof-of-concept clinical trial to evaluate AB-729 in combination with Peg-IFNα-2a
In July 2021,we received authorization from the U.S. Food and Drug Administration to proceed with our Investigational New Drug (IND) application for AB-729 in a Phase 2a proof-of-concept clinical trial to evaluate AB-729 in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in subjects with chronic HBV infection. This is a randomized, open label, multicenter Phase 2a trial investigating the safety and antiviral activity of AB-729 in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in subjects with CHB. Pending protocol finalization, the trial is expected to enroll 40 stably NA-suppressed, HBeAg negative, non-cirrhotic CHB subjects. After a 24-week dosing period of AB-729 (60 mg SC every 8 weeks (Q8W)), subjects will be randomized into one of 4 groups:
•A1: AB-729 + NA + weekly Peg-IFNα-2a for 24 weeks (N = 12)
•A2: NA + weekly Peg-IFNα-2a for 24 weeks (N = 12)
•B1: AB-729 + NA + weekly Peg-IFNα-2a for 12 weeks (N = 8)
•B2: NA + weekly Peg-IFNα-2a for 12 weeks (N = 8)
After completion of the assigned Peg-IFNα-2a treatment period, all subjects will remain on a potential late stage developmentNA therapy for the initial 24-week follow up period, and approval pathway.then will discontinue NA treatment if treatment stopping criteria are met. If subjects stop NA therapy, they will enter an intensive follow-up period for 48 weeks. This Phase 2a proof-of-concept clinical trial is expected to initiate in the second half of 2021.
Oral Capsid Inhibitor (AB-423 & AB-506)Inhibitors (AB-836)
HBV core protein orassembles into a capsid structure, which is required for viral replication and core protein may have additional roles in cccDNA function. Current NA therapyreplication. The current commercially available therapies (NAs or Peg-IFN) significantly reducesreduce HBV DNA levels in the serum, but HBV replication continues in the liver, thereby enabling HBV infection to persist. Effective therapyMore effective therapies for patients requiresrequire new agents which will effectivelyfurther block viral replication. We are developing core proteincapsid inhibitors (also known as capsid assemblycore protein inhibitors) as oral therapeutics for the treatment of chronicwhich, in combination with NAs, could further reduce HBV infection.replication. By inhibiting assembly of thefunctional viral capsid,capsids, the ability of HBV to replicate is impaired, resultingimpaired. Capsid inhibitor molecules also inhibit the uncoating step of the viral life cycle and thus reduce the formation of cccDNA, the viral reservoir which resides in reduced cccDNA.the cell nucleus, and which is believed to play a role in viral persistence.
AB-423 was evaluatedOur oral capsid inhibitor discovery effort generated promising next-generation compounds, which led to the nomination of AB-836 in January 2020. AB-836 is a novel chemical series differentiated from competitor compounds with the potential for increased efficacy and an enhanced resistance profile. AB-836 leverages a novel binding site within the core protein dimer-dimer interface, has shown to be active against NA resistant variants and has the potential to address certain known capsid resistant variants. AB-836 is anticipated to be combinable with other mechanisms of action and is also anticipated to be dosed once daily. We completed CTA/IND-enabling studies for AB-836 in the fourth quarter of 2020 and initiated a Phase I Single Ascending Dose (SAD) and Multiple Ascending Dose (MAD)1a/1b clinical trial designed to assess the safety, tolerability, and pharmacokinetics (PK) of oral administration of the product in healthy volunteers. AB-423 has been generally well-tolerated in this trial, with no serious adverse events following single doses up to 800mg and multiple doses up to 400mg twice daily. AB-423’s favorable safety and PK profile following single and multiple doses in healthy volunteers supports further evaluation of multiple-dose administration of AB-423 in patients with chronic HBV, which is expected to begin in HBV patientsfor AB-836 in the first quarter of 2018. Following2021 with initial studiesdata from healthy volunteers and HBV subjects expected in the second half of AB-423 in patients we will consider inclusion in2021.
Oral PD-L1 Inhibitors
PD-L1 inhibitors complement our pipeline of agents and could potentially be an important part of a combination studytherapy for the treatment of HBV. Highly functional HBV-specific T cells within our immune system are believed to be required for long-term HBV viral resolution. However, HBV-specific T cells become functionally defective, and greatly reduced in their frequency during chronic HBV infection. One approach to boost HBV-specific T cells is to prevent PD-L1 proteins from attaching to and inhibiting the HBV-specific T cells. We are in lead optimization with our other proprietaryoral compounds which are potentially capable of reawakening patients’ HBV-specific immune response by inhibiting PD-L1.
Oral HBV assets, NAs, and IFN.RNA Destabilizers
We recently nominated AB-506, a next-generation capsid inhibitor, for Investigational New Drug (IND)-enabling studies. In preclinical studies, this new capsid inhibitor has shown to have improved PK and potency through increased binding
interaction with its target when compared to AB-423. Pending successful IND-enabling studies, this product candidate could be the subject of an IND (or equivalent) filing in 2018.
HBV RNA Destabilizer (AB-452)destabilizers are small molecule orally available agents that cause the destabilization and ultimate degradation of HBV RNAs. These agents result in the reduction of HBsAg and other viral proteins in both whole cell systems and animal models. They have the potential to selectively impact HBV versus other RNA or DNA viruses and demonstrate pangenotypic characteristics. HBV RNA destabilizers have demonstrated additive effects in combination with other anti-HBV mechanisms of action. HBV RNA destabilizers have the potential to complement or replace subcutaneously delivered RNAi agents, such as
In additionAB-729, with an oral therapy in combination with a capsid inhibitor and an approved NA. We continue to advance next-generation oral HBV RNA-destabilizers through lead optimization.
COVID-19 Research Efforts
While our clinical candidates,core mission is to find a cure for HBV, the magnitude of the coronavirus pandemic is undeniable. Given our proven expertise in the discovery of new antiviral therapies, we initiated a drug discovery effort for treating coronaviruses, including COVID-19, in 2020. To that end, we have assembled an internal team of expert scientists under the direction of our Chief Scientific Officer, Dr. Michael Sofia, to identify novel small molecule therapies to treat COVID-19 and future coronavirus outbreaks. Dr. Sofia, who was awarded the Lasker-DeBakey Award for his discovery of sofosbuvir, brings extensive antiviral drug discovery experience to this new program. We are also a numbermember of the COVID R&D consortium to address the SARS-CoV-2 pandemic and any future coronavirus outbreaks. At this time, our COVID-19 research programs aimed atprogram is focused on the discovery and development of proprietary HBV candidatesnew molecular entities that address specific viral targets including the nsp12 viral polymerase and the nsp5 viral protease. These targets are essential viral proteins which we have experience in targeting. We are actively screening multiple new oral molecular entities.
Collaboration with differentX-Chem, Inc. and complementary mechanismsProteros biostructures GmbH
In March 2021, we entered into a discovery research and license agreement with X-Chem and Proteros to focus on the discovery of action. Onenovel inhibitors targeting the SARS-CoV-2 nsp5 main protease (Mpro). The agreement is designed to accelerate the development of pan-coronavirus agents to treat COVID-19 and potential future coronavirus outbreaks. This collaboration brings together our most advanced preclinical programs, AB-452,expertise in the discovery and development of antiviral agents with X-Chem’s industry leading DNA-encoded library (DEL) technology and Proteros’ protein sciences, biophysics and structural biology capabilities and provides important synergies to potentially identify safe and effective therapies against coronaviruses including SARS-CoV-2. The collaboration is expected to allow for the rapid screening of one of the largest small molecule libraries against Mpro (an essential protein required for the virus to replicate itself) and the use of state-of-the-art structure guided methods to rapidly optimize Mpro inhibitors, which we could potentially progress to clinical candidates. The agreement provides for payments by the Company to X-Chem and Proteros upon satisfaction of certain development, regulatory and commercial milestones, as well as royalties on sales.
COVID-19 Impact
In December 2019 an outbreak of a HBV RNA Destabilizer (formerly known as our oral surface antigen (HBsAg) inhibitor program)novel strain of coronavirus (COVID-19) was identified in Wuhan, China. This virus continues to spread globally, has novel activitybeen declared a pandemic by the World Health Organization and has spread to nearly every country in destabilizing HBV RNA, broad activity against HBV RNAs,the world. The impact of this pandemic has been, and reduces HBsAg. In preclinical studies, AB-452will likely continue to be, extensive in many aspects of society. The pandemic has shown synergistic effects when combined with two of Arbutus’ proprietary HBV RNAi agents in vitro. In in vivo, twice-a-day oral administration of AB-452 resulted in upand will likely continue to 1.4 log10 reductionresult in significant disruptions to businesses. A number of serum HBsAgcountries and other jurisdictions around the world have implemented extreme measures to try and slow the spread of the virus. These measures include the closing of businesses and requiring people to stay in their homes, the latter of which raises uncertainty regarding the ability to travel to hospitals in order to participate in clinical trials. Additional measures that have had, and will likely continue to have, a dose dependent mannermajor impact on clinical development, at least in the near-term, include shortages and correlated welldelays in the supply chain, and prohibitions in certain countries on enrolling subjects in new clinical trials. While we have been able to progress with liver HBV RNA levels as well. This molecule hasour clinical and pre-clinical activities to date, it is not possible to predict if the potential for once daily oral dosing. Pending successful IND-enabling studies, this product candidate could beCOVID-19 pandemic will materially impact our plans and timelines in the subject of an IND (or equivalent) filing in 2018.future.
Additional Research ProgramsOther Royalty Entitlements and Collaborations
Alnylam Pharmaceuticals, Inc. and Acuitas Therapeutics, Inc.
We have designed a numbertwo royalty entitlements to Alnylam Pharmaceutical Inc.’s (“Alnylam”) global net sales of highly potent HBV-targeting RNAi payloads for use with our proprietary GalNAc conjugate platform to enable subcutaneous delivery. In preclinical models, our molecules display acute knockdown of viral proteins and a duration of effect that is highly competitive in the field. We observe a significant dose response, and a stepwise reduction in viral proteins when multi-dosing. We expect to nominate a clinical development candidate in early 2018. We also have ongoing discovery efforts focused on cccDNA targeting and checkpoint inhibition.ONPATTRO.
Our Proprietary Delivery Technology
Development of RNAi therapeutic products is currently limited by the instability of the RNAi trigger molecules in the bloodstream and the inability of these molecules to access target cells or tissues following administration. Delivery technology is necessary to protect these drugs in the bloodstream to allow efficient delivery and cellular uptake by the target cells. Arbutus has developed a proprietary delivery LNP platform. The broad applicability of this platform to RNAi development has established Arbutus as a leader in this new area of innovative medicine.
Our proprietary LNP delivery technology allows for the successful encapsulation of RNAi trigger molecules in LNP administered intravenously, which travel through the bloodstream to target tissues or disease sites. LNPs are designed to protect the triggers, and stay in the circulation long enough to accumulate at disease sites, such as the liver or cancerous tumors. LNPs are then taken up into the target cells by a process called endocytosis. Subsequent activation by the changing environment inside the cell causes the LNP to release the trigger molecules, which can then successfully mediate RNAi.
Ongoing Advancements in LNP Technology
Our LNP technology represents the most widely adopted delivery technology in RNAi, which has enabled several clinical trials and has been administered to hundreds of human subjects. We continue to explore opportunities to generate value from our LNP platform technology, which is well suited to deliver therapies based on RNAi, mRNA, and gene editing constructs. We have also made progress in developing a proprietary GalNAc conjugate technology to enable subcutaneous delivery of an RNAi therapeutic targeting HBsAg and/or other HBV targets.
Partner Programs
Patisiran (ALN-TTR02)
Alnylam has a license to use our intellectual property to develop and commercialize products and may only grant access to our LNP technology to its partners if it is part of a product sublicense. Alnylam’s license rights are limited to patents that we have filed, or that claim priority to a patent that was filed, before April 15, 2010. Alnylam's patisiran (ALN-TTR02) program represents the most clinically advanced application of our LNP delivery technology, and results demonstrate that multi-dosing with our LNP has been well-tolerated with treatments out to 25 months. In September 2017, Alnylam announced that its Phase III study of patisiran met its primary efficacy endpoint and all secondary endpoints. Alnylam announced its intention to file a New Drug Application (NDA) in late 2017 and a Marketing Authorisation Application (MAA) in early 2018 for patisiran. We are entitled to single-digit royalty payments escalating based on sales performance as Alnylam’s LNP-enabled products are commercialized.
Gritstone Oncology
In October 2017,2012, we entered into a license agreement with Gritstone Oncology (Gritstone)Alnylam that granted them worldwide accessentitles Alnylam to develop and commercialize products with our portfoliolipid nanoparticle (“LNP”) delivery technology. Alnylam’s ONPATTRO, which represents the first approved application of proprietaryour LNP technology, was approved by the United States Food and clinically validated LNP productsDrug Administration (“FDA”) and associated intellectual property to deliver Gritstone’s RNA-based neoantigen immunotherapy products. Gritstone will pay us an upfront payment, payments for achievementthe European Medicines Agency (“EMA”) during the third quarter of development, regulatory,2018 and commercial milestones, royalties, and will reimburse us for conducting technology development and providing manufacturing and regulatory support for Gritstone’s product candidates.
Marqibo®
Marqibo, originally developedwas launched by Arbutus, is a novel, sphingomyelin/cholesterol liposome-encapsulated formulation of the FDA-approved anticancer drug vincristine. Marqibo’s approved indication is for the treatment of adult patients with Philadelphia chromosome-negative acute lymphoblastic leukemia (Ph-ALL) in second or greater relapse or whose disease has progressed following two or more lines of anti-leukemia therapy. Our licensee, Spectrum Pharmaceuticals, Inc. (Spectrum), launched Marqibo through its existing hematology sales forceAlnylam immediately upon approval in the United States. Spectrum has ongoing trials evaluating Marqibo in three additional indications, which are: first line use in patients with Philadelphia Negative Acute Lymphoblastic Leukemia (Ph-ALL), Pediatric ALL and Non-Hodgkin’s lymphoma. WeUnder the terms of this license agreement, we are receiving mid-single digitentitled to tiered royalty payments on global net sales of Marqibo.ONPATTRO ranging from 1.00% - 2.33% after offsets, with the highest tier applicable to annual net sales above $500 million. This royalty interest was sold to the Ontario Municipal Employees Retirement System (“OMERS”), effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $30 million in royalties,
Recent Developmentsat which point 100% of this royalty entitlement on future global net sales of ONPATTRO will revert to us. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and we are not obligated to reimburse OMERS if they fail to collect any such future royalties. If this royalty entitlement reverts to us, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part. From the inception of the royalty sale through June 30, 2021, an aggregate of $7.2 million of royalties have been collected by OMERS.
Acuitas Therapeutics Inc.
In December 2013, we entered intoWe also have rights to a cross-licensesecond, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas Therapeutics, Inc., or Acuitas. The terms (“Acuitas”). This royalty entitlement from Acuitas has been retained by us and was not part of the cross-licenseroyalty entitlement sale to OMERS.
Genevant Sciences, Ltd.
In April 2018, we entered into an agreement provided Acuitas with accessRoivant Sciences Ltd. (“Roivant”), our largest shareholder, to launch Genevant Sciences Ltd. (“Genevant”), a company focused on the discovery, development, and commercialization of a broad range of RNA-based therapeutics enabled by our LNP and ligand conjugate delivery technologies. We licensed exclusive rights to our LNP and ligand conjugate delivery platforms to Genevant for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties (the “Genevant License”). We retained all rights to our LNP and conjugate delivery platforms for HBV. Under the Genevant License, we are entitled to receive tiered low single-digit royalties on future sales of Genevant products covered by the licensed patents. If Genevant sub-licenses the intellectual property licensed by us to Genevant, we are entitled to receive under the Genevant License, upon the commercialization of a product developed by such sub-licensee, the lesser of (i) twenty percent of the revenue received by Genevant for such sublicensing and (ii) tiered low single-digit royalties on product sales by the sublicensee.
On July 31, 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant. We participated in the recapitalization of Genevant with an equity investment of $2.5 million. In connection with the recapitalization, the three parties entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant. We have a non-voting observer seat on Genevant’s Board of Directors. As of June 30, 2021, we owned approximately 16% of the common equity of Genevant and the carrying value of our earlier intellectual property (IP) generated priorinvestment in Genevant was zero. Our entitlement to April 2010 for a specific field. receive future royalties or sublicensing revenue from Genevant was not impacted by the recapitalization.
Moderna Inter Partes Review Petitions
On August 29, 2016, we provided Acuitas with noticeFebruary 21, 2018 and March 5, 2018, Moderna Therapeutics, Inc. (“Moderna”) filed petitions requesting the United States Patent and Trademark Office to institute an Inter Partes Review of Arbutus United States Patents 9,404,127 (the “’127 Patent”) and 9,364,435 (the “’435 Patent”). In its petitions, Moderna sought to invalidate all claims of each patent based on Moderna’s allegation that Arbutus considered Acuitas to be in material breach of the cross-license agreement. On October 25, 2016, Acuitas filed a Notice of Civil Claim in the Supreme Court of British Columbia seeking an order that we perform our obligations under the cross-license agreement , for damages ancillary to specific performance, injunctive relief, interest and costs.claims are anticipated and/or obvious. We disputed Acuitas' position and filed a counterclaim seeking a declaration that Acuitas is in breach of the cross-license agreement, and claiming injunctive relief, damages, interest and costs. On January 10, 2017, we filed an application seeking an order to enjoin Acuitas from entering into any further agreements purporting to sublicense Arbutus' technology from the date of the order to the date of trial or further order from the court. Acuitas filed a response to Arbutus' applicationModerna’s petitions on June 14, 2018. On September 12, 2018, the Patent Trial and Appeal Board (the “PTAB”) rendered its decision to institute Inter Partes Review of both the ‘127 Patent and the matter‘435 Patent.
The status of these patents is as follows: with respect to the ‘127 Patent, the PTAB held all claims as invalid as anticipated on September 10, 2019. However this decision was vacated and sent back (remanded) to the subjectPTAB for a rehearing, pending the Supreme Court’s decision whether to grant certiorari in a different case, United States v. Athrax, Inc. (“US v. Athrax”), the holding of which could impact the findings in the ‘127 Patent matter. The Supreme Court granted certiorari in US v. Athrax on October 13, 2020 (i.e. agreed to review the decision appealed from a hearing on January 26, 2017, which resulted inlower court). Because the Supreme Court has yet to render its opinion in US v. Athrax, the ‘127 Patent hearing remains in abeyance, with no decision reached as to the validity of British Columbia grantingits claims.
With respect to the ‘435 Patent, the PTAB rendered its decision on September 11, 2019, holding certain claims invalid and upholding other claims as valid. On November 13, 2019, we and Moderna both appealed the decision. Moderna filed its opening brief on May 4, 2020 and we provided our opening and responsive brief on July 27, 2020. Moderna subsequently filed its reply and responsive brief on October 5, 2020, and we filed our reply brief on November 9, 2020. The appeal with respect to the ‘435 Patent is currently awaiting an oral argument date.
On January 9, 2019, Moderna filed an additional petition requesting Inter Partes Review of Arbutus United States Patent 8,058,069 (the “’069 Patent”). The PTAB instituted Inter Partes Review of the ‘069 Patent and, on July 23, 2020, issued a pre-trial injunction against Acuitas.decision upholding all claims as valid. On September 23, 2020, Moderna appealed the ‘069 Inter Partes Review decision to the Federal Circuit Court of Appeals. Moderna filed its opening brief in that appeal on February 8, 2017,23, 2021, Arbutus announcedfiled its
responsive brief on May 11, 2021, and Moderna filed its reply brief on July 1, 2021. A hearing date has not yet been set for this matter.
Moderna and Merck European Oppositions
On April 5, 2018, Moderna and Merck, Sharp & Dohme Corporation (“Merck”) filed Notices of Opposition to Arbutus’ European patent EP 2279254 (“the ’254 Patent”) with the European Patent Office (“EPO”), requesting that the Supreme Court of British Columbia granted Arbutus’ request‘254 Patent be revoked in its entirety for all contracting states. We filed a pre-trial injunction against Acuitas, preventing Acuitas from further sublicensing of Arbutus’ LNP technology untilresponse to Moderna and Merck’s oppositions on September 3, 2018. A hearing was conducted before the end of October 2017, or further orderOpposition Division of the Court. UnderEPO on October 10, 2019. At the termsconclusion of the pre-trial injunction, Acuitas is prevented from entering into any new agreements, which include sublicensinghearing, the EPO upheld an auxiliary request adopting the amendment, as put forth by us, of Arbutus’ LNP. On March 7, 2017, Acuitas sought leave to appealed fromcertain claims of the injunction decision‘254 Patent. In February 2020 Moderna and on April 3, 2017,Merck filed Notices of Appeal challenging the application for leave toEPO’s grant of the auxiliary request. Merck filed its notice of appeal was denied. On September 29, 2017, the injunction order was extended by consent to March 2, 2018. The contractual issues concerning the cross-license agreement (excluding the claims for damages) are set for trial for 10 days commencing on February 19, 2018.24, 2020 and Moderna on February 27, 2020. We filed our response on September 18, 2020.
While we are the patent holder, the ‘127 Patent, the ‘435 Patent, the ‘069 Patent and the ‘254 Patent have been licensed to Genevant and are included in the exclusive rights licensed by us to Genevant under the Genevant License.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES
This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There areWe believe there have been no significant changes toin our critical accounting policies and estimates from those disclosedas discussed in our annual MD&A contained in“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
RECENT ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
Please refer to Notenote 2 to our condensed consolidated financial statements included in Part I, Item 1, "Financial“Financial Statements (Unaudited)"” of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our business.
SUMMARY OF QUARTERLY RESULTS
The following table presents our unaudited quarterly results of operations for each of our last eight quarters. These data have been derived from our unaudited condensed consolidated financial statements, which were prepared on the same basis as our annual audited financial statements and, in our opinion, include all adjustments necessary, consisting solely of normal recurring adjustments, for the fair presentation of such information.
(in millions $ except per share data) – unaudited
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Q3 | | Q2 | | Q1 | | Q4 | | Q3 | | Q2 | | Q1 | | Q4 |
| 2017 | | 2017 | | 2017 | | 2016 | | 2016 | | 2016 | | 2016 | | 2015 |
Total revenue | 6.8 |
| | 1.0 |
| | 0.2 |
| | (0.2 | ) | | 0.7 |
| | 0.3 |
| | 0.6 |
| | 12.7 |
|
Expenses | (19.8 | ) | | (20.5 | ) | | (18.5 | ) | | (257.2 | ) | | (19.7 | ) | | (195.6 | ) | | (20.6 | ) | | (24.4 | ) |
Other income (losses) | 1.3 |
| | 1.2 |
| | (0.3 | ) | | (1.4 | ) | | (0.6 | ) | | 0.4 |
| | 4.1 |
| | 5.5 |
|
Loss before income taxes | (11.7 | ) | | (18.3 | ) | | (18.6 | ) | | (258.8 | ) | | (19.6 | ) | | (194.9 | ) | | (15.9 | ) | | (6.2 | ) |
Income tax benefit | — |
| | — |
| | — |
| | 40.1 |
| | — |
| | 64.9 |
| | — |
| | 1.0 |
|
Net loss | (11.7 | ) | | (18.3 | ) | | (18.6 | ) | | (218.7 | ) | | (19.6 | ) | | (130.0 | ) | | (15.9 | ) | | (5.2 | ) |
Basic and diluted net loss per share | $ | (0.21 | ) | | $ | (0.33 | ) | | $ | (0.34 | ) | | $ | (4.05 | ) | | $ | (0.37 | ) | | $ | (2.47 | ) | | $ | (0.31 | ) | | $ | (0.10 | ) |
Quarterly Trends
Revenue / Our revenue is derived from research and development collaborations and contracts, licensing fees, milestone and royalty payments.
In January 2014, we signed an Option Agreement and a Services Agreement with Monsanto for the use of our proprietary delivery technology and related intellectual property in agriculture. In Q4 2015, we recognized the remaining deferred revenue balance of $11.8 million as the estimated option period ended. In March 2016, Monsanto exercised its option to acquire 100% of the outstanding shares of Protiva Agricultural Development Company Inc. (PADCo), for which Monsanto paid us an exercise fee of $1.0 million in Q1 2016. We recorded this receipt in Q1 2016 as Other income (losses).
In November 2014, we signed a License Agreement and a Development and Supply Agreement with Dicerna for the use of our proprietary delivery technology and related technology intended to develop, manufacture, and commercialize products related to the treatment of PH1. In Q3 2016, Dicerna announced the discontinuation of their DCR-PH1 program using our technology, and we recognized the remaining balance of Dicerna license fee revenue of $0.6 million, as well as other Dicerna collaboration revenue for the provision of development services.
In March 2017, we signed a License Agreement with Alexion that granted them exclusive use of our proprietary lipid nanoparticle (LNP) technology in one of Alexion's rare disease programs. Under the terms of the license agreement, we received a $7.5 million non-refundable upfront payment in April 2017, which was recognized over the expected period we provide services to Alexion. In Q3 2017, we received notice of termination from Alexion for our LNP license agreement, and completed close out procedures. The termination was driven by a strategic review of Alexion's business and research and development portfolio, which included a decision to discontinue development of mRNA therapeutics. As such, we recorded the remaining deferred revenue of $6.7 million for the non-refundable upfront payment, as well as revenue for any work done related to closeout procedures.
Under our licensing and collaboration arrangements with Alnylam and Acuitas, we earn licensing fee revenue from Acuitas as well as further potential development and commercial milestones and royalties from Alnylam for the use of our LNP technology.
In 2013, we began to earn royalties from Spectrum with respect to the commercial sales of Marqibo.
Expenses / Expenses consist primarily of clinical and pre-clinical trial expenses, personnel expenses, consulting and third party expenses, reimbursable collaboration expenses, consumables and materials, patent filing expenses, facilities, stock-based compensation and general corporate costs. Impairment of intangible assets and goodwill is also included in operating expenses.
Since Q4 2015, we have incurred significant R&D expense related to our HBV programs, including initiation of our ARB-1467 in Phase 2 clinical trials, and incurred costs in Q4 2016 to Q3 2017 to advance our AB-423 to Phase 1 clinical trials. In Q2 and Q3 2017, we also incurred costs related to our recently nominated product candidates: a second capsid inhibitor (AB-506) and a HBV RNA destabilizer (AB-452, formerly known as our oral surface antigen (HBsAg) inhibitor program). In Q2, 2016, we recorded an impairment charge of $156.3 million (before deferred tax) for the discontinuance of the ARB-1598 program in the Immune Modulators drug class after extensive research and analysis, as well as a delay for additional exploration of the biology of the cccDNA Sterilizer drug class. In Q4 2016, we recorded an impairment charge of $96.9 million for our intangible assets (before deferred tax) and impairment charge of $138.1 million for our goodwill which resulted from a change in estimated cost of capital and resulting discount rate used in our annual impairment assessment.
Following the merger with Arbutus Inc., we have recorded, to date, non-cash compensation expense of $57.1 million related to the expiry of repurchase rights on shares issued as part of the consideration paid for the merger with Arbutus Inc. - see "Results of Operations". The final tranche of repurchase rights expired in Q3 2017 so there won't be any further expense to record in this regard.
Other income (losses) / Other income (losses) consist primarily of changes in the fair value of our contingent consideration, interest income and expense and foreign exchange gains and losses. We have recorded increases in the fair value of contingent consideration since first recording this liability as a result of the merger with Arbutus Inc. in March 2015. This reflects the progress of our HBV programs that bring us closer to triggering the contingent amounts.
We have recorded foreign exchange gains and losses over the past eight quarters, largely related to U.S. dollar cash and investment holdings and fluctuations in the U.S./Canadian dollar exchange rate. We expect to record future foreign exchange gains and losses, on translation from the Canadian dollar, to the U.S. dollar, as the functional currency for the company changed to the U.S. dollar effective January 1, 2016. This change in functional currency results in a smaller proportion of our cash and investments being held in a foreign currency and therefore reduces the level of gains and losses we expect to record in this respect compared to periods prior to January 1, 2016.
Income tax benefit / Income tax benefit relates to the decrease in deferred tax liability associated with impairment charges recorded on acquired intangible assets as discussed above.
Net loss / Fluctuations in our net loss are explained by changes in revenue, expenses, other income (losses) and taxes as discussed above.
RESULTS OF OPERATIONS
The following summarizes the results of our operations for the periods shown, in thousands (except for per share figures):shown:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands) |
Total revenue | $ | 2,329 | | | $ | 1,514 | | | $ | 4,442 | | | $ | 3,005 | |
Operating expenses | 20,971 | | | 14,655 | | | 38,760 | | | 29,293 | |
Loss from operations | (18,642) | | | (13,141) | | | (34,318) | | | (26,288) | |
Other income (loss) | (745) | | | (946) | | | (1,450) | | | (1,660) | |
| | | | | | | |
| | | | | | | |
Net loss | (19,387) | | | (14,087) | | | (35,768) | | | (27,948) | |
Dividend accretion of convertible preferred shares | (3,266) | | | (2,995) | | | (6,478) | | | (5,973) | |
Net loss attributable to common shares | $ | (22,653) | | | $ | (17,082) | | | $ | (42,246) | | | $ | (33,921) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Total revenue | $ | 6,892 |
| | $ | 774 |
| | $ | 8,166 |
| | $ | 1,686 |
|
Operating expenses | 19,789 |
| | 19,749 |
| | 58,847 |
| | 235,886 |
|
Loss from operations | (12,897 | ) | | (18,975 | ) | | (50,681 | ) | | (234,200 | ) |
Net loss | $ | (11,600 | ) | | $ | (19,595 | ) | | $ | (48,482 | ) | | $ | (165,469 | ) |
Basic and diluted loss per share | (0.21 | ) | | (0.37 | ) | | (0.89 | ) | | (3.15 | ) |
Revenue
Revenue / Revenue is summarized in the following table, in thousands:
|
| | | | | | | | | | | | | |
| Three months ended September 30, |
| 2017 | | % of Total | | 2016 | | % of Total |
Alexion | $ | 6,859 |
| | 100 | % | | $ | — |
| | — | % |
Dicerna | — |
| | — | % | | $ | 727 |
| | 94 | % |
Other milestone and royalty payments | 33 |
| | — | % | | 47 |
| | 6 | % |
Total revenue | $ | 6,892 |
| | | | $ | 774 |
| | |
|
| | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2017 | | % of Total | | 2016 | | % of Total |
Alexion | $ | 7,956 |
| | 97 | % | | $ | — |
| | — | % |
Dicerna | — |
| | — | % | | $ | 1,292 |
| | 77 | % |
Other milestone and royalty payments | 210 |
| | 3 | % | | 394 |
| | 23 | % |
Total revenue | $ | 8,166 |
| | | | $ | 1,686 |
| | |
Revenue contracts are addressed in detail in the Overview section of Item 2 above.
Dicerna revenue
In November 2014, we signed a License Agreement and a Development and Supply Agreement with Dicerna for the use of our proprietary delivery technology and related technology intended to develop, manufacture, and commercialize products related to the treatment of PH1. Licensing fee revenue recognized in the three and nine months ended September 30, 2016 relates to the earned portion of the upfront payment of $2.5 million for the use of our technology, which was being recognized over the period we provided services to Dicerna. In September 2016, Dicerna announced the discontinuation of their DCR-PH1 program using the Company's technology. As such, we revised the estimated completion date of performance period to September 30, 2016, at which time we had no further remaining performance obligations.
Alexion revenue
In March 2017, we signed a License Agreement with Alexion that granted them exclusive use of our proprietary lipid nanoparticle (LNP) technology in one of Alexion's rare disease programs. Licensing fee revenue recognized in the three and nine months ended September 30, 2017 relates to the non-refundable upfront payment of $7.5 million for the use of our technology. In addition, we recognized collaboration revenue on the services provided to Alexion related to technology development, manufacturing and regulatory support for the advancement of Alexion's mRNA product candidate.
In July 2017, we received notice of termination from Alexion for our LNP license agreement. The termination was driven by a strategic review of Alexion's business and research and development portfolio, which included a decision to discontinue development of mRNA therapeutics. We recorded the remaining deferred revenue for the non-refundable upfront payment, as well as revenue for any work done related to closeout procedures in the three and nine months ended September 30, 2017.
Other milestone and royalty payments
Under our licensing and collaboration arrangements with Alnylam and Acuitas, we earn licensing fee revenue from Acuitas as well as further potential development and commercial milestones from Alnylam for the use of our LNP technology.
In September 2013, Spectrum announced that they had shipped the first commercial orders of Marqibo. We continue to earn royalties on the sales of Marqibo, which uses a license to our technology.
Expenses / ExpensesRevenues are summarized in the following table,table:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2021 | | % of Total | | 2020 | | % of Total |
| (in thousands, except percentages) |
Revenue from collaborations and licenses | | | | | | | |
Acuitas Therapeutics, Inc. | $ | 1,163 | | | 50 | % | | $ | 761 | | | 50 | % |
| | | | | | | |
Other milestone and royalty payments | 22 | | | 1 | % | | 63 | | | 4 | % |
Non-cash royalty revenue | | | | | | | |
Alnylam Pharmaceuticals, Inc. | 1,144 | | | 49 | % | | 690 | | | 46 | % |
Total revenue | $ | 2,329 | | | 100 | % | | $ | 1,514 | | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | % of Total | | 2020 | | % of Total |
| (in thousands, except percentages) |
Revenue from collaborations and licenses | | | | | | | |
Acuitas Therapeutics, Inc. | $ | 2,258 | | | 51 | % | | $ | 1,514 | | | 50 | % |
| | | | | | | |
Other milestone and royalty payments | 81 | | | 2 | % | | 146 | | | 5 | % |
Non-cash royalty revenue | | | | | | | |
Alnylam Pharmaceuticals, Inc. | 2,103 | | | 47 | % | | 1,345 | | | 45 | % |
Total revenue | $ | 4,442 | | | 100 | % | | $ | 3,005 | | | 100 | % |
Total revenue increased $0.8 million and $1.4 million for the three and six months ended June 30, 2021 compared to the same periods in thousands:2020, primarily due to an increase in license royalty revenue from Alnylam and Acuitas due to the growth of Alnylam’s sales of ONPATTRO.
|
| | | | | | | | | | | | | |
| Three months ended September 30, |
| 2017 | | % of Total | | 2016 | | % of Total |
Research, development, collaborations and contracts | $ | 15,537 |
| | 79 | % | | $ | 15,738 |
| | 80 | % |
General and administrative | 3,659 |
| | 18 | % | | 3,720 |
| | 19 | % |
Depreciation | 593 |
| | 3 | % | | 291 |
| | 1 | % |
Total operating expenses | $ | 19,789 |
| | | | $ | 19,749 |
| | |
Operating expenses
Operating expenses are summarized in the following table: | | | | | | | | | | | | Three Months Ended June 30, |
| Nine months ended September 30, | | 2021 | | % of Total | | 2020 | | % of Total |
| 2017 | | % of Total | | 2016 | | % of Total | | (in thousands, except percentages) |
Research, development, collaborations and contracts | $ | 44,854 |
| | 76 | % | | $ | 44,097 |
| | 19 | % | |
Research and development | | Research and development | $ | 15,396 | | | 73 | % | | $ | 10,465 | | | 71 | % |
General and administrative | 12,586 |
| | 21 | % | | 34,705 |
| | 15 | % | General and administrative | 4,445 | | | 21 | % | | 3,566 | | | 24 | % |
Depreciation | 1,407 |
| | 2 | % | | 760 |
| | — | % | Depreciation | 436 | | | 2 | % | | 501 | | | 3 | % |
Impairment of intangible assets | — |
| | — | % | | $ | 156,324 |
| | 66 | % | |
Change in fair value of contingent consideration | | Change in fair value of contingent consideration | 694 | | | 3 | % | | 116 | | | 1 | % |
Site consolidation | | Site consolidation | — | | | — | % | | 7 | | | — | % |
| Total operating expenses | $ | 58,847 |
| | | | $ | 235,886 |
| | | Total operating expenses | $ | 20,971 | | | 100 | % | | $ | 14,655 | | | 100 | % |