ARBUTUS BIOPHARMA CORP.CORPORATION
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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)
| September 30, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 77,883 | $ | 52,251 | |||||||
| Investments in marketable securities, current | 43,520 | 71,017 | |||||||||
| Accounts receivable | 1,667 | 1,312 | |||||||||
| Prepaid expenses and other current assets | 3,466 | 3,124 | |||||||||
| Total current assets | 126,536 | 127,704 | |||||||||
Property and equipment, net of accumulated depreciation of $8,946 (December 31, 2020: $7,621) | 6,352 | 6,927 | |||||||||
| Investments in marketable securities, non-current | 30,534 | — | |||||||||
| Right of use asset | 2,174 | 2,405 | |||||||||
| Other non-current assets | — | 44 | |||||||||
| Total assets | $ | 165,596 | $ | 137,080 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 9,727 | $ | 9,151 | |||||||
| Lease liability, current | 386 | 390 | |||||||||
| Total current liabilities | 10,113 | 9,541 | |||||||||
| Liability related to sale of future royalties | 17,883 | 19,554 | |||||||||
| Contingent consideration | 5,105 | 3,426 | |||||||||
| Lease liability, non-current | 2,355 | 2,593 | |||||||||
| Total liabilities | 35,456 | 35,114 | |||||||||
| Stockholders’ equity | |||||||||||
| Preferred shares | |||||||||||
| Authorized: unlimited number without par value | |||||||||||
| Issued and outstanding: 1,164,000 (December 31, 2020: 1,164,000) | 160,973 | 149,408 | |||||||||
| Common shares | |||||||||||
| Authorized: unlimited number without par value | |||||||||||
| Issued and outstanding: 110,264,915 (December 31, 2020: 89,678,722) | 1,065,710 | 985,939 | |||||||||
| Additional paid-in capital | 64,096 | 60,751 | |||||||||
| Deficit | (1,112,452) | (1,045,961) | |||||||||
| Accumulated other comprehensive loss | (48,187) | (48,171) | |||||||||
Total stockholders’ equity | 130,140 | 101,966 | |||||||||
| Total liabilities and stockholders’ equity | $ | 165,596 | $ | 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 | |||
See accompanying notes to the condensed consolidated financial statements.
1
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)
| 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Collaborations and licenses | $ | 1,480 | $ | 827 | $ | 3,819 | $ | 2,487 | |||||||||||||||
| Non-cash royalty revenue | 1,860 | 696 | 3,963 | 2,041 | |||||||||||||||||||
| Total Revenue | 3,340 | 1,523 | 7,782 | 4,528 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Research and development | 16,299 | 12,065 | 45,065 | 32,946 | |||||||||||||||||||
| General and administrative | 4,146 | 4,065 | 12,438 | 11,184 | |||||||||||||||||||
| Depreciation | 447 | 490 | 1,326 | 1,491 | |||||||||||||||||||
| Change in fair value of contingent consideration | 856 | 120 | 1,679 | 348 | |||||||||||||||||||
| Site consolidation | — | — | — | 64 | |||||||||||||||||||
| Total operating expenses | 21,748 | 16,740 | 60,508 | 46,033 | |||||||||||||||||||
| Loss from operations | (18,408) | (15,217) | (52,726) | (41,505) | |||||||||||||||||||
| Other income (loss) | |||||||||||||||||||||||
| Interest income | 27 | 100 | 97 | 645 | |||||||||||||||||||
| Interest expense | (762) | (1,074) | (2,297) | (3,214) | |||||||||||||||||||
| Foreign exchange (loss) gain | (15) | (19) | — | (84) | |||||||||||||||||||
| Equity investment loss | — | (2,545) | — | (2,545) | |||||||||||||||||||
| Total other loss | (750) | (3,538) | (2,200) | (5,198) | |||||||||||||||||||
| Loss before income taxes | (19,158) | (18,755) | (54,926) | (46,703) | |||||||||||||||||||
| Net loss | $ | (19,158) | $ | (18,755) | $ | (54,926) | $ | (46,703) | |||||||||||||||
| Items applicable to preferred shares: | |||||||||||||||||||||||
| Dividend accretion of convertible preferred shares | (5,087) | (3,027) | (11,565) | (9,000) | |||||||||||||||||||
| Net loss attributable to common shares | $ | (24,245) | $ | (21,782) | $ | (66,491) | $ | (55,703) | |||||||||||||||
| Loss per share | |||||||||||||||||||||||
| Basic and diluted | $ | (0.24) | $ | (0.27) | $ | (0.68) | $ | (0.77) | |||||||||||||||
| Weighted average number of common shares | |||||||||||||||||||||||
| Basic and diluted | 101,286,351 | 79,487,444 | 97,174,253 | 72,342,070 | |||||||||||||||||||
| Comprehensive income (loss) | |||||||||||||||||||||||
| Unrealized (loss) gain on available-for-sale securities | $ | (31) | $ | (72) | $ | (16) | $ | 58 | |||||||||||||||
| Currency translation adjustments | — | 44 | — | 44 | |||||||||||||||||||
| Comprehensive loss | $ | (19,189) | $ | (18,783) | $ | (54,942) | $ | (46,601) | |||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
2
ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(Expressed inIn thousands of U.S. dollars,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, 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) | — | — | |||||||||||||||||||||||||||||||||||||||
| 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) | — | — | |||||||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||
| Accretion of accumulated dividends on Preferred Shares | — | 5,087 | — | — | — | (5,087) | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 1,549 | — | — | 1,549 | |||||||||||||||||||||||||||||||||||||||
| Certain fair value adjustments to liability stock option awards | — | — | — | — | (44) | — | — | (44) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common shares pursuant to the Open Market Sale Agreement | — | — | 11,869,217 | 44,736 | — | — | — | 44,736 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common shares pursuant to exercise of options | — | — | 604,264 | 3,166 | (1,164) | — | — | 2,002 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common shares pursuant to ESPP | — | — | 91,418 | 392 | (178) | — | — | 214 | |||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | — | — | — | 12 | 12 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (19,158) | — | (19,158) | |||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2021 | 1,164,000 | $ | 160,973 | 110,264,915 | $ | 1,065,710 | $ | 64,096 | $ | (1,112,452) | $ | (48,187) | $ | 130,140 | |||||||||||||||||||||||||||||||||
| 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.
3
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) | — | — | |||||||||||||||||||||||||||||||||||||||
| 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) | — | — | |||||||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||
| Accretion of accumulated dividends on Preferred Shares | — | 3,027 | — | — | — | (3,027) | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 1,658 | — | — | 1,658 | |||||||||||||||||||||||||||||||||||||||
| Certain fair value adjustments to liability stock option awards | — | — | — | — | (137) | — | — | (137) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common shares pursuant to the Open Market Sale Agreement | — | — | 13,258 | 48,760 | — | — | — | 48,760 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common shares pursuant to exercise of options | — | — | 104 | 543 | (207) | — | — | 336 | |||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | — | — | — | (72) | (72) | |||||||||||||||||||||||||||||||||||||||
| Currency translation adjustments | — | — | — | — | — | — | 44 | 44 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (18,755) | — | (18,755) | |||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2020 | 1,164,000 | $ | 146,285 | 84,618,575 | $ | 965,369 | $ | 59,614 | $ | (1,025,796) | $ | (48,127) | $ | 97,345 | |||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
4
ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(Expressed inIn thousands of U.S. dollars)Dollars)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net loss | $ | (54,926) | $ | (46,703) | |||||||
| Non-cash items: | |||||||||||
| Depreciation | 1,326 | 1,491 | |||||||||
| Stock-based compensation expense | 4,993 | 4,730 | |||||||||
| Unrealized foreign exchange losses (gains) | — | 56 | |||||||||
| Change in fair value of contingent consideration | 1,679 | 348 | |||||||||
| Net equity investment loss | — | 2,544 | |||||||||
| Non-cash royalty revenue | (3,963) | (2,041) | |||||||||
| Non-cash interest expense | 2,292 | 3,166 | |||||||||
| Net accretion and amortization of investments in marketable securities | 753 | 71 | |||||||||
| Net change in operating items: | |||||||||||
| Accounts receivable | (355) | 129 | |||||||||
| Prepaid expenses and other assets | (67) | 350 | |||||||||
| Accounts payable and accrued liabilities | 585 | (147) | |||||||||
| Restructuring accrual | — | (137) | |||||||||
| Other liabilities | (243) | (285) | |||||||||
| Net cash used in operating activities | (47,926) | (36,428) | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Purchase of investments | (54,156) | (28,904) | |||||||||
| Disposition of investments | 50,350 | 66,548 | |||||||||
| Investment in Genevant | — | (2,500) | |||||||||
| Acquisition of property and equipment | (751) | (77) | |||||||||
| Net cash (used in) provided by investing activities | (4,557) | 35,067 | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Issuance of common shares pursuant to the Open Market Sale agreement | 75,429 | 66,120 | |||||||||
| Issuance of common shares pursuant to exercise of options | 2,225 | 416 | |||||||||
| Issuance of common shares pursuant to ESPP | 461 | — | |||||||||
| Net cash provided by financing activities | 78,115 | 66,536 | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | — | (56) | |||||||||
| Increase in cash and cash equivalents | 25,632 | 65,119 | |||||||||
| Cash and cash equivalents, beginning of period | 52,251 | 31,799 | |||||||||
| Cash and cash equivalents, end of period | $ | 77,883 | $ | 96,918 | |||||||
| Supplemental cash flow information | |||||||||||
| Preferred shares dividends accrued | $ | (11,565) | $ | (9,000) | |||||||
| 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 | ) | ||||||||
See accompanying notes to the condensed consolidated financial statements.
5
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 broad portfolio of wholly-owned assets with different modes of action to provide a cure for patients suffering frompeople with chronic hepatitis B infection,virus (HBV) infection. The Company is advancing multiple product candidates with distinct mechanisms of action that suppress viral replication, reduce surface antigen and reawaken the immune system. Arbutus believes this three-prong approach is key to transforming the treatment and developing a disease ofpotential cure for chronic HBV infection. Arbutus’ HBV product pipeline includes RNA interference (RNAi) therapeutics, oral capsid inhibitors, oral compounds that inhibit PD-L1 and oral HBV RNA destabilizers. In addition, Arbutus has an ongoing drug discovery and development program directed to identifying orally active agents for treating coronaviruses (including COVID-19).
The Company’s 2 lead product candidates are AB-729, the liver caused byCompany’s proprietary subcutaneously-delivered RNA interference (“RNAi”) product candidate that suppresses HBsAg expression, and AB-836, the hepatitis B virusCompany’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. (“HBV”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 healthy subjects and HBV patients in a broad pipelinePhase 1a/1b clinical trial for AB-836 with initial data expected in the fourth quarter of drug candidates2021.
Liquidity
At September 30, 2021, the Company had an aggregate of $151.9 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 into the Company’s expertise in Lipid Nanoparticle ("LNP") technology.second quarter of 2023.
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 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 in attempts to 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 patients 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.
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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 September 30, 2021 and December 31, 2020, the Company’s results of operations for the three and nine months ended September 30, 2021 and 2020, and the Company’s cash flows atfor the nine months ended September 30, 20172021 and for all periods presented.2020. Such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September 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.
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 nine months ended September 30, 2017,2021 and 2020, potential common shares of 5,339,714 (September 30, 2016 – 4,978,101)34.3 million and 31.6 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.
On October 18, 2021, the Preferred Shares were converted into 22,833,922 common shares. As a result of the conversion, the Company will no longer utilize the two-class method when computing net loss per share.
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
7
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.
| 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 | $ | — | ||||||
| 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 | ||||||
| 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 | |||||
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.
| 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 | ||
| 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 | |||||||
| 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 | ||||
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comprehensive loss for the nine months ended September 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 September 30, 2021 | (in thousands) | ||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 77,883 | $ | — | $ | — | $ | 77,883 | |||||||||||||||
| Short-term investments | 43,520 | — | — | 43,520 | |||||||||||||||||||
| Long-term investments | 30,534 | — | — | 30,534 | |||||||||||||||||||
| Total | $ | 151,937 | $ | — | $ | — | $ | 151,937 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Liability-classified stock options | $ | — | $ | — | $ | 37 | $ | 37 | |||||||||||||||
| Contingent consideration | — | — | 5,105 | 5,105 | |||||||||||||||||||
| Total | $ | — | $ | — | $ | 5,142 | $ | 5,142 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| As of December 31, 2020 | (in thousands) | ||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 52,251 | $ | — | $ | — | $ | 52,251 | |||||||||||||||
| Short-term investments | 71,017 | — | — | 71,017 | |||||||||||||||||||
| Total | $ | 123,268 | $ | — | $ | — | $ | 123,268 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Liability-classified stock options | $ | — | $ | — | $ | 250 | $ | 250 | |||||||||||||||
| Contingent consideration | — | — | 3,426 | 3,426 | |||||||||||||||||||
| Total | $ | — | $ | — | $ | 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 in fair value of liability | Liability at end of the period | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | $ | 250 | $ | (96) | $ | (117) | $ | 37 | |||||||||||||||
| Nine Months Ended September 30, 2020 | $ | 253 | $ | — | $ | 64 | $ | 317 | |||||||||||||||
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 liability | Liability at end of the period | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Nine Months Ended September 30, 2021 | $ | 3,426 | $ | 1,679 | $ | 5,105 | |||||||||||
| Nine Months Ended September 30, 2020 | $ | 2,953 | $ | 348 | $ | 3,301 | |||||||||||
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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 September 30, 2021 | (in thousands) | ||||||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||
| US government money market fund | $ | 29,708 | $ | — | $ | — | $ | 29,708 | |||||||||||||||
| Total | $ | 29,708 | $ | — | $ | — | $ | 29,708 | |||||||||||||||
| Investments in marketable short-term securities | |||||||||||||||||||||||
| US government agency bonds | $ | 2,021 | $ | 1 | $ | — | $ | 2,022 | |||||||||||||||
| US treasury bills | 2,000 | — | — | 2,000 | |||||||||||||||||||
| US government bonds | 39,494 | 4 | — | 39,498 | |||||||||||||||||||
| Total | $ | 43,515 | $ | 5 | $ | — | $ | 43,520 | |||||||||||||||
| Investments in marketable long-term securities | |||||||||||||||||||||||
| US government agency bonds | $ | 12,251 | $ | — | $ | (5) | $ | 12,246 | |||||||||||||||
| US treasury bills | — | — | — | — | |||||||||||||||||||
| US government bonds | 18,289 | 1 | (2) | 18,288 | |||||||||||||||||||
| Total | $ | 30,540 | $ | 1 | $ | (7) | $ | 30,534 | |||||||||||||||
(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 | $ | — | $ | 11,557 | |||||||||||||||
| US treasury bills | 21,990 | 2 | — | 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 $43.5 million of short-term marketable securities held by the Company as of September 30, 2021 is less than one year. As of September 30, 2021, the Company held $30.5 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 short-term marketable securities had contractual maturities of less than one year.
There were no realized gains or losses for the three and nine months ended September 30, 2021 or 2020.
10
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 September 30, 2021, the carrying value of the Company’s investment in Genevant was zero 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:
| September 30, 2021 | December 31, 2020 | ||||||||||
| (in thousands) | |||||||||||
| Trade accounts payable | $ | 1,042 | $ | 2,994 | |||||||
| Research and development accruals | 5,451 | 1,653 | |||||||||
| Professional fee accruals | 582 | 679 | |||||||||
| Payroll accruals | 2,612 | 3,566 | |||||||||
| Liability options | 37 | 250 | |||||||||
| Other accrued liabilities | 3 | 9 | |||||||||
| Total accounts payable and accrued liabilities | $ | 9,727 | $ | 9,151 | |||||||
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”).
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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 September 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 September 30, 2021, the Company has recorded an aggregate of $9.0 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 nine months ended September 30, 2021 and 2020:
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in thousands) | |||||||||||
| Net liability related to sale of future royalties - beginning balance | $ | 19,554 | $ | 18,992 | |||||||
| Non-cash royalty revenue | (3,963) | (2,041) | |||||||||
| Non-cash interest expense | 2,292 | 3,166 | |||||||||
| Net liability related to sale of future royalties - ending balance | $ | 17,883 | $ | 20,117 | |||||||
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.
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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 zero.
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 $5.1 million as of September 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 VTP-300, a proprietary T cell stimulating therapeutic vaccine, in nucleos(t)ide reverse transcriptase inhibitor-suppressed patients 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 patients 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 a Phase 2 proof-of-concept triple combination clinical trial with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate vebicorvir (“VBR”) and standard-of-care NA therapy for the treatment of patients with chronic HBV infection. The Company and Assembly are sharing in the costs of the collaboration. The Company incurred $0.9 million and $2.1 million of costs related to the collaboration during the three and nine months ended September 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.
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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.
The Company is also obligatedhas rights to pay Blumberga second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and Drexel a double digit percentagesubsequent license agreement with Acuitas. This royalty entitlement from Acuitas has been retained by the Company and was not part of all amounts received from its sub-licensees, subjectthe royalty entitlement sale to exclusions.OMERS.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||
| Revenue from collaborations and licenses | |||||||||||||||||||||||
| Acuitas Therapeutics, Inc. | $ | 1,425 | $ | 774 | $ | 3,683 | $ | 2,288 | |||||||||||||||
| Other milestone and royalty payments | 55 | 54 | 136 | 199 | |||||||||||||||||||
| Non-cash royalty revenue | |||||||||||||||||||||||
| Alnylam Pharmaceuticals, Inc. | 1,860 | 695 | 3,963 | 2,041 | |||||||||||||||||||
| Total revenue | $ | 3,340 | $ | 1,523 | $ | 7,782 | 4,528 | ||||||||||||||||
10. Stockholders’ equity
Open Market Sale Agreement
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The Company has an Open Market Sale Agreement with BlumbergJefferies LLC (“Jefferies”) dated December 20, 2018, as amended by Amendment No. 1, dated December 20, 2019, Amendment No. 2, dated August 7, 2020 and Amendment No. 3, dated March 4, 2021 (as amended, the “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. 333-248467), filed with the SEC on August 28, 2020 (the “Registration Statement”).
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 an additional $75.0 million of its common shares pursuant to the Sale Agreement under the Registration Statement.
During the three and nine months ended September 30, 2021, the Company issued 11,869,217 and 19,715,142 common shares, respectively, pursuant to the Sale Agreement, resulting in net proceeds of approximately $44.7 million and $75.4 million, respectively. For the three and nine months ended September 30, 2020, the Company issued 13,258,096 and 19,696,361 common shares, respectively, pursuant to the Sale Agreement, resulting in net proceeds of approximately $48.8 million and $66.1 million, respectively.
As of September 30, 2021, there was approximately $38.6 million remaining available under the March 2021 Prospectus Supplement.
On October 8, 2021, the Company filed a prospectus supplement with the SEC (the “October 2021 Prospectus Supplement”) in connection with the offering of up to an additional $75.0 million of its common shares pursuant to the Sale Agreement under the Registration Statement.
Stock-based compensation
The table below summarizes information about the Company’s stock based compensation for the three and nine months ended September 30, 2021 and 2020 and the expense recognized in the condensed consolidated statements of operations:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (in thousands, except share and per share data) | |||||||||||||||||||||||
| Options granted during period | 242,400 | 188,600 | 3,369,750 | 2,856,150 | |||||||||||||||||||
| Weighted average exercise price | $ | 3.70 | $ | 2.25 | $ | 4.19 | $ | 3.21 | |||||||||||||||
| Stock compensation expense | |||||||||||||||||||||||
| Research and development | $ | 729 | $ | 808 | $ | 2,147 | $ | 2,341 | |||||||||||||||
| General and administrative | 886 | 880 | 2,846 | 2,389 | |||||||||||||||||||
| Total stock compensation expense | $ | 1,615 | $ | 1,688 | $ | 4,993 | $ | 4,730 | |||||||||||||||
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Series A Preferred Shares
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 pursuant 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 scope 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 such a license, the Company will have a specified period of time to negotiate and enter into a mutually agreeable license agreement with Blumberg. 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 products from any commercialized combination.
On October 16, 2017,18, 2021, the Company enteredPreferred Shares were converted into a license agreement with Gritstone that entitles Gritstone to research, develop, manufacture22,833,922 common shares and commercialize products withboth the lockup and standstill periods expired. Following the conversion, Roivant owns approximately 29% of the Company’s LNP technology. outstanding common shares.
The total potential payments under this arrangement include upfront,Company recorded the Preferred Shares wholly as equity with no bifurcation of the conversion feature from the host contract, given that the Preferred Shares could not be cash settled and the redemption features were within the Company’s control, which included a fixed conversion ratio with predetermined timing and proceeds. The Company accrued 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 nine months ended September 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.
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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 periodsmonths ended September 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
•our strategy, future operations, pre-clinical research, pre-clinical studies, clinical trials, prospects and the plans of management;
•the potential for our product candidates to achieve their desired or anticipated outcomes;
•the expected cost, timing and results of our clinical development plans and clinical trials, including our clinical collaborations with third parties;
•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”);
•the potential of our beliefsproduct candidates to improve upon the standard of care and development path and strategycontribute to achieve a cure for HBV; functional curative combination treatment regimen;
•obtaining necessary regulatory approvals;
•obtaining adequate financing through a combination of financing activities and operations;
•the possibility of receiving total milestone payments of uppotential for us to $18,000,000 on Alocrest and Brakiva; an additional investment of $66,400,000 from Roivant and the expected timing thereof; the filing of a proxy statement by the Company with respect to the additional investment from Roivant; potential payments from the Gritstone license agreement; evaluating different treatment durations to determine the optimal finite duration of therapy; selecting combination therapy regimens and treatment durations to conduct Phase III clinical trials intended to ultimately support regulatory filingsdiscover and/or develop new molecular entities for marketing approval; approval for a single product from our pipeline by combining with available agents to improve upon the cure rate with the current standard of care; expanding our HBV drug candidate pipeline through internal development, acquisitions and in-licenses; initiating a 30-week Phase II study of ARB-1467 in combination with tenofovir and pegylated interferon in 4Q17, with interim results from this study expected in the second half of 2018, followed by final results in 2019; initiating an AB-423 Phase II multi ascending dose (MAD) study in HBV patients in 1Q18; an IND (or equivalent) filing for AB-506 in mid-2018; an IND (or equivalent) filing for AB-452 in mid-2018; nominating a clinical development candidate in early 2018; possible low to mid-single-digit royalty payments escalating based on sales performance as Alnylam’s LNP-enabled products are commercialized; payments from the Gritstone 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; treating coronaviruses, including COVID-19;
•the expected return and benefits from strategic alliances, licensing agreements, and research collaborations; statementscollaborations with respectthird parties;
•the expected timing of returns and benefits from strategic alliances, licensing agreements, and research collaborations with third parties;
•our expectations regarding our technology licensed to third parties;
•our anticipated revenue and expense fluctuation and guidance; having
•our expectation of a net cash burn between $70 million and $75 million in 2021; and
•our belief that we have sufficient cash resources to fund our operations into the second quarter of 2023,
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
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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.
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 broad portfolio of wholly-owned assets with different mechanisms of action to provide a cure for people with chronic hepatitis B Virus (HBV)virus (“HBV”) infection. We are advancing multiple product candidates with distinct mechanisms of action that are designed to suppress viral replication, reduce surface antigen and reawaken the immune system. We believe this three-prong approach is key to transforming the treatment and developing a potential cure for chronic HBV infection. Our HBV product pipeline includes RNA interference (RNAi) therapeutics, oral capsid inhibitors, oral compounds that inhibit PD-L1 and oral HBV RNA destabilizers. In addition, we have an ongoing drug discovery and development program directed to identifying orally active agents 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 patient’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 two Phase 2a proof-of-concept clinical trials in combination therapy regimenwith other agents with potentially complementary mechanisms of action. We have announced positive preliminary results in the Phase 1a/1b clinical trial from several single and multi-dose cohorts of patients 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 are controlled byconducting a Phase 1a/1b clinical trial for AB-836 with initial data from healthy subjects and HBV patients anticipated in the same company, thereforefourth quarter 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 acommenced IND-enabling studies for our PD-L1 program. We believe this compound has the potential to reawaken patients’ HBV-specific immune response. In addition, we are in advanced lead optimization with 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 patients 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. Assembly is conducting this clinical trial and expecting initial data in 2022.
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•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 patients with chronic HBV infection. We have dosed the first patient in this Phase 2a proof-of-concept clinical trial.
•In July 2021, we entered into a clinical collaboration with Vaccitech to evaluate a triple combination of AB-729 with Vaccitech’s VTP-300, a proprietary T cell stimulating therapeutic vaccine, and standard-of-care NA therapy for the treatment of patients with chronic HBV infection. We expect to file a Clinical Trial Application (CTA) in the fourth quarter 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 patients with chronic HBV infection. We expect that the additional cohort with AB-729 will be added to Antios’ ongoing phase 2 clinical trial in the fourth quarter 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. We are progressing lead candidates to nomination.
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.
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:
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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)
Part 1 of the trial consistsdosed healthy subjects, and upon completion, supported advancing doses ranging from 60 mg to 180 mg into Part 2. Part 2 of four cohorts. The first three cohorts each enrolled eight subjects; six receiving three monthlythe trial dosed patients with chronic HBV infection with single doses of ARB-1467,AB-729, with all cohorts completing 48 weeks of follow-up in the second quarter of 2021. Part 3 of the trial is dosing HBV DNA negative and two receiving placebo. Cohort 4 enrolled twelvepositive patients all receiving five bi-weeklywith multiple doses of ARB-1467,AB-729 for 4, 8 or twelve weeks, and is on-going. Clinical data reported to date show that single and multi-doses of 60mg and 90mg of AB-729 are generally safe and well tolerated up to 48 weeks of dosing.
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 60mg and 90mg of AB-729 resulted in comparable HBsAg decline profiles with a plateau in response observed around week 20, regardless of dose or dosing interval. Additionally, based on 3/5 evaluable patients, 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 patients switched to AB-729 60 mg Q12W after Week 20 dose
* Data updated since EASL ILCTM presentation
Additional data from the ongoing cohorts in part 3 of this AB-729 Phase 1a/1b clinical trial will be presented in a poster session at The American Association for the Study of Liver Diseases (AASLD) – The Liver Meeting® 2021 – The Digital Experience, taking place from November 12-15, 2021. Key findings from the abstract include:
•AB-729 repeat dosing is generally safe and well tolerated.
•Robust mean declines in HBsAg were sustained with repeat dosing of AB-729, with no meaningful differences observed to date between doses (60 mg or 90 mg) and/or dosing intervals (every 4, 8 or 12 weeks).
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•HBsAg suppression at levels <100 IU/mL is maintained in some patients up to 20 weeks following the last dose of AB-729.
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.
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 patients 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 patients with CHB. Pending protocol finalization, the trial is expected to enroll 40 stably NA-suppressed, HBeAg negative, non-cirrhotic CHB patients. After a 24-week dosing period of AB-729 (60 mg SC every 8 weeks (Q8W)), patients 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 patients will remain on NA therapy for the initial 24-week follow up period, and then will discontinue NA treatment if treatment stopping criteria are met. If patients stop NA therapy, they will enter an intensive follow-up period for 48 weeks. We have dosed the first patient in this Phase 2a proof-of-concept clinical trial.
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 patients with chronic HBV infection. We are enrolling patients 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 patients 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. Assembly is conducting this clinical trial and expecting initial data in 2022. 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 monthly dosingVaccitech’s VTP-300, a proprietary T cell stimulating therapeutic vaccine, in NrtI-suppressed patients with CHB. Pending regulatory approval, the trial is expected to enroll 40 NA-suppressed, Hepatitis B e-antigen negative or positive, non-cirrhotic CHB patients. Patients are expected to receive AB-729 + NA for 24 weeks. At Week 24, patients will be randomized 1:1 to receive either NA + VTP-300 or NA + VTP-300 sham. At Week 48, all patients are expected to be evaluated for eligibility to either discontinue all treatments or remain on their NrtI only. Patients 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 reminderclinical trial. We expect to file a CTA in the fourth quarter of 2021 and initiate the clinical trial in early 2022. Pursuant to the agreement, the parties intend to undertake 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 thislarger Phase 2b clinical trial baseddepending 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. Initialthe 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 reducedinitial Phase 2a clinical trial.
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Collaboration with Antios Therapeutics, Inc.
In June 2021, we entered into a clinical collaboration agreement with Antios Therapeutics, Inc. (“Antios”) 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).
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.
Oral PD-L1 Inhibitors
PD-L1 inhibitors complement our pipeline of agents and could potentially be an important part of a combination study withtherapy for the treatment of HBV. Highly functional HBV-specific T cells within our other proprietaryimmune system are believed to be required for long-term HBV assets, NAs,viral resolution. However, HBV-specific T cells become functionally defective, and IFN.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. Oral PD-L1 compounds have the potential to reawaken patients’ HBV-specific immune response by inhibiting PD-L1 and we recently commenced IND enabling studies for our PD-L1 program.
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 AB-729, with an oral therapy in combination with a capsid inhibitor and an approved NA. We are in advanced lead optimization with next-generation oral HBV RNA-destabilizers.
While our core mission is to find a cure for HBV, the magnitude of the coronavirus pandemic is undeniable. Given our clinical candidates,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
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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 candidates with differentnew molecular entities that address specific viral targets including the nsp12 viral polymerase and complementary mechanisms of action. One of our most advanced preclinical programs, AB-452, a HBV RNA Destabilizer (formerly known as our oral surface antigen (HBsAg) inhibitor program) has novel activity in destabilizing HBV RNA, broad activity against HBV RNAs, and reduces HBsAg. In preclinical studies, AB-452 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 up to 1.4 log10 reduction of serum HBsAg in a dose dependent manner and correlated well with liver HBV RNA levels as well. This molecule has the potential for once daily oral dosing. Pending successful IND-enabling studies, this product candidate could be the subject of an IND (or equivalent) filing in 2018.
Collaboration with X-Chem, Inc. and Proteros biostructures GmbH
In March 2021, we entered into a durationdiscovery research and license agreement with X-Chem and Proteros to focus on the discovery of effect thatnovel inhibitors targeting the SARS-CoV-2 nsp5 main protease (Mpro). The agreement is highly competitivedesigned to accelerate the development of pan-coronavirus agents to treat COVID-19 and potential future coronavirus outbreaks. This collaboration brings together our expertise in the field. We observe a significant dose response,discovery and a stepwise reduction in viral proteins when multi-dosing. We expectdevelopment 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 nominate a clinical development candidate in early 2018. We also have ongoing discovery efforts focused on cccDNA targetingpotentially identify safe and checkpoint inhibition.
COVID-19 Impact
In December 2019 an outbreak of a novel strain of coronavirus (COVID-19) was identified in LNP administered intravenously, which travel throughWuhan, China. This virus has been declared a pandemic by the bloodstreamWorld Health Organization and has spread to target tissues or disease sites. LNPs are designednearly every country in the world. The impact of this pandemic has been, and will likely continue to protectbe, 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 triggers,world have implemented extreme measures in attempts to slow the spread of the virus. These measures include the closing of businesses and requiring people to stay in their homes, the circulation long enoughlatter of which raises uncertainty regarding the ability 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 LNPtravel to release the trigger molecules, which can then successfully mediate RNAi.
Other Royalty Entitlements and Collaborations
Alnylam Pharmaceuticals, Inc. and Acuitas Therapeutics, Inc.
We have also made progress in developing a proprietary GalNAc conjugate technologytwo royalty entitlements to enable subcutaneous deliveryAlnylam Pharmaceutical Inc.’s (“Alnylam”) global net sales of an RNAi therapeutic targeting HBsAg and/or other HBV targets.ONPATTRO.
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.
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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.
In July 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 September 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, which collectively represent only a fraction of Arbutus’ extensive LNP patent portfolio, is as follows: with respect to the ‘127 Patent, the PTAB held all claims as invalid on September 10, 2019, by reason of anticipatory prior art. 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. Athrex, Inc. (“US v. Athrex”), the holding of which could impact the findings in the ‘127 Patent matter. The Supreme Court granted certiorari in US v. Athrex on October 13, 2020 (i.e. agreed to review the decision appealed from a hearing on January 26, 2017, which resulted inlower court). Until the Supreme Court rendered its opinion in US v. Athrex, the ‘127 Patent hearing remained in abeyance, with no decision reached as to the validity of British Columbia grantingits claims. The Supreme Court decided on the US v. Athrex case on June 21, 2021, following which the Federal Circuit reinstated the appeal sua sponte, requiring the parties to brief how the case should proceed in light of the Supreme Court’s opinion or for the Appellant to waive the challenge. Arbutus elected to waive the challenge and proceed with the appeal at the Federal Circuit. The opening brief was filed on October 25, 2021. Moderna’s responsive brief is due by January 3, 2022. No hearing date has been set for this matter.
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. An oral hearing on the ‘435 Patent was held on October 7, 2021.
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. An oral hearing on the ‘069 Patent was
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held on October 7, 2021.
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. The date for the oral proceedings has not been set.
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 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.
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.
| 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 | ) | |||||||
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Total revenue | $ | 3,340 | $ | 1,523 | $ | 7,782 | $ | 4,528 | |||||||||||||||
| Operating expenses | 21,748 | 16,740 | 60,508 | 46,033 | |||||||||||||||||||
| Loss from operations | (18,408) | (15,217) | (52,726) | (41,505) | |||||||||||||||||||
| Other income (loss) | (750) | (3,538) | (2,200) | (5,198) | |||||||||||||||||||
| Net loss | (19,158) | (18,755) | (54,926) | (46,703) | |||||||||||||||||||
| Dividend accretion of convertible preferred shares | (5,087) | (3,027) | (11,565) | (9,000) | |||||||||||||||||||
| Net loss attributable to common shares | $ | (24,245) | $ | (21,782) | $ | (66,491) | $ | (55,703) | |||||||||||||||
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| 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 | ) | |||||||
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2021 | % of Total | 2020 | % of Total | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Revenue from collaborations and licenses | |||||||||||||||||||||||
| Acuitas Therapeutics, Inc. | $ | 1,425 | 43 | % | $ | 774 | 51 | % | |||||||||||||||
| Other milestone and royalty payments | 55 | 2 | % | 54 | 4 | % | |||||||||||||||||
| Non-cash royalty revenue | |||||||||||||||||||||||
| Alnylam Pharmaceuticals, Inc. | 1,860 | 56 | % | 695 | 46 | % | |||||||||||||||||
| Total revenue | $ | 3,340 | 100 | % | $ | 1,523 | 100 | % | |||||||||||||||
| 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, | |||||||||||||||||||||||
| 2021 | % of Total | 2020 | % of Total | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Revenue from collaborations and licenses | |||||||||||||||||||||||
| Acuitas Therapeutics, Inc. | $ | 3,683 | 47 | % | $ | 2,288 | 51 | % | |||||||||||||||
| Other milestone and royalty payments | 136 | 2 | % | 199 | 4 | % | |||||||||||||||||
| Non-cash royalty revenue | |||||||||||||||||||||||
| Alnylam Pharmaceuticals, Inc. | 3,963 | 51 | % | 2,041 | 45 | % | |||||||||||||||||
| Total revenue | $ | 7,782 | 100 | % | $ | 4,528 | 100 | % | |||||||||||||||
| 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 | |||||||||
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Operating expenses
Operating expenses are summarized in the following table, in thousands:table:
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2021 | % of Total | 2020 | % of Total | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Research and development | $ | 16,299 | 75 | % | $ | 12,065 | 72 | % | |||||||||||||||
| General and administrative | 4,146 | 19 | % | 4,065 | 24 | % | |||||||||||||||||
| Depreciation | 447 | 2 | % | 490 | 3 | % | |||||||||||||||||
| Change in fair value of contingent consideration | 856 | 4 | % | 120 | 1 | % | |||||||||||||||||
| Total operating expenses | $ | 21,748 | 100 | % | $ | 16,740 | 100 | % | |||||||||||||||
| 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 | |||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2021 | % of Total | 2020 | % of Total | ||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Research and development | $ | 45,065 | 74 | % | $ | 32,946 | 72 | % | |||||||||||||||
| General and administrative | 12,438 | 21 | % | 11,184 | 24 | % | |||||||||||||||||
| Depreciation | 1,326 | 2 | % | 1,491 | 3 | % | |||||||||||||||||
| Change in fair value of contingent consideration | 1,679 | 3 | % | 348 | 1 | % | |||||||||||||||||
| Site consolidation | — | — | % | 64 | — | % | |||||||||||||||||
| Total operating expenses | $ | 60,508 | 100 | % | $ | 46,033 | 100 | % | |||||||||||||||
| Nine months ended September 30, | |||||||||||||
| 2017 | % of Total | 2016 | % of Total | ||||||||||
| Research, development, collaborations and contracts | $ | 44,854 | 76 | % | $ | 44,097 | 19 | % | |||||
| General and administrative | 12,586 | 21 | % | 34,705 | 15 | % | |||||||
| Depreciation | 1,407 | 2 | % | 760 | — | % | |||||||
| Impairment of intangible assets | — | — | % | $ | 156,324 | 66 | % | ||||||
| Total operating expenses | $ | 58,847 | $ | 235,886 | |||||||||
Research development, collaborations and contractsdevelopment
Research development, collaborations and contractsdevelopment expenses consist primarily of personnel expenses, fees paid to clinical research organizations and contract manufacturers, consumables and materials, consulting, and other third party expenses to support our clinical and pre-clinical trial expenses, personnel expenses, consulting and third party expenses, consumables and materials,activities, as well as a portion of stock-based compensation and general overhead costs.
A significant portion of our research development, collaborations and contractsdevelopment expenses are not tracked by project as they benefit multiple projects or our technology platform and because our most-advanced programs are not yet in late-stage clinical development. However, our collaboration agreements contain cost-sharing arrangements pursuant to which certain costs incurred under the project are reimbursed. Costs reimbursed under collaborations typically include certain direct external costs and hourly or full-time equivalent labor rates for the actual time worked on the project. As a result, although a significant portion of our research, development, collaborations and contracts expenses are not tracked on a project-by-project basis, we do, however, track direct external costs attributable to, and the actual time our employees worked on our collaborations.
General and administrative
General and administrative expenses decreasedincreased $0.1 million for the three months ended September 30, 2021 as compared to the same period in 2020. General and administrative expenses increased $1.3 million for the nine months ended September 30, 20172021 as compared to the same period in 2020, due primarily to increases in non-cash stock-based compensation expense, professional fees and insurance.
Change in fair value of contingent consideration
Contingent consideration is a liability related to our acquisition of Enantigen Therapeutics, Inc. in October 2014. In general, as time passes and assuming no changes to the assumptions related to the contingency, the fair value of the contingent consideration increases as the progress of our programs get closer to triggering contingent payments based on certain sales milestones of our first commercial product for chronic HBV. As AB-729 continues to progress through Phase 2a proof-of-concept clinical trials, we increase our assumption regarding probability of success commensurate with the progression of the program, which increases the liability.
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Site consolidation
The final portion of expenses associated with our site consolidation and organizational restructuring of our business in Warminster, PA, which was substantially completed in 2018, was fully recognized in 2020.
Other income (loss)
Other income (loss) is summarized in the following table:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Interest income | $ | 27 | $ | 100 | $ | 97 | $ | 645 | |||||||||||||||
| Interest expense | (762) | (1,074) | (2,297) | (3,214) | |||||||||||||||||||
| Foreign exchange (losses) / gains | (15) | (19) | — | (84) | |||||||||||||||||||
| Total other loss | $ | (750) | $ | (3,538) | $ | (2,200) | $ | (5,198) | |||||||||||||||
Interest income
The decrease in interest income for the three and nine months ended September 30, 20162021 compared to the same period in 2020 was due primarily to a decreasegeneral decline in non-cash compensationmarket interest rates.
Interest expense related to
Interest expense for the expiry of repurchase rights effective Q2 2016 related to the departure of two of the four former Arbutus Inc. founders in June 2016. As a result of this change, our quarterly non-cash compensation generalthree and administrative expense decreased to $1.5 million per quarter. We recorded $4.0 million in the first nine months of 2017 compared to $24.5 million in the first nine months of 2016. The following table summarizes the non-cash compensation expense recorded related to the expiry of repurchase rights since the Arbutus Inc. acquisition in March 2015:
| Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||||||||
| 2017 | 2017 | 2017 | 2016 | 2016 | 2016 | 2016 | 2015 | 2015 | 2015 | 2015 | |||||||||||||||||||||||||||||||||
| Research and development | $ | 1.5 | $ | 1.5 | $ | 1.5 | $ | 1.5 | $ | 1.5 | $ | 1.5 | $ | 1.5 | $ | 1.5 | $ | 1.4 | $ | 1.0 | $ | 0.3 | |||||||||||||||||||||
| General and administrative | 1.0 | 1.5 | 1.5 | 1.5 | 1.5 | 18.5 | 4.5 | 4.5 | 4.3 | 3.1 | 0.9 | ||||||||||||||||||||||||||||||||
| Total non-cash compensation for repurchase rights expiration | $ | 2.5 | $ | 3.0 | $ | 3.0 | $ | 3.0 | $ | 3.0 | $ | 20.0 | $ | 6.0 | $ | 6.0 | $ | 5.7 | $ | 4.1 | $ | 1.2 | |||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Interest income | $ | 337 | $ | 425 | $ | 1,095 | $ | 1,104 | |||||||
| Interest expense | (76 | ) | — | (186 | ) | — | |||||||||
| Foreign exchange gains (losses) | 1,233 | (795 | ) | 2,458 | 2,180 | ||||||||||
| Gain on disposition of financial instrument | — | — | — | 1,000 | |||||||||||
| Decrease (increase) in fair value of warrant liability | — | 10 | (22 | ) | 339 | ||||||||||
| Increase in fair value of contingent consideration | (197 | ) | (260 | ) | (1,146 | ) | (756 | ) | |||||||
| Total other income (losses) | $ | 1,297 | $ | (620 | ) | $ | 2,199 | $ | 3,867 | ||||||
Foreign exchange gains (losses)
In connection with our site consolidation to Warminster, PA, our Canadian dollar-denominated expenses and cash balances have decreased significantly now that a majority of our business transactions are based in the United States. We continue to incur substantial expenses and hold some cash and investment balances in Canadian dollars, and as such, we will remain subject to risks associated with foreign currency fluctuations. For the three and nine months ended September 30, 2017, we recorded a foreign exchange gain of $1.2 million and $2.5 million, respectively, which is primarily an unrealized gain related to an appreciation in the value of our Canadian dollar funds, from the previous period, when converted to our functional currency of U.S. dollars.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes our cash flow activities for the periods indicated, in thousands:indicated:
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| (in thousands) | |||||||||||
| Net loss | $ | (54,926) | $ | (46,703) | |||||||
| Non-cash items | 7,080 | 10,365 | |||||||||
| Net change in operating items | (80) | (90) | |||||||||
| Net cash used in operating activities | (47,926) | (36,428) | |||||||||
| Net cash provided by (used in) investing activities | (4,557) | 35,067 | |||||||||
| Net cash provided by financing activities | 78,115 | 66,536 | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | — | (56) | |||||||||
| Increase in cash and cash equivalents | 25,632 | 65,119 | |||||||||
| Cash and cash equivalents, beginning of period | 52,251 | 31,799 | |||||||||
| Cash and cash equivalents, end of period | $ | 77,883 | $ | 96,918 | |||||||
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| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Net loss for the period | $ | (11,600 | ) | $ | (19,595 | ) | $ | (48,482 | ) | $ | (165,469 | ) | |||
| Adjustments to reconcile net loss to net cash provided by operating activities | 3,441 | 5,821 | 13,582 | 124,985 | |||||||||||
| Changes in operating assets and liabilities | (7,521 | ) | (938 | ) | (3,398 | ) | (2,579 | ) | |||||||
| Net cash used in operating activities | (15,680 | ) | (14,712 | ) | (38,298 | ) | (43,063 | ) | |||||||
| Net cash provided by (used in) investing activities | 5,305 | (880 | ) | 27,116 | (99,854 | ) | |||||||||
| Net cash provided by financing activities | 61 | 76 | 419 | 637 | |||||||||||
| Effect of foreign exchange rate changes on cash & cash equivalents | 1,327 | (824 | ) | 2,575 | 2,131 | ||||||||||
| Net decrease 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 | |||||||||||
Since our incorporation, we have financed our operations through the sales of shares, units,equity, debt, revenues from research and development collaborations and licenses with corporate partners, royalty monetization, interest income on funds available for investment, and government contracts, grants and tax credits.
For the nine months ended September 30, 2017, operating activities used $38.3 million in cash as compared to $43.12021, $47.9 million of cash was used in operating activities compared to $36.4 million for the nine months ended September 30, 2016.2020, an increase of $11.5 million. The decreaseincrease was due primarily to a $12.1 million increase in net cash used from operatingresearch and development expenses due to higher expenses for our clinical development and discovery programs, including activities is largely relatedunder our collaboration with Assembly and internal research efforts to the $7.5 million license payment we received from Alexion during the nine months ended September 30, 2017.treat COVID-19 and future coronavirus outbreaks, both of which initiated in mid-2020.
For the nine months ended September 30, 2017,2021, net cash used in investing activities increased cashwas $4.6 million, consisting primarily of additional investments in marketable securities of $54.2 million, partially offset by $27.1 million primarily due to the maturationmaturities of investments offset by acquisitionin marketable securities of capital assets for our new U.S. facility in Warminster.$50.4 million. For the nine months ended September 30, 2016,2020, net cash provided by investing activities used $100.0was $35.1 million consisting of maturities of $66.5 million and purchases of investments in cash as we acquired short-term investments.marketable securities of $28.9 million.
For the nine months ended September 30, 2017,2021 and 2020, net cash provided by financing activities increasedwas $78.1 million and $66.5 million, respectively, due primarily to proceeds from sales of common shares under our Open Market Sale Agreement, as amended, with Jefferies LLC (“Jefferies”).
Sources of Liquidity
As of September 30, 2021, we had cash, cash equivalents and investments in marketable securities of $151.9 million. We had no outstanding debt as of September 30, 2021.
We have an Open Market Sale Agreement with Jefferies LLC (“Jefferies”) dated December 20, 2018, as amended by $0.4Amendment No. 1, dated December 20, 2019, Amendment No. 2, dated August 7, 2020 and Amendment No. 3, dated March 4, 2021 (as amended, the “Sale Agreement”), under which we may issue and sell common shares, from time to time, under a shelf registration statement on Form S-3 (File No. 333-248467), filed with the SEC on August 28, 2020 (the “Registration Statement”).
On March 4, 2021, we filed a prospectus supplement with the SEC (the “March 2021 Prospectus Supplement”) in connection with the offering of up to an additional $75.0 million dueof our common shares pursuant to optionsthe Sale Agreement under the Registration Statement.
During the nine months ended September 30, 2021, we issued 19,715,142 common shares pursuant to the Sale Agreement, resulting in net proceeds of approximately $75.4 million. For the nine months ended September 30, 2020, we issued 19,696,361 common shares pursuant to the Sale Agreement, resulting in net proceeds of approximately $66.1 million.
As of September 30, 2021, there was approximately $38.6 million available under the March 2021 Prospectus Supplement.
On October 8, 2021, we filed a prospectus supplement with the SEC (the “October 2021 Prospectus Supplement”) in connection with the offering of up to an additional $75.0 million of our common shares pursuant to the Sale Agreement under the Registration Statement.
Additionally, we have a royalty entitlement on ONPATTRO, a drug developed by Alnylam that incorporates our LNP technology and warrants exercisedwas approved by the FDA and the EMA during the period. All unexercised outstanding warrants expiredthird quarter of 2018 and was launched by Alnylam immediately upon approval in the United States. In July 2019, we sold a portion of this royalty interest 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 March 1, 2017.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 Arbutus is 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. In addition to the royalty from the Alnylam LNP license agreement, we are also receiving a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas. The royalty from Acuitas has been retained by us and was not part of the royalty sale to OMERS.
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Cash requirements /
At September 30, 20172021, we held an aggregate of $100.8$151.9 million in cash, comprised of $15.2 million in cash and cash equivalents $73.0 millionand investments in short-term investments, and $12.6 million in restricted investments. In October 2017, we announced that entered into a subscription agreement with Roivant Sciences LTd. ("Roivant") for the sale of Series A participating convertible preferred shares ("Preferred Shares") to Roivant for gross proceeds of $116.4 million. The initial investment of $50,000,000 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 regulatory and shareholder approvals, as applicable, under Canadian securities law. For further details with respect to the Preferred Shares, please refer to our Form 8-K filed with the U.S. Securities and Exchange Commission on October 3, 2017 or our material change report filed with the Canadian securities regulatory authorities on SEDAR on October 5, 2017.
marketable securities. We believe we have sufficientthat our cash resources as of September 30, 2021 will be sufficient to fund our operations for at leastinto the next 12 months.second quarter of 2023. In the future, substantial additional funds will be required to continue with the active development of our pipeline products and technologies.
In particular, our funding needs may vary depending on a number of factors including:
•the effects of the COVID-19 pandemic on our business, the medical community and the global economy;
•the need for additional capital to fund future business development programs;
revenue earned from our legacy collaborative partnerships and licensing agreements, including potential royalty payments from Alnylam and royalties from sales of Marqibo from Spectrum;Alnylam’s ONPATTRO;
•revenue earned from ongoing collaborative partnerships, including milestone and royalty payments;
•the extent to which we continue the development of our product candidates, add new product candidates to our pipeline, or form collaborative relationships or licensing arrangements to advance our products;product candidates;
•delays in the development of our product candidates due to pre-clinical and clinical findings;
•our decisions to in-license or acquire additional products, product candidates or technology for development, in particular for our HBV therapeutics programs;development;
•our ability to attract and retain corporatedevelopment or commercialization partners, and their effectiveness in carrying out the development and ultimate commercialization of one or more of our product candidates;
•whether batches of drugsproduct candidates that we manufacture fail to meet specifications resulting in clinical trial delays and investigational and remanufacturing costs;
•the decisions, and the timing of decisions, made by health regulatory agencies regarding our technology and products;product candidates;
•competing products, product candidates and technological and market developments; and
•costs associated with prosecuting and enforcing our patent claims and other intellectual property rights, including litigation and arbitration arising in the course of our business activities.
We intend to seek to obtain funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, potential monetization transactions, collaborative or licensing arrangements with pharmaceutical companies, and government grants and contracts.contracts and other strategic transactions and funding opportunities. There can be no assurance that funding will be available at all or on acceptable terms to permit further development of our products.research and development programs. Further, the continued spread of COVID-19 has also led to severe disruption and volatility in the global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital markets in the future.
If adequate funding is not available, we may be required to delay, reduce or eliminate one or more of our research or development programs or reduce expenses associated with our non-core activities. We may need to obtain funds through arrangements with collaborators or others that may require us to relinquish most or all of our rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise seek if we were better funded. Insufficient financing may also mean failing to prosecute our patents or relinquishing rights to some of our technologies that we would otherwise develop or commercialize.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
| (in millions) | Payments Due by Period | ||||||||||||||||||
| Total | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | |||||||||||||||
| Contractual Obligations | |||||||||||||||||||
| Facility leases | $ | 8.4 | $ | 1.6 | $ | 2.1 | $ | 1.4 | $ | 3.3 | |||||||||
| Loan payable | $ | 12.0 | $ | — | $ | 12.0 | $ | — | $ | — | |||||||||
| Total | $ | 20.4 | $ | 1.6 | $ | 14.1 | $ | 1.4 | $ | 3.3 | |||||||||
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
ITEM 4. CONTROLS AND PROCEDURES
31
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. The term “disclosure controls and procedures” (as such term is, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, of 1934) was carried out by our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based upon this evaluation, the CEO and CFO have concluded that as of September 30, 2017, our disclosuremeans controls and other procedures of a company that are effectivedesigned to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (the “Commission”)the SEC’s rules and forms, and (ii)that such information is accumulated and communicated to theour management, of the registrant, including the CEOour principal executive officer and CFO,principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) during the three months ended September 30, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year endedyear-ended December 31, 2016. However, a further discussion with respect to the risks and uncertainties related to the additional investment of $66,400,000 by Roivant will appear in Arbutus Management Proxy Circular and Proxy Statement on Form 14A, which will be available at www.sedar.com and www.sec.gov once filed.2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| Number | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 4.1 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1** | ||||||||
| 32.2** | ||||||||
| 101 | The following materials from Arbutus Biopharma Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Loss; (iv) Condensed Consolidated Statements of Stockholders’ Equity; (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements | |||||||
| 104 | Cover page interactive data file (embedded within the inline XBRL document and included in Exhibit 101) | |||||||
* Filed herewith.
** Furnished herewith.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 2, 2017.4, 2021.
| ARBUTUS BIOPHARMA CORPORATION | ||||||||
| /s/ William H Collier | ||||||||
| William H Collier | ||||||||
| President and Chief Executive Officer | ||||||||
35