Arbutus Biopharma Corporation — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023. Amounts are U.S. dollars; financial amounts below are in millions unless stated otherwise. Arbutus is a clinical-stage biopharmaceutical company focused primarily on hepatitis B (HBV) therapies; it had no product sales.
Business context and pipeline
Arbutus’s strategy is to develop combination treatments intended to achieve a functional cure for chronic HBV. Its lead RNAi candidate, imdusiran (AB-729), was being tested in two Phase 2a combination trials. Oral PD-L1 inhibitor AB-101 was in a Phase 1a/1b trial in New Zealand; the FDA had placed its U.S. IND on clinical hold in 2023. The company also planned additional imdusiran combination studies.
Financial results and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $18.1 | $39.0 |
| Operating expenses | $96.2 | $104.5 |
| Operating loss | $(78.1) | $(65.5) |
| Net loss | $(72.8) | $(69.5) |
| Net loss per share, basic and diluted | $(0.44) | $(0.46) |
| Net cash used in operating activities | $(85.9) | $(35.4) |
| Cash, cash equivalents and marketable securities at year-end | $132.3 | $184.3 |
- Revenue fell 53.5%, primarily because Qilu-related license revenue recognized as performance obligations were fulfilled declined $15.3 million, and ONPATTRO royalty revenue declined $5.5 million amid lower product sales. FY2023 revenue included $10.7 million from Qilu, $3.6 million of cash royalty revenue from ONPATTRO, and $3.9 million of non-cash ONPATTRO royalty revenue.
- Research and development expense declined $10.7 million to $73.7 million, mainly due to lower manufacturing costs and discontinuation of the AB-836 program, partly offset by AB-101 trial costs. General and administrative expense rose $4.6 million to $22.5 million, reflecting higher legal, stock-based compensation and employee costs.
- Operating loss was 430.5% of revenue and net loss was 401.6% of revenue; these loss-to-revenue ratios reflect the company’s development-stage cost base and absence of product sales. Product gross margin is not applicable.
- Interest income increased to $5.7 million from $2.2 million, while interest expense fell to $0.5 million from $1.7 million. FY2022 included $4.4 million of tax expense relating to Chinese withholding taxes; FY2023 had no income tax expense.
- Year-end cash and investments were $132.3 million, including $26.3 million cash and cash equivalents and $106.0 million marketable securities. The company had no outstanding debt. Total liabilities were $38.4 million and stockholders’ equity was $106.0 million.
- Operating cash use increased by $50.6 million year over year, in large part because 2022 included Qilu upfront cash and equity-related proceeds that did not recur in 2023. In 2023, the company raised $29.9 million through its at-the-market share sale, issuing 12.0 million shares. Approximately $70.9 million remained available under the sale prospectus at year-end.
- Shares outstanding increased from 157.5 million at year-end 2022 to 169.9 million at year-end 2023; 179.5 million were outstanding as of March 1, 2024.
Material changes, outlook and commentary
- Management estimated 2024 net cash burn of $63–$67 million, excluding proceeds from the Jefferies sale agreement, and expected year-end 2023 resources to fund operations into the first quarter of 2026. This is a forward-looking estimate, not a guarantee.
- In September 2023, Arbutus narrowed its pipeline focus to clinical-stage HBV compounds and discontinued certain research programs. It reduced its workforce by 24% in November and recorded a one-time restructuring charge of approximately $1.1 million in the fourth quarter.
- Qilu’s agreement covers imdusiran development and commercialization in China, Hong Kong, Macau and Taiwan. Potential payments include up to $245 million in milestones and tiered royalties in the double digits into the low twenties; timing and receipt depend on development, regulatory and sales outcomes.
- Arbutus has potential contingent payments to Enantigen selling shareholders of up to $102.5 million tied to the first commercial sale of an HBV treatment, plus a capped royalty. The related liability was $7.6 million at year-end and depends on uncertain valuation assumptions.
- Clinical findings cited by management are preliminary. In the VTP-300 combination study, early results included maintained low HBsAg in treated patients with available follow-up; end-of-treatment data were expected in the first half of 2024. The filing cautions that early or interim results may not predict later trial outcomes.
Risks, contingencies and unusual items
- Clinical and regulatory risk: Candidates remain experimental; trials may fail, be delayed or show safety issues. The FDA’s AB-101 clinical hold concerned preclinical data and trial design. New Zealand authorized its Phase 1 trial, but FDA acceptance of foreign-trial results and removal of the U.S. hold were uncertain.
- Funding and dilution: Arbutus has a $1.3 billion accumulated deficit, expects continued losses and will require substantial additional capital. Equity financing could dilute shareholders; unavailable funding could force program reductions or licensing on less favorable terms.
- Patent disputes: The Federal Circuit affirmed in April 2023 that all claims of Arbutus’s U.S. ’127 patent were invalid. Separate patent litigation seeking damages against Moderna and Pfizer/BioNTech remained ongoing; the Moderna trial was scheduled for April 2025, subject to court availability. Acuitas’s declaratory action and a European patent opposition also remained pending. Outcomes and any proceeds are uncertain.
- Partner, royalty and manufacturing dependence: Revenue relies partly on licensees and royalty streams, while clinical supply and manufacturing are outsourced. Qilu milestone and royalty receipts, and any future reversion of the sold ONPATTRO royalty interest, are not assured. OMERS had collected $22.7 million toward its $30 million threshold by year-end 2023.
- Other exposures: The filing identifies competition, reimbursement and pricing uncertainty, intellectual-property challenges, trial disruption related to the war in Ukraine, cybersecurity, and regulatory and legal compliance as risks. Management reported no material cybersecurity incidents in the prior three years.
Investor facts to verify
- Progress, safety and durability of imdusiran combination-trial results, including complete follow-up and prespecified endpoints.
- Whether the FDA hold on AB-101 is resolved and whether U.S. regulators accept data from the New Zealand study.
- Actual 2024 cash burn versus the $63–$67 million estimate, cash runway, and any subsequent financing or share dilution.
- Qilu development progress and the conditions, timing and likelihood of milestone or royalty payments.
- Developments and potential financial consequences in the Moderna, Pfizer/BioNTech, Acuitas and European patent proceedings.
- Reconciliation of reported revenue with cash receipts, especially non-cash ONPATTRO royalty revenue and Qilu deferred license revenue.