Arbutus Biopharma Corporation — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; unaudited, U.S. dollars. Arbutus is a clinical-stage biopharmaceutical company focused primarily on chronic hepatitis B (HBV), with a newly initiated coronavirus drug-discovery program.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.5 million | $0.7 million | $3.0 million | $1.3 million |
| Operating expenses | $14.7 million | $21.3 million | $29.3 million | $41.2 million |
| Operating loss | $13.1 million | $20.6 million | $26.3 million | $39.8 million |
| Net loss | $14.1 million | $23.3 million | $27.9 million | $46.6 million |
| Net loss attributable to common shares | $17.1 million | $26.1 million | $33.9 million | $52.0 million |
| Loss per common share, basic and diluted | $0.25 | $0.46 | $0.49 | $0.92 |
- Revenue growth was primarily from higher ONPATTRO-related royalties as Alnylam sales grew. Q2 revenue included $0.7 million of non-cash royalty revenue; six-month revenue included $1.3 million.
- R&D expense was $10.5 million in Q2 and $20.9 million for six months, down from $12.7 million and $27.5 million, respectively. G&A was $3.6 million in Q2 and $7.1 million for six months, versus $8.2 million and $12.6 million.
- Lower R&D reflected discontinuation of AB-506 in October 2019 and lower prior-period AB-729 preparation costs, partly offset by spending on AB-836. Lower G&A reflected the former CEO’s departure and reduced UBC arbitration legal fees.
- At June 30, cash and cash equivalents were $45.9 million; marketable securities were $38.1 million, for total cash, equivalents and investments of $84.0 million. Total assets were $97.6 million and stockholders’ equity was $65.5 million.
- Six-month operating cash use was $24.3 million, compared with $34.2 million in 2019. Investing activities provided $21.0 million, and financing activities provided $17.4 million, primarily from common-share sales.
- The company reported no outstanding debt. Its balance sheet included a $19.7 million liability related to the sale of future royalties and $3.2 million of contingent consideration. Q2 gross margin is not applicable/presented for this clinical-stage business.
Material changes and notable items
- In July 2020, Arbutus sold the remaining availability under its at-the-market share-sale agreement, raising $36.5 million net through 9,548,780 shares. Management said June-end liquidity plus these proceeds was expected to fund operations into mid-2022.
- Arbutus’s stated 2020 cash guidance was $54 million to $58 million; the company said its COVID-19 research effort did not materially affect that guidance. The filing does not clearly specify in the cited text the exact measurement date for this guidance.
- Preferred shares accrue an 8.75% annual coupon in additional preferred shares. Six-month dividend accretion was $6.0 million. The 1.164 million preferred shares are subject to mandatory conversion in October 2021 at $7.13 per share, expected to convert into approximately 23 million common shares.
- The ONPATTRO royalty monetization with OMERS provides $20 million gross proceeds in exchange for the relevant royalty entitlement until OMERS collects $30 million, after which the royalty interest reverts to Arbutus. The liability’s effective annual interest rate was approximately 22% at June 30; related six-month non-cash interest expense was $2.1 million.
- On July 31, Arbutus invested $2.5 million in Genevant’s recapitalization. Its ownership fell from approximately 40% to 16%; Roivant obtained substantial control. Arbutus’s future royalty and sublicensing entitlements were unchanged.
- On July 23, the PTAB upheld all challenged claims of Arbutus’s U.S. ’069 patent. Other patent disputes remained unresolved. The UBC arbitration award of $5.9 million had been paid in 2019; Arbutus accrued a further $0.4 million for potential costs and attorneys’ fees.
Outlook, development and risks
- AB-729 was in Phase 1a/1b. The company expected results from 90 mg single-dose and 60 mg multi-dose cohorts in the second half of 2020, and intended to start two 90 mg multi-dose cohorts during that half. Earlier single-dose HBV-subject data showed a mean HBsAg decline of about 0.99 log10 IU/mL at week 12 in the 60 mg cohort; the 180 mg cohort showed about 0.98 log10 IU/mL. The company reported no serious adverse events in those cohorts, but described a Grade 3 ALT/AST flare in one 180 mg subject.
- AB-836 was in IND-enabling studies, which management expected to complete by year-end 2020. Next-generation oral HBV RNA destabilizers remained in lead optimization after AB-452 was discontinued in February 2020.
- The COVID-19 program was focused on discovering small-molecule candidates targeting viral polymerase and protease; no clinical-stage COVID-19 candidate was reported. The pandemic could delay trial enrollment, monitoring, supplies, research activity and regulatory interactions, and could affect access to capital. Management said 2020 objectives had not yet changed but future disruption remained uncertain.
- Arbutus is not yet profitable and stated that substantial additional funding will be needed for pipeline development. If funding is unavailable on acceptable terms, it may delay, reduce or eliminate programs or seek arrangements requiring it to relinquish rights.
Most important facts for investors to verify
- Whether AB-729 trial cohorts produced the anticipated data and whether COVID-19 affected enrollment or timelines.
- Actual cash burn and remaining runway against the mid-2022 estimate, including the effect of the July share issuance and future financing needs.
- Share dilution from the July issuance and the 2021 preferred-share conversion, and the continuing 8.75% coupon accretion.
- ONPATTRO royalty collections, the OMERS liability’s repayment trajectory, and the timing and conditions for royalty reversion.
- Outcomes and potential costs of the remaining patent proceedings and UBC arbitration fees, as well as Genevant’s prospects and Arbutus’s reduced ownership stake.