Arbutus Biopharma Corporation — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 5, 2020. The filing also reports unaudited fourth-quarter results. Arbutus is a development-stage biopharmaceutical company focused on combination therapies intended to cure chronic hepatitis B (HBV). It had no product sales; revenue came primarily from collaborations, licenses, and royalties.
Key financial metrics
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $6.0 million | $5.9 million |
| Research and development expense | $57.6 million | $57.9 million |
| Total operating expenses | $150.1 million | $95.7 million |
| Operating loss | $144.1 million | $89.8 million |
| Net loss | $153.7 million | $57.1 million |
| Net loss attributable to common shares; loss per share | $164.9 million; $2.89 | $67.2 million; $1.21 |
| Cash used in operating activities | $71.0 million | $67.9 million |
Liquidity and balance sheet: At year-end, cash and cash equivalents were $31.8 million and marketable securities were $59.0 million, totaling $90.8 million. Management said these resources were expected to fund operations into mid-2021. The company reported no bank debt; total liabilities were $32.8 million and stockholders’ equity was $72.7 million. Liabilities included $19.0 million related to the sale of future royalties and $3.4 million in lease liabilities. Operating cash burn exceeded the prior year.
Margins: The filing reports no product sales or product gross margin; operating margins are not especially informative for this R&D-stage business and were heavily affected by impairments and other unusual charges.
Fourth quarter: Revenue was $1.6 million, operating loss $13.1 million, net loss $24.7 million, and net loss attributable to common shares $27.5 million, or $0.46 per share. In Q4 2018, revenue was $1.7 million and net loss attributable to common shares was $20.9 million, or $0.38 per share.
Changes and unusual items
- Revenue was nearly flat year over year. Higher ONPATTRO-related royalties and other receipts were largely offset by lower Gritstone revenue, which included milestone payments in 2018.
- Operating expenses rose by $54.4 million, mainly due to non-cash impairment charges: $43.8 million for cccDNA-related in-process R&D and $22.5 million for goodwill. Arbutus indefinitely delayed cccDNA development and reduced both assets to zero.
- Other income shifted to a $22.3 million loss from $28.4 million of income in 2018, principally reflecting a $22.5 million equity-method investment loss. This included Genevant’s operating losses and a $7.6 million impairment that reduced Arbutus’s Genevant investment to zero.
- Arbutus recorded $6.3 million of arbitration expense and paid $5.9 million to the University of British Columbia (UBC) in 2019; UBC’s additional reasonable legal costs remained to be determined.
- Cash financing included $18.6 million net proceeds from common-share sales and $18.5 million net proceeds from monetizing part of the ONPATTRO royalty. The royalty buyer, OMERS, receives royalties until it collects $30 million, after which the sold royalty interest reverts to Arbutus. Arbutus retained a separate, lower Acuitas royalty.
Outlook, pipeline, and risks
- AB-729 was in a Phase 1a/1b trial; preliminary data were expected in 2020. AB-836 was nominated for IND/CTA-enabling studies in January 2020, with completion targeted by year-end 2020. These are forward-looking targets, not achieved results.
- In February 2020, after year-end, Arbutus said it would discontinue AB-506 clinical development following two cases of acute hepatitis in a 28-day healthy-volunteer trial; liver enzyme levels subsequently normalized. It also decided not to advance AB-452 following assessment of nonclinical safety findings. The company was prioritizing AB-729, AB-836, and discovery-stage programs.
- Management warned that substantial additional capital will be required and that financing may not be available on acceptable terms. Future equity issuance may dilute shareholders. Common shares issued under the sales agreement totaled 9.1 million in 2019; a further 4.1 million were issued through March 2, 2020.
- COVID-19 was identified as a potential source of clinical-enrollment, trial-service, and drug-supply delays. Arbutus also depends on third parties for clinical trials and manufacturing, and on partners for licensing revenue and commercialization.
- Roivant was Arbutus’s largest shareholder. Its 1.164 million preferred shares were subject to 8.75% annual compounding and mandatory conversion in October 2021 into approximately 23 million common shares; the filing described potential ownership and governance influence. Common shares outstanding were 64.8 million at year-end and 68.9 million as of March 2, 2020.
- Auditors issued unqualified opinions on the financial statements and internal controls; management and the auditor reported effective internal control over financial reporting at December 31, 2019.
Most important facts for investors to verify
- Whether the $90.8 million of year-end cash and securities, subsequent share-sale proceeds, and operating burn support the stated mid-2021 runway.
- AB-729 trial safety and efficacy results, and the timing and progress of AB-836’s enabling studies and any subsequent clinical authorization.
- Whether further safety, regulatory, or development issues affect the HBV pipeline, particularly after the AB-506 and AB-452 setbacks.
- ONPATTRO sales and the timing and economics of any royalty reversion from OMERS, as well as the separately retained Acuitas royalty.
- The final amount of UBC legal costs and fees, and the effects of preferred-share conversion, future equity issuance, and Roivant’s governance rights on dilution and control.