Arbutus Biopharma Corporation — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. Financial amounts below are in U.S. dollars; statement amounts are in thousands unless indicated. Arbutus is a development-stage biopharmaceutical company focused on therapies for chronic hepatitis B (HBV).
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0.774 million | $4.065 million | $1.686 million | $12.187 million |
| Operating expenses | $19.749 million | $62.203 million | $235.886 million | $102.751 million |
| Operating loss | $18.975 million | $58.138 million | $234.200 million | $90.564 million |
| Net loss | $19.595 million | $28.982 million | $165.469 million | $55.857 million |
| Loss per share, basic and diluted | $0.37 | $0.57 | $3.15 | $1.28 |
- Q3 revenue fell 81% year over year; nine-month revenue fell 86%. The DoD Ebola contract and Monsanto collaboration no longer contributed revenue. Q3 included $0.640 million of Dicerna license revenue recognized after Dicerna discontinued its program.
- Nine-month operating expenses included a $156.324 million intangible-asset impairment charge. The impairment followed discontinuation of ARB-1598 and delayed work on the cccDNA sterilizer program. A $64.864 million income tax benefit, principally from the related reduction in deferred tax liability, partly offset the charge; it was not a cash inflow.
- Q3 2016 operating expenses were lower than the prior-year quarter, which included a $37.990 million impairment. Nine-month R&D expense increased to $44.097 million from $36.601 million, primarily reflecting increased HBV program activity. Nine-month G&A rose to $34.705 million from $18.084 million, including merger-related noncash compensation.
- Cash used in operating activities was $43.063 million for the first nine months, versus $38.168 million in 2015. Investing activities used $99.854 million, principally to acquire short-term investments; financing activities provided $0.637 million.
- At September 30, cash and cash equivalents were $26.630 million and short-term investments were $123.052 million, for total cash and investments of $149.682 million. Management stated these resources were sufficient for at least the next 12 months, while noting substantial additional funding will be needed for continued pipeline development.
- Total assets were $514.730 million, total liabilities $98.105 million, and stockholders’ equity $416.625 million. The filing reports no borrowings or debt balance. Gross margin is not separately presented.
Material changes and business developments
- The company’s functional currency changed from the Canadian dollar to the U.S. dollar effective January 1, 2016. Nine-month foreign-exchange gains were $2.180 million, while Q3 recorded a $0.795 million loss.
- Intangible assets declined to $196.318 million from $352.642 million at year-end 2015, primarily due to the impairment. Goodwill remained $162.514 million; management reported no new impairment indicators at September 30, but noted future impairment remains possible.
- Monsanto exercised its option to acquire PADCo in March 2016 for a $1.0 million fee; Arbutus granted Monsanto exclusive agricultural-field rights to its delivery technology. Dicerna discontinued DCR-PH1 in September, ending Arbutus’s remaining performance obligations under the license-fee arrangement.
- Arbutus signed a lease for a new Pennsylvania laboratory and office facility, with a 10.6-year term through April 2027. The filing cites an estimated facility commitment of approximately $6.9 million in one section and total contractual lease obligations of $9.5 million in another.
Outlook, risks and contingencies
- Management’s strategy is to develop HBV combination therapies. It expected additional ARB-1467 multi-dose data by the end of 2016 and final Phase II cohort data in the first half of 2017; it also planned filings for ARB-1740 and AB-423 by the end of 2016. These are forward-looking plans, not financial guidance.
- Arbutus stated that it may require substantial additional capital. Funding needs depend on clinical progress, partnerships, development costs, regulatory decisions, manufacturing outcomes, and access to financing; unavailable funding could require program delays, reductions, or relinquishment of rights.
- Acuitas filed a civil claim in October 2016 concerning a cross-license agreement, seeking specific performance, damages, injunctive relief, interest, and costs. Arbutus disputes the claim and recorded no loss estimate because the outcome and amount were uncertain.
- The University of British Columbia arbitration alleges at least $3.5 million in unpaid royalties, plus an unspecified amount based on nonpublic information, interest, and costs. Arbutus disputes the allegations and has not estimated a possible loss.
- Arbutus recorded contingent consideration of $8.253 million related to the Enantigen acquisition. Up to $21 million in potential payments is tied to program milestones; the company did not expect the first triggering event within the following 12 months.
Most important facts for investors to verify
- Whether the cash-and-investment balance and operating burn support the stated runway as clinical spending continues.
- The extent to which the $165.469 million year-to-date net loss reflects noncash impairment and compensation charges versus ongoing cash operating needs.
- Whether ARB-1467, ARB-1740, and AB-423 meet the stated clinical and filing milestones, and how discontinuations or delays affect the pipeline.
- The eventual outcomes and potential financial or intellectual-property consequences of the Acuitas and UBC disputes.
- Why the filing gives different estimated lease commitments ($6.9 million and $9.5 million), and the expected $12.0 million renovation and equipment spending.