Assembly Biosciences, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Assembly is a clinical-stage biotechnology company developing hepatitis B (HBV) and microbiome therapies. It has no approved products and no product-sales revenue; reported revenue is collaboration revenue.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $34.6m | $4.2m | $78.1m | $11.2m |
| Research and development expense | $26.9m | $21.7m | $73.3m | $63.1m |
| General and administrative expense | $11.7m | $8.5m | $29.9m | $22.1m |
| Operating loss | $(4.0)m | $(26.0)m | $(25.1)m | $(74.0)m |
| Net loss | $(3.3)m | $(25.0)m | $(22.7)m | $(70.6)m |
| Basic and diluted loss per share | $(0.09) | $(0.96) | $(0.64) | $(2.74) |
- Q3 revenue included $31.0m recognized for transfer of the VBR license to BeiGene, with the balance primarily related to the Allergan collaboration. Nine-month revenue also included recognition of Allergan deferred revenue following notice of termination.
- Operating cash use was $37.7m in the first nine months of 2020, compared with $63.5m in the same 2019 period. Investing activities provided $47.4m, largely from marketable-security maturities and sales; financing activities provided $1.9m.
- At September 30, cash and cash equivalents were $58.3m and marketable securities were $179.6m, or $237.9m combined. Total assets were $306.3m; stockholders’ equity was $270.5m. The company reported no debt; operating lease liabilities totaled $10.8m.
- Management said existing cash, cash equivalents and marketable securities were expected to fund operations and capital requirements for at least 12 months after issuance of the statements. The company cautioned that additional funding may be needed and is not assured.
- Profit margins are not a useful indicator of product economics at this pre-commercial stage: revenue is collaboration-based, and the company remained loss-making.
Material changes and business developments
- Collaboration revenue rose sharply year over year, while operating expenses also increased. Nine-month R&D expense rose 16%, primarily from higher clinical, manufacturing and personnel costs; G&A rose 35%, including amortization of BeiGene agreement costs and higher stock-based compensation.
- In July, Assembly entered a BeiGene agreement covering VBR, ABI-H2158 and ABI-H3733 in China, Hong Kong, Taiwan and Macau. It received a $40.0m upfront payment, recognized $31.0m for the VBR license in 2020, and recorded the remaining $9.0m as deferred revenue. Potential milestone payments are up to approximately $500m, plus tiered royalties; these amounts are contingent and not assured.
- AbbVie’s termination of the Allergan agreement became effective October 10, 2020, returning worldwide rights to the covered microbiome candidates to Assembly. The company recognized the remaining $36.0m of Allergan deferred revenue during the nine months, and reimbursements ended upon termination. Assembly said it was exploring strategic alternatives for the microbiome program.
- Assembly and Arbutus agreed to share costs equally for a planned Phase 2 HBV combination study, expected to begin in the first half of 2021.
- Common shares outstanding were 32.9m at September 30, 2020, compared with 32.6m at December 31, 2019. A new shelf registration permits offerings of up to $300m, including a $100m at-the-market program; no shares had been sold under it as of September 30.
Outlook, commentary and risks
- Management expected a BeiGene registrational study to begin in the first half of 2021, initially evaluating VBR with an NrtI as chronic suppressive therapy. A VBR-plus-interferon Phase 2 study was also expected to start in the first half of 2021.
- For VBR’s Study 211 extension, 39 of 41 patients who stopped therapy had relapsed; the company said it was continuing to analyze data. This is a key uncertainty for the program’s potential to achieve sustained virologic response after treatment stops.
- ABI-H2158 was in Phase 2 and ABI-H3733 in Phase 1. The M201 microbiome Phase 1b study continued, with enrollment delays attributed in part to COVID-19. Management reported limited operational impact to date but warned that the pandemic could disrupt studies, supply chains, operations and access to capital.
- Assembly expects substantial continuing losses and R&D spending. Funding access, clinical and regulatory outcomes, manufacturing, competition, intellectual-property protection, collaborator performance and the future of the returned microbiome programs are significant risks. BeiGene may terminate for convenience on 90 days’ notice and has compound-specific termination rights under stated conditions.
- The company recorded a $0.7m restructuring accrual remaining for its headquarters relocation, expected to be paid in 2020. It reported no material legal proceedings, no off-balance-sheet arrangements and no material change in contractual obligations from its prior annual report.
Important facts for investors to verify
- How much of reported collaboration revenue reflects upfront or catch-up recognition rather than recurring collaboration activity, and what future revenue remains under contract?
- Whether cash use and program spending remain consistent with management’s stated minimum 12-month runway, particularly after Allergan reimbursements ceased.
- Study 211 follow-up and any further data on relapse, sustained response and the clinical value of VBR.
- BeiGene study initiation, development-cost sharing, milestone conditions and the partner’s termination options.
- Assembly’s strategic and funding plan for the microbiome portfolio after the Allergan rights returned.