Assembly Biosciences, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited fourth-quarter results. Assembly is a clinical-stage biotechnology company developing oral therapies for chronic hepatitis B (HBV) and microbiome-related disorders; it had no approved products or product-sales revenue.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Collaboration revenue | $14.8 million | $9.0 million |
| Research and development expense | $72.7 million | $44.2 million |
| General and administrative expense | $34.8 million | $17.0 million |
| Operating loss | $92.7 million | $52.2 million |
| Net loss | $90.8 million | $42.8 million |
| Net loss per share, basic and diluted | $3.98 | $2.41 |
| Net cash used in operating activities | $65.0 million | Cash provided: $1.9 million |
Fourth-quarter 2018 collaboration revenue was $3.7 million, operating expenses were $30.1 million, and net loss was $26.2 million; fourth-quarter 2017 net loss was $3.0 million. The filing provides no gross margin, and product-level margins are not meaningful while the company has no product sales.
At year-end, cash and cash equivalents were $41.5 million and marketable securities were $176.6 million, totaling approximately $218.1 million. Current assets were $222.5 million versus current liabilities of $18.5 million. Total assets were $268.0 million and stockholders’ equity was $210.7 million. No interest-bearing debt is reported; liabilities largely included deferred collaboration revenue, accrued expenses and deferred taxes.
Operating cash use increased substantially from 2017, when cash flow benefited from a $45.8 million increase in deferred revenue under the Allergan collaboration. Investing cash use was $135.4 million, primarily reflecting purchases of marketable securities. The company raised $155.4 million net from a July 2018 common-stock offering. Management stated existing cash, cash equivalents and marketable securities were expected to fund operations and capital needs for at least 12 months from issuance of the financial statements.
Material changes and business developments
- Revenue rose to $14.8 million from $9.0 million, reflecting Allergan collaboration revenue, while operating expenses increased to $107.5 million from $61.2 million. Net loss more than doubled; research spending and stock-based compensation were major contributors.
- Research and development expense increased in both programs: HBV spending was $41.5 million versus $23.2 million, and Microbiome spending was $19.4 million versus $15.6 million. Total stock-based compensation increased to $28.5 million from $8.6 million, including a one-time $4.3 million expense related to a former executive’s departure and transition to consultant.
- ABI-H0731 received FDA Fast Track designation in 2018. Two Phase 2a combination studies began, enrolling 73 and 25 patients. Initial results were expected in Q2 2019 and six-month results in the second half of 2019.
- ABI-H2158 entered a Phase 1a/1b study in November 2018. ABI-H3733 was selected as a third HBV candidate and was undergoing IND-enabling studies.
- The company filed an IND for microbiome candidate ABI-M201 in December 2018; a Phase 1b study in ulcerative colitis patients began in February 2019.
Outlook, risks and contingencies
Management expects research and development and operating costs to rise as programs advance and anticipates continued operating losses. The company cannot predict when, or whether, it will become profitable and expects to rely on additional financing, collaborations or other arrangements. It cautions that available resources could be consumed sooner than expected and that financing may not be available on acceptable terms.
Under the Allergan agreement, Assembly received a $50.0 million upfront payment and may earn up to approximately $631 million in development milestones, $2.14 billion in commercial milestones, and tiered royalties. These payments are contingent on successful development and commercialization; milestone and sales-based consideration was not included in the 2018 transaction price because it remained constrained or uncertain. The parties share eligible pre-proof-of-concept costs up to $75 million, after which Allergan assumes post-POC costs. Allergan may terminate the agreement with notice.
Key risks include clinical and regulatory failure or delay; the unproven ability of HBV core inhibitors to produce meaningful clinical benefit; unproven delivery and commercial-scale feasibility of live microbiome therapies; dependence on Allergan and licensed intellectual property; reliance on third-party manufacturers and research organizations; competition; and the need for future capital. No material legal proceedings were reported. The company reported effective disclosure controls and internal control over financial reporting, with unqualified auditor opinions.
Important facts for investors to verify
- Whether ABI-H0731’s Phase 2a results support the proposed benefit of combination treatment and are consistent with the earlier Phase 1 findings.
- Whether ABI-H2158 and ABI-M201 progress on the timelines disclosed, and whether emerging safety or efficacy findings change development plans.
- How quickly cash and marketable securities are consumed relative to the stated minimum 12-month funding horizon, and whether further financing causes dilution.
- How much Allergan collaboration revenue reflects services performed versus deferred upfront consideration, and whether milestone eligibility or collaboration status changes.
- Whether increasing clinical, stock-based compensation and lease costs materially alter the company’s expected cash runway; the filing lists $21.8 million of operating lease obligations.