Assembly Biosciences, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. Unaudited interim results. The company is a clinical-stage biotechnology business with no approved products and no product revenue.
Business context and development outlook
Assembly is advancing two platforms: oral therapeutics for hepatitis B virus (HBV) and oral microbiome therapies. Lead HBV candidate ABI-H0731 was in a Phase 1a/1b trial; lead microbiome candidate ABI-M101 was in late preclinical development. Management anticipated initiating an ABI-M101 Phase 1b trial in the first half of 2017. These are plans, not assurances of timing or success.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development expense | $8.8 million | $4.6 million | $24.5 million | $13.1 million |
| General and administrative expense | $2.8 million | $2.5 million | $8.9 million | $8.3 million |
| Net loss | $11.6 million | $6.6 million | $32.7 million | $20.7 million |
| Basic and diluted loss per share | $0.67 | $0.38 | $1.90 | $1.36 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $23.8 million | $13.2 million |
Gross margin and operating margin are not meaningful for the company’s reported business, which had no product revenue. Cash, cash equivalents and marketable securities totaled $66.5 million at September 30, 2016, down from $91.1 million at December 31, 2015. Total assets were $109.1 million, versus $133.7 million; stockholders’ equity was $90.0 million, versus $118.7 million. Current liabilities were $7.5 million, including $3.8 million accounts payable and $3.6 million accrued expenses. Long-term liabilities were $11.6 million in deferred taxes. The balance sheet does not report borrowings or other debt.
For the first nine months, investing activities provided $20.5 million, primarily reflecting $28.5 million in marketable-security redemptions, partly offset by $8.0 million of purchases. Financing activities provided no cash in 2016; the comparable 2015 period included $81.6 million, primarily from equity offerings. Accumulated deficit was $196.7 million.
Material changes versus prior periods
- Nine-month R&D expense rose 86% to $24.5 million; management attributed the increase mainly to approximately $8.0 million more HBV-program spending and $3.4 million more microbiome-program spending.
- Nine-month G&A expense increased to $8.9 million. Excluding stock compensation, management cited higher compensation, consulting, legal and professional costs, among other items.
- Nine-month net loss widened by $12.0 million, and operating cash use increased by $10.6 million year over year.
- Cash and marketable securities declined, while the company had no financing cash inflow in the first nine months of 2016.
Management commentary, risks and contingencies
Management said existing cash, cash equivalents and marketable securities were expected to fund operations and capital requirements for at least 12 months from the reporting date. It also expected expenses to rise as research, development and clinical work progress and said substantial additional funding would be needed. No committed external funding source was in place; future financing could dilute shareholders or require unfavorable terms. Failure to obtain funding could force delays, reductions or termination of development programs.
Key risks include early-stage clinical and preclinical uncertainty, regulatory approval and trial delays, safety or efficacy failures, dependence on contract research and manufacturing organizations, competition, and reliance on licensed intellectual property. Potential future milestone payments to Indiana University Research and Technology Corporation totaled $825,000 at September 30, 2016; royalty and diligence-payment obligations also apply. Management classified unrealized losses on available-for-sale securities as temporary and said it had the ability and intent to hold them until recovery or maturity.
The company reported no material legal proceedings, no off-balance-sheet arrangements, and no material changes to its market-risk disclosures. Management concluded disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether ABI-H0731 and ABI-M101 meet development milestones, including the stated ABI-M101 Phase 1b timing.
- Cash runway assumptions, operating cash burn, and the timing and terms of any future financing.
- Drivers and sustainability of the sharply higher R&D spending and widening losses.
- Clinical, regulatory, manufacturing and intellectual-property risks, including license obligations and potential milestone payments.
- Composition and fair-value risk of the $42.8 million marketable-securities portfolio, including unrealized losses.