Arbutus Biopharma Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited and presented in U.S. dollars. Arbutus is a clinical-stage biopharmaceutical company focused primarily on hepatitis B (HBV), with additional coronavirus drug discovery programs.
Financial results and liquidity
Amounts below are in millions of U.S. dollars, except per-share data.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $4.7 | $14.2 | $11.3 | $26.8 |
| Research and development | $17.7 | $22.9 | $36.0 | $41.4 |
| General and administrative | $6.0 | $5.2 | $11.5 | $10.1 |
| Operating loss | $(18.4) | $(14.1) | $(35.8) | $(25.1) |
| Net loss | $(17.1) | $(14.2) | $(33.4) | $(30.0) |
| Basic and diluted loss per share | $(0.10) | $(0.10) | $(0.20) | $(0.20) |
- Revenue and operating performance: Revenue declined $9.6 million in Q2 and $15.5 million for the first half, principally because less Qilu license revenue was recognized as the company progressed toward satisfying manufacturing and technology-transfer obligations, and ONPATTRO royalty revenue declined. Qilu generated $3.0 million of Q2 revenue and $7.1 million for the first half. Acuitas royalties contributed $0.9 million and $2.3 million, respectively; non-cash ONPATTRO royalty revenue was $0.8 million and $1.9 million.
- Expenses and other income: R&D expense fell year over year, primarily due to lower manufacturing costs for clinical programs and the discontinuation of the AB-836 trial, partly offset by higher coronavirus-program spending. G&A increased, mainly from stock-based compensation and professional fees. Higher interest income helped limit the increase in Q2 net loss.
- Cash flow: Operating activities used $46.9 million in the first half of 2023, versus $0.3 million provided in the prior-year period. The comparison was heavily affected by Qilu’s $40.0 million upfront payment and its equity investment in 2022. Investing activities provided $18.1 million, mainly from investment maturities; financing provided $25.2 million, primarily from share sales under the Open Market Sale Agreement. Cash and cash equivalents decreased $3.6 million to $27.2 million.
- Balance sheet at June 30: Cash, cash equivalents and marketable securities totaled $163.5 million, versus $184.3 million at December 31, 2022. Total assets were $176.8 million, liabilities $42.1 million and stockholders’ equity $134.7 million. The company reported no outstanding debt. Current assets were $158.8 million and current liabilities $24.5 million.
- Share issuance: The company sold 9.2 million shares under its ATM agreement in the first half for $24.6 million net proceeds. Shares outstanding increased from 157.5 million at year-end to 166.9 million at June 30; 167.6 million were outstanding on August 1, 2023. Approximately $105.8 million remained available under the cited prospectus supplements.
Material changes, outlook and business developments
- Management expects 2023 net cash burn of $90 million to $95 million, excluding ATM proceeds, and believes the June 30 cash and investments will fund operations into the first quarter of 2025. Future funding needs depend on clinical progress, collaboration and royalty revenue, and other factors; management says additional funds will be required for continued pipeline development.
- Imdusiran (AB-729) is in multiple Phase 2 trials. Preliminary AB-729-201 results presented in June 2023 suggested Peg-IFNα-2a was generally tolerated and that some patients continued to show HBsAg declines; four patients reached below the lower limit of quantitation during Peg-IFNα-2a treatment. The company anticipated preliminary data from the Vaccitech combination trial in the second half of 2023 and from its added nivolumab arm in 2024.
- The FDA placed AB-101’s U.S. IND on clinical hold, citing questions about preclinical data and trial design. No patients had been dosed. After quarter-end, New Zealand’s Medsafe approved a Phase 1 trial application; Arbutus planned to initiate the trial in Q3 2023. The company cautioned that FDA may not accept the results or may require further studies, and the U.S. hold may not be lifted.
- AB-161’s Phase 1 trial was ongoing, with initial single-ascending-dose data expected in the second half of 2023. AB-343 remained in IND-enabling studies, which the company expected to complete in the second half of 2023; it also planned to nominate an nsp12 inhibitor candidate and begin enabling studies.
Risks, contingencies and unusual items
- Clinical and financing risks: The business depends on clinical and regulatory success, partnerships and access to additional financing. Delays, unfavorable findings, manufacturing problems or unavailable financing could lead to reduced or delayed programs.
- Patent matters: Arbutus and Genevant are pursuing damages claims against Moderna and Pfizer/BioNTech concerning COVID-19 mRNA-LNP vaccines; the suits do not seek to stop sales. The Moderna matter remained in discovery, with claim construction scheduled for February 2024. Acuitas separately seeks declarations concerning patent non-infringement and invalidity; Arbutus and Genevant’s motion to dismiss was pending. The Federal Circuit affirmed invalidation of the ’127 patent in April 2023.
- Contingent consideration: The Enantigen acquisition liability was $7.2 million at June 30, 2023, reflecting potential HBV product sales milestones; its fair value decreased $0.4 million in the first half.
- ONPATTRO royalty sale: OMERS retains the sold royalty entitlement until it has received $30 million; $20.8 million had been earned through June 30, 2023. The company’s related liability was $8.8 million. Royalty timing depends on Alnylam sales, which Arbutus does not control.
- Other items: The company recorded no income tax expense in the first half of 2023; the prior-year period included $4.4 million of tax expense related to Qilu withholding taxes. Management stated that no material off-balance-sheet arrangements existed and that disclosure controls were effective.
Important facts for investors to verify
- Whether actual cash use is consistent with the $90–$95 million 2023 net cash-burn estimate and the stated runway into Q1 2025.
- Progress and results of imdusiran, AB-161 and AB-343 programs, including whether anticipated data and development timelines were met.
- AB-101’s clinical progress in New Zealand and any FDA response, additional study requirements or change in the U.S. clinical hold.
- Future Qilu revenue recognition, milestone prospects and ONPATTRO royalty levels, including the potential timing of OMERS’s $30 million recovery threshold.
- Further ATM share issuance and its dilution impact, as well as developments, costs and potential outcomes in the patent litigation.