Assembly Biosciences, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. The company, formerly Ventrus Biosciences, completed its merger with Assembly Pharmaceuticals on July 11, 2014 and changed its name. The consolidated results include Assembly Pharmaceuticals only from the merger date.
Business context and financial performance
Assembly is a clinical-stage biopharmaceutical company developing a hepatitis B virus (HBV) program based on core protein allosteric modulators and VEN 310, a targeted microbiome-delivery program intended to address C. difficile and other conditions. The company reported no product revenue and has accumulated a deficit of $129.3 million.
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $3.67 million; prior year $3.75 million | $7.74 million; prior year $9.87 million |
| General and administrative expense | $7.38 million; prior year $1.18 million | $9.93 million; prior year $3.64 million |
| Operating loss | $11.06 million; prior year $4.93 million | $17.67 million; prior year $13.51 million |
| Net loss | $11.02 million; prior year $4.88 million | $17.56 million; prior year $13.36 million |
| Basic and diluted loss per share | $1.33; prior year $1.23 | $3.02; prior year $3.53 |
| Net cash used in operating activities | Not presented for the quarter | $11.38 million; prior year $12.40 million |
Margins are not meaningful because the company had no revenue. No debt is reported. Cash and cash equivalents were $17.93 million at September 30, down from $27.06 million at December 31, 2013. Current assets were $18.08 million and current liabilities $1.05 million. Total assets were $60.39 million, including $30.14 million of acquired in-process research and development intangible assets and $12.14 million of goodwill. Stockholders’ equity was $47.20 million.
Material changes and unusual items
- The merger consideration included 4,008,848 common shares valued at $29.06 million and assumed options valued at approximately $759,000. The preliminary purchase-price allocation included $12.14 million of goodwill and a matching deferred tax liability; fair values remain subject to finalization.
- Operating expenses and reported losses rose, particularly in general and administrative expense, reflecting merger-related professional costs and substantially higher stock-based compensation. Nine-month stock-based compensation was $8.00 million; the company also expensed $679,000 for merger-advisor warrants.
- Although research and development expense declined year over year, management attributed the decrease mainly to the conclusion of the VEN 307 trial, partly offset by $1.07 million of HBV research expenses.
- A 1-for-5 reverse stock split took effect July 11, 2014. The company issued shares for the merger and sold 92,472 shares through its at-the-market program in January, generating approximately $1.76 million net proceeds.
- After quarter-end, an October 6 registered offering of 1,959,000 shares generated approximately $14.9 million net proceeds. The company said it did not anticipate further sales under that shelf registration.
- The company terminated its S.L.A. Pharma licenses for VEN 307 and VEN 308, effective October 22, 2014, to focus on HBV and CDAD programs; it reported no continuing payment obligation under those licenses.
Outlook, risks and contingencies
Management expects losses for at least several years and anticipates increased research and development spending as preclinical and clinical work advances, along with higher administrative costs related to the merger. It stated that cash on hand at September 30, together with the October financing, was expected to fund operating and capital requirements into the second quarter of 2016. The filing also states that cash at September 30 was expected to cover at least the next 12 months. These are estimates based on assumptions; management said additional funding will be needed to continue and complete development, and no future external financing commitments existed.
- Key uncertainties include clinical and regulatory outcomes, safety, market acceptance, competition, intellectual-property protection, availability of financing, and the performance of outside research and clinical-testing providers. The HBV and VEN 310 programs depend on license arrangements; disclosed potential future HBV milestones to Indiana University totaled $825,000, with additional maintenance fees and royalties possible.
- Two securities class actions relating to the former VEN 309 program were dismissed with prejudice; reconsideration was denied and no appeal was filed by the deadline.
- Management reported that disclosure controls and procedures were effective at September 30, 2014, with no material third-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether the October offering and cash-use assumptions support the projected runway into the second quarter of 2016, and when additional financing may be needed.
- Development plans, timing, and funding needs for the HBV and VEN 310 programs, including applicable license milestones, royalties, and maintenance fees.
- The final acquisition accounting and recoverability of the acquired IPR&D and goodwill, which were based on preliminary fair values.
- The extent to which future operating expenses reflect recurring research and corporate costs versus merger-related and stock-based compensation charges.
- Potential dilution from shares issued in the merger, the October offering, and outstanding options and warrants.