ASSEMBLY BIOSCIENCES, INC. annual report, FY2016

Business context and reporting period

Assembly Biosciences, Inc. filed this Form 10-K for the fiscal year ended December 31, 2016. It is a clinical-stage biotechnology company focused on oral HBV therapies and synthetic live microbiome therapies. It had no approved products and generated no product-sales revenue.

Its lead HBV candidate, ABI-H0731, completed its Phase 1a dose-ranging study in February 2017; ABI-M101, for recurrent C. difficile infection, remained in late preclinical development. The filing was signed March 1, 2017.

Financial results and liquidity

R&D expense included $20.0 million for HBV and $10.0 million for microbiome programs, excluding stock-based compensation. The filing does not provide meaningful operating margins because the company had no product revenue.

At year-end, cash and cash equivalents were $28.6 million and marketable securities were $26.8 million, totaling $55.4 million. Current assets were $53.6 million and current liabilities $7.1 million. Total assets were $98.1 million and stockholders’ equity $79.9 million. Liabilities included an $11.1 million deferred tax liability; the balance sheet lists no interest-bearing debt. Contractual obligations totaled $8.2 million, including leases, R&D and purchase commitments, and license obligations.

Management said existing cash, cash equivalents and marketable securities were expected to fund operations for at least 12 months. This assessment preceded the February 2017 Allergan payment. Operating cash outflow rose year over year; 2016 financing cash flow was only $0.2 million, as the company did not raise capital that year.

Material changes versus the prior year

• Net loss increased by $15.8 million, or about 55%, to $44.3 million; operating expenses rose by $15.6 million, or about 53%.
• R&D expense rose by about $14.7 million, reflecting expanded HBV research and microbiome preclinical development. G&A expense rose by about $0.9 million.
• Operating cash use increased by $16.2 million. Cash and marketable securities together fell from $91.1 million to $55.4 million; 2016 included $44.3 million of marketable-security redemptions and a $1.1 million realized loss on securities.
• There was no equity financing in 2016, compared with approximately $81.0 million of net proceeds from a 2015 public offering.

Outlook, commentary, risks and unusual items

• Management expected to begin the ABI-H0731 Phase 1b/2a portion in the second quarter of 2017, with longer-term Phase 2 trials anticipated in 2018. It planned to complete ABI-M101 IND-enabling studies in 2017 and begin a Phase 1b study in the second half of 2017. These are forward-looking plans, not assured outcomes.
• In January 2017, Assembly entered a microbiome collaboration with Allergan; it received a $50 million upfront payment on February 10, 2017, after the reporting date. The agreement provides eligibility for up to approximately $630 million in development milestones, $2.15 billion in commercial milestones and tiered mid-single- to mid-teens royalties, all contingent. The parties share eligible pre-proof-of-concept costs up to $75 million; Allergan assumes post-proof-of-concept development costs. Allergan may terminate for convenience with notice.
• ABI-H0731 was reported well tolerated in 48 healthy volunteers in Phase 1a, with no serious adverse events reported. Mild, transient rash and headache were reported at the highest doses. Preliminary safety and pharmacokinetic findings do not establish efficacy or eventual approval.
• Principal risks include early-stage clinical and preclinical programs, unproven mechanisms and delivery technology, potential delays or adverse trial results, reliance on collaborators and third-party manufacturers, financing needs, competition, regulatory and reimbursement uncertainty, and limited patent protection. The company warned it may need additional capital and may not obtain it on acceptable terms.
• Available-for-sale securities had $473,000 of gross unrealized losses at year-end, including losses on some corporate bonds held for 12 months or longer; management considered the losses temporary and reported no securities as impaired. Goodwill and in-process R&D were also not deemed impaired.
• The company reported effective disclosure controls and internal control over financial reporting; its auditor issued unqualified opinions on the financial statements and internal controls. No material legal proceedings were reported.

Important facts for investors to verify

• Whether cash burn, operating costs and the post-year-end Allergan upfront payment support the company’s funding runway, and how management updates its financing needs.
• Whether ABI-H0731 patient data confirm safety, antiviral activity and the planned trial timetable; distinguish the reported Phase 1a healthy-volunteer findings from efficacy evidence.
• Whether ABI-M101 completes enabling work and enters clinical testing on schedule, including evidence for strain selection, delivery and scalable manufacturing.
• The conditions, cost-sharing mechanics, termination rights and actual progress under the Allergan collaboration; milestone and royalty amounts are contingent, not assured revenue.
• The status and scope of patent applications, license obligations, and future R&D, lease and purchase commitments, as well as changes in the market value of securities.