Arbutus Biopharma Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. Arbutus is a clinical-stage biopharmaceutical company focused on HBV therapeutics, including AB-729, and coronavirus drug discovery.
Financial highlights
| Metric | Q1 2022 | Q1 2021 or prior period |
|---|---|---|
| Revenue | $12.6 | $2.1; up $10.5 year over year |
| Operating expenses | $23.6 | $17.8 |
| Loss from operations | $(11.0) | $(15.7) |
| Net loss | $(15.8) | $(16.4) |
| Net loss per share, basic and diluted | $(0.11) | $(0.21) attributable to common shares |
| Operating cash flow | $20.6 provided | $17.9 used |
| Cash, cash equivalents and marketable securities | $221.8 at March 31, 2022 | $191.0 at December 31, 2021 |
| Debt | None outstanding | — |
Revenue included $9.6 million recognized under the Qilu license, $1.5 million from Acuitas, $1.4 million of non-cash ONPATTRO royalty revenue, and $0.1 million of other milestone and royalty payments. The filing does not provide a meaningful product-sales margin measure; revenue is primarily from licensing, collaborations and royalties.
Research and development expense rose $4.7 million to $18.5 million, primarily from AB-836, AB-729 Phase 2a trials and early-stage programs. General and administrative expense increased $1.0 million to $4.9 million. Q1 2022 net loss included $4.4 million of income tax expense for withholding taxes paid by Qilu on the upfront license payment. Q1 2021 common-share loss also included $3.2 million of preferred-share dividend accretion; the preferred shares converted to common shares in October 2021.
Liquidity and capital resources
Cash and cash equivalents were $81.3 million, with current and non-current marketable securities of $84.1 million and $56.3 million, respectively. The company reported total assets of $236.9 million and total liabilities of $71.0 million at quarter-end. Cash and investments increased from $191.0 million at year-end 2021, although cash alone declined from $109.3 million to $81.3 million as funds were shifted into marketable securities.
Operating cash flow was positive largely because of Qilu-related receipts and deferred license revenue. The company reported $23.4 million of cash used in operations before those Qilu-related inflows. Investing activities used $60.1 million, mainly for purchases of marketable securities. Financing activities provided $11.5 million, including proceeds from Qilu’s equity investment and modest ATM sales.
Material changes and business developments
- Qilu paid a $40.0 million upfront license fee and $4.4 million of withholding taxes on Arbutus’s behalf, and its affiliate invested $15.0 million in Arbutus shares at $4.19 per share. Qilu may also pay up to $245 million in milestones and double-digit royalties into the low twenties on qualifying AB-729 sales in China, Hong Kong, Macau and Taiwan. The milestone amounts are contingent and not assured.
- Arbutus recognized $9.6 million of Qilu collaboration revenue in Q1. The agreement’s initial transaction price was $49.1 million; net deferred license revenue was $38.8 million at March 31, 2022.
- Total operating expenses increased 32% year over year, while revenue increased substantially due mainly to Qilu. Operating loss narrowed; net loss improved modestly despite the Qilu-related tax expense.
- Common shares outstanding increased to 148.7 million at March 31, 2022, from 145.0 million at December 31, 2021, including shares issued to Qilu’s affiliate.
Outlook, risks and unusual items
- Management projected 2022 net cash burn of $90–$95 million and believed the $221.8 million of cash and investments would fund operations into the second quarter of 2024. This is management’s estimate and depends on development costs, collaboration receipts and other factors.
- Management expected AB-729-201 preliminary data in the second half of 2022, additional AB-836-001 data in the first half of 2022, and AB-729/Assembly trial data in the second half of 2022. Enrollment in the Vaccitech AB-729-202 trial was anticipated to begin in the first half of 2022. AB-101 and AB-161 IND-enabling studies were expected to finish in the second half of 2022.
- Russia’s invasion of Ukraine disrupted clinical activity. Most patients in an Antios collaboration cohort were enrolled in Ukraine, were lost to follow-up, and the companies did not expect to report data from that cohort. Other ongoing or planned trials could face delays, added costs or site changes.
- Arbutus and Genevant sued Moderna in February 2022 seeking damages for alleged patent infringement involving Moderna’s COVID-19 vaccine; the complaint did not seek to stop vaccine sales. Acuitas separately sought declaratory judgments that patents do not infringe on Pfizer/BioNTech’s vaccine and are invalid. Outcomes and any potential recovery are uncertain.
- UBC alleged that $2.0 million plus interest in royalties was due in connection with the OMERS royalty sale. Arbutus disputed the claim; arbitration hearings took place April 25–26, 2022. The filing does not report a resolution.
- The liability for the OMERS sale of future ONPATTRO royalties was $15.4 million; the related interest expense is non-cash and depends on the timing of royalty receipts. Contingent consideration was $5.5 million and may change with assumptions about future HBV product milestones.
Important facts for investors to verify
- Whether Qilu-related revenue recognition, deferred revenue and future milestone assumptions develop as expected, and whether Qilu advances AB-729 in its territory.
- Cash burn against management’s $90–$95 million 2022 estimate, and whether the stated runway into Q2 2024 remains supportable.
- Clinical progress, safety and data timing for AB-729 and AB-836, plus the operational impact of Ukraine-related disruptions.
- Developments in the Moderna, Acuitas and UBC proceedings, including potential effects on patent rights, royalties, costs or recoveries.
- How much future ONPATTRO royalty value may revert from OMERS, and the timing and amount of any such royalties.