Arbutus Biopharma Corp quarterly report, Q1 FY2021

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Arbutus Biopharma Corporation — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Arbutus is a clinical-stage biopharmaceutical company focused primarily on developing a functional cure for chronic hepatitis B (HBV), with an early coronavirus drug-discovery program. Amounts below are U.S. dollars.

Financial performance and liquidity

  • Revenue: $2.1 million, up from $1.5 million. This consisted of $1.2 million from collaborations and licenses and $1.0 million of non-cash royalty revenue related to ONPATTRO. Revenue growth was attributed primarily to higher ONPATTRO-related royalties from Alnylam and Acuitas.
  • Operating expenses: $17.8 million, up from $14.6 million. Research and development was $13.4 million (up from $10.4 million), reflecting higher clinical, discovery, Assembly collaboration and coronavirus research costs. General and administrative expense was $3.8 million, versus $3.6 million.
  • Losses: Operating loss was $15.7 million, compared with $13.1 million. Net loss was $16.4 million, versus $13.9 million. After $3.2 million of preferred-share dividend accretion, net loss attributable to common shares was $19.6 million, or $0.21 per share, compared with $16.8 million, or $0.25 per share.
  • Margins: The filing does not provide a meaningful gross-margin measure; the company is clinical-stage and reports limited collaboration and royalty revenue against research and development spending.
  • Cash flow: Operating cash use was $17.9 million, compared with $15.5 million. Investing activities provided $18.2 million, primarily from investment maturities; financing provided $26.9 million, mainly from share sales. Cash and cash equivalents increased $27.2 million to $79.4 million.
  • Liquidity and debt: Cash, cash equivalents and marketable securities totaled $132.0 million at quarter-end, versus $123.3 million at December 31, 2020. The company reported no outstanding debt. It stated that available cash resources were expected to fund operations through Q3 2022, based on expected 2021 net cash burn of $70–$75 million.
  • Other balance-sheet items: Total assets were $146.2 million and total liabilities were $32.1 million. Liabilities included $19.4 million related to the sale of future royalties, $3.6 million of contingent consideration and lease liabilities. The company raised $26.4 million through its at-the-market share offering, issuing approximately 6.40 million common shares in the quarter.

Material changes and business developments

  • Research and development spending and operating cash use increased year over year; revenue also increased but remained substantially below operating expenses.
  • AB-729, an RNAi candidate targeting HBV antigens, remained in Phase 1a/1b studies. Management reported preliminary evidence of HBsAg reductions and stated that treatment had been well tolerated, with no serious adverse events noted in the reported cohorts.
  • The AB-729 combination study with Assembly’s vebicorvir and standard-of-care nucleos(t)ide analogue therapy had begun screening. The planned first cohort was approximately 60 subjects.
  • Arbutus initiated a Phase 1a/1b trial of AB-836, an oral HBV capsid inhibitor, in Q1 2021. Initial data were expected in the second half of 2021.
  • In March 2021, Arbutus entered a coronavirus drug-discovery collaboration with X-Chem and Proteros focused on SARS-CoV-2 main protease inhibitors. The agreement includes potential milestone payments and royalties.
  • The company’s common shares outstanding increased to 96.2 million at March 31, from 89.7 million at December 31, 2020. The Series A preferred shares accrue an 8.75% annual compounded coupon and were scheduled for mandatory conversion in October 2021; the filing estimated conversion into approximately 23 million common shares. It stated that Roivant would hold approximately 32% of common shares after conversion, based on the March 31 share count.

Outlook, risks and contingencies

  • Management expected additional AB-729 Phase 1a/1b data in Q2 2021, with specified 90 mg dosing-cohort data expected in the second half of 2021. It intended to start two additional AB-729 Phase 2 combination studies in the second half of 2021.
  • Management’s runway estimate depends on development costs, collaboration and royalty receipts, clinical progress, financing access and other factors. The company stated it may need additional financing and could delay, reduce or discontinue programs if funding is unavailable on acceptable terms.
  • COVID-19-related travel restrictions, supply-chain delays and limits on clinical-trial enrollment could affect clinical development plans and timelines.
  • Arbutus sold part of its ONPATTRO royalty interest to OMERS for $20 million in 2019. OMERS retains the sold royalty entitlement until it has collected $30 million; the entitlement then reverts to Arbutus. The company reported approximately $6.0 million in cumulative royalties collected by OMERS through March 31, 2021. The associated liability was $19.4 million; related Q1 interest expense was primarily non-cash.
  • A UBC arbitration concerning royalties allegedly due on the OMERS royalty sale remained pending. UBC claimed $2.0 million plus interest; Arbutus disputed the claim and intended to contest it. Hearings were scheduled to begin in April 2022. A separate earlier UBC arbitration was fully resolved following payments made in 2019 and March 2021.
  • Several challenges to Arbutus patents by Moderna remained in progress, including U.S. appeals and European patent opposition appeals. Outcomes could affect intellectual-property rights licensed to Genevant.
  • The company reported no material change in risk factors from its 2020 Form 10-K and no material off-balance-sheet arrangements.

Key facts for investors to verify

  • Whether clinical data and enrollment timelines for AB-729 and AB-836 meet management’s stated expectations, and whether further safety or efficacy findings change the development plans.
  • Whether cash burn remains consistent with the $70–$75 million 2021 estimate and the stated Q3 2022 cash runway, considering clinical spending and financing needs.
  • The pace of ONPATTRO royalty collections by OMERS, the expected timing of any reversion, and the outcome of the pending UBC arbitration.
  • The terms and potential dilution from further at-the-market share sales and the scheduled preferred-share conversion, including Roivant’s ownership and governance position after the standstill period expires.
  • The status and potential consequences of ongoing patent proceedings, as well as the impact of COVID-19 disruptions on clinical trials and supply chains.