Arbutus Biopharma Corporation — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Amounts are U.S. dollars; financial figures below are in millions unless noted. Arbutus is a clinical-stage biopharmaceutical company focused primarily on developing combination therapies for chronic hepatitis B (HBV), and has also begun coronavirus drug discovery. Its principal clinical candidate, AB-729, was in Phase 1a/1b.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.5 | $3.1 | $4.5 | $4.4 |
| Operating expenses | $16.7 | $94.1 | $46.0 | $135.3 |
| Loss from operations | $(15.2) | $(91.0) | $(41.5) | $(130.9) |
| Net loss | $(18.8) | $(82.5) | $(46.7) | $(129.1) |
| Net loss attributable to common shares | $(21.8) | $(85.3) | $(55.7) | $(137.3) |
| Basic and diluted loss per common share | $(0.27) | $(1.50) | $(0.77) | $(2.43) |
Revenue mix: Q3 collaboration and license revenue was $0.8 million, including $0.8 million from Acuitas; non-cash ONPATTRO royalty revenue was $0.7 million. For the nine months, collaboration and license revenue was $2.5 million and non-cash royalty revenue was $2.0 million. No gross margin was reported; as a clinical-stage company, the filing emphasizes operating expenses and losses.
Cash flow and liquidity: Cash used in operations was $36.4 million for the first nine months, versus $57.7 million in 2019. Investing activities provided $35.1 million, principally from investment maturities, and financing activities provided $66.5 million, primarily from common-share sales. Cash and cash equivalents were $96.9 million and current marketable securities were $21.4 million at September 30, for combined cash, cash equivalents and investments of $118.3 million. Management said this was sufficient to fund operations into mid-2022. The company reported no outstanding debt. It had a $20.1 million liability related to the sale of future royalties and $3.1 million in lease liabilities.
Material changes versus comparable periods
- Q3 revenue fell $1.5 million year over year, mainly because a $1.5 million Gritstone development milestone was recognized in Q3 2019. Nine-month revenue increased $0.1 million: higher ONPATTRO royalty revenue was largely offset by lower Gritstone milestone and royalty revenue.
- Operating expenses and losses were substantially lower than in 2019, which included $66.3 million of intangible-asset and goodwill impairments and $6.5 million of arbitration expense. Lower R&D spending also reflected discontinuation of AB-506 in 2019 and higher prior-year AB-729 preclinical and supply costs. These comparisons make the prior-year loss unusually high.
- R&D expense decreased $5.7 million in Q3 and $12.2 million for the nine months; G&A increased $0.8 million in Q3 but decreased $4.7 million year to date.
- The company raised $66.1 million net through its at-the-market share-sale agreement in the first nine months, issuing 19.7 million shares. As of September 30, approximately $62.3 million remained available under the agreement. Common shares outstanding increased from 64.8 million at year-end 2019 to 84.6 million at September 30, 2020.
Outlook, developments and risks
- Management expected AB-729 multi-dose and follow-up single-dose data in Q4 2020, including a planned AASLD presentation, and expected to complete AB-836 CTA/IND-enabling studies by year-end 2020. These are forward-looking expectations, not reported outcomes.
- An August 2020 collaboration with Assembly BioSciences will evaluate AB-729 with Assembly’s vebicorvir and standard-of-care therapy. The Phase 2 study was projected to begin in the first half of 2021 and enroll approximately 60 participants, with costs shared.
- The company continued early-stage work on oral HBV RNA destabilizers and PD-L1 inhibitors and screened oral compounds targeting coronavirus proteins. It said COVID-19 had not yet required changes to 2020 objectives, but could disrupt trial enrollment, monitoring, supply chains, research, and access to capital.
- Arbutus invested $2.5 million in Genevant’s July recapitalization and recorded the amount as an equity investment loss. It subsequently held approximately 16% of Genevant, with a zero carrying value and a non-voting board observer seat; Roivant received substantial control. Arbutus said its Genevant royalty and sublicensing entitlements were unchanged.
- The OMERS royalty-sale arrangement carries an effective annual interest rate of approximately 22%. OMERS retains the assigned ONPATTRO royalty entitlement until it collects $30 million, after which the entitlement reverts to Arbutus; the timing depends on future product sales.
- Series A preferred shares accrue an 8.75% annual compounded coupon and are subject to mandatory conversion in October 2021, generally at $7.13 per share, into approximately 23 million common shares. The filing estimated Roivant would hold approximately 36% of common shares after conversion, based on September 30 share count.
- Legal matters include continuing patent challenges and appeals involving Moderna and European patent oppositions involving Moderna and Merck. The PTAB upheld all challenged claims of the ’069 patent in July 2020; Moderna appealed in September. The company accrued $0.4 million for possible UBC arbitration costs and attorneys’ fees after paying the $5.9 million award in 2019.
- Management cautioned that further financing will be needed to advance the pipeline and that funding may not be available on acceptable terms. If financing is inadequate, programs could be delayed, reduced, or eliminated. Management reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether AB-729 trial results and AB-836 development milestones met the stated timelines, and how efficacy and safety findings affect development plans.
- Actual operating cash burn and whether available liquidity supports the stated mid-2022 runway as clinical and collaboration spending changes.
- Additional share issuance under the sales agreement, its dilution impact, and the potential preferred-share conversion and related ownership concentration.
- ONPATTRO sales, royalty receipts and the expected timing of the OMERS cap and royalty reversion, alongside the associated non-cash interest expense.
- Developments in patent appeals and oppositions, potential legal costs, COVID-19 effects on trials and funding, and any changes to the company’s financing needs or outlook.