Arbutus Biopharma Corporation — FY 2020 Form 10-K
Business context and reporting period. This is the annual report for the fiscal year ended December 31, 2020, filed March 4, 2021. 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. The filing provides annual comparisons, not a separate Q4 income statement.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $6.9 million | $6.0 million |
| Research and development expense | $47.5 million | $57.6 million |
| Total operating expenses | $64.7 million | $149.9 million |
| Loss from operations | $57.8 million | $143.9 million |
| Net loss | $63.7 million | $153.7 million |
| Net loss attributable to common shares | $75.9 million; $1.00 per share | $164.9 million; $2.89 per share |
| Net cash used in operating activities | $51.4 million | $71.0 million |
Revenue came primarily from royalties and collaboration/licensing arrangements; the company reported no product sales. Revenue rose 15% year over year, driven by higher Alnylam and Acuitas royalties, partly offset by lower Gritstone revenue. Alnylam-related non-cash royalty revenue was $3.4 million; the company sold that royalty stream to OMERS, which retains it until receiving $30 million, after which the royalty interest reverts to Arbutus. Acuitas royalties were retained by Arbutus.
The lower 2020 operating loss chiefly reflects the absence of 2019 non-cash impairments of intangible assets ($43.8 million) and goodwill ($22.5 million), and the 2019 UBC arbitration charge ($6.3 million), as well as lower R&D and general and administrative expenses. The company recorded no impairment charges in 2020. The 2020 net loss also included a $2.5 million loss on its Genevant investment and $4.0 million of interest expense, largely non-cash amortization related to the OMERS royalty transaction. Preferred-share dividend accretion of $12.1 million increased the loss attributable to common shareholders above net loss.
At December 31, 2020, cash and cash equivalents were $52.3 million and marketable securities were $71.0 million, totaling $123.3 million. Current assets were $127.7 million and current liabilities were $9.5 million. The company reported no outstanding debt; it had a $19.6 million liability related to the sale of future royalties and $3.4 million of contingent consideration. Financing cash flow was $86.7 million, primarily from $86.3 million of net proceeds from common-share sales under its ATM program. From January 1 through March 3, 2021, it raised a further $24.3 million net through the program. Management expected cash resources to fund operations through Q3 2022, based on anticipated 2021 net cash burn of $70–$75 million.
Material changes and business developments
- R&D expense declined $10.1 million, primarily following the 2019 discontinuation of AB-506 and higher prior-year AB-729 preparation costs; increased AB-836 development costs partly offset the decrease.
- Common shares issued under the ATM program increased by 24.7 million during 2020. Separately, 1.164 million preferred shares accrue at 8.75% annually and are scheduled for mandatory conversion into approximately 23 million common shares on October 18, 2021, subject to stated exceptions.
- Genevant was recapitalized in July 2020. Arbutus invested $2.5 million, its ownership fell to approximately 16%, and it lost significant influence; the investment’s carrying value was zero at year-end. Its contractual royalty and sublicensing rights were not changed.
- The company entered a clinical collaboration with Assembly in August 2020 to evaluate AB-729 with Assembly’s vebicorvir and standard-of-care nucleos(t)ide analogue therapy.
Outlook, commentary, and risks
- Pipeline: AB-729 was in a Phase 1a/1b trial. Preliminary results showed HBsAg declines and the company reported it was well tolerated, with no serious adverse events noted in the reported cohorts. AB-836 completed IND/CTA-enabling studies in Q4 2020; the company expected to begin Phase 1a/1b in H1 2021 and provide initial data in H2 2021. It also planned two AB-729 combination Phase 2 trials in H2 2021, including the Assembly collaboration.
- Other research: Oral PD-L1 inhibitors and next-generation oral HBV RNA destabilizers remained in lead optimization. The coronavirus program was at drug-discovery and screening stage; the filing reports no clinical-stage COVID-19 candidate.
- Funding and profitability: Arbutus expected continued operating losses and significant R&D spending, and said additional capital would be required over time. Future financing may dilute shareholders or require the company to limit programs, grant rights, or pursue less favorable transactions.
- Development and operating risks: Product candidates remain early-stage, and clinical outcomes, regulatory approvals, timelines, market acceptance, and commercialization are uncertain. COVID-19 could disrupt trial enrollment and monitoring, sites, supply chains, and access to capital. The company relies on third parties for clinical trials and manufacturing.
- Legal and intellectual-property matters: UBC initiated a new arbitration alleging $2.0 million plus interest is due in connection with the ONPATTRO royalty sale; Arbutus disputes the claim and intends to contest it. Costs and attorneys’ fees from the earlier UBC arbitration award remained undetermined. Moderna appealed a patent-board decision upholding challenged claims of a patent licensed to Genevant.
- Other notable exposures: Enantigen acquisition terms could require up to $102.5 million in sales milestones if Arbutus commercializes its first HBV product, plus a limited royalty. Roivant’s preferred-share conversion and ownership, director nomination rights, and the expiry of contractual lock-up and standstill periods in October 2021 could affect control and share supply.
Important facts for investors to verify
- Check subsequent AB-729 and AB-836 trial data, safety findings, trial enrollment, and whether planned milestones and Phase 2 starts occurred.
- Monitor quarterly cash burn, ATM issuance and dilution, preferred-share conversion, and whether the stated Q3 2022 cash runway remains achievable.
- Track ONPATTRO sales and OMERS collections toward the $30 million threshold, the timing of any royalty reversion, and ongoing Acuitas royalty receipts.
- Follow the UBC arbitration, including the disputed $2.0 million-plus-interest claim and the unresolved costs from the earlier award.
- Assess the potential impact of Roivant’s preferred conversion, governance rights, and post-October 2021 standstill expiry on ownership and control.
- Review the audited statements and notes for the assumptions underlying the $3.4 million contingent-consideration valuation and the $19.6 million royalty-sale liability.