Arbutus Biopharma Corporation — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Amounts are in U.S. dollars. Arbutus is a clinical-stage biopharmaceutical company focused on developing combination therapies for chronic hepatitis B (HBV).
Financial performance and liquidity
- Q2 revenue: $0.653 million, down from $1.244 million in Q2 2018. Revenue primarily reflected ONPATTRO royalties, Marqibo royalties, and Gritstone services; the prior-year quarter included Gritstone license revenue.
- Q2 operating expenses: $21.168 million, versus $23.290 million. Research and development expense fell to $12.740 million from $16.356 million; general and administrative expense rose to $8.189 million from $3.775 million.
- Q2 operating loss and net loss: Operating loss was $20.515 million, compared with $22.046 million. Net loss was $23.315 million, versus net income of $3.091 million in Q2 2018; net loss attributable to common shareholders was $26.077 million, or $0.46 per share, versus net income of $0.550 million, or $0.01 per share.
- Six-month results: Revenue was $1.332 million, versus $2.680 million; operating loss was $39.586 million, versus $40.451 million; and net loss was $46.566 million, versus $14.338 million. The prior-year period included a non-cash $24.884 million gain associated with Genevant’s formation.
- Cash flow: Operating activities used $34.185 million in the first six months, compared with $37.589 million in 2018. Investing activities provided $71.005 million, mainly from short-term investment maturities. Financing activities provided $5.015 million, mainly from common-share sales under the ATM agreement.
- Liquidity and debt: At June 30, cash and cash equivalents were $78.872 million and short-term investments were $16.410 million, totaling $95.282 million. The company reported no outstanding debt. Management said these resources, together with the subsequent OMERS proceeds, were expected to fund operations into the second half of 2020.
- Balance sheet: Total assets were $192.570 million and total liabilities were $28.104 million. Operating lease liabilities totaled $3.639 million at present value.
Material changes and notable items
- R&D spending declined year over year, primarily because 2018 included higher AB-452 manufacturing costs and ARB-1467 Phase 2 costs; 2019 spending included AB-506 clinical work and AB-729 preclinical studies.
- G&A increased following the former CEO’s June departure: the company recognized $2.2 million of non-cash stock-based compensation for accelerated option vesting and paid $2.3 million of cash severance in July 2019.
- Arbutus recorded $3.334 million of Q2 and $7.985 million of first-half equity-method losses from its approximately 40% investment in Genevant.
- In July 2019, Arbutus sold to OMERS a portion of its ONPATTRO royalty interest for $20 million gross, before advisory fees. OMERS retains the specified royalty entitlement until it receives $30 million in royalties, after which the sold entitlement reverts to Arbutus. Arbutus retained a separate, lower Acuitas-related royalty interest.
- The company issued 1.208 million shares under its $50 million ATM authorization in the first half, for approximately $5.2 million gross proceeds. Its Series A preferred shares accrue an 8.75% compounded annual coupon and are subject to mandatory conversion in October 2021, subject to specified exceptions.
Outlook, pipeline, and risks
- Management expected AB-506 Phase 1a/1b final results in the first half of 2020, AB-729 preliminary safety and efficacy data in Q1 2020, and potential AB-506/AB-729 combination trials in the second half of 2020, subject to clinical progress.
- Preliminary AB-506 results showed HBV DNA reductions, but four chronic-HBV subjects experienced Grade 4 ALT flares and two experienced Grade 2 flares. The Grade 4 cases returned to baseline; the company was still investigating the nature of the events. No serious adverse events were reported.
- AB-452 clinical advancement remained paused pending repeat 90-day preclinical safety studies in two species. Management expected a go/no-go decision in early 2020 and was advancing backup compounds.
- Arbutus faces substantial clinical, regulatory, and financing uncertainty. Management stated that further funding would be needed to continue active pipeline development; if adequate financing is unavailable, programs could be delayed, reduced, or eliminated.
- UBC arbitration remained unresolved. UBC’s updated claim sought $10.9 million in alleged unpaid royalties, plus interest; a decision on the second phase was expected in Q3 2019. Arbutus disputed the claims and recorded no estimated loss because likelihood and amount were uncertain.
- Site consolidation and restructuring costs were estimated at approximately $4.9 million in total, with $4.7 million incurred by June 30, 2019.
Important facts for investors to verify
- Subsequent ONPATTRO royalty-sale terms, net proceeds, and the timing and conditions for royalty reversion from OMERS.
- AB-506 ALT flare follow-up, additional-cohort results, and the implications for trial design and safety.
- AB-729 clinical data and whether the planned combination-trial timeline remains achievable.
- AB-452 repeat safety-study findings and the resulting development decision.
- UBC arbitration decisions, potential exposure including interest and costs, and any subsequent accounting updates.
- Cash burn, the stated runway into the second half of 2020, and future financing or dilution, including ATM share issuance and preferred-share conversion.