Arbutus Biopharma Corp. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Financial statements are unaudited, prepared under U.S. GAAP, and reported in U.S. dollars. Arbutus is a development-stage biopharmaceutical company focused on hepatitis B (HBV) therapies and lipid nanoparticle (LNP) delivery technology.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $6.892 million | $0.774 million | $8.166 million | $1.686 million |
| Operating expenses | $19.789 million | $19.749 million | $58.847 million | $235.886 million |
| Operating loss | $12.897 million | $18.975 million | $50.681 million | $234.200 million |
| Net loss | $11.600 million | $19.595 million | $48.482 million | $165.469 million |
| Loss per share, basic and diluted | $0.21 | $0.37 | $0.89 | $3.15 |
| Cash used in operating activities | $15.680 million | $14.712 million | $38.298 million | $43.063 million |
- Q3 revenue was primarily Alexion-related: $6.859 million, including recognition of the remaining deferred portion of its non-refundable $7.5 million upfront payment after Alexion terminated the license. Nine-month Alexion revenue was $7.956 million. This revenue increase is not evidence of a continuing license relationship.
- Research and development expense was $15.537 million in Q3 and $44.854 million for nine months. General and administrative expense was $3.659 million and $12.586 million, respectively.
- The much lower 2017 nine-month operating expense and net loss versus 2016 chiefly reflect the absence of the $156.324 million intangible-asset impairment recorded in 2016. The 2016 net loss also included a $64.864 million income-tax benefit related to impairment. Lower 2017 G&A expense also reflected reduced non-cash compensation from founder share repurchase-right expirations; the final tranche expired in Q3 2017.
- At September 30, cash and cash equivalents were $15.225 million; short-term investments were $72.954 million and restricted investments were $12.601 million, for total cash, cash equivalents, and investments of $100.780 million. The comparable total at December 31, 2016 was $143.160 million.
- Total liabilities were $72.454 million, including a $12.001 million loan payable, $8.235 million in current liabilities, and $10.211 million of contingent consideration. Contractual obligations totaled $20.4 million, including $12.0 million of loan payments and $8.4 million of facility leases.
The filing does not present a conventional gross-margin measure. Operating losses remained substantial relative to revenue, consistent with the company’s research and development focus.
Material changes, outlook, and risks
- Operating cash use for the first nine months was $38.298 million, versus $43.063 million in 2016; management attributed the improvement largely to the Alexion license payment. Investing activities provided $27.116 million, principally from investment maturities, partly offset by capital spending for the new U.S. facility. Cash and cash equivalents declined by $8.188 million over the nine months.
- Subsequent to quarter-end, Roivant agreed to invest $116.4 million through Series A participating convertible preferred shares. The initial $50.0 million closed October 16, 2017; the remaining $66.4 million was expected to close by year-end, subject to customary conditions, including applicable regulatory and shareholder approvals. The shares are non-voting and mandatorily convertible October 16, 2021; assuming conversion, the filing estimated 62,089,834 common shares outstanding as of October 31, 2017. Management believed existing resources were sufficient to fund operations for at least 12 months, while noting substantial additional funding would be needed for continued pipeline development.
- Pipeline plans included a 30-week Phase II triple-combination study of ARB-1467, tenofovir, and pegylated interferon, with interim results expected in the second half of 2018 and final results in 2019; an AB-423 Phase II study in HBV patients expected to begin in Q1 2018; and potential 2018 IND filings for AB-506 and AB-452. These are forward-looking plans, not achieved milestones.
- Alnylam reported that its Phase III patisiran study met its primary and secondary endpoints and planned regulatory filings. Arbutus may receive escalating single-digit royalties on commercialized LNP-enabled products; timing and amounts depend on partner development and commercialization.
- Arbutus entered an LNP license agreement with Gritstone in October 2017. Potential consideration includes upfront, milestone, and royalty payments, as well as reimbursement for specified support; the filing does not provide a clear value for the potential payments.
- Material disputes include UBC arbitration over alleged unpaid royalties and related patent rights, and litigation with Acuitas over a cross-license agreement. Arbutus disputes the claims; no loss estimate was recorded for the UBC matter because likelihood and amount were uncertain. The Acuitas sublicensing injunction was extended to March 2, 2018, with contractual issues scheduled for trial beginning February 19, 2018.
- The company reported no new impairment indicators at September 30 and recorded no 2017 impairment. A material weakness identified in the 2016 annual impairment-review controls remained under evaluation; management did not perform a quantitative impairment calculation during Q3 2017.
- Management cited risks including clinical and regulatory uncertainty, dependence on future financing and partners, potential delays or manufacturing issues, intellectual-property disputes, and foreign-exchange fluctuations. The filing gives no conventional financial earnings guidance.
Important facts for investors to verify
- Whether and when the remaining $66.4 million Roivant investment closed, and the resulting preferred-share conversion and dilution terms.
- How much reported revenue depended on the one-time recognition following Alexion’s termination, and what recurring collaboration or royalty revenue remains.
- Cash burn, investment balances, and whether management’s stated 12-month runway remains valid as development spending and financing evolve.
- Clinical-trial progress and results for ARB-1467 and AB-423, and the timing and outcomes of planned AB-506 and AB-452 development steps.
- Developments in the UBC and Acuitas proceedings, including potential financial or licensing effects not quantified in the filing.
- Progress in remediating the impairment-review control weakness and any later impairment assessments.