Arbutus Biopharma Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Amounts are in U.S. dollars. Arbutus is a clinical-stage biopharmaceutical company focused on developing therapies for chronic hepatitis B (HBV); it reported no product sales and continued to depend on collaborations, licensing and financing to support research and development.
Financial results and position
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $0.6 million | $4.7 million |
| Operating expenses | $20.6 million | $22.7 million |
| Operating loss | $20.0 million | $18.0 million |
| Net loss | $15.9 million | $12.0 million |
| Basic and diluted loss per share | $0.31 | $0.40 |
| Cash used in operating activities | $11.5 million | $17.8 million |
- At March 31, cash and cash equivalents were $144.8 million; short- and long-term investments totaled $37.9 million, for combined cash and investments of approximately $182.7 million.
- Total assets were $703.3 million and total liabilities were $165.2 million. The filing does not report borrowings or a material debt balance.
- Management said available resources were sufficient for at least the next 12 months, while noting that substantial additional funds will be needed to advance the pipeline.
- No gross margin is presented; reported revenue is primarily collaboration, licensing, milestone and royalty income.
Material changes versus Q1 2015
- Revenue fell by $4.1 million, mainly because the Department of Defense Ebola contract had ended; Q1 2015 included $3.0 million of DoD revenue. Q1 2016 revenue included $255,000 from Acuitas, $213,000 of Dicerna licensing revenue and $28,000 of Marqibo royalties.
- Operating expenses declined $2.1 million, principally because Q1 2015 included $9.3 million of merger-related acquisition costs. This was partly offset by higher R&D expense ($13.1 million versus $10.6 million) and G&A expense ($7.2 million versus $2.7 million).
- Higher R&D and G&A included $4.8 million of incremental non-cash compensation related to the expiry of repurchase rights on merger consideration shares. Despite lower total expenses, the loss from operations and net loss increased, reflecting sharply lower revenue.
- Other income included $2.9 million of foreign-exchange gains and a $1.0 million gain from Monsanto’s purchase of PADCo. The company changed its functional currency from the Canadian dollar to the U.S. dollar effective January 1, 2016.
- Operating cash outflow decreased from $17.8 million to $11.5 million. Investing activities used $13.6 million, largely to acquire short-term investments; financing activities provided $0.1 million.
Outlook, risks and unusual items
- Management planned to report ARB-1467 Phase II single- and multiple-dose HBsAg reduction data in the second half of 2016. It also planned second-half 2016 IND or equivalent filings for ARB-1740, a lead cccDNA formation inhibitor and AB-423, and planned to begin clinical development of ARB-1598 in 2016. These are forward-looking plans, not assured outcomes.
- The company expects to pursue HBV combination therapies and evaluate treatment regimens and durations. Management identified regulatory, clinical, financing, manufacturing, competition, partner-performance, intellectual-property and foreign-exchange risks.
- A subsequent event disclosed that departures of two shareholders with merger-related shares would accelerate vesting and trigger an estimated $14.0 million incremental compensation expense in Q2 2016.
- UBC arbitration seeks $3.5 million in alleged unpaid royalties, plus an unspecified amount, interest and costs. Arbutus disputes the claims and has recorded no loss estimate because the likelihood and amount are uncertain. The separate Alnylam arbitration concluded with no milestone payment to Arbutus.
- Arbutus recorded $7.7 million of contingent consideration tied to acquired HBV programs. The related agreement provides for potential payments of up to $21 million; the first triggering event was not expected within the next 12 months.
- Monsanto exercised its option to acquire PADCo for $1.0 million, obtaining exclusive agricultural-use rights to Arbutus delivery technology. This ends that option arrangement as a source of future activity-based revenue.
Most important facts for investors to verify
- Whether planned clinical data, IND filings and program starts occurred on the stated timelines, and what the results showed.
- Cash burn and investment levels against management’s stated minimum 12-month funding outlook, including prospective financing needs.
- The timing and accounting effect of the expected $14.0 million Q2 2016 compensation charge and any further merger-related share compensation.
- Progress and potential exposure in the UBC arbitration, and whether any loss becomes estimable or probable.
- Future collaboration, licensing and royalty receipts after the DoD contract ended and Monsanto exercised its PADCo option.