Assembly Biosciences, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Assembly is a clinical-stage biotechnology company developing oral therapies for chronic hepatitis B (HBV) and microbiome-related conditions. It has no approved products and has generated no product-sales revenue.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $39.4 million | $3.1 million | $43.5 million | $7.0 million |
| Research and development | $23.3 million | $18.7 million | $46.4 million | $41.4 million |
| General and administrative | $9.5 million | $4.1 million | $18.2 million | $13.6 million |
| Operating income (loss) | $6.6 million | $(19.7) million | $(21.1) million | $(48.0) million |
| Net income (loss) | $7.3 million | $(18.5) million | $(19.4) million | $(45.6) million |
| Net cash used in operating activities | Not separately stated | Not separately stated | $48.3 million | $44.9 million |
- Q2 revenue included a $36.0 million recognition of previously deferred Allergan collaboration revenue after AbbVie gave notice of termination. The resulting quarterly profit is therefore not a clear indicator of recurring operating performance.
- At June 30, cash and cash equivalents were $96.7 million and marketable securities were $130.0 million. Current assets were $235.1 million and current liabilities were $17.3 million. Total liabilities were $27.7 million; the filing reports no borrowings or debt.
- Six-month investing cash inflow of $97.2 million primarily reflected maturities and sales of marketable securities, rather than operating cash generation. Stock-based compensation was $12.1 million for the six-month period.
- Management said existing resources were expected to fund operations for at least 12 months following issuance of the statements. This outlook preceded the July collaboration payment described below.
Material changes and business developments
- AbbVie, which acquired Allergan in May 2020, elected to terminate the microbiome collaboration effective October 10, 2020. Reimbursements for certain research and development costs continue until termination; afterward, Assembly regains worldwide rights to the covered programs, including M201. Assembly is exploring strategic alternatives to continue those programs.
- On July 17, 2020, after quarter-end, Assembly entered a China collaboration with BeiGene for ABI-H0731, ABI-H2158 and ABI-H3733. Assembly received $40.0 million upfront and may receive up to approximately $500 million in development, regulatory and sales milestones, plus tiered royalties. BeiGene funds up to $45 million of development and regulatory costs in the territory; costs above that amount are shared equally.
- R&D expense increased year over year in both the quarter and first half, led by HBV program spending. G&A also increased; comparisons are affected by a $3.6 million stock-compensation reversal recorded in Q2 2019 following a former officer’s departure.
Outlook, risks and contingencies
- HBV pipeline updates: Assembly continued the ABI-H0731 extension study and began transitioning eligible patients off therapy to monitor sustained virologic response; it initiated a Phase 2 study of ABI-H2158 at 300 mg and continued Phase 1 testing of ABI-H3733. H2158 received FDA Fast Track designation. These are development updates, not evidence of approval or commercial efficacy.
- COVID-19 had not significantly disrupted operations or most clinical timelines as of the filing, but caused short enrollment delays for H3733 and microbiome candidate M201. Management noted potential risks to trial enrollment, supply chains, operations and access to capital.
- Assembly expects continued substantial losses and cash needs. If additional financing or collaboration revenue is unavailable on acceptable terms, it may need to delay, reduce or discontinue programs. No product revenue, profitability timetable or specific financial guidance was provided.
- Potential collaboration milestones and royalties are contingent on future development, regulatory approval and sales; the filing does not treat them as assured revenue. The BeiGene agreement permits termination in specified circumstances, including convenience on 90 days’ notice.
- The company reported no material legal proceedings, no material changes in contractual obligations, and no off-balance-sheet arrangements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the one-time Allergan deferred-revenue recognition is clearly distinguished from recurring collaboration revenue when assessing earnings and cash burn.
- The status and terms of the Allergan termination, including the transition of programs, expense reimbursements through October 10, 2020, and plans for M201 and other microbiome assets.
- Receipt and accounting treatment of BeiGene’s $40.0 million upfront payment, and the conditions, cost-sharing terms and termination provisions attached to future milestones and royalties.
- Clinical data and timelines for ABI-H0731 off-treatment follow-up, ABI-H2158 Phase 2 and ABI-H3733 Phase 1, alongside any COVID-19-related enrollment or operational changes.
- Cash use, financing needs and runway assumptions, including the impact of increased clinical spending and the absence of product-sales revenue.