Assembly Biosciences, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Assembly is a clinical-stage biotechnology company developing oral therapies for chronic hepatitis B (HBV) and microbiome-related disorders. It had no approved products and no product-sales revenue. Unless otherwise stated, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Collaboration revenue | $4.1 million | $3.9 million |
| Research and development expense | $23.0 million | $22.7 million |
| General and administrative expense | $8.7 million | $9.5 million |
| Operating loss | $27.7 million | $28.3 million |
| Net loss | $26.7 million | $27.1 million |
| Basic and diluted loss per share | $0.76 | $1.05 |
| Net cash used in operating activities | $25.2 million | $23.9 million |
| Cash and cash equivalents | $42.3 million | $46.7 million at Dec. 31, 2019 |
| Marketable securities | $206.8 million | $227.3 million at Dec. 31, 2019 |
| Total assets / total liabilities | $313.3 million / $61.5 million | $339.9 million / $66.7 million at Dec. 31, 2019 |
Revenue increased 5%, driven by higher reimbursement activity under the Allergan collaboration. R&D expense rose about 2%; G&A expense fell about 8%. Net loss narrowed modestly, while operating cash use increased. The company reported no product gross margin; a product-sales margin is not meaningful at this development stage.
Cash, cash equivalents and marketable securities totaled approximately $249.1 million at quarter-end, down from $274.0 million at year-end. Marketable securities were short-term, with contractual maturities under one year. The filing reports no borrowings or other financial debt; operating lease liabilities were $11.8 million. Management said available resources were expected to fund operations for at least 12 months after issuance of the statements. The company reported an accumulated deficit of $466.1 million.
Investing activities provided $20.7 million, largely from marketable-security maturities and sales, rather than operating earnings. Financing activities provided $0.1 million from stock-option exercises. The company also disclosed $34.5 million of unrecognized stock-based compensation expected to be recognized over a weighted-average 1.8 years.
Material developments and outlook
- HBV: The lead candidate ABI-H0731 continued in an open-label extension study. The company planned to begin transitioning patients off treatment later in 2020 to assess sustained virologic response; stopping criteria had been discussed with investigators and agreed with the FDA. It expected additional study data at the digital EASL meeting in August 2020.
- Other HBV candidates: ABI-H2158 Phase 1b dose-ranging data were expected at EASL, and the company expected to start a Phase 2 study using a 300 mg dose in Q2 2020. ABI-H3733 began Phase 1 in Q1, but enrollment was delayed by New Zealand’s shutdown of non-COVID clinical studies. Management did not expect that delay to significantly affect its development timeline.
- Microbiome: Enrollment in the ABI-M201 Phase 1b ulcerative-colitis study was delayed by COVID-related site limitations; the company expected enrollment to resume in mid-2020. Study drug delivery and telehealth or home-health visits were used for some participants unable to attend clinics.
- COVID-19: The company said its operations had not been significantly affected as of the filing, but identified trial delays, supply interruptions, higher study costs, and reduced access to capital as risks. It reported shipping delays or shortages of protective equipment, while maintaining critical laboratory work with modified schedules and procedures.
- Funding and collaboration: Management expected expenses to rise as development continued and stated that additional funding would be needed over time. No external funding source was committed. The December 2019 equity and pre-funded-warrant offering generated $134.7 million in net proceeds. The Allergan agreement provides potential development and commercial milestones and royalties, but these are contingent; milestone consideration was excluded from the transaction price because achievement was uncertain. AbbVie’s planned acquisition of Allergan was expected to close in May 2020, and the company said the effect on the collaboration was unknown.
Risks, contingencies and unusual items
- All candidates remained in early clinical or preclinical development; clinical failure, regulatory delay, or failure to achieve a cure response could prevent revenue generation.
- COVID-19 could further delay enrollment, disrupt trial sites, CROs or suppliers, affect data quality, and impair financing access. Management cautioned that the full impact was uncertain.
- The company depends on the Allergan collaboration for microbiome development and could lose expected funding or milestones if the agreement is terminated or unsuccessful.
- The company accrued $2.1 million of 2019 relocation-related restructuring costs; $1.6 million remained accrued at March 31, 2020 and was expected to be paid during 2020.
- Potential future financing may dilute existing shareholders or require unfavorable terms. The company had $21.4 million remaining under its ATM program at quarter-end.
- No material legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track actual cash and securities, quarterly operating cash use, and runway against management’s stated 12-month expectation.
- Verify the timing and results of H0731 treatment discontinuation and follow-up, H2158 Phase 2 initiation, and resumption of H3733 and M201 enrollment.
- Assess the Allergan collaboration’s continued scope and funding after the anticipated AbbVie acquisition, including whether any contingent milestones become achievable.
- Review share-count and dilution exposure, including the 2.4 million pre-funded warrants, outstanding equity awards, and the difference between period-end shares and weighted-average shares used for loss per share.
- Monitor further COVID-19 effects on clinical timelines, trial costs, laboratory supplies, and the company’s ability to raise capital.