Assembly Biosciences, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. The company is a clinical-stage biotechnology business developing therapies for chronic hepatitis B and microbiome-related diseases. It has no approved products and has not generated product-sales revenue; collaboration revenue is its only reported revenue.
Financial performance and position
Amounts below are in millions of dollars, except per-share amounts.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Collaboration revenue | $3.08 | $3.22 | $6.97 | $6.78 |
| Research and development expense | $18.70 | $17.84 | $41.41 | $32.38 |
| General and administrative expense | $4.08 | $12.54 | $13.60 | $18.24 |
| Operating loss | $(19.70) | $(27.17) | $(48.04) | $(43.84) |
| Net loss | $(18.50) | $(26.81) | $(45.56) | $(43.06) |
| Net loss per share, basic and diluted | $(0.72) | $(1.30) | $(1.77) | $(2.11) |
| Cash used in operating activities | — | $(44.94) | $(31.55) |
- At June 30, 2019, cash and cash equivalents were $34.26 million and marketable securities were $139.55 million, totaling $173.81 million in cash and short-term investments. Current assets were $183.46 million and current liabilities were $19.94 million.
- Total liabilities were $66.80 million, including $12.89 million of operating lease liabilities and $39.66 million of deferred revenue. No borrowings or debt balance are reported in the presented balance sheet.
- Stockholders’ equity was $174.71 million; accumulated deficit was $387.34 million. The company reported no product gross margin; margin measures are not meaningful for its current collaboration-funded, development-stage operations.
Material changes versus prior comparable periods
- Six-month R&D expense rose $9.02 million, principally from higher microbiome program spending, increased headcount, and the launch of the ABI-M201 Phase 1b study; HBV program spending also increased.
- Six-month net loss increased $2.50 million and operating cash use increased $13.40 million year over year. Management attributed operating cash use primarily to research and development spending and working-capital changes.
- Q2 G&A expense fell substantially year over year. The 2019 quarter included a $3.6 million reversal of previously recognized stock-based compensation after a former officer’s departure; 2018 included a $4.3 million one-time expense related to a former officer’s departure and transition to consultant. These items also affected the comparability of reported losses.
- Cash and marketable securities decreased from $218.08 million at December 31, 2018 to $173.81 million at June 30, 2019. Investing cash inflow primarily reflected maturities and sales of securities, rather than operating cash generation.
- The company adopted the lease accounting standard in January 2019, recognizing $13.8 million of right-of-use assets and $14.0 million of lease liabilities at adoption. It reported $12.7 million of right-of-use assets and $12.9 million of lease liabilities at quarter-end.
Outlook, management commentary, and risks
- Management stated that existing cash, cash equivalents, and marketable securities should fund operations and capital expenditures for at least the next 12 months. The company expects substantial future losses and says additional funding will be required; no committed external funding source is identified. Financing may dilute shareholders or require less favorable strategic arrangements.
- Management expects 48-week interim data from the ABI-H0731 Study 211 in Q4 2019, ABI-H2158 Phase 1b data by Q1 2020, and to initiate ABI-H3733 Phase 1a studies in Q1 2020. ABI-M201 dosing in its Phase 1b ulcerative colitis study began in June 2019.
- Management described interim ABI-H0731 combination-study results as showing rapid antiviral activity and generally favorable tolerability. These are preliminary clinical findings; final efficacy and safety outcomes remain uncertain. ABI-H2158 Phase 1a was reported as generally well tolerated in healthy volunteers.
- Allergan collaboration revenue was $7.0 million for the first half, compared with $6.8 million a year earlier. The estimated completion of development services was extended from 2024 to 2025, with no material effect on recognized revenue reported. Potential development and commercial milestones are contingent and not included in the transaction price because they remain constrained.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, no approved products or product revenue, dependence on Allergan and the possibility it may terminate for convenience on 120 days’ notice, and the need for additional capital. The filing reports no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether upcoming clinical data meet the stated timelines and confirm preliminary efficacy and safety findings.
- Whether cash burn remains consistent with the stated minimum 12-month runway, given first-half operating cash use of $44.94 million and expected continued spending.
- Whether additional financing or collaboration funding will be needed, and its potential terms and dilution.
- Progress under the Allergan agreement, including reimbursement levels, development costs, milestone conditions, and any termination or program changes.
- The underlying comparability of expenses and losses after the former-officer stock-compensation reversal and prior-year one-time expense.