Assembly Biosciences, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. The company is a clinical-stage biotechnology company developing oral therapies for hepatitis B virus (HBV) and microbiome-related conditions. It has no approved products and reported no product-sales revenue; revenue was from its Allergan collaboration.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $4.29m | $2.66m | $11.07m | $5.70m |
| Research and development expense | $19.11m | $10.93m | $51.49m | $33.63m |
| General and administrative expense | $7.75m | $4.18m | $25.99m | $12.02m |
| Net loss | $21.54m | $12.27m | $64.59m | $39.80m |
| Net loss per share, diluted | $0.87 | $0.71 | $2.95 | $2.30 |
- Margins: Gross margin is not meaningful for this development-stage company; no product sales were reported.
- Cash flow: Nine-month operating cash use was $48.23m, compared with $11.63m provided in 2017. Investing cash use was $73.24m; financing provided $159.19m. Cash and cash equivalents increased to $119.75m from $82.03m at year-end 2017.
- Liquidity: Cash, cash equivalents and marketable securities totaled $233.94m at September 30, 2018. Current assets were $239.87m and current liabilities $14.61m. Management said available funds should cover operating and capital needs for at least 12 months.
- Debt: No debt balance is presented on the balance sheet. Total liabilities were $53.54m, including deferred revenue, deferred taxes and accrued expenses.
- Other balance-sheet items: Total assets were $282.98m and stockholders’ equity $229.43m. Deferred revenue under the Allergan agreement was $41.92m in total.
Material changes versus prior period
- Q3 collaboration revenue rose about 61%; nine-month revenue rose about 94%, reflecting increased collaboration activity and expense reimbursements from Allergan.
- Nine-month operating expenses rose to $77.48m from $45.65m, driven by increased HBV and microbiome research spending and higher stock-based compensation. Nine-month stock-based compensation increased to $21.68m from $5.83m.
- Nine-month net loss widened to $64.59m from $39.80m; loss per share increased to $2.95 from $2.30.
- In July 2018, the company sold 4.6m shares at $36 per share, raising approximately $155.4m net. Shares outstanding increased to 25.46m at quarter-end from 20.14m at December 31, 2017.
- Marketable securities increased to $114.19m from $41.26m at year-end 2017. The company classified the securities as available-for-sale and said unrealized losses were temporary.
Outlook, commentary and risks
- HBV program: ABI-H0731 Phase 1 studies showed dose-dependent antiviral activity and was generally tolerated; one isolated Grade 3 rash resolved after treatment discontinuation. Two Phase 2a combination studies began in July 2018. Final Phase 1 results were expected at the November 2018 AASLD meeting. ABI-H2158 Phase 1a began in November 2018, after quarter-end, with initial data expected in mid-2019. ABI-H3733 remained in IND-enabling studies.
- Microbiome program: ABI-M201 for ulcerative colitis was in IND-enabling studies, with a Phase 1b trial expected in 2019 if studies and IND clearance permit. ABI-M301 is being developed for Crohn’s disease.
- Allergan collaboration: The company may receive up to approximately $630m in development milestones and $2.15bn in commercial milestones, plus tiered royalties. These contingent amounts were excluded from the transaction price because achievement was uncertain. Allergan may terminate for convenience with required notice; it assumes post-proof-of-concept development costs under the agreement.
- Management expects expenses to increase as research and clinical programs advance and says additional capital will be needed over time. No committed external funding source exists; equity or debt financing, partnerships or licensing may be required. Failure to obtain funding could force delays, reductions or termination of programs.
- Risks include clinical and regulatory failure or delay, manufacturing and enrollment constraints, reliance on Allergan and other third parties, competition, and intellectual-property and financing risks. The filing reports no material legal proceedings and no off-balance-sheet arrangements. Disclosure controls were considered effective.
- The company entered a South San Francisco office and laboratory sub-sublease through December 2023; base rent begins at approximately $226,000 per month, with operating costs and other charges additional. Equipment lease payments through termination total approximately $2.2m.
Important facts for investors to verify
- Progress, safety, enrollment and results for ABI-H0731 Phase 2a trials, and whether interim findings are confirmed in final data.
- Timing and outcomes of ABI-H2158 and ABI-M201 development milestones, including IND and trial plans.
- Actual cash burn and runway against management’s stated minimum 12-month estimate, given rising R&D and compensation costs.
- Allergan collaboration progress, reimbursement collections, cost-sharing obligations, and the probability and timing of any milestones or royalties.
- Future financing needs and potential dilution following the July 2018 offering, as well as the costs and obligations of the new facility lease.