Assembly Biosciences, Inc. — Q2 2017 Form 10-Q
Business context and period: Unaudited results cover the three and six months ended June 30, 2017; balance-sheet comparisons are with December 31, 2016. Assembly is a clinical-stage biotechnology company developing oral therapies for hepatitis B (HBV) and microbiome-related conditions. It had no approved products or product sales.
Financial results and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Collaboration revenue | $2.36 million | None | $3.04 million | None |
| Research and development | $12.13 million | $7.52 million | $22.70 million | $15.64 million |
| General and administrative | $3.80 million | $2.94 million | $7.84 million | $6.09 million |
| Net loss | $13.60 million | $10.15 million | $27.53 million | $21.14 million |
| Basic and diluted loss per share | $0.78 | $0.59 | $1.59 | $1.23 |
- Cash and cash equivalents were $39.45 million; marketable securities totaled $39.13 million. Combined, these liquid resources were about $78.59 million at June 30, versus $55.40 million at year-end 2016.
- Current assets were $77.67 million and current liabilities $11.99 million. Total liabilities were $66.24 million, including $48.07 million of deferred collaboration revenue and $11.18 million of deferred tax liabilities. The filing reports no debt balance.
- For the six months, operating activities provided $22.59 million, compared with $15.98 million used in 2016. The 2017 inflow was driven primarily by $48.07 million of deferred revenue from Allergan, not by profitable operations. Investing activities used $12.46 million, and financing activities provided $0.75 million from option exercises.
- Operating margins are not meaningful indicators for this development-stage company: collaboration revenue remained below operating expenses, and the company recorded operating losses.
Changes, outlook and material items
- Revenue began under the Allergan collaboration; $1.9 million of the six-month revenue was amortization of the $50 million upfront payment and $1.1 million was reimbursement of collaboration costs. The upfront payment is recognized over an estimated 10-year service period, with most remaining consideration recorded as deferred revenue.
- Six-month R&D expense rose about 45% year over year, reflecting increased spending in both Microbiome and HBV programs. G&A also increased. The six-month net loss widened about 30% year over year.
- ABI-H0731 completed Phase 1a and entered Phase 1b/2a in Q2 2017. ABI-M101 was in late nonclinical development; management planned to begin a Phase 1b trial in relapsed C. difficile patients in the second half of 2017.
- The Allergan agreement covers select microbiome gastrointestinal programs. In addition to the $50 million upfront payment, Assembly may receive up to approximately $630 million in development milestones and $2.15 billion in commercial development and sales milestones, plus tiered royalties. These amounts are contingent and not assured. The parties share up to $75 million of pre-proof-of-concept development costs, with Allergan responsible for post-proof-of-concept costs.
- Management expected existing cash, cash equivalents and marketable securities to fund operations and capital needs for at least 12 months. It also expected expenses to rise and stated additional funding would be needed for future operations; no committed external funding source exists. Failure to obtain financing or collaboration receipts could require spending reductions or program delays.
- Key risks include clinical, regulatory and manufacturing failure or delay; dependence on early-stage HBV and microbiome candidates and on the Allergan collaboration, which Allergan may terminate for convenience; need for future financing and potential dilution; and intellectual-property and third-party execution risks. The filing reports no material litigation, no off-balance-sheet arrangements, and effective disclosure controls.
Investor verification priorities
- Confirm the composition and timing of collaboration revenue and deferred-revenue recognition, and distinguish recurring collaboration funding from the one-time upfront payment.
- Track cash burn excluding the deferred-revenue working-capital benefit, and reassess runway against clinical-development spending and management’s stated 12-month estimate.
- Verify progress, enrollment, safety and results for ABI-H0731 and ABI-M101, including whether the planned ABI-M101 trial began on schedule.
- Review Allergan program progress, cost-sharing obligations, termination provisions, and whether any milestones are achieved; headline milestone totals are contingent on successful development and commercialization.
- Monitor financing needs, stock-based compensation and potential dilution; 4.84 million options were outstanding at June 30, 2017.