Assembly Biosciences, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Unaudited results. Assembly is a pre-revenue biotechnology company developing oral therapies for hepatitis B (HBV) and microbiome-related conditions, including ABI-M101 for C. difficile infection. Its programs were in preclinical development; none of its current candidates had entered clinical testing.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development expense | $7.52 million | $4.67 million | $15.64 million | $8.50 million |
| General and administrative expense | $2.94 million | $2.49 million | $6.09 million | $5.85 million |
| Operating loss | $10.45 million | $7.15 million | $21.73 million | $14.36 million |
| Net loss | $10.15 million | $6.94 million | $21.14 million | $14.09 million |
| Basic and diluted loss per share | $0.59 | $0.41 | $1.23 | $0.99 |
At June 30, cash and cash equivalents were $20.34 million and marketable securities totaled $54.37 million, for $74.71 million in combined cash and investments. Current assets were $64.10 million against current liabilities of $5.04 million. Total liabilities were $16.64 million, including $11.60 million of deferred tax liabilities; the filing reports no borrowings or debt balance. Stockholders’ equity was $100.56 million. Profit margins are not meaningful because the company had no product revenue and incurred operating losses.
Operating cash use was $15.98 million in the first half, compared with $8.06 million in the prior-year period. Investing activities provided $9.21 million, primarily reflecting $17.17 million of marketable-security redemptions, partly offset by purchases. Financing activities provided no cash, versus $81.31 million in the first half of 2015, which included an equity offering. Cash and cash equivalents declined $6.77 million during the first half of 2016.
Changes versus the prior comparable period
- First-half R&D expense rose 84% year over year; management attributed the increase mainly to higher HBV and microbiome program research costs. R&D excluding stock-based compensation rose 133% to approximately $14.1 million.
- First-half G&A expense rose modestly to $6.09 million; excluding stock-based compensation, it increased approximately 50%, reflecting professional costs, new employees, and tax expenses.
- First-half net loss increased approximately 50%, while operating cash use nearly doubled. Stock-based compensation fell to $2.98 million from $5.21 million in the prior-year half.
- Marketable securities had $344,502 of realized losses in the first half. Unrealized losses were $886,870 at June 30; management considered them temporary and said it had the ability and intent to hold the securities until recovery or maturity.
Outlook, commentary, and risks
- Management expected existing cash, cash equivalents, and marketable securities to fund operating and capital needs for at least 12 months from the balance-sheet date. A risk-factor disclosure separately stated that resources were expected to last into the fourth quarter of 2017; these runway statements should be reconciled.
- The company expects expenses and losses to increase as it advances research, preclinical work, and future clinical trials. It has no committed external funding and expects to seek additional capital through equity, debt, collaborations, licensing, or other arrangements. Financing may be unavailable or dilutive; inability to raise funds could force delays, reductions, or termination of development programs.
- Key risks include early-stage development and regulatory failure, safety or efficacy problems, clinical or manufacturing delays, reliance on third-party researchers and manufacturers, competition, and dependence on intellectual-property licenses. Potential future HBV license milestone payments totaled $825,000 at June 30, 2016; royalties and annual diligence fees may also apply.
- The company disclosed no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the stated cash runway: “at least twelve months” versus “into the fourth quarter of 2017.”
- Track quarterly cash burn, investment maturities, and any realized or unrealized securities losses against the $74.71 million cash-and-investment balance.
- Verify development progress and whether either program advances from preclinical work into clinical testing; both current candidates remained preclinical at quarter-end.
- Assess the timing and terms of required future financing, including potential dilution, and monitor license obligations and milestone payments.