Assembly Biosciences, Inc. — 2014 Form 10-K
Business context and period. This annual report covers the fiscal year ended December 31, 2014. Assembly Biosciences, formerly Ventrus Biosciences, changed its strategic focus after merging with Assembly Pharmaceuticals on July 11, 2014. The company is a pre-revenue biopharmaceutical business developing oral therapies for hepatitis B (HBV) and C. difficile-associated infections (CDAD). The filing reports full-year results, not a separate fourth-quarter financial statement.
Key financial results and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $23.96 million | $19.60 million |
| Operating loss | $23.96 million | $19.60 million |
| Net loss | $23.79 million | $19.40 million |
| Basic and diluted loss per share | $3.40 | $5.00 |
| Net cash used in operating activities | $14.97 million | $17.80 million |
| Cash at year-end | $29.09 million | $27.06 million |
| Total assets | $71.23 million | $27.13 million |
| Total liabilities | $12.65 million | $2.64 million |
| Stockholders’ equity | $58.57 million | $24.49 million |
Research and development expense was $10.72 million in 2014, versus $15.03 million in 2013; general and administrative expense was $13.24 million, versus $4.58 million. Interest income was $168,000 in 2014, and the company reported no interest expense. The filing does not report product revenue or product margins.
Operating cash use was offset by $16.73 million of financing cash flow, principally equity issuance; investing activities provided $277,000, including cash acquired in the merger. Current assets were $29.22 million against current liabilities of $1.05 million. The balance sheet shows no borrowings. Management expected existing cash, cash equivalents and marketable securities to fund operations through at least the second quarter of 2016, while warning that further financing would be required.
Material changes versus the prior period
- The merger brought in HBV assets and changed the company’s core business. It was accounted for as an acquisition, with $29.0 million of acquired in-process research and development and $12.7 million of goodwill recorded.
- Net loss increased by approximately $4.4 million. R&D expense declined as the company wound down its diltiazem program, but spending began on HBV and increased on the microbiome program. G&A rose substantially, principally due to increased stock-based compensation, merger-related costs, warrants issued for services, and management bonuses.
- Operating cash use declined year over year, while cash increased modestly following equity financing. The company received approximately $1.8 million from its at-the-market program and $15.0 million net from an October registered direct offering.
- In 2014 the company terminated its S.L.A. Pharma license for legacy diltiazem and phenylephrine programs, with no continuing payment obligation reported. It also effected a 1-for-5 reverse stock split.
Outlook, commentary and risks
- HBV: The company was developing core protein allosteric modulators (CpAMs), then in preclinical development. It planned to select first-generation leads in 2015–early 2016, begin clinical trials in 2016, and advance additional generations in 2016–2017. These are plans, not assured milestones.
- CDAD and delivery platform: The microbiome program aimed to deliver selected bacteria to the colon using the licensed Gemicel oral formulation. The company expected human imaging-study results in mid-2015 and estimated its first CDAD clinical trial could begin in the first half of 2016, with data in late 2016 or early 2017.
- Funding and execution: Both lead programs were preclinical and had not entered clinical trials. The company had no approved products, no product sales and no committed external funding source. Additional capital might be unavailable or require dilution, unfavorable debt terms, or partnering that gives up valuable rights.
- Development and commercial risks: Safety, efficacy, clinical benefit, delivery, manufacturing scale-up, regulatory approval, intellectual-property protection, reimbursement and market acceptance remained uncertain. The company relied on licensors, academic collaborators, CROs and third-party manufacturers.
- Licensing obligations: Potential future HBV milestone payments to Indiana University totaled $825,000 at year-end, in addition to diligence fees and royalties. The Therabiome agreement includes development milestones and low-to-mid-single-digit sales royalties; timing and amounts of contingent payments are uncertain.
- Unusual items and governance: Stock-based compensation was $10.64 million in 2014, a significant noncash expense. In February 2015, Derek Small became CEO and William Ringo became board chair; former CEO Russell Ellison was to receive severance benefits subject to the agreement’s conditions. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal control.
Important facts for investors to verify
- Confirm the company’s actual cash runway, subsequent financing needs and spending rate against the stated Q2 2016 runway estimate.
- Track whether HBV lead selection, IND-enabling work and clinical-start plans, and CDAD delivery validation and trial timing, were achieved.
- Review the full audited statements and notes for the merger purchase-price allocation, acquired IPR&D valuation, goodwill impairment assumptions and stock-based compensation. The filing’s MD&A and extracted statement line ordering differ on the presentation of 2013 expense categories; the figures summarized above follow the labeled MD&A discussion and reconcile to total expenses.
- Assess potential dilution from equity financing and outstanding options and warrants; the filing reported 3.52 million potentially dilutive securities at December 31, 2014.
- Monitor license milestones, royalty terms, patent protection, collaborator and manufacturing arrangements, and any developments in regulatory, clinical, litigation or financing risks.