Arbutus Biopharma Corp. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Financial amounts are in U.S. dollars. Arbutus is a clinical-stage biopharmaceutical company focused on developing combination therapies for chronic hepatitis B (HBV).
Financial performance and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $1.6 million | $6.9 million | $4.3 million | $8.2 million |
| Operating expenses | $34.0 million | $19.8 million | $77.1 million | $58.8 million |
| Operating loss | $32.4 million | $12.9 million | $72.9 million | $50.7 million |
| Net loss | $24.5 million | $11.6 million | $38.8 million | $48.5 million |
| Net loss attributable to common shares | $27.0 million | $11.6 million | $46.3 million | $48.5 million |
| Loss per common share, basic and diluted | $0.49 | $0.21 | $0.84 | $0.89 |
- Revenue primarily reflected Gritstone license and service revenue and a $1.25 million share of a milestone payment. No revenue was recognized from Alexion in 2018; its agreement had been terminated in 2017.
- R&D expense was $16.6 million for Q3 and $46.9 million for the first nine months, reflecting increased program development spending. The filing does not provide a meaningful gross-margin measure.
- Cash used in operating activities was $13.2 million in Q3 and $50.8 million for the first nine months, compared with $15.7 million and $38.3 million, respectively, in 2017.
- At September 30, cash and cash equivalents were $21.9 million and short-term investments were $120.1 million, totaling $142.0 million. Current assets were $144.0 million and current liabilities $12.7 million. The Wells Fargo loan was repaid in March 2018; no loan payable remained at quarter-end.
- Management stated that available cash resources were expected to fund operations for at least the next 12 months, while noting that substantial additional funding will be needed for continued pipeline development.
Material changes and unusual items
- Revenue declined year over year, principally because the 2017 comparative period included revenue recognized under the terminated Alexion agreement.
- Q3 operating expenses included a $14.8 million non-cash impairment of AB-423-related intangible assets, partially offset by a $4.3 million income tax benefit. Arbutus indefinitely deferred further AB-423 development as it advanced the second-generation capsid candidate AB-506.
- For the first nine months, other income included a $24.9 million non-cash gain from the Genevant transaction and a $6.3 million decrease in the fair value of contingent consideration. Q3 also included a $5.6 million contingent-consideration fair-value decrease and a $2.8 million equity-method loss on Genevant.
- Arbutus contributed delivery-platform rights and assets to Genevant, launched with Roivant, and held approximately 40% of Genevant at quarter-end. Arbutus retained HBV platform rights and its full royalty entitlement on Onpattro, as well as a tiered royalty on eligible Genevant products.
- The company completed a restructuring that reduced its global workforce by approximately 35% and closed its Burnaby facility. It estimated total site-consolidation costs of approximately $5.0 million and had subleased about 80% of the available facility space by quarter-end.
- Arbutus issued the remaining $66.4 million tranche of Series A preferred shares to Roivant in January 2018. The preferred shares carry an 8.75% annual compounded coupon and are subject to mandatory conversion in 2021 under stated terms; $7.4 million of coupon was accrued in the first nine months.
Outlook, risks and contingencies
- AB-506 entered the HBV-patient portion of its Phase 1a/1b trial in October 2018; topline results were expected in Q2 2019. AB-729 was expected to enter clinical trials in Q2 2019, subject to successful enabling studies, with a possible AB-506/AB-729 combination trial in the first half of 2020.
- Arbutus continued its 30-week ARB-1467 combination trial, but did not plan to develop the program beyond that trial. In October 2018 it reported emerging nonclinical safety findings for AB-452, said more evaluation was needed, and continued work on backup compounds.
- Onpattro was approved by the FDA and EMA in Q3 2018. Arbutus retained rights to low-to-mid-single-digit royalties that increase with sales, but the timing and amount of potential payments were uncertain.
- The UBC arbitration remained unresolved. A second phase was scheduled for February 2019; the company disputed the claims and had not recorded an estimated possible loss because the likelihood and amount were uncertain.
- Funding, clinical and regulatory outcomes, partner performance, foreign-exchange movements, intellectual-property disputes, and the ability to obtain additional capital are material risks. The filing reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Cash burn, investment maturities, and whether the stated minimum 12-month cash runway remains achievable as R&D programs advance.
- AB-506 and AB-729 trial progress and results, and the implications of AB-452’s nonclinical safety findings.
- Potential Onpattro and Gritstone payments, and the amount and timing of any Genevant-related royalties or proceeds.
- The outcome and potential financial exposure of the UBC arbitration, for which no loss estimate was recorded.
- Preferred-share coupon accrual, conversion terms, and resulting potential dilution to common shareholders.