ASSEMBLY BIOSCIENCES, INC. annual report, FY2015

Business context and reporting period

Assembly Biosciences, Inc. filed this Form 10-K for the fiscal year ended December 31, 2015 (filed March 11, 2016). The clinical-stage biotechnology company had no approved products or product sales and operated as one segment. Its programs were HBV antivirals based on core protein allosteric modulators (CpAMs) and an oral microbiome platform, with AB-M101 targeting recurrent C. difficile infection (CDI).

Financial performance and position

Gross margin is not applicable because the company had no product revenue. Cash and cash equivalents were $27.11 million; marketable securities totaled $63.95 million, of which $40.56 million were current. Total current assets were $68.37 million versus current liabilities of $3.40 million. Total liabilities were $15.00 million, including an $11.60 million deferred tax liability; the balance sheet reports no debt. Stockholders’ equity was $118.74 million, and accumulated deficit was $163.97 million.

Net cash provided by financing was $81.57 million, primarily from the 2015 public offering and option exercises. Investing activities used $64.86 million, mainly reflecting purchases of marketable securities. Cash and cash equivalents decreased by $1.98 million. Available-for-sale securities had an unrealized loss of $0.82 million recorded in comprehensive loss and a realized loss of $0.03 million in earnings. No impairment of goodwill or indefinite-lived intangible assets was recorded.

Material changes versus the prior comparable period

• R&D expense rose 71.3%, mainly as HBV and microbiome development expanded; management reported HBV R&D spending of $10.81 million and microbiome spending of $4.30 million.
• G&A expense declined 14.7%, primarily because of lower stock-based compensation, partly offset by higher compensation, severance, professional fees and corporate taxes.
• Net loss increased by $4.67 million. Higher interest income, at $1.23 million versus $0.17 million, partly offset the higher operating loss.
• Cash and marketable securities increased substantially in aggregate following the 2015 equity offering, which raised approximately $81.0 million net. Shares outstanding rose to 17,225,662 at year-end from 10,672,059 a year earlier.

Outlook, management commentary, risks and unusual items

Management expected significant ongoing losses and higher R&D and G&A spending as programs advanced. It said resources were expected to fund operations for at least 12 months; elsewhere, the risk discussion estimated runway into the fourth quarter of 2017. The company had no committed external funding source and may need additional capital, collaborations or licensing arrangements; financing could dilute shareholders or require concessions on program rights.

• Management planned to complete HBV preclinical work in 2016, begin first-lead HBV clinical trials in the second half of 2016, and advance later-generation CpAMs toward clinical development in 2017.
• For AB-M101, management planned to complete IND-enabling studies in 2016 and initiate a Phase Ib study in the second half of 2016, initially in patients with recurrent CDI. These were plans, not reported clinical outcomes.
• Both programs remained preclinical. Key risks include failure to demonstrate safety or efficacy in humans, regulatory or enrollment delays, manufacturing and scale-up challenges, competition, and dependence on third-party researchers and manufacturers.
• Program rights depend on licenses. Potential future HBV milestones to IURTC totaled $825,000 at year-end; the Therabiome agreement also includes development milestones and royalties.
• The company reported effective disclosure controls and internal control over financial reporting; Ernst & Young issued an unqualified opinion on the 2015 financial statements and internal controls.

Most important facts for investors to verify

• Reconcile the reported cash runway with the cash, marketable securities, operating burn and forecast clinical-development costs.
• Track whether IND-enabling work and the planned 2016 HBV and AB-M101 clinical starts occurred on schedule, and review subsequent safety and efficacy data.
• Assess the timing and terms of any further financing, including potential dilution and use of the effective $150 million shelf registration.
• Verify manufacturing feasibility, regulatory progress and continued rights under the IURTC and Therabiome licenses.
• Monitor future R&D spending, operating cash use, and the valuation assumptions supporting goodwill and acquired in-process R&D.