Arbutus Biopharma Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The company is a clinical-stage biopharmaceutical developer focused on hepatitis B (HBV) and coronavirus therapeutics. Financial amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $14.2 million | $2.3 million | $26.8 million | $4.4 million |
| Operating expenses | $28.4 million | $21.0 million | $51.9 million | $38.8 million |
| Loss from operations | $14.1 million | $18.6 million | $25.1 million | $34.3 million |
| Net loss | $14.2 million | $19.4 million | $30.0 million | $35.8 million |
| Basic and diluted loss per share | $0.10 | $0.23 | $0.20 | $0.44 |
- Revenue growth primarily reflected recognition of Qilu license revenue as the company performed technology-transfer and manufacturing obligations. Qilu accounted for $11.0 million, or 77% of Q2 revenue, and $20.7 million, or 77% of first-half revenue. Revenue also included ONPATTRO royalties and Acuitas license revenue.
- R&D expense rose to $22.9 million in Q2 and $41.4 million for the first half, mainly reflecting AB-729 Phase 2a trials and early-stage programs AB-101 and AB-161. G&A expense was $5.2 million in Q2 and $10.1 million for the first half.
- Cash, cash equivalents and marketable securities totaled $200.6 million at June 30, 2022, versus $191.0 million at year-end 2021. Cash and cash equivalents alone were $47.3 million, down from $109.3 million, as funds were shifted into marketable securities. The company reported no outstanding debt.
- First-half operating cash flow was positive $0.3 million, compared with negative $31.9 million a year earlier. The result benefited from $27.8 million of net deferred license revenue and Qilu-related cash receipts; management said operations used $43.7 million of cash, partly offset by those inflows. Investing cash outflow was $73.9 million, primarily purchases of marketable securities; financing cash inflow was $11.6 million.
- Current assets were $157.8 million and current liabilities $29.8 million. Deferred license revenue was $27.8 million net of a contract asset. No conventional profit margin was reported; the company remained loss-making.
Material changes and business developments
- Qilu paid a $40 million upfront license fee and made a $15 million equity investment in January 2022. The license covers AB-729 commercialization in China, Hong Kong, Macau and Taiwan; Qilu may pay up to $245 million in milestones, net of withholding taxes, plus tiered royalties described as double-digit percentages into the low twenties. The company recognized $20.7 million of cumulative collaboration revenue in the first half and had $27.8 million of net deferred license revenue at quarter-end.
- Operating expenses increased 34% year over year in the first half, while revenue increased substantially due mainly to Qilu. The first-half net loss narrowed, but included $4.4 million of income tax expense for Chinese withholding taxes paid by Qilu on the upfront fee.
- AB-729 remained in multiple Phase 2a combination studies. The company reported preliminary follow-up in five patients who stopped AB-729 and standard-of-care therapy: no relapse was observed during 8–24 weeks of follow-up, but the small group and limited duration do not establish a functional cure.
- AB-836 showed antiviral activity in a Phase 1 trial, but Grade 3 and Grade 4 ALT elevations occurred in two patients receiving 200 mg. The company planned an additional Phase 1 healthy-volunteer trial before further dosing of HBV patients.
- Assembly announced it would discontinue development of vebicorvir; Arbutus planned to continue dosing the combination-trial participants to assess results. Arbutus terminated its Antios collaboration after most patients in the relevant cohort, enrolled in Ukraine, were lost to follow-up.
Outlook, risks and unusual items
- Management estimated 2022 net cash burn of $90–$95 million and said available cash, cash equivalents and investments should fund operations into Q2 2024. These are forward-looking estimates, not a guarantee.
- Management anticipated preliminary data from certain AB-729 trials and completion of IND-enabling studies for AB-101 and AB-161 in the second half of 2022, and expected to nominate a coronavirus protease-inhibitor candidate in that period.
- Clinical timelines and costs face risks from the war in Ukraine, which disrupted trials and caused loss of follow-up for the Antios cohort; the company intends to use alternative sites. COVID-19-related supply-chain and enrollment disruptions may also affect development.
- Patent-related litigation is ongoing: Arbutus and Genevant seek damages from Moderna over alleged use of LNP patents in its COVID-19 vaccine; Acuitas seeks declarations concerning non-infringement and patent validity related to COMIRNATY. Outcomes and any recoveries are uncertain.
- On July 11, 2022, after quarter-end, an arbitrator fully dismissed UBC’s claim for $2.0 million plus interest related to the royalty sale to OMERS; Arbutus said no payment was owed and it intended to seek recovery of costs and attorneys’ fees.
- Arbutus sold part of its ONPATTRO royalty stream to OMERS. The related liability was $14.2 million at quarter-end; OMERS retains the sold royalty entitlement until it receives $30 million, after which the entitlement reverts to Arbutus. This liability is not reported as outstanding debt.
Key facts for investors to verify
- Whether Qilu-related revenue recognition and deferred revenue continue in line with the company’s manufacturing and technology-transfer performance.
- Whether the AB-836 ALT findings indicate a safety concern and how they affect trial timing or development plans.
- Progress, enrollment, safety and data quality in AB-729 trials, including the effects of the Ukraine disruption and Assembly’s decision to discontinue vebicorvir.
- Actual cash burn versus the $90–$95 million 2022 estimate, and whether the stated runway into Q2 2024 remains supported by spending and development plans.
- Developments and potential costs or recoveries in the Moderna, Acuitas and UBC matters, and the timing of any OMERS royalty reversion.