Assembly Biosciences, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Assembly is a clinical-stage biotechnology company developing therapies for chronic hepatitis B (HBV) and microbiome-related diseases. It had no approved products and no product-sale revenue; reported revenue came from its Allergan collaboration.
Financial performance and position
| Metric | Q3 2019 / September 30, 2019 | Comparable period / prior year-end |
|---|---|---|
| Collaboration revenue | $4.2 million for the quarter; $11.2 million for nine months | $4.3 million and $11.1 million, respectively, in 2018 |
| Net loss | $25.0 million for the quarter; $70.6 million for nine months | $21.5 million and $64.6 million in 2018 |
| Operating expenses | $30.2 million for the quarter; $85.2 million for nine months | $26.9 million and $77.5 million in 2018 |
| Operating cash used | $63.5 million for nine months | $48.2 million in 2018 |
| Cash, cash equivalents and marketable securities | $156.9 million | $218.1 million at December 31, 2018 |
| Total assets / stockholders’ equity | $223.3 million / $156.5 million | $268.0 million / $210.7 million at December 31, 2018 |
- Quarterly loss per share was $0.96, compared with $0.87 in Q3 2018. Nine-month loss per share was $2.74 versus $2.95; the 2019 weighted-average share count was higher.
- Nine-month research and development expense rose to $63.1 million from $51.5 million, primarily from higher HBV program spending and microbiome development activity. General and administrative expense fell to $22.1 million from $26.0 million, largely reflecting lower stock-based compensation, including forfeiture-related reversals.
- There is no meaningful product gross margin or operating margin to report given the company’s development-stage operations and lack of product sales.
- No borrowings are listed on the balance sheet. Operating lease liabilities were $13.0 million, including $3.2 million short-term. Current assets were $165.3 million versus current liabilities of $21.5 million.
Changes, outlook and material items
- Cash and marketable securities declined by $61.2 million from year-end. Operating cash use increased year over year; 2019 financing cash flow was $2.2 million, compared with $159.2 million in 2018, which included a $155.4 million public offering.
- Management said existing cash, cash equivalents and marketable securities were expected to fund operations for at least 12 months after issuance of the statements. It expects continued substantial losses and says additional financing will be needed to achieve longer-term objectives; no funding source is committed.
- Management expected final Study 201 and Study 202 data and interim Study 211 results for ABI-H0731 in Q4 2019; interim Phase 1b data for ABI-H2158 in Q4 2019; a Phase 2a study of ABI-H2158 in 2020; and initiation of ABI-H3733 Phase 1a studies in Q1 2020. These are forward-looking expectations, not reported outcomes.
- ABI-M201 for ulcerative colitis entered Phase 1b, with first-patient dosing initiated in June 2019. The company also continued development of multiple HBV core inhibitors.
- Allergan collaboration revenue was broadly stable. The agreement offers up to approximately $631 million in development milestones and $2.14 billion in commercial milestones, plus royalties, but milestone consideration was constrained and not included in the transaction price as of September 30, 2019. Allergan may terminate for convenience on 120 days’ notice.
- Development services under the Allergan agreement were estimated to extend through 2025, versus 2024 previously; the change did not materially affect revenue recognition. In June 2019, Allergan and AbbVie announced a proposed acquisition of Allergan, expected at the time to close in early 2020; Assembly said the impact on the collaboration was unknown.
- Adoption of the lease accounting standard resulted in recognition of right-of-use assets and lease liabilities of $13.8 million and $14.0 million, respectively, at January 1, 2019, with no impact on earnings or cash flows.
- CEO Derek Small resigned effective August 6, 2019; John McHutchison became CEO and president. The filing reports no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls.
Key risks and investor verification
- Clinical and regulatory risk remains high: candidates are in early clinical or preclinical development, and early efficacy or safety findings may not predict later results or approval.
- Verify actual cash runway and future financing needs against clinical spending and operating cash burn; further equity or debt financing may dilute shareholders or impose restrictive terms.
- Verify subsequent clinical results and whether the stated study timelines were met, particularly for ABI-H0731, ABI-H2158, ABI-H3733 and ABI-M201.
- Verify the status and continuity of the Allergan collaboration following the announced AbbVie transaction, including reimbursements, research cost sharing, termination risk and any milestone eligibility.
- Assess increasing R&D costs, the company’s reliance on external manufacturing and clinical partners, and its ability to protect and maintain licensed intellectual property.
- Review share dilution exposure: 6.16 million potentially dilutive securities were excluded from diluted loss per share because they were antidilutive; common shares outstanding were 25.87 million at quarter-end.