Assembly Biosciences, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The unaudited statements cover a clinical-stage biotechnology company with no approved products and no product-sale revenue. Its programs target hepatitis B virus (HBV) and microbiome-related disorders.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $3.2m | $2.4m | $6.8m | $3.0m |
| Research and development expense | $17.8m | $12.1m | $32.4m | $22.7m |
| General and administrative expense | $12.5m | $3.8m | $18.2m | $7.8m |
| Operating loss | $27.2m | $13.6m | $43.8m | $27.5m |
| Net loss | $26.8m | $13.6m | $43.1m | $27.5m |
| Basic and diluted loss per share | $1.30 | $0.78 | $2.11 | $1.59 |
Revenue came from the Allergan collaboration: amortization of its upfront payment and reimbursement of eligible expenses. The company reported no product sales. Profit margins are not meaningful given the company’s operating losses and pre-commercial status.
Cash, liquidity and capital
- At June 30, cash and cash equivalents were $54.2m and marketable securities were $40.7m, totaling $94.9m, down from $123.3m at December 31, 2017.
- Operating activities used $31.5m in the first six months of 2018, compared with $22.6m provided in the prior-year period. The 2017 inflow included $48.1m of deferred revenue associated with the Allergan collaboration.
- Investing activities provided $0.4m and financing activities provided $3.3m in the first half of 2018. Financing mainly reflected stock-option exercises.
- Total liabilities were $53.3m, including $43.6m of deferred revenue. The balance sheet lists no borrowings or other debt.
- Management said June 30 resources were expected to fund operations for at least 12 months. After quarter-end, the company raised approximately $155.4m net through a July offering of 4.0m shares and full exercise of the underwriters’ 0.6m-share option.
Material changes and unusual items
- Compared with Q2 2017, quarterly revenue rose about 36%, while operating expenses increased about 91% and net loss nearly doubled. Higher research spending reflected increased HBV program activity; management also cited increased microbiome spending in the first half.
- Stock-based compensation was $11.6m in Q2 and $15.7m for the first half, compared with $2.0m and $3.2m, respectively, a year earlier. The increase in quarterly G&A stock compensation included a $4.3m one-time expense related to a former officer’s departure and transition to consultant, as well as compensation grants and employee incentive programs.
- Shareholders approved increasing authorized common shares from 50m to 100m and a new 2018 stock incentive plan reserving 1.9m shares. The post-quarter offering further increased the share count.
Outlook, programs and risks
- HBV: The company reported interim Phase 1 results for ABI-H0731 showing dose-dependent antiviral activity. At 300 mg, the mean viral-load decline was at least 2.8 log10 IU/mL. Across Phase 1a/1b studies, treatment was generally well tolerated; one Grade 3 rash at 400 mg resolved after treatment discontinuation. Results were interim, and final Phase 1 results were expected later in 2018.
- Two Phase 2a combination studies of ABI-H0731 began in July 2018, using a 300 mg dose. ABI-H2158 was in IND-enabling studies, with a Phase 1a trial expected in Q4 2018 if studies and regulatory clearance allowed. The company anticipated selecting a third HBV candidate in 2018.
- Microbiome: ABI-M201 for ulcerative colitis and ABI-M301 for Crohn’s disease were being optimized toward potential IND-supporting studies. The Allergan agreement provides for shared costs through proof-of-concept, with Allergan responsible for post-POC development costs. Potential milestone payments and royalties are contingent on development and commercial success and were not included in the revenue transaction price because achievement was uncertain.
- The company expected expenses to rise as development and clinical activity continued and said substantial additional funding would be needed. It cautioned that financing may not be available on acceptable terms; a shortfall could require delaying, reducing or stopping programs. Equity financing may dilute shareholders.
- Key risks include early-stage clinical and preclinical uncertainty, regulatory and safety setbacks, manufacturing and trial execution, reliance on Allergan and other third parties, and the ability to protect intellectual property. The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls.
- After quarter-end, the company entered a South San Francisco sublease through December 2023, subject to required consents and permits, with rent expected to begin upon delivery. It also disclosed that Chief Development Officer Thomas E. Rollins would depart effective August 22, 2018.
Most important facts to verify
- Whether the July offering’s approximately $155.4m net proceeds and added shares materially extend the operating runway, and how management’s cash-use expectations have changed.
- Final ABI-H0731 Phase 1 results and the enrollment, safety, and efficacy progress of the two Phase 2a studies.
- Timing and results of ABI-H2158 IND-enabling work and the anticipated third HBV candidate selection.
- Allergan collaboration progress, reimbursement receipts, proof-of-concept spending, and any milestone eligibility; potential milestone totals are not guaranteed revenue.
- Ongoing stock-based compensation expense and the costs and obligations associated with the new laboratory sublease.