Assembly Biosciences, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The unaudited financial statements are presented under U.S. GAAP. Assembly is a clinical-stage biotechnology company developing oral therapies for hepatitis B (HBV) and microbiome-related disorders; it reported no product sales and has no approved products.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 or comparison |
|---|---|---|
| Collaboration revenue | $3.57 million | $0.68 million |
| Research and development expense | $14.54 million | $10.57 million |
| General and administrative expense | $5.70 million | $4.04 million |
| Operating loss | $16.67 million | $13.93 million |
| Net loss | $16.25 million | $13.93 million |
| Net loss per share, basic and diluted | $0.80 | $0.81 |
| Net cash used in operating activities | $15.50 million | Net cash provided: $34.94 million |
Revenue consisted of deferred upfront-payment amortization and expense reimbursements under the Allergan collaboration. The increase reflected greater collaboration activity and related reimbursements. The company reported no gross margin measure; with no product sales, operating margins are not a meaningful product-economics indicator.
At March 31, 2018, cash and cash equivalents were $66.93 million and marketable securities were $42.23 million, totaling $109.16 million. Current assets were $113.23 million and current liabilities $12.18 million. Total liabilities were $53.64 million, including $44.48 million of deferred revenue; the filing reports no interest-bearing debt balance. Management said existing cash, cash equivalents and marketable securities were expected to fund operations and capital expenditures for at least 12 months.
Cash declined by $15.11 million during the quarter. Operating cash use was $15.50 million; investing activities used $1.10 million, and option exercises provided $1.49 million. Q1 2017 operating cash inflow was primarily driven by the Allergan upfront payment reflected in deferred revenue, so the year-over-year cash-flow comparison is not a like-for-like indicator of underlying burn. Accumulated deficit was $267.28 million at quarter-end.
Material changes and business developments
- R&D expense increased about 37% year over year, driven by higher HBV and microbiome program spending; G&A expense also increased. Stock-based compensation rose to $4.08 million from $1.22 million, contributing materially to expenses.
- Collaboration revenue increased to $3.57 million from $0.68 million. The company adopted ASC 606 on January 1, 2018 using the modified retrospective approach; it reported no impact on accounting for the Allergan agreement.
- Common shares outstanding increased to 20,386,736 from 20,137,974 at December 31, 2017, primarily reflecting option exercises. Potentially dilutive securities were excluded from diluted loss per share because they were anti-dilutive.
Outlook, management commentary and risks
- HBV: Management reported interim Phase 1a/1b ABI-H0731 results showing dose-dependent antiviral activity. Across 62 patients and volunteers treated for 14–28 days, the drug was generally well tolerated; one Grade 3 rash led to treatment discontinuation and resolved without further intervention. Two Phase 2a combination studies were expected to begin in mid-2018, with initial results anticipated in the first half of 2019. ABI-H2158 was in IND-enabling studies, with a Phase 1a trial expected in Q4 2018 subject to successful completion and IND clearance.
- Microbiome: The company was optimizing ABI-M201 for ulcerative colitis and ABI-M301 for Crohn’s disease toward potential IND-supporting studies. The filing describes this platform and its delivery approach as unproven in patients and at commercial scale.
- Allergan collaboration: Assembly received a $50 million upfront payment in 2017 and may receive up to approximately $630 million in development milestones and $2.15 billion in commercial-development and sales milestones, plus tiered royalties. These contingent amounts were not included in the transaction price because achievement was uncertain. The parties share eligible pre-proof-of-concept costs up to $75 million; Allergan assumes post-proof-of-concept costs. Allergan may terminate for convenience with 90 or 120 days’ notice, depending on trial timing.
- Management expected expenses to rise with research, development and clinical activity and stated that additional funding would be needed over time. There was no committed external funding source; inability to raise capital or obtain collaboration funding could force spending reductions, program delays or discontinuations. Management’s stated runway is an estimate, not a guarantee.
- Key risks include clinical and regulatory failure or delay, dependence on Allergan and other collaborators, manufacturing and enrollment challenges, competition, intellectual-property and licensing exposure, and potential dilution from future financing. The company reported no material legal proceedings and no off-balance-sheet arrangements. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Cash, marketable securities, quarterly operating cash burn and management’s at-least-12-month runway estimate against subsequent spending and financing activity.
- Progress, full results and safety data from ABI-H0731 studies, and whether Phase 2a starts and reported timelines were achieved.
- Progress of ABI-H2158 toward IND clearance and of ABI-M201/ABI-M301 toward clinical development.
- Allergan collaboration activity, reimbursement collections, cost-sharing obligations, termination rights and the uncertain nature of milestone and royalty potential.
- Share-based compensation and potential dilution: 4.83 million options and 251,559 restricted stock units were outstanding at March 31, 2018.