Assembly Biosciences, Inc. — Q1 2015 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2015. Assembly is a development-stage biopharmaceutical company pursuing oral therapies for hepatitis B (HBV) and C. difficile-associated diarrhea (CDAD). It reported no product revenue; its candidates are not approved for sale. The 2014 comparison is not fully comparable because it excludes Assembly Pharmaceuticals, acquired in July 2014.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $3.83 million | $2.97 million |
| General and administrative expense | $3.37 million | $1.14 million |
| Net loss | $7.14 million | $4.07 million |
| Net loss per share, basic and diluted | $0.64 | $0.92 |
| Net cash used in operating activities | $3.67 million | $5.19 million |
Cash was $96.05 million at March 31, 2015, up from $29.09 million at December 31, 2014. Total assets were $138.35 million and total liabilities were $13.73 million, including $11.60 million of deferred tax liabilities. The balance sheet lists no borrowings. Net cash used in investing activities was $30,711; financing activities provided $70.67 million, primarily from the March equity offering. No operating margin is meaningful because the company had no revenue. Accumulated deficit was $142.66 million.
Material changes versus the prior comparable period
- Net loss increased by about $3.08 million. R&D expense rose overall, although R&D excluding stock compensation declined 6.7% to $2.78 million, partly because the VEN 307 clinical trial ended.
- G&A expense increased substantially: excluding stock compensation it rose 109.5%, primarily due to $491,170 of former-CEO severance, employee benefits and bonuses, and higher professional and consulting costs. Stock-based compensation also rose materially across both functions.
- On March 19, the company sold 5,555,555 shares at $13.50 per share, receiving approximately $70.5 million net. The underwriters exercised their full option after quarter-end; the April 6 closing added approximately $10.6 million net, bringing total offering proceeds to approximately $81.1 million.
Outlook, management commentary, risks and unusual items
Management expects substantial operating losses for at least several years and increasing R&D spending as preclinical and clinical work advances. It believes cash on hand at March 31 will fund operating and capital requirements for at least 12 months, but says estimates depend on assumptions and additional funding will be needed to continue and complete development. No future financing commitments were in place; financing may be unavailable or dilutive, and insufficient funds could delay, reduce or end programs or require the company to cede rights.
Key risks include development and regulatory uncertainty, market acceptance, hiring and retention, intellectual-property rights and costs, and possible impairment of acquired assets. The company reported no pending or threatened legal proceedings, no material change to previously disclosed risk factors, and no off-balance-sheet arrangements. Management reported disclosure controls were effective and no material first-quarter change in internal controls.
In February, Derek Small became CEO while retaining the president role; William Ringo became non-executive chairman, and David J. Barrett added COO responsibilities to his CFO role. Former CEO Russell Ellison continued as a director through the 2015 annual meeting and as senior advisor and head of the microbiome program. His transition triggered severance and option-vesting provisions; $491,170 was accrued for severance.
Important facts for investors to verify
- Confirm the company’s cash runway assumptions against planned development spending and the timing and cost of preclinical and clinical milestones.
- Review the risks and valuation assumptions for the acquired $29.0 million indefinite-lived intangible asset and $12.74 million goodwill; impairment testing is annual or triggered by indicators.
- Check dilution from the March offering, the April underwriters’ option exercise, and outstanding options and warrants.
- Reconcile financing cash flow: the cash-flow statement reports $70.67 million, while the MD&A states $70.677 million; the filing text does not explain this discrepancy.
- Note that 17,177,106 common shares were outstanding as of May 5, 2015, after the quarter-end offering-option exercise.