Arbutus Biopharma Corp. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited U.S. GAAP statements. Arbutus is a clinical-stage biopharmaceutical company focused on developing combination treatments intended to cure chronic hepatitis B (HBV).
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Revenue | $0.7 million | $1.4 million |
| Operating expenses | $19.8 million | $19.8 million |
| Operating loss | $19.1 million | $18.4 million |
| Net loss | $23.3 million | $17.4 million |
| Net loss attributable to common shares; loss per share | $26.0 million; $0.47 | $19.8 million; $0.36 |
| Cash used in operating activities | $16.6 million | $20.0 million |
- Revenue primarily reflected Onpattro royalties, Marqibo royalties and Gritstone services. Revenue fell $0.8 million year over year as the prior-year quarter included Gritstone license-fee revenue.
- Research and development expense rose $0.8 million to $14.7 million as programs advanced; general and administrative expense rose $0.7 million, primarily due to non-cash stock compensation. Site-consolidation expense declined to $0.1 million from $1.6 million.
- Net loss worsened mainly because Arbutus recorded a $4.7 million equity-method loss on Genevant. Q1 2019 also had a $0.1 million increase in contingent-consideration fair value, compared with a $0.8 million decrease in Q1 2018.
- At March 31, cash and cash equivalents were $84.0 million and short-term investments were $26.6 million, totaling $110.6 million, versus $124.6 million at December 31, 2018. Management said these resources were expected to fund operations into 2020 and for at least the next 12 months.
- There was no outstanding debt. Operating lease liabilities totaled $3.9 million; the filing does not present a conventional gross-margin measure.
- Investing activities provided $61.0 million, principally as short-term investments matured. Financing provided $2.5 million, including approximately $2.7 million gross proceeds from sale of 614,401 shares under the $50 million sale agreement.
Material changes, outlook and risks
- Pipeline: AB-506 was in a Phase 1a/1b trial; interim top-line results were expected in July 2019, with a Phase 2a dose-finding and long-term-safety trial planned for late in the second half of 2019. Arbutus expected to consider AB-506 with AB-729 and an approved nucleos(t)ide analogue in combination trials in 2020.
- AB-729: After quarter-end, on May 3, 2019, a regulator requested completion of ongoing three- and six-month toxicology studies before the planned Phase 1a/1b trial could begin. Trial initiation was delayed; the company said it would explore ways to accelerate it.
- AB-452: Following nonclinical safety findings and confounding study observations, Arbutus planned to repeat a 90-day preclinical safety study in two species before a go/no-go decision, expected in early 2020. It aimed to nominate a backup RNA destabilizer candidate by year-end 2019.
- Funding and dilution: Management anticipated substantial additional funding would eventually be needed. The company may use equity or debt financing, partnerships, grants or asset monetization; financing may not be available on acceptable terms. Preferred shares accrue an 8.75% annual compounded coupon and are subject to mandatory conversion in October 2021; conversion could result in approximately 23 million common shares, based on the stated terms.
- Contingencies: In its UBC arbitration, the claimant increased its alleged unpaid-royalty claim to $10.9 million plus interest. A decision on the second phase was expected in the second half of 2019. Arbutus disputed the allegations and had not accrued a loss because likelihood and amount could not be estimated.
- The 2018 site consolidation was substantially complete; estimated total costs were approximately $5.3 million, of which $4.9 million had been incurred by March 31, 2019. Management reported effective disclosure controls and no material change in risk factors from the 2018 Form 10-K.
Important facts for investors to verify
- Whether AB-506 results and the planned Phase 2a trial timing met management’s stated expectations.
- The revised start date and regulatory requirements for AB-729, and results of the repeat AB-452 safety study.
- Cash burn, royalty receipts from Onpattro, and whether the stated runway remains adequate as development spending changes.
- The outcome and any financial impact of the UBC arbitration, including the $10.9 million claim plus interest.
- Potential dilution from the share-sale facility and mandatory preferred-share conversion, and the scale of Genevant-related losses.