Assembly Biosciences, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Unaudited interim financial statements. Assembly is a development-stage biopharmaceutical company pursuing oral therapies for hepatitis B (HBV) and C. difficile-associated diarrhea (CDAD); it had no product revenue.
Key financial metrics
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $4.67 million | $1.10 million | $8.50 million | $4.07 million |
| General and administrative expense | $2.49 million | $1.41 million | $5.85 million | $2.55 million |
| Net loss | $6.94 million | $2.47 million | $14.09 million | $6.54 million |
| Net loss per share, basic and diluted | $0.41 | $0.52 | $0.99 | $1.43 |
| Operating cash used | Not separately stated | Not separately stated | $8.06 million | $7.51 million |
At June 30, 2015, cash and cash equivalents were $53.52 million and marketable securities totaled $48.65 million, for combined cash and securities of approximately $102.16 million. Total assets were $144.71 million; total liabilities were $13.84 million, including $11.60 million of deferred tax liabilities. The filing reports no borrowings or debt balance. Stockholders’ equity was $130.87 million. No profit or operating margins are meaningful because the company had no revenue and incurred operating losses.
During the first half, investing activities used $48.83 million, primarily to purchase marketable securities; financing activities provided $81.31 million, mainly from the stock offering. Stock-based compensation was $5.21 million for the six months.
Material changes versus comparable periods
- Q2 net loss increased from $2.47 million to $6.94 million year over year; six-month net loss increased from $6.54 million to $14.09 million.
- R&D expense rose substantially, primarily reflecting the HBV program launched in July 2014. For the first half, the company also cited increased microbiome study costs, partly offset by the 2014 termination of the VEN 307 study.
- G&A expense increased, including higher employee-related, consulting, legal and accounting costs. Higher stock-based compensation contributed to both R&D and G&A increases.
- Cash and securities increased following a March 2015 public offering and full exercise of the underwriters’ option. The offering raised approximately $81.0 million net and issued 6,388,888 shares. Shares outstanding rose from 10,672,059 at December 31, 2014 to 17,189,906 at June 30, 2015.
Outlook, risks and unusual items
- Management expected existing cash and cash equivalents to cover operating and capital requirements for at least 12 months from June 30, 2015. The company expected substantial losses for several years and said it would need additional funding to continue and complete product development.
- No future external funding commitments were in place. Additional capital may be unavailable or unacceptable in terms; equity financing could dilute shareholders, while debt could add fixed obligations and restrictive covenants. Funding shortfalls could delay, reduce or end programs, or require the company to relinquish product rights.
- Key uncertainties include preclinical and clinical development, regulatory approval, market acceptance, intellectual property, hiring and capital requirements. The filing identifies no material change to previously disclosed risk factors.
- In February 2015, Derek Small became CEO and William Ringo became non-executive chairman; former CEO Russell Ellison continued as a senior adviser and head of the microbiome program. Ellison’s departure triggered contractual severance and accelerated vesting of some options; $363,039 was accrued for severance at June 30.
- Available-for-sale securities had a $134,219 unrealized loss recorded in other comprehensive loss. The company reported no impairment of goodwill or intangible assets, no pending or threatened legal proceedings, and no material changes in internal control. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether cash burn and development spending remain consistent with management’s at-least-12-month liquidity estimate, and when additional capital may be required.
- Progress, timelines and funding needs for the HBV and microbiome programs, including clinical and regulatory milestones.
- Potential shareholder dilution from future financing and outstanding options and warrants; the filing reported 3,176,519 options and 56,776 warrants outstanding at June 30, 2015.
- Whether the unrealized securities loss, acquired in-process R&D and goodwill or intangible asset values change materially in future periods.