Business context and reporting period
Arbutus Biopharma Corporation’s Form 10-K covers the fiscal year ended December 31, 2017; Q4 results are also summarized. The clinical-stage biotechnology company is focused on developing combination treatments intended to cure chronic hepatitis B (HBV). It also licenses lipid nanoparticle (LNP) delivery technology and may earn royalties and milestone payments from partners. It had no commercial HBV product revenue.
Financial performance and liquidity
Amounts are in U.S. dollars. The company remained loss-making, and its results were materially affected by non-cash impairment and stock-compensation items.
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $10.7 million | $1.5 million |
| Operating expenses | $121.6 million | $493.1 million |
| Operating loss | $110.9 million | $491.6 million |
| Net loss | $84.4 million | $384.2 million |
| Basic and diluted loss per common share | $1.56 | $7.24 |
| Research and development expense | $62.7 million | $61.3 million |
| Cash used in operating activities | $48.6 million | $57.9 million |
Q4 2017 revenue was $2.5 million and net loss was $35.9 million ($0.67 per share). The quarter included a $40.8 million impairment charge for discontinued STING agonist assets and a related $16.9 million tax benefit. Q4 2016 net loss was $218.7 million, substantially affected by impairment charges.
At year-end, cash and cash equivalents were $54.3 million, short-term investments $72.1 million, and restricted investment $12.6 million, totaling $139.0 million. Cash, cash equivalents and short-term investments available before accounts payable were $126.4 million. The company received another $66.4 million from Roivant in January 2018 and cited pro forma liquidity of $205.4 million including that tranche. Management said resources were sufficient for at least 12 months.
Total liabilities were $54.7 million, including a $12.0 million Wells Fargo loan due December 2019, secured by $12.6 million of restricted investment. No operating margin is presented; the company has no marketed HBV products and incurred operating losses. Revenue is collaboration, licensing, milestone and royalty-based.
Material changes versus the prior comparable period
- Revenue increased to $10.7 million from $1.5 million, principally reflecting $8.0 million recognized under the Alexion agreement and $2.5 million under the Gritstone agreement. Alexion terminated its agreement in 2017; the non-refundable upfront payment was recognized, including remaining deferred revenue.
- Net loss narrowed to $84.4 million from $384.2 million. The prior year included $253.2 million of intangible-asset impairment and $138.2 million of goodwill impairment. In 2017, the company recorded a $40.8 million impairment tied to discontinuing STING agonists; no goodwill impairment was recorded.
- R&D expense was broadly stable at $62.7 million versus $61.3 million. G&A declined to $16.1 million from $39.4 million, largely as merger-related repurchase-right compensation expense fell and ended after the final rights expired in Q3 2017.
- Cash used in operations decreased to $48.6 million from $57.9 million, while year-end cash and cash equivalents rose to $54.3 million from $23.4 million. The 2017 cash position also reflected investment maturities and $48.9 million net proceeds from the first Roivant preferred-share tranche.
Outlook, management commentary, risks and unusual items
- Management expected interim on-treatment results from the ARB-1467 triple-combination Phase II study in the second half of 2018 and final results in 2019. The planned study combines ARB-1467, tenofovir and, for qualifying responders, pegylated interferon.
- The company planned, subject to successful enabling studies, an IND/CTA filing for AB-506 in mid-2018 and for AB-452 in 2018. It also expected to nominate a GalNAc-delivered HBV RNAi clinical candidate in early 2018. These were forward-looking plans, not established outcomes.
- Arbutus discontinued ARB-1740 after it did not show a significant potency advantage over ARB-1467, and discontinued its STING agonist program, triggering the impairment charge.
- In February 2018, the company announced consolidation around Warminster, Pennsylvania, including closure of its Burnaby site and estimated restructuring costs of $5.0 million, primarily payable in Q2 2018. The filing describes the workforce reduction as approximately 31% in several places but 35% elsewhere. LNP technology staff were expected to remain intact.
- Arbutus received $50.0 million from Roivant in October 2017 and $66.4 million in January 2018 through non-voting preferred shares. The shares carry an 8.75% annual compounded return and mandatory conversion in October 2021; conversion would materially dilute existing common shareholders. The filing gives differing conversion-share estimates in different sections.
- The company entered an exclusive negotiating period with Roivant to discuss joint development of LNP and GalNAc technologies; no transaction was assured. It also settled contractual issues with Acuitas in February 2018, ending Acuitas’ rights to use or sublicense Arbutus LNP technology, while specified Moderna sublicenses survived. Damages claims were excluded from that settlement.
- UBC arbitration remained unresolved: UBC alleges at least $3.5 million in unpaid royalties plus an unspecified amount, interest and costs. No loss estimate was recorded; the next phase had not been scheduled.
- Key risks include clinical and regulatory failure, continued operating losses and need for future capital, reliance on partners and licensing income, intellectual-property disputes, competition, and execution risks from restructuring. The company reported an accumulated deficit of $738.1 million and did not expect sustained profitability in the foreseeable future.
Most important facts an investor should verify
- Current cash runway and spending after the January 2018 Roivant financing, including actual restructuring costs and savings.
- Clinical progress, safety and efficacy data, enrollment, and timing for ARB-1467 and planned filings or trials for AB-506 and AB-452.
- Exact preferred-share conversion mechanics, share count and resulting dilution; the filing reports different underlying common-share estimates.
- Whether the Roivant technology collaboration was completed and whether Gritstone, Alnylam or Spectrum milestones and royalties materialized.
- Outcome and potential financial exposure of the remaining UBC arbitration, and any unresolved Acuitas damages claims.
- The workforce reduction percentage and implementation status, given the filing’s inconsistent 31% and 35% disclosures.