Business context and reporting period
The supplied filing is Tekmira Pharmaceuticals Corporation’s audited Form 20-F for the fiscal year ended December 31, 2012—not a filing under the name Arbutus Biopharma Corp. The filing reports in Canadian dollars (C$), unless stated otherwise, and uses U.S. GAAP. Tekmira focused on RNA interference therapeutics and lipid nanoparticle (LNP) delivery technology; it had no products approved for sale at year-end. The Q4 figures below are unaudited quarterly results within the annual filing.
Financial results and liquidity
| Metric (C$ millions, except per-share data) | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | 14.1 | 16.6 |
| Expenses | 27.0 | 27.2 |
| Operating loss | (12.9) | (10.5) |
| Net income (loss) | 29.8 | (9.9) |
| Basic / diluted earnings (loss) per share | 2.17 / 2.08 | (0.88) / (0.88) |
| Cash and cash equivalents at year-end | 46.8 | 9.2 |
| Total assets | 52.3 | 14.0 |
| Total liabilities | 11.6 | 8.7 |
Revenue fell about 15% year over year, primarily as Alnylam manufacturing/collaboration revenue ended under the replacement licensing arrangement. U.S. Government contract revenue was C$11.5 million, approximately 82% of 2012 revenue. Tekmira reported no product-sales revenue; commercial gross margin is therefore not meaningful in this period.
Net income was driven by the Alnylam settlement and licensing payment: C$65.0 million received, less C$18.6 million in contingent legal fees. The company also recorded a C$3.8 million loss from the increase in fair value of warrant liabilities. Excluding these unusual settlement-related items and other non-operating items, the filing reports a C$12.9 million operating loss.
Operating activities provided C$33.1 million of cash in 2012, versus C$7.7 million used in 2011; the settlement materially contributed to the 2012 cash improvement. Investing activities used C$0.01 million and financing activities provided C$4.5 million. Current assets were C$51.0 million against current liabilities of C$10.9 million. Tekmira had no drawn debt at year-end: its US$3.0 million Silicon Valley Bank facility expired undrawn. It did not pay dividends.
Q4 2012 revenue was C$3.9 million, expenses C$9.8 million, other income C$44.2 million and net income C$38.3 million, compared with Q4 2011 revenue of C$3.7 million and a net loss of C$1.8 million. The Q4 profit reflects the settlement payment; it was not evidence of recurring operating profitability.
Material changes versus the prior comparable period
- Revenue declined from C$16.6 million to C$14.1 million as prior Alnylam manufacturing revenue ceased; government contract revenue remained roughly stable at C$11.5 million.
- Operating loss widened to C$12.9 million from C$10.5 million despite lower research and development expense; general and administrative expense increased, including litigation costs and bonuses.
- Reported net results swung from a C$9.9 million loss to C$29.8 million income, principally due to the one-time Alnylam settlement/licensing payment, net of legal fees.
- Cash and cash equivalents rose to C$46.8 million from C$9.2 million. Shares outstanding increased to 14.3 million from 12.1 million, reflecting equity financing and exercises.
Outlook, management commentary and risks
Management forecast 2013 revenue of C$20–25 million, research, development, collaborations and contracts expense of C$24–29 million, and general and administrative expense of C$3–5 million. It expected year-end cash and short-term investments above C$35 million and stated that available funds plus anticipated partner and government receipts should fund development into 2015. The forecast included US$10 million of expected Alnylam milestones; timing and receipt were uncertain.
- Management expected TKM-PLK1 to enter Phase 2 trials in 2013, completion and FDA submission of revised TKM-Ebola formulation work in the second half of 2013, and nomination of another product candidate in 2013. These were plans, not assured outcomes.
- The TKM-Ebola DoD contract provides up to US$34.7 million for its initial phase; a possible extension could bring total program funding to US$140 million. The DoD can cancel or suspend funding. A temporary stop-work order issued in August 2012 was lifted in October; a contract modification request remained under negotiation.
- The Alnylam settlement ended litigation and replaced prior agreements. Tekmira received specified LNP-related patents and rights, obtained licenses for RNAi products against selected gene targets, and retained development and commercialization rights to TKM-PLK1. A separate AlCana cross-license agreement was still expected; C$1.5 million was accrued pending execution.
- Key risks include early-stage clinical and regulatory uncertainty, no approved RNAi products, continuing losses absent the settlement, dependence on a small number of partners and government funding, manufacturing and trial execution risks, patent disputes, competition, and potential future financing needs. The filing also notes possible U.S. passive foreign investment company (PFIC) status in future years.
- Management assessed disclosure controls and internal control over financial reporting as effective at year-end. The independent auditor issued an unqualified opinion on the financial statements; it was not required to attest to internal control.
Important facts for investors to verify
- Confirm the issuer identity: this source is Tekmira’s 2012 Form 20-F, although the request names Arbutus Biopharma Corp.
- Review the Alnylam settlement terms, including the C$65.0 million receipt, C$18.6 million legal payment, transferred intellectual property, and continuing milestone and royalty provisions.
- Assess the quality and sustainability of cash flow and the C$46.8 million year-end cash balance, distinguishing settlement proceeds from recurring operating receipts.
- Track actual 2013 revenue, expense and cash results against management’s forecasts, especially the expected US$10 million Alnylam milestones and DoD reimbursements.
- Check clinical, regulatory and funding progress for TKM-PLK1 and TKM-Ebola, including the DoD contract modification and any FDA requirements.
- Evaluate partner concentration, remaining contractual and licensing obligations, warrant-related dilution and valuation volatility, and possible PFIC tax implications for U.S. holders.