Assembly Biosciences, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Financial statements are unaudited. Assembly is a clinical-stage biotechnology company developing oral hepatitis B (HBV) therapies and microbiome-based treatments; it has no approved products or product-sale revenue.
Financial performance and position
- Revenue: Collaboration revenue was $684,369, versus none in Q1 2016. It came from amortization of Allergan’s upfront payment; no reimbursable collaboration expenses were incurred in the quarter.
- Expenses and loss: R&D expense was $10.57 million, up from $8.12 million; G&A was $4.04 million, up from $3.16 million. Operating loss was $13.93 million, compared with $11.28 million. Net loss was $13.93 million, versus $10.99 million; basic and diluted loss per share was $0.81, versus $0.64.
- Cash flows: Operating cash flow was positive $34.94 million, compared with negative $9.21 million in Q1 2016. The 2017 inflow chiefly reflected $49.32 million of deferred revenue from Allergan, not operating profitability. Investing cash flow was positive $6.66 million, primarily from marketable-security redemptions; financing cash flow was positive $0.64 million from option exercises.
- Liquidity: Cash and cash equivalents were $70.82 million and marketable securities were $20.11 million at March 31, 2017, or about $90.92 million combined. Current assets were $92.22 million and current liabilities $10.96 million. Management said available resources should fund operations for at least 12 months.
- Liabilities and equity: Total liabilities were $66.40 million, including $49.32 million of deferred revenue and $11.12 million of deferred tax liabilities. The filing reports no debt balance. Stockholders’ equity was $67.89 million; accumulated deficit was $222.16 million.
- Margins: The company remained loss-making; a product gross margin is not meaningful because it had no product sales.
Material changes and business developments
- Allergan paid Assembly a $50 million upfront payment when their collaboration closed on February 10, 2017. Assembly recorded approximately $5 million as short-term and $45 million as long-term deferred revenue, to be recognized over a 10-year service period.
- The agreement covers selected microbiome gastrointestinal programs, including IBD and IBS. The parties share development costs through proof of concept up to $75 million, with Allergan bearing two-thirds and Assembly one-third; Allergan assumes post-proof-of-concept costs. Assembly may qualify for up to approximately $630 million in development milestones, $2.15 billion in commercial development and sales milestones, and tiered mid-single-digit to mid-teens royalties. These payments are contingent, not assured.
- R&D expense excluding stock compensation rose about $2.3 million, mainly from increased spending on microbiome and HBV research. G&A expense excluding stock compensation rose about $1.4 million, mainly from professional and legal expenses.
- ABI-H0731 completed Phase 1a; the company expected to begin the Phase 1b/2a portion in Q2 2017. ABI-M101 was in late nonclinical development, with a Phase 1b trial in relapsed C. difficile infection planned for the second half of 2017.
- The company expected to close its Bloomington, Indiana and Alachua, Florida research facilities by the end of May 2017. A new inducement award plan adopted April 3, 2017 reserved 800,000 shares for eligible awards.
Outlook, risks and contingencies
- Management expects expenses to increase as development and clinical activities advance and anticipates substantial losses for several years. The company expects to need additional funding; no committed external funding source was identified. Future financing may dilute shareholders or require less favorable collaboration, licensing or debt terms.
- Allergan may terminate the collaboration for convenience on 90 days’ notice before the first proof-of-concept trial, or 120 days’ notice after it begins. Revenue recognition depends on estimates of service periods and could change if programs are delayed, extended or terminated.
- Key risks include clinical, safety, manufacturing and regulatory setbacks; uncertain efficacy and commercial viability of early-stage candidates; reliance on collaborators, licensors and contract research/manufacturing organizations; and the possibility that financing or partnership proceeds will be insufficient or unavailable.
- Assembly reported no material legal proceedings and no off-balance-sheet arrangements. Equipment lease payments through termination totaled approximately $1.5 million; other contractual obligations were reported as having no material change from the 2016 Form 10-K.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether ABI-H0731 and ABI-M101 trials began on the stated schedules and what safety and efficacy data emerged.
- Allergan collaboration progress, continued cost sharing, any termination or option exercises, and achievement of contingent milestones.
- Cash burn excluding the one-time collaboration upfront payment, and whether cash and securities remain sufficient as development spending rises.
- Revenue-recognition assumptions for the Allergan payment and any resulting changes to deferred revenue or reported collaboration revenue.
- Potential dilution from outstanding options and the 800,000-share inducement plan adopted after quarter-end.