Arbutus Biopharma Corp. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Financial statements are unaudited, prepared under U.S. GAAP, and amounts below are in U.S. dollars unless stated otherwise. Arbutus is a development-stage biopharmaceutical company focused on therapies intended to cure chronic hepatitis B (HBV); it depends on financing and collaboration income and has no marketed HBV product.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $1.436 million | $0.235 million |
| Operating expenses | $19.841 million | $18.534 million |
| Loss from operations | $18.405 million | $18.299 million |
| Net loss | $17.429 million | $18.627 million |
| Net loss attributable to common shares | $19.765 million, including $2.336 million preferred-share coupon accrual | $18.627 million |
| Basic and diluted loss per common share | $0.36 | $0.34 |
| Net cash used in operating activities | $19.967 million | $17.535 million |
| Cash and cash equivalents | $12.461 million at March 31 | $54.292 million at December 31, 2017 |
| Short-term investments | $160.079 million at March 31 | $72.060 million at December 31, 2017 |
| Total assets / total liabilities | $270.026 million / $37.608 million | $237.161 million / $54.688 million at December 31, 2017 |
| Loan payable | None at March 31 | $12.001 million at December 31, 2017 |
Revenue remained small relative to R&D and administrative costs; a conventional operating margin is not meaningful for this loss-making company. Revenue was mainly $1.150 million from Gritstone, with $0.286 million of other milestone and royalty income. Management reported $172.6 million in cash, cash equivalents and short-term investments and stated it expected these resources to fund operations for at least 12 months. It cautioned that substantial additional funding will be required for continued pipeline development.
Operating cash use increased by $2.432 million year over year. Investing activities used $75.666 million, primarily reflecting investment of funds, while financing activities provided $54.367 million, including $66.265 million net proceeds from the second tranche of Roivant’s preferred-share financing, offset in part by repayment of the Wells Fargo loan. The loan repayment released $12.601 million of restricted cash. Current assets were $175.186 million versus current liabilities of $10.396 million at quarter-end.
Material changes and developments
- Revenue increased from $0.235 million, chiefly due to Gritstone revenue; Alexion revenue ended after its 2017 license termination. Operating expenses rose $1.307 million, including $1.621 million of site-consolidation charges. R&D expense was broadly flat at $13.949 million; G&A declined to $3.669 million.
- In February, Arbutus announced a restructuring to align its HBV business in Warminster, Pennsylvania, reduce its global workforce by about 35%, and close its Burnaby facility. Q1 recorded $1.621 million of related costs; total costs were estimated at approximately $5 million, primarily payable in cash in Q2 2018.
- In April 2018, after quarter-end, Arbutus and Roivant launched Genevant, a jointly owned company. Arbutus licensed delivery-platform rights for RNA applications outside HBV; Roivant committed $37.5 million in seed capital. Arbutus retained HBV rights and is entitled to tiered royalties on future Genevant sales, as well as its full patisiran royalty entitlement.
- Arbutus and Acuitas settled contractual issues in February 2018, terminating Acuitas’ further rights to use or sublicense Arbutus LNP technology. Four specified Moderna viral-vaccine sublicenses survive.
Outlook, risks and contingencies
- Management planned interim results in the second half of 2018 from a 30-week ARB-1467 combination study with tenofovir and pegylated interferon, with final results expected in 2019.
- Subject to successful enabling studies, the company planned an IND/CTA filing for AB-506 in mid-2018 and for AB-452 in 2018; AB-729 was a potential 2019 filing. These are forward-looking plans, not assured milestones.
- Management expected possible initial patisiran approvals and related royalties in the second half of 2018. Royalty income depends on regulatory approval and subsequent commercialization.
- The UBC arbitration includes a claim for $3.5 million in alleged unpaid royalties based on public information plus an unspecified amount, interest and costs. Arbutus disputes the claim and has recorded no estimate of potential loss because the likelihood and amount cannot be determined. The arbitrator’s first-phase ruling did not determine whether royalties are payable; remaining phases were not yet scheduled.
- Contingent consideration related to the Enantigen acquisition was $9.576 million at quarter-end, with potential milestone payments of up to $21 million. The company identified first-patient enrollment in a Phase 1b trial as a triggering event it believed likely within the next 12 months; timing and payments remain uncertain.
- Other risks include clinical and regulatory failure, reliance on future financing and partner performance, foreign-exchange fluctuations, and costs or disruption from restructuring and legal proceedings. Management stated that no material risk-factor changes had occurred since the 2017 Form 10-K.
Key facts for investors to verify
- Cash burn and the composition, liquidity, and expected maturity of the $160.079 million in short-term investments; assess runway against planned R&D and restructuring outlays.
- Execution and cash cost of the workforce reduction and Burnaby closure, including whether total charges remain near the estimated $5 million.
- Clinical and regulatory progress for ARB-1467, AB-506, AB-452, and AB-729, and any changes to stated timelines.
- Genevant’s funding contributions, commercial terms, and any resulting revenues or royalties to Arbutus; also track patisiran regulatory and commercial progress.
- Developments in the UBC arbitration and any change in the estimated exposure or schedule.
- Potential dilution and Roivant ownership: 1,164,000 preferred shares are mandatorily convertible into 22,589,601 common shares in 2021, subject to specified earlier-conversion rights; the filing also reports 6,768,966 options outstanding.