What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-05 compared with 2020-08-07 · 134 added, 86 removed, 411 unchanged (35% of the section changed)

4 unchanged sentences

Dollars, except share and per share amounts)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

5 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 7,133 (December 31, 2019:

Investments in marketable securities, non-current 1,600 —

Right of use asset 2,491 2,738

33 unchanged sentences

Dollars, except share and per share amounts)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

8 unchanged sentences

Site consolidation — 182 64 33

Impairment of intangible assets — 43,836 — 43,836

Impairment of goodwill — 22,471 — 22,471

Arbitration — 6,486 — 6,486

Total operating expenses 16,740 94,086 46,033 135,259

18 unchanged sentences

Unrealized gain on available-for-sale securities $ ( 72 ) $ — $ 58 $ —

Currency translation adjustment — ( 52 ) $ — ( 74 )

Currency translation adjustments 44 27 44 ( 47 )

Comprehensive loss $ ( 18,783 ) $ ( 82,476 ) $ ( 46,601 ) $ ( 129,116 )

23 unchanged sentences

Balance June 30, 2020 1,164,000 $ 143,258 71,256,579 $ 916,066 $ 58,300 $ ( 1,004,014 ) $ ( 48,099 ) $ 65,511

Accretion of accumulated dividends on Preferred Shares — 3,027 — — — ( 3,027 ) — —

Stock-based compensation — — — — 1,658 — — 1,658

Certain fair value adjustments to liability stock option awards — — — — ( 137 ) — — ( 137 )

Issuance of common shares pursuant to the Open Market Sales Agreement — — 13,258,096 48,760 — — — 48,760

Issuance of common shares pursuant to exercise of options — — 103,900 543 ( 207 ) — — 336

Unrealized gain on available-for-sale securities — — — — — — ( 72 ) ( 72 )

Currency translation adjustments — — — — — — 44 44

Net loss — — — — — ( 18,755 ) — ( 18,755 )

Balance September 30, 2020 1,164,000 $ 146,285 84,618,575 $ 965,369 $ 59,614 $ ( 1,025,796 ) $ ( 48,127 ) $ 97,345

See accompanying notes to the condensed consolidated financial statements.

22 unchanged sentences

Balance June 30, 2019 1,164,000 $ 131,613 56,850,172 $ 884,623 $ 53,738 $ ( 857,264 ) $ ( 48,244 ) $ 164,466

Accretion of accumulated dividends on Preferred Shares — 2,792 — — — ( 2,792 ) — —

Stock-based compensation — — — — 1,592 — — 1,592

Certain fair value adjustments to liability stock option awards — — — — 55 — — 55

Currency translation adjustment — — — — — — 27 27

Net loss — — — — — ( 82,503 ) — ( 82,503 )

Balance September 30, 2019 1,164,000 $ 134,405 56,850,172 $ 884,623 $ 55,385 $ ( 942,559 ) $ ( 48,217 ) $ 83,637

See accompanying notes to the condensed consolidated financial statements.

2 unchanged sentences

(In thousands of U.S.

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES

1 unchanged sentence

Non-cash items:

Deferred income tax benefit — ( 12,661 ) 1

Depreciation 1,491 1,521

3 unchanged sentences

Change in fair value of contingent consideration 348 ( 121 )

Impairment of intangible assets — 43,836

Impairment of goodwill — 22,471

Net equity investment loss 2,544 11,497

6 unchanged sentences

Accounts payable and accrued liabilities ( 147 ) ( 1,320 )

Restructuring accrual ( 137 ) ( 917 )

Other liabilities ( 285 ) ( 541 )

3 unchanged sentences

Disposition of investments 66,548 87,675

Investment in Genevant ( 2,500 ) —

Proceeds from sale of property and equipment — 11

2 unchanged sentences

FINANCING ACTIVITIES

Proceeds from sale of future royalties, net — 18,549

Issuance of common shares pursuant to the Open Market Sale agreement 66,120 4,725

18 unchanged sentences

• AB-729, a subcutaneously-delivered RNA interference (“RNAi”) product candidate currently in a Phase 1a/1b clinical trial.

Additional follow-on week 12 data for the 60 mg single-dose cohort were reported in May 2020.

Preliminary positive safety data in single-dose cohorts of healthy subjects and safety and efficacy data in the 60 mg and 180 mg single-dose cohorts in subjects with chronic HBV infection were reported in March 2020 and additional follow-on week 12 data for the 60 mg single-dose cohort were reported in May 2020.

Week 12 data for the 90 mg single-dose cohort were reported in September 2020.

The Company is dosing two 60 mg multi-dose cohorts of subjects with chronic HBV infection with dosing intervals of every four and eight weeks, respectively.

The Company is also dosing subjects in a 90 mg single-dose cohort and has initiated an additional AB-729 90 mg single-dose cohort in HBV positive subjects.

Results from all of these cohorts are expected in the second half of 2020.

Additionally, the Company intends to initiate two 90 mg multi-dose cohorts in the second half of 2020.

As the Company awaits data from the 90 mg single-dose cohorts, the Company anticipates that the dose interval for the planned 90 mg multi-dose cohorts will be every eight and twelve weeks, respectively;

• AB-836, a next-generation capsid inhibitor product candidate currently advancing through IND-enabling studies, which the Company expects to be completed by the end of 2020;

• other compounds early in the development process, including oral compounds that inhibit PD-L1 and next-generation oral HBV RNA destabilizers.

The Company’s research and development activities and commercialization of its products are dependent on its ability to successfully obtain adequate financing through a combination of financing activities and operations.

Results from the 60 mg multi-dose cohort with a dosing interval of every four weeks and additional follow-up data on the 60 mg and 90 mg single-dose cohorts are expected to be disclosed as part of an oral presentation at the upcoming American Association for the Study of Liver Disease Conference (“AASLD”) in November.

Separately, results from the 60 mg multi-dose cohort with a dosing interval of every eight weeks and a 90 mg single-dose cohort in HBV positive subjects are expected in the fourth quarter of 2020.

Additionally, the Company is dosing two 90 mg multi-dose cohorts with chronic HBV infection with dosing intervals of every eight and twelve weeks, respectively;

• AB-836, a next-generation capsid inhibitor product candidate currently advancing through CTA/IND-enabling studies, which the Company expects to be completed by the end of 2020;

• other compounds early in the development process, including oral compounds that inhibit PD-L1 and a next-generation oral HBV RNA destabilizer.

The Company’s research and development activities and the commercialization of its products are dependent on its ability to successfully obtain adequate financing through a combination of financing activities and operations.

The success of the Company is dependent on progressing its pipeline and subsequently obtaining the necessary regulatory approvals to bring its products to market and achieving profitable operations.

1 unchanged sentence

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) was identified in Wuhan, China.

This virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to nearly every country in the world.

The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society.

The virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to nearly every country in the world.

The impact of the pandemic has been, and will likely continue to be, extensive in many aspects of society.

The pandemic has resulted in and will likely continue to result in significant disruptions to businesses.

2 unchanged sentences

Additional measures that have had, and will likely continue to have, a major impact on clinical development, at least in the near-term, include shortages and delays in the supply chain, and prohibitions in certain countries on enrolling subjects in new clinical trials.

Despite the challenges of COVID-19, we have not had to alter our objectives for 2020.

However, future disruptions related to the COVID-19 pandemic could negatively impact our plans and timelines, including enrolling and monitoring subjects in our clinical trials.

Despite the challenges of COVID-19, the Company has not had to alter its objectives for 2020.

However, future disruptions related to the COVID-19

pandemic could negatively impact the Company’s plans and timelines, including enrolling and monitoring subjects in the Company’s clinical trials.

While Arbutus’ core mission is to find a cure for hepatitis B, the magnitude of the coronavirus pandemic is undeniable.

3 unchanged sentences

Sofia, who was awarded the Lasker-DeBakey Award for his discovery of sofosbuvir, brings extensive antiviral drug discovery experience to this new program.

The Company has also recently joined forces with the COVID R&D consortium to further support and expedite efforts to address the SARS-CoV-2 pandemic and any future coronavirus outbreaks.

At this time, Arbutus’ COVID-19 research program will focus on the discovery and development of new molecular entities that address specific viral targets including the nsp12 viral polymerase and the viral protease.

The Company has also joined the COVID R&D consortium to further support and expedite efforts to address the SARS-CoV-2 pandemic and any future coronavirus outbreaks.

The Company is actively screening multiple new oral molecular entities.

These targets are essential viral proteins which Arbutus has experience in targeting.

The establishment of the COVID-19 effort does not materially impact the Company’s cash guidance for 2020 of $54 million to $58 million.

Significant accounting policies

2 unchanged sentences

These statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).

These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments and reclassifications necessary to fairly present the Company’s financial position as of June 30, 2020, the Company’s results of operations for the three and six months ended June 30, 2020 and the Company’s cash flows for the six months ended June 30, 2020.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results for the full year.

These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments and reclassifications necessary to fairly present the Company’s financial position as of September 30, 2020, the Company’s results of operations for the three and nine months ended September 30, 2020 and the Company’s cash flows for the nine months ended September 30, 2020.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results for the full year.

These unaudited condensed consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2019, except as described below under Recent Accounting Pronouncements.

9 unchanged sentences

The calculation of diluted net loss attributable to common shareholders per share does not differ from the calculation of basic net loss attributable to common shareholders per share, as the effect of the Company’s dilutive potential common shares was anti-dilutive.

During the six months ended June 30, 2020 and 2019, potential common shares of 31.3 million and 27.5 million, respectively, consisting of the “if-converted” number of Preferred Shares and outstanding stock options, were excluded from the calculation of diluted net loss per common share because their inclusion would be anti-dilutive.

During the nine months ended September 30, 2020 and 2019, potential common shares of 31.6 million and 28.2 million, respectively, consisting of the “if-converted” number of Preferred Shares and outstanding stock and Employee Stock Purchase Plan (“ESPP”) options, were excluded from the calculation of diluted net loss per common share because their inclusion would be anti-dilutive.

Revenue recognition

1 unchanged sentence

(i) identify contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(ii) identify the performance obligations

in the contract;

(iii) determine the transaction price;

22 unchanged sentences

The Company measures certain financial instruments and other items at fair value.

To determine the fair value, the Company uses the fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

To determine the fair value, the Company uses the fair value hierarchy for inputs used in measuring fair value that maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs market participants would use to value an asset or liability and are developed based on market data obtained from independent sources.

10 unchanged sentences

To determine the fair value of the contingent consideration (note 8), the Company uses a probability weighted assessment of the likelihood the milestones would be met and the estimated timing of such payments, and then the potential contingent payments were discounted to their present value using a probability adjusted discount rate that reflects the early stage nature of the development program, time to complete the program development, and overall biotech indices.

The Company determined the fair value of the contingent consideration was $ 3.2 million as of June 30, 2020 and the increase of $ 0.2 million has been recorded as a component of total operating expenses in the statement of operations and comprehensive loss for the six months ended June 30, 2020.

The Company determined the fair value of the contingent consideration was $ 3.3 million as of September 30, 2020 and the increase of $ 0.3 million has been recorded as a component of total operating expenses in the statement of operations and comprehensive loss for the nine months ended September 30, 2020.

The assumptions used in the discounted cash flow model are level 3 inputs as defined above.

The Company assessed the sensitivity of the fair value measurement to changes in these unobservable inputs, and determined that changes within a reasonable range would not result in a materially different assessment of fair value.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques used to determine such fair value:

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the level within the fair value hierarchy of the valuation techniques used to determine such fair value:

Level 1 Level 2 Level 3 Total

As of June 30, 2020 (in thousands)

As of September 30, 2020 (in thousands)

Cash and cash equivalents $ 96,918 $ — $ — $ 96,918

Short-term investments 21,378 — — 21,378

Long-term investments 1,600 — — 1,600

Total 118,296 — — 118,296

13 unchanged sentences

(in thousands)

Six Months Ended June 30, 2020 $ 253 $ — $ ( 103 ) $ 150

Six Months Ended June 30, 2019 $ 479 $ — $ ( 338 ) $ 141

Nine Months Ended September 30, 2020 $ 253 $ — $ 64 $ 317

Nine Months Ended September 30, 2019 $ 479 $ — $ ( 393 ) $ 86

The following table presents the changes in fair value of the Company’s contingent consideration:

1 unchanged sentence

(in thousands)

Six Months Ended June 30, 2020 $ 2,953 $ 228 $ 3,181

Six Months Ended June 30, 2019 $ 3,126 $ 255 $ 3,381

Nine Months Ended September 30, 2020 $ 2,953 $ 348 $ 3,301

Nine Months Ended September 30, 2019 $ 3,126 $ ( 121 ) $ 3,005

Investments in marketable securities

2 unchanged sentences

Gross Unrealized Loss (1)

As of June 30, 2020 (in thousands)

As of September 30, 2020 (in thousands)

Cash equivalents

Money market fund 28,606 $ — $ — 28,606

US government agency bonds — — — —

US treasury bills — — — —

US government money market fund $ 65,327 $ — $ — $ 65,327

Total $ 65,327 $ — $ — $ 65,327

1 unchanged sentence

US government agency bonds $ 11,300 $ 26 $ — $ 11,326

US treasury bills 4,494 6 — 4,500

US government bonds 10,020 32 — 10,052

5 unchanged sentences

Cash equivalents

Money market fund $ 4,106 $ — $ — $ 4,106

US government money market fund $ 4,106 $ — $ — $ 4,106

US government agency bonds 1,511 — — 1,511

7 unchanged sentences

(1) Gross unrealized gain (loss) is pre-tax and is reported in other comprehensive loss.

The contractual term to maturity of the $ 36.5 million of short-term marketable securities held by the Company as of June 30, 2020 is less than one year.

As of June 30, 2020, the Company held $ 1.6 million of long-term marketable securities with contractual maturities of more than one year, but less than five years.

As of December 31, 2019, the Company’s $ 59.0 million of marketable securities had contractual maturities of less than one year.

There were no realized gains or losses for the three and six months ended June 30, 2020 or 2019.

Equity method investment

The contractual term to maturity of the $ 21.4 million of short-term marketable securities held by the Company as of September 30, 2020 is less than one year.

As of December 31, 2019, the Company’s $ 59.0 million of marketable securities also had contractual maturities of less than one year.

There were no realized gains or losses for the three and nine months ended September 30, 2020 or 2019.

Investment in Genevant

In April 2018, Arbutus entered into an agreement with Roivant Sciences Ltd.

5 unchanged sentences

If Genevant sub-licenses the intellectual property licensed by Arbutus to Genevant, Arbutus would receive upon the commercialization of a product developed by such sub-licensee the lesser of (i) twenty percent of the revenue received by Genevant for such sublicensing and (ii) tiered low single-digit royalties on product sales by the sublicensee.

As of June 30, 2020, the carrying value of Arbutus’ investment in Genevant was zero and Arbutus owned approximately 40 % of the common equity of Genevant.

On July 23, 2020, the United States Patent and Trademark Office before the Patent Trial and Appeal Board ("PTAB") announced their decision in Moderna Therapeutics, Inc.'s challenge of the validity of U.S.

2 unchanged sentences

While Arbutus is the patent holder, this patent has been licensed to Genevant.

The '069 Patent was included in this license agreement between Genevant and Arbutus.

Arbutus is gratified by the recent decision of the Patent Trademark and Appeals Board, upholding the validity of one of the patents protecting its LNP technology that was licensed to Genevant.

This decision reinforces Arbutus’ continuing belief in the potential of this technology.

On July 31, 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant.

Arbutus participated in the recapitalization of Genevant with an equity investment of $ 2.5 million.

Following the recapitalization, Arbutus owns approximately 16 % of the common equity of Genevant.

In connection with the recapitalization, the three parties entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant.

The '069 Patent was included in the license agreement between Genevant and Arbutus.

On July 31, 2020, Genevant was recapitalized through an equity investment and conversion of previously issued convertible debt securities held by Roivant.

In addition, Arbutus participated in the recapitalization of Genevant with an investment of $ 2.5 million.

Arbutus determined that this $ 2.5 million additional investment in Genevant represented the funding of prior losses and accordingly, the Company recorded the amount as an equity investment loss on the Condensed Consolidated Statements of Operations and Comprehensive Loss during the three months ended September 30, 2020.

Following the recapitalization, Arbutus owned approximately 16 % of the common equity of Genevant.

In connection with the recapitalization, Genevant, Arbutus and Roivant entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant.

Arbutus has a non-voting observer seat on Genevant’s Board of Directors.

Due to Arbutus’ loss of significant influence with respect to Genevant as a result of the recapitalization, Arbutus discontinued the use of the equity method of accounting for its interest in Genevant.

Following the recapitalization, Arbutus accounts for its interest in Genevant as equity securities without readily determinable fair values.

Accordingly, an estimate of the fair value of the securities is based on the original cost less previously recognized equity method losses, less impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or a similar Genevant securities.

As of September 30, 2020, the carrying value of Arbutus’ investment in Genevant was zero and Arbutus owned approximately 16 % of the common equity of Genevant.

Arbutus’ entitlement to receive future royalties or sublicensing revenue from Genevant was not impacted by the recapitalization.

1 unchanged sentence

Accounts payable and accrued liabilities are comprised of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in thousands)

17 unchanged sentences

On a quarterly basis, the Company will reassess the expected timing of the royalty revenue, recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed.

As of June 30, 2020, the effective annual interest rate was approximately 22 %.

As of September 30, 2020, the effective annual interest rate was approximately 22 %.

The Company will recognize non-cash royalty revenue related to the sales of ONPATTRO during the term of the Agreement.

As royalties are remitted to OMERS from Alnylam, the balance of the recognized liability will be effectively repaid over the life of the Agreement.

From the inception of the royalty sale through June 30, 2020, the Company has recorded an aggregate of $ 3.0 million of non-cash royalty revenue for royalties earned by OMERS.

From the inception of the royalty sale through September 30, 2020, the Company has recorded an aggregate of $ 3.7 million of non-cash royalty revenue for royalties earned by OMERS.

There are a number of factors that could materially affect the amount and timing of royalty payments from Alnylam, none of which are within the Company’s control.

During the three and six months ended June 30, 2020, the Company recognized non-cash royalty revenue of $ 0.7 million and $ 1.3 million, respectively, and $ 1.1 million and $ 2.1 million of related non-cash interest expense, respectively.

During the three and nine months ended September 30, 2020, the Company recognized non-cash royalty revenue of $ 0.7 million and $ 2.0 million, respectively, and $ 1.1 million and $ 3.2 million of related non-cash interest expense, respectively.

During the three and nine months ended September 30, 2019, the Company recognized non-cash royalty revenue of $ 0.5 million and $ 1.0 million, respectively, and $ 1.1 million of related non-cash interest expense during the three and nine months ended September 30, 2019.

The table below shows the activity related to the net liability for 2020:

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

(in thousands)

13 unchanged sentences

In addition, until a cumulative amount equal to the funding actually received under the agreement has been paid to TPC, the Company agreed to pay 2.5 % royalties on any royalties the Company receives on sales of Acrotech Biopharma LLC’s Marqibo® (formerly Spectrum Pharmaceuticals, Inc.).

For the six months ended June 30, 2020 and 2019, the Company earned royalties on Marqibo sales in the amounts of $ 0.1 million and $ 0.1 million, respectively.

For each of the nine months ended September 30, 2020 and 2019, the Company earned royalties on Marqibo sales in the amount of $ 0.2 million.

The resulting royalties payable by the Company to TPC were not material in either period.

The cumulative amount paid or accrued up to June 30, 2020 was less than $ 0.1 million, resulting in the contingent amount due to TPC being $ 2.7 million (C$ 3.7 million).

The cumulative amount paid or accrued up to September 30, 2020 was less than $ 0.1 million, resulting in the contingent amount due to TPC being $ 2.7 million (C$ 3.7 million).

Arbitration with the University of British Columbia

Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the University of British Columbia (“UBC”), as well as by us that was subsequently assigned to UBC.

Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the University of British Columbia (“UBC”), as well as by the Company that was subsequently assigned to UBC.

These inventions are licensed to the Company by UBC under a license agreement, initially entered into in 1998 and amended in 2001, 2006 and 2007.

12 unchanged sentences

An award for costs and attorneys’ fees is still to be determined.

The Company has accrued $ 0.4 million for an estimate of a potential award for costs and attorneys’ fees as of June 30, 2020.

The Company has accrued $ 0.4 million for an estimate of a potential award for costs and attorneys’ fees as of September 30, 2020.

Stock Purchase Agreement with Enantigen

9 unchanged sentences

The contingent consideration for this acquisition is a financial liability, which is measured at its fair value at each reporting period, with any changes in fair value from the previous reporting period recorded in the statements of operations and comprehensive loss (see note 3).

The fair value of the contingent consideration was $ 3.2 million as of June 30, 2020.

The fair value of the contingent consideration was $ 3.3 million as of September 30, 2020.

Collaborations, contracts and licensing agreements

Revenue contracts are described in detail in the Overview section of Part II, Item 8, “Financial Statements and Supplementary Data” in the Company’s 2019 Form 10-K.

Assembly BioSciences, Inc.

In August 2020, the Company and Assembly BioSciences, Inc.

(“Assembly”) entered into a clinical collaboration agreement to evaluate the Company’s proprietary GalNAC delivered RNAi therapeutic AB-729 in combination with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate vebicorvir and a standard-of-care nucleos(t)ide reverse transcriptase inhibitor (Nrtl) therapy for the treatment of patients with chronic HBV infection.

The companies will share in the costs of the collaboration and the associated clinical trial is projected to initiate in the first half of 2021.

The Company incurred no costs related to the collaboration during the three months ended September 30, 2020.

Alnylam Pharmaceuticals, Inc.

1 unchanged sentence

The Company has two royalty entitlements to Alnylam’s global net sales of ONPATTRO.

In 2012, the Company entered into a license agreement with Alnylam that entitles Alnylam to develop and commercialize certain identified products with the Company’s LNP technology.

During the third quarter of 2018, Alnylam’s ONPATTRO, which utilizes the Company’s LNP technology, was approved by the U.S.

Food and Drug Administration (“FDA”) and the European Medicines Agency.

The Company is entitled to tiered low to mid single-digit royalty payments on global net sales of ONPATTRO.

In July 2019, the Company sold this portion of its royalty entitlement for Alnylam’s ONPATTRO to OMERS.

The Company recognizes non-cash royalty revenue for royalties on global net sales of ONPATTRO collected by OMERS.

See note 7 for further details.

The Company also has rights to a second royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas Therapeutics, Inc.

This royalty entitlement from Acuitas has been retained by us and was not part of the royalty entitlement sale to OMERS.

In 2012, the Company entered into a license agreement with Alnylam that entitles Alnylam to develop and commercialize products with the Company’s LNP technology.

Alnylam’s ONPATTRO, which represents the first approved application of the Company’s LNP technology, was approved by the United States Food and Drug Administration (“FDA”) and the European Medicines Agency (“EMA”) during the third quarter of 2018 and was launched by Alnylam immediately upon approval in the United States.

Under the terms of this license agreement, the Company is entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00 % - 2.33 % after offsets, with the highest tier applicable to annual net sales above $ 500 million.

This royalty interest was sold to OMERS, effective as of January 1, 2019, for $ 20 million in gross proceeds before advisory fees.

OMERS will retain this entitlement until it has received $ 30 million in royalties, at which point 100 % of this royalty entitlement on future global net sales of ONPATTRO will revert back to the Company.

OMERS has assumed the risk of collecting up to $ 30 million of future royalty payments from Alnylam and the Company is not obligated to reimburse OMERS if they fail to collect any such future royalties.

If this royalty entitlement reverts to the Company, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part.

The Company also has rights to a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas.

This royalty entitlement from Acuitas has been retained by the Company and was not part of the royalty entitlement sale to OMERS.

Revenues are summarized in the following table:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

3 unchanged sentences

$ 774 $ 516 $ 2,288 $ 1,161

Gritstone Oncology, Inc.

— 1,722 — 1,789

Other milestone and royalty payments 54 362 199 464

6 unchanged sentences

In December 2018, the Company entered into an Open Market Sale Agreement with Jefferies LLC (“Jefferies”) (the “Sale Agreement”), under which it could issue and sell common shares, from time to time, for an aggregate sales price of up to $ 50.0 million.

For the three and six months ended June 30, 2019, the Company issued 593,689 and 1,208,090 common shares pursuant to the Sale Agreement resulting in net proceeds of approximately $ 2.5 million and $ 5.2 million, respectively.

In December 2019, the Company entered into an amendment to the Sale Agreement with Jefferies (the “Amended Sale Agreement”) in connection with the filing of a new shelf registration statement on Form S-3 (File No.

333-235674), filed with the SEC on December 23, 2019 (the “New Shelf Registration Statement”).

The amendment revised the original Sale Agreement to reflect that the Company may sell its common shares, without par value, from time to time, for an aggregate sales price of up to $ 50.0 million, under the New Shelf Registration Statement.

During the three and six months ended June 30, 2020, the Company issued 2,291,184 and 6,438,265 common shares pursuant to the Sale Agreement and the Amended Sale Agreement, resulting in net proceeds of approximately $ 5.0 million and $ 17.4 million, respectively.

During July 2020, Arbutus fully utilized the remaining availability under the Amended Sale Agreement resulting in an additional $ 36.5 million of net proceeds from the issuance of 9,548,780 common shares.

In December 2019, the Company entered into an amendment to the Sale Agreement with Jefferies (the “2019 Amendment”) in connection with the filing of a shelf registration statement on Form S-3 (File No.

333-235674), filed with the SEC on December 23, 2019 (the “Shelf Registration Statement”).

The 2019 Amendment revised the original Sale Agreement to reflect that the Company could sell its common shares, without par value, from time to time, for an aggregate sales price of up to $ 50 million, under the Shelf Registration Statement.

In July 2020, the Company fully utilized the remaining availability under the Sale Agreement, as amended by the 2019 Amendment.

In August 2020, the Company entered into a new amendment to the Sale Agreement (the “2020 Amendment”) with Jefferies.

Pursuant to the 2020 Amendment, the Company can issue and sell common shares, from time to time, for an aggregate sales price of up to $ 75 million under the Sale Agreement, as amended.

For the nine months ended September 30, 2019, the Company issued 1,208,090 common shares pursuant to the Sale Agreement resulting in net proceeds of approximately $ 5.2 million.

There were no shares issued under the Sale Agreement during the three months ended September 30, 2019.

During the three and nine months ended September 30, 2020, the Company issued 13,258,096 and 19,696,361 common shares pursuant to the Sale Agreement, as amended, resulting in net proceeds of approximately $ 48.8 million and $ 66.1 million, respectively.

As of September 30, 2020, there was approximately $ 62.3 million available under the Sale Agreement, as amended.

Stock-based compensation

The table below summarizes information about the Company’s stock based compensation for the three and six months ended June 30, 2020 and 2019 and the expense recognized in the condensed consolidated statements of operations:

Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019

The table below summarizes information about the Company’s stock based compensation for the three and nine months ended September 30, 2020 and 2019 and the expense recognized in the condensed consolidated statements of operations:

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019

(in thousands, except share and per share data)

4 unchanged sentences

Total stock compensation expense $ 1,688 $ 1,516 $ 4,730 $ 6,822

Awards with performance conditions are expensed when it is probable that the performance condition will be achieved.

For each of the three and nine months ended September 30, 2020, $ 0.3 million was expensed for stock option awards with performance conditions.

These expenses are included in the table above.

Employee Stock Purchase Plan

In May 2020, the Company’s stockholders approved the 2020 Employee Stock Purchase Plan which became effective on May 28, 2020.

A total of 1.5 million common shares were reserved for issuance under the ESPP.

Company employees contribute funds via payroll deductions, which are used to buy Company common shares at a discount of up to 15 % based on the lower of the price at the start of the offering period and at the end of the relevant purchase period within such offering period.

The initial offering period under the ESPP is September 1, 2020 through August 31, 2021 with purchase dates set on February 26, 2021 and August 31, 2021.

All 1.5 million common shares remained available for future issuance under the plan at September 30, 2020.

For the three and nine months ended September 30, 2020, the Company recognized less than $ 0.1 million of stock-based compensation expense related to the ESPP, which is included in the table above.

Series A Preferred Shares

2 unchanged sentences

The conversion price is $ 7.13 per share, which will result in the Preferred Shares being converted into approximately 23 million common shares.

After conversion of the Preferred Shares into common shares, based on the number of common shares outstanding as of June 30, 2020, Roivant will hold approximately 41 % of the Company’s common shares.

After conversion of the Preferred Shares into common shares, based on the number of common shares outstanding as of September 30, 2020, Roivant will hold approximately 36 % of the Company’s common shares.

Roivant agreed to a four year lock-up period for this investment and its existing holdings in the Company.

1 unchanged sentence

The initial investment of $ 50.0 million closed in October 2017, and the remaining amount of $ 66.4 million closed in January 2018 following regulatory and shareholder approvals.

The Company records the Preferred Shares wholly as equity under ASC 480, Distinguishing Liabilities From Equity, with no bifurcation of conversion feature from the host contract, given that the Preferred Shares cannot be cash settled and the redemption features are within the Company’s control, which include a fixed conversion ratio with predetermined timing and proceeds.

The Company records the Preferred Shares wholly as equity under ASC 480, Distinguishing Liabilities From Equity, with no bifurcation of the conversion feature from the host contract, given that the Preferred Shares cannot be cash settled and the redemption features are within the Company’s control, which include a fixed conversion ratio with predetermined timing and proceeds.

The Company accrues for the 8.75 % per annum compounding coupon at each reporting period end date as an increase to preferred share capital, and an increase to deficit (see Condensed Consolidated Statement of Stockholders’ Equity).

Related Party Transactions

On July 31, 2020, Genevant was recapitalized through an equity investment and conversion of previously issued convertible debt securities held by Roivant.

In addition, Arbutus participated in the recapitalization with an investment of $ 2.5 million.

Following the recapitalization, Arbutus owned approximately 16 % of the common equity of Genevant.

See note 5 for more information.

Through the first quarter of 2019, the Company purchased certain research and development services from Genevant.

2 unchanged sentences

There were no such costs incurred during 2020.

Conversely, Genevant purchased certain administrative and transitional services from the Company totaling $ 19.3 thousand and $ 38.5 thousand for the three and six months ended June 30, 2020, respectively.

The total income from these services was $ 73 thousand and $ 189 thousand for the three and six months ended June 30, 2019, which were netted against research and development expenses in the condensed consolidated statements of operations.

Conversely, Genevant purchased certain administrative and transitional services from the Company totaling less than $ 35 thousand for each of the three and nine months ended September 30, 2020.

The total income from these services was $ 40 thousand and $ 284 thousand for the three and nine months ended September 30, 2019.

This income is netted against research and development expenses in the condensed consolidated statements of operations.

In addition, during 2019 Genevant had a sublease for 17,900 square feet in the Company’s Burnaby facility.

Sublease income from Genevant was $ 62 thousand and $ 124 thousand for the three and six months ended June 30, 2019, and was netted against site consolidation costs and lease liability.

Sublease income from Genevant was $ 21 thousand and $ 145 thousand for the three and nine months ended September 30, 2019, and was netted against site consolidation costs and lease liability.

The Company’s Burnaby facility lease and the corresponding sublease to Genevant expired on July 31, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements