Arbutus Biopharma Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis by our management of our financial position and results of operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2019 and our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2020. Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles and are presented in U.S. dollars. REFERENCES TO ARBUTUS BIOPHARMA CORPORATION. Throughout this Quarterly Report on Form 10-Q (“Form 10-Q”) , the “Company,” “Arbutus,” “we,” “us,” and “our,” except where the context requires otherwise, refer to Arbutus Biopharma Corporation and its consolidated subsidiaries, and “our board of directors” refers to the board of directors of Arbutus Biopharma Corporation. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q contains “forward-looking statements” or “forward-looking information” within the meaning of applicable United States and Canadian securities laws (we collectively refer to these items as “forward-looking statements”). Forward-looking statements are generally identifiable by use of the words “believes,” “may,” “plans,” “will,” “anticipates,” “intends,” “budgets,” “could,” “estimates,” “expects,” “forecasts,” “projects” and similar expressions that are not based on historical fact or that are predictions of or indicate future events and trends, and the negative of such expressions. Forward-looking statements in this Form 10-Q, including the documents incorporated by reference, include statements about, among other things: • our strategy, future operations, pre-clinical research, pre-clinical studies, clinical trials, prospects and the plans of management; • the potential impact of the COVID-19 pandemic on our business; • our expectations regarding the technology that we licensed to Genevant Sciences Lt. (“Genevant”); • the discovery, development and commercialization of a curative combination regimen for chronic hepatitis B infection, a disease of the liver caused by the hepatitis B virus (“HBV”); • our beliefs and development path and strategy to achieve a curative combination regimen for HBV; • obtaining necessary regulatory approvals; • obtaining adequate financing through a combination of financing activities and operations; • using the results from our HBV studies to adaptively design additional clinical trials to test the efficacy of combination therapy and the duration of the result in patients; • the expected timing of and amount for payments related to the Enantigen Therapeutics, Inc. transaction; • the potential of our drug candidates to improve upon the standard of care and contribute to a curative combination treatment regimen; • the potential benefits of the reversion of the Ontario Municipal Employees Retirement System (“OMERS”) royalty monetization transaction for our ONPATTRO® (Patisiran) (“ONPATTRO”) royalty interest; • developing a suite of products that intervene at different points in the viral life cycle, with the potential to reactivate the host immune system; • using pre-clinical results to adaptively design clinical trials for additional cohorts of patients, testing the combination and the duration of therapy; • selecting combination therapy regimens and treatment durations to conduct Phase 3 clinical trials intended to ultimately support regulatory filings for marketing approval; • expanding our HBV drug candidate pipeline through internal development, acquisitions and in-licenses; • our expectation for AB-729 for preliminary results from the multi-dose 60 mg cohorts with a dosing interval of every four weeks and follow-up data on the 60 mg and 90 mg single-dose cohorts to be presented at an upcoming scientific meeting later this year; • our expectation for AB-729 for preliminary results from the 60 mg multi-dose cohorts with a dosing interval of every eight weeks and the 90 mg single-dose cohort in HBV DNA positive subjects to be available in the fourth quarter of 2020; • our expectation that AB-729 could be combined with our lead capsid inhibitor candidate, AB-836, and approved NAs, in our first combination therapy for HBV patients; • the potential for an oral HBsAg-reducing agent and potential all-oral combination therapy; • our objective to complete IND/CTA-enabling studies for AB-836 by the end of 2020; 17 • the potential for AB-836 to be low-dose regimen with a wide therapeutic window and to address known capsid resistant variants T33N and 1105T; • the potential for AB-836 to have increased potency and an enhanced resistance profile, compared to our previous capsid inhibitor candidate, AB-506; • the potential for AB-836 to be once-daily dosing; • our expectation to initiate the Phase 2 clinical trial under our clinical collaboration agreement with Assembly BioSciences, Inc. (“Assembly”) in the first half of 2021; • our expectation to enroll approximately 60 subjects in the Phase 2 clinical trial with Assembly; • our expectation to pursue development of a next generation oral HBV RNA-destabilizer; • our expectations regarding our ability to develop a potential COVID-19 therapy; • payments from our license agreement with Gritstone Oncology, Inc.; • the expected return from strategic alliances, licensing agreements, and research collaborations; • statements with respect to revenue and expense fluctuation and guidance; • having sufficient cash resources to fund our operations through mid-2022; and • obtaining funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, collaborative arrangements with pharmaceutical companies, other non-dilutive commercial arrangements and government grants and contracts; as well as other statements relating to our future operations, financial performance or financial condition, prospects or other future events. Forward-looking statements appear primarily in the sections of this Form 10-Q entitled “Part I, Item 1- Financial Statements (Unaudited),” and “Part I, Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements are based upon current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors that could cause actual results to differ materially and adversely from those expressed or implied by such statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”), and in particular the risks and uncertainties discussed under “Item 1A-Risk Factors” of this Form 10-Q and the Form 10-K. As a result, you should not place undue reliance on forward-looking statements. Additionally, the forward-looking statements contained in this Form 10-Q represent our views only as of the date of this Form 10-Q (or any earlier date indicated in such statement). While we may update certain forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if new information becomes available in the future. However, you are advised to consult any further disclosures we make on related subjects in the periodic and current reports that we file with the Securities and Exchange Commission. The foregoing cautionary statements are intended to qualify all forward-looking statements wherever they may appear in this Form 10-Q. For all forward-looking statements, we claim protection of the safe harbor for the forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. This Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. 18 OVERVIEW Arbutus is a clinical-stage biopharmaceutical company primarily focused on developing a cure for people with chronic hepatitis B virus (“HBV”) infection. We are advancing multiple drug product candidates that may be combined into a potentially curative regimen for chronic HBV infection. We have also initiated a drug discovery and development effort for treating coronaviruses, including COVID-19. Hepatitis B is a potentially life-threatening liver infection caused by HBV. HBV can cause chronic infection which leads to a higher risk of death from cirrhosis and liver cancer. Chronic HBV infection represents a significant unmet medical need. The World Health Organization estimates that over 250 million people worldwide suffer from chronic HBV infection, while other estimates indicate that approximately 2 million people in the United States suffer from chronic HBV infection. Approximately 900,000 people die every year from complications related to chronic HBV infection despite the availability of effective vaccines and current treatment options. Today’s current treatment options include nucleos(t)ide analogs (“NA”) and pegylated interferon regimens (“Peg-IFN”). However, less than 5% of patients are cured by these current treatment options after a finite treatment duration. With such low cure rates, most patients with chronic HBV infection are required to take NA therapy daily for the rest of their lives. Our focus is on developing new HBV treatment regimens with finite treatment durations and higher cure rates. We define a cure as a functional cure where HBV DNA replication and hepatitis B surface antigen (“HBsAg”) expression are reduced to undetectable levels and this level of expression is sustained six months after a finite duration of therapy. Our HBV product pipeline includes RNA interference (“RNAi”) therapeutics, oral capsid inhibitors, oral compounds that inhibit PD-L1 and oral HBV RNA destabilizers. We believe a combination of these product candidates could lead to a curative treatment regimen with a finite duration for patients with chronic HBV infection. There is a compelling market opportunity for an HBV curative regimen. Currently, an estimated 27 million (10.5%) of a total of over 250 million people worldwide with chronic HBV infection are diagnosed and approximately 4.5 million (1.8%) are on treatment. We believe that the introduction of an HBV curative regimen with a finite duration would substantially increase diagnosis and treatment rates for patients with chronic HBV. Strategy Our business strategy is to develop a curative combination regimen for patients with chronic HBV infection. We believe this can best be achieved by: • developing a broad portfolio of proprietary therapeutic assets that target multiple elements of the HBV viral lifecycle, most importantly suppressing HBV replication and HBsAg expression; • developing compounds that reawaken the host immune response; • identifying a combination of therapeutic assets with complementary mechanisms of action that can deliver higher cure rates with a finite treatment duration; and • advancing a curative combination regimen through clinical development, regulatory approval and commercial launch. Additionally, we have initiated an internal research program to identify new small molecule antiviral medicines to treat COVID-19 and future coronavirus outbreaks. Our product candidates are first evaluated in Phase 1 clinical trials as a monotherapy or in combination with other currently-marketed therapies to assess patient safety and antiviral activity. We are currently conducting a Phase 1a/1b clinical trial and performing pre-clinical and investigational new drug (“IND”)-enabling studies for our HBV product candidates. Results from our Phase 1 clinical trials and other studies will inform the design of future Phase 2 and Phase 3 clinical trials that will evaluate a combination of our therapeutic agents in a potentially curative combination regimen. Our Product Candidates Given the biology of HBV, we believe therapeutic success will require a combination of agents with complementary mechanisms of action. We are developing product candidates that have the potential to reduce HBsAg expression, suppress HBV DNA replication and reawaken the immune response in patients with chronic HBV. 19 Our HBV product pipeline consists of the following programs: We believe that AB-729, our subcutaneously administered RNAi product candidate, may be combinable with AB-836, our lead capsid inhibitor product candidate, and other currently-marketed or investigational therapies, in our first proprietary combination therapy for chronic HBV patients. In parallel, we are in lead optimization with several oral compounds for our PD-L1 program and our next-generation HBV RNA destabilizer program. In addition, we announced in August 2020, that we entered into a clinical collaboration agreement with Assembly BioSciences, Inc. (“Assembly”) to evaluate AB-729 in combination with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate vebicorvir (VBR) and standard-of-care nucleos(t)ide reverse transcriptase inhibitor (“NrtI”) therapy for the treatment of patients with chronic HBV infection. This collaboration will include a randomized, multi-center, open-label Phase 2 clinical trial that will explore the safety, pharmacokinetics, and antiviral activity of the triple combination of AB-729, VBR and an NrtI compared to the double combinations of VBR with an NrtI and AB-729 with an NrtI. This trial is expected to initiate in the first half of 2021 and enroll approximately 60 virologically-suppressed subjects with chronic HBV infection. We continue to explore expansion of our HBV pipeline through internal discovery and development activities and through potential strategic alliances. GalNAc RNAi (AB-729) RNAi therapeutics represent a recent significant advancement in drug development. RNAi therapeutics utilize a natural pathway within cells to silence genes by eliminating the disease-causing proteins that they code for. We are developing RNAi therapeutics that are designed to reduce HBsAg expression and other HBV antigens in patients chronically infected with HBV. Reducing HBsAg is widely believed to be a key prerequisite to enable a patient’s immune system to reawaken and respond against the virus. AB-729 is a subcutaneously-delivered RNAi therapeutic targeted to hepatocytes using our novel covalently conjugated GalNAc delivery technology. AB-729 inhibits viral replication and reduces all HBV antigens. In July 2019, we initiated a single- and multi-dose Phase 1a/1b clinical trial for AB-729, designed to investigate the safety, tolerability, pharmacokinetics, and pharmacodynamics of AB-729 in healthy volunteers and in chronic HBV subjects. The ongoing first-in-human clinical trial of AB-729 consists of three parts: • In Part 1, three cohorts of healthy subjects were randomized 4:2 to receive single doses (60 mg, 180 mg or 360 mg) of AB-729 or placebo. • In Part 2, non-cirrhotic, HBeAg positive or negative, chronic hepatitis B subjects (n=6) currently taking nucleos(t)ide antiviral therapy with HBV DNA below the limit of quantitation received single doses (60 mg, 90 mg or 180 mg) of 20 AB-729. All subjects continued their nucleos(t)ide antiviral therapy throughout the trial. Part 2 will also include dosing of AB-729 in HBV DNA positive chronic hepatitis B subjects. • In Part 3, chronic hepatitis B subjects, HBV DNA negative first and HBV DNA positive later, will receive multiple doses of AB-729 for up to six months at four, eight or twelve week dosing intervals. In March 2020, we announced positive preliminary results in the three cohorts of healthy subjects, all of whom received a single subcutaneous injection of AB-729 with no serious adverse events (“SAEs”) observed and most adverse events (“AEs”) were mild and considered unrelated to AB-729. Two subjects in the 360 mg cohort had asymptomatic, reversible Grade 3 ALT elevations assessed as related to AB-729. Neither subject had meaningful changes in any other laboratory parameter excepting Grade 1 or 2 AST elevation. There were no other clinically relevant abnormalities in laboratory tests, ECGs, or vital signs. In March 2020, we also announced positive preliminary results in two cohorts (60 mg and 180 mg dose groups) of chronic hepatitis B subjects and, in May 2020, we announced additional Week 12 follow-up data on the 60 mg cohort. Week 12 data for the 90 mg single-dose cohort were reported in September 2020. All chronic hepatitis B subjects were on nucleos(t)ide antiviral therapy and received a single subcutaneous injection of AB-729. Mean HBsAg changes from baseline: 60 mg Single-Dose Cohort (B) (N=6) 90 mg Single-Dose Cohort (C) (N=6) 180 mg Single-Dose Cohort (A) (N=4) Week 12 (day 84) mean log10 IU/mL (Standard Error of the Mean) -0.99 (0.24) -1.23 (0.18) -0.98 (0.22) All single-dose cohorts achieved meaningful week 12 mean log10 (SE) HBsAg declines and the 60 mg and 90 mg single doses demonstrated favorable safety and tolerability profiles with no SAEs. Most AEs were mild (13/15) and considered unrelated (12/15) to AB-729. One subject receiving the 180 mg dose who experienced the highest HBsAg decline also experienced a Grade 3 ALT/AST flare. Notably, this subject experienced an unrelated gastroenteritis and self-medicated. We are currently dosing two 60 mg multi-dose cohorts of subjects with chronic HBV infection with dosing intervals of every four and eight weeks, respectively. 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 DNA positive subjects are expected in the fourth quarter of 2020. Additionally, the Company is dosing two 90 mg multi-dose cohorts of subjects with chronic HBV infection with dosing intervals of every eight and twelve weeks, respectively. While we have been able to progress with our clinical and pre-clinical activities to date, it is not possible to predict if the COVID-19 pandemic will negatively impact our plans and timelines, including enrolling and monitoring subjects in the trial. HBV RNA Destabilizers HBV RNA destabilizers are small molecule orally active agents that cause the destabilization and ultimate degradation of HBV RNAs. These agents result in the reduction of HBsAg and other viral proteins in both whole cell systems and animal models. They have the potential to selectively impact HBV versus other RNA or DNA viruses and demonstrate pangenotypic characteristics. HBV RNA destabilizers have demonstrated additive effects in combination with other anti-HBV mechanisms of action. HBV RNA destabilizers have the potential to complement or replace subcutaneously delivered RNAi agents with an oral therapy in combination with a capsid inhibitor and an approved NA. In February 2020, we discontinued the development of AB-452, our first-generation oral HBV RNA destabilizer product candidate following extensive preclinical evaluations. However, oral HBV RNA destabilizers have shown compelling anti-viral effects in multiple HBV pre-clinical models and we believe this target offers potential for an oral HBsAg reducing agent and potentially an all oral combination HBV therapy. Given this, we continue to advance next-generation oral HBV RNA-destabilizers with chemical scaffolds distinct from AB-452 through lead optimization. 21 Capsid Inhibitors (AB-836) HBV core protein assembles into a capsid structure, which is required for viral replication. The current commercially available therapies (NAs or Peg-IFN) significantly reduce HBV DNA levels in the serum, but HBV replication continues in the liver, thereby enabling HBV infection to persist. More effective therapies for patients require new agents which will further block viral replication. We are developing capsid inhibitors (also known as core protein inhibitors) as oral therapeutics which, in combination with NAs, could further reduce HBV replication. By inhibiting assembly of functional viral capsids, the ability of HBV to replicate is impaired. Capsid inhibitor molecules also inhibit the uncoating step of the viral life cycle and thus reduce the formation of cccDNA, the viral reservoir which resides in the cell nucleus, and which is believed to play a role in viral persistence. Our oral capsid inhibitor discovery effort generated promising next-generation compounds, which led to the nomination of AB-836 in January 2020. AB-836 is a novel chemical series differentiated from competitor compounds with the potential for increased efficacy and an enhanced resistance profile. AB-836 leverages a novel binding site within the core protein dimer-dimer interface, has shown to be active against NA resistant variants and has the potential to address certain known capsid resistant variants. AB-836 is anticipated to be combinable with other mechanisms of action and is also anticipated to be dosed once daily. We anticipate completing CTA/IND-enabling studies for AB-836 by the end of 2020. Immune Reawakening We are in lead optimization with oral compounds which are potentially capable of reawakening patients’ HBV-specific immune response by inhibiting PD-L1. These compounds complement our pipeline of agents and could potentially be an important part of a combination therapy for the treatment of HBV. COVID-19 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 pandemic has resulted in and will likely continue to result in significant disruptions to businesses. A number of countries and other jurisdictions around the world have implemented extreme measures to try and slow the spread of the virus. These measures include the closing of businesses and requiring people to stay in their homes, the latter of which raises uncertainty regarding the ability to travel to hospitals in order to participate in clinical trials. 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 the trial. While our core mission is to find a cure for hepatitis B, the magnitude of the coronavirus pandemic is undeniable. Given our proven expertise in the discovery of new antiviral therapies, we feel compelled to work towards the discovery of a new treatment. To that end, we have assembled an internal team of expert scientists under the direction of our Chief Scientific Officer, Dr. Michael Sofia, to identify novel small molecule therapies to treat COVID-19 and future coronavirus outbreaks. Dr. Sofia, who was awarded the Lasker-DeBakey Award for his discovery of sofosbuvir, brings extensive antiviral drug discovery experience to this new program. We have also recently joined 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, our 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 nsp5 viral protease. These targets are essential viral proteins which we have experience in targeting. We are actively screening multiple new oral molecular entities. Royalty Entitlements and Collaborations Alnylam Pharmaceuticals, Inc. and Acuitas Therapeutics, Inc. The Company has two royalty entitlements to Alnylam Pharmaceuticals, Inc.’s (“Alnylam”) global net sales of ONPATTRO® (“ONPATTRO”). 22 In 2012, we entered into a license agreement with Alnylam that entitles Alnylam to develop and commercialize products with our lipid nanoparticle (“LNP”) delivery technology. Alnylam’s ONPATTRO, which represents the first approved application of our 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, we are 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 to us. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and we are not obligated to reimburse OMERS if they fail to collect any such future royalties. If this royalty entitlement reverts to us, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part. We also have 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 us and was not part of the royalty entitlement sale to OMERS. Genevant Sciences, Ltd. In April 2018, we entered into an agreement with Roivant Sciences Ltd. (“Roivant”), our largest shareholder, to launch Genevant Sciences Ltd. (“Genevant”), a company focused on the discovery, development, and commercialization of a broad range of RNA-based therapeutics enabled by Arbutus’ LNP and ligand conjugate delivery technologies. We licensed exclusive rights to our LNP and ligand conjugate delivery platforms to Genevant for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties. We retained all rights to our LNP and conjugate delivery platforms for HBV. We are entitled to receive tiered low single-digit royalties on future sales of Genevant products covered by the licensed patents. If Genevant sub-licenses the intellectual property licensed by us to Genevant, we 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. 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. Patent 8,058,069 (“the ‘069 Patent”). In this decision, the PTAB determined no challenged claims were unpatentable. 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. On July 31, 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant. We participated in the recapitalization of Genevant with an equity investment of $2.5 million. In connection with the recapitalization, the three parties entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant. We have a non-voting observer seat on Genevant’s Board of Directors. As of September 30, 2020, we owned approximately 16 % of the common equity of Genevant and the carrying value of our investment in Genevant was zero. Our entitlement to receive future royalties or sublicensing revenue from Genevant was not impacted by the recapitalization. Collaboration with Assembly BioSciences, Inc. In August 2020, the Company and Assembly entered into a clinical collaboration agreement to evaluate AB-729 in combination with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate VBR and standard-of-care 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. CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 23 We believe there have been no significant changes in our critical accounting policies and estimates as discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019. RECENT ACCOUNTING PRONOUNCEMENTS From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. Please refer to note 2 to our condensed consolidated financial statements included in Part I, Item 1, “Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our business. RESULTS OF OPERATIONS The following summarizes the results of our operations for the periods shown: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Total revenue $ 1,523 $ 3,061 $ 4,528 $ 4,393 Operating expenses 16,740 94,086 46,033 135,259 Loss from operations (15,217) (91,025) (41,505) (130,866) Other income (loss) (3,538) (4,134) (5,198) (10,859) Loss before income taxes (18,755) (95,159) (46,703) (141,725) Income tax benefit — 12,656 — 12,656 Net loss (18,755) (82,503) (46,703) (129,069) Dividend accretion of convertible preferred shares (3,027) (2,792) (9,000) (8,269) Net loss attributable to common shares $ (21,782) $ (85,295) $ (55,703) $ (137,338) Revenue Revenues are summarized in the following tables: Three Months Ended September 30, 2020 % of Total 2019 % of Total (in thousands, except percentages) Revenue from collaborations and licenses Acuitas Therapeutics, Inc. $ 774 51 % $ 516 17 % Gritstone Oncology, Inc. — — % 1,722 56 % Other milestone and royalty payments 54 4 % 362 12 % Non-cash royalty revenue Alnylam Pharmaceuticals, Inc. 695 46 % 461 15 % Total revenue $ 1,523 100 % $ 3,061 100 % 24 Nine Months Ended September 30, 2020 % of Total 2019 % of Total (in thousands, except percentages) Revenue from collaborations and licenses Acuitas Therapeutics, Inc. $ 2,288 51 % $ 1,161 26 % Gritstone Oncology, Inc. — — % 1,789 41 % Other milestone and royalty payments 199 4 % 464 11 % Non-cash royalty revenue Alnylam Pharmaceuticals, Inc. 2,041 45 % 979 22 % Total revenue $ 4,528 100 % $ 4,393 100 % Revenue contracts are addressed in detail in the Overview section of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K. Revenue decreased $1.5 million for the three months ended September 30, 2020, compared to the same period in 2019, due primarily to a $1.5 million development milestone earned in 2019 under our license agreement with Gritstone Oncology, Inc. (“Gritstone”). Revenue increased $0.1 million for the nine months ended September 30, 2020, compared to the same period in 2019, due primarily to a $2.2 million increase in royalties from the growth of Alnylam’s sales of ONPATTRO, partially offset by a $1.8 million decrease in milestone and royalty revenue from Gritstone. 25 Operating expenses Operating expenses are summarized in the following tables: Three Months Ended September 30, 2020 % of Total 2019 % of Total (in thousands, except percentages) Research and development $ 12,065 72 % $ 17,731 19 % General and administrative 4,065 24 % 3,249 3 % Depreciation 490 3 % 507 1 % Change in fair value of contingent consideration 120 1 % (376) — % Site consolidation — — % 182 — % Impairment of intangible assets — — 43,836 47 % Impairment of goodwill — — 22,471 24 % Arbitration — — 6,486 7 % Total operating expenses $ 16,740 100 % $ 94,086 100 % Nine Months Ended September 30, 2020 % of Total 2019 % of Total (in thousands, except percentages) Research and development $ 32,946 72 % $ 45,183 33 % General and administrative 11,184 24 % 15,850 12 % Depreciation 1,491 3 % 1,521 1 % Change in fair value of contingent consideration 348 1 % (121) — % Site consolidation 64 — % 33 — % Impairment of intangible assets $ — — % $ 43,836 32 % Impairment of goodwill $ — — % $ 22,471 17 % Arbitration $ — — % $ 6,486 5 % Total operating expenses $ 46,033 100 % $ 135,259 100 % Research and development Research and development expenses consist primarily of clinical and pre-clinical trial expenses, personnel expenses, consulting and third party expenses, consumables and materials, as well as a portion of stock-based compensation and general overhead costs. Research and development expenses decreased $5.7 million and $12.2 million for the three and nine months ended September 30, 2020, respectively, as compared to the same periods in 2019. The decrease was due primarily to the October 2019 decision to discontinue development of AB-506, our prior generation capsid inhibitor product candidate, as well as higher spend on AB-729 during 2019 for preclinical studies and drug product supply in preparation for the Phase 1a/1b clinical trial which commenced in the second quarter of 2019. These decreases for the three and nine months ended September 30, 2020 were partially offset by higher spend related to AB-836, our next generation capsid inhibitor. A significant portion of our research and development expenses are not tracked by project as they benefit multiple projects or our technology platform and because our most-advanced programs are not yet in late-stage clinical development. General and administrative General and administrative expenses increased $0.8 million for the three months ended September 30, 2020, as compared to the same period in 2019 due primarily to increased compensation-related expenses and an increase in insurance premiums. 26 General and administrative expenses decreased $4.7 million for the nine months ended September 30, 2020 due primarily to our former President and Chief Executive Officer's departure from the company in June 2019 and a decrease in legal fees primarily associated with the arbitration case with the University of British Columbia that was settled in September 2019. In accordance with the terms of his legacy employment agreement, our former President and Chief Executive Officer received $2.3 million of cash severance, which was paid in July 2019, and we recognized $1.1 million of non-cash stock-based compensation expense for accelerated vesting of his stock options. Partially offsetting the decreases in general and administrative expenses were increased stock-based compensation expense and an increase in insurance premiums. Change in fair value of contingent consideration Contingent consideration is a liability we assumed from our acquisition of Arbutus, Inc. in March 2015. In general, as time passes and assuming no changes to the assumptions related to the contingency, the fair value of the contingent consideration increases as the progress of our programs get closer to triggering contingent payments. There were no changes to the assumptions related to the contingency in 2020. Site consolidation As of September 30, 2020, we have recognized all of the expense related to our site consolidation. Other income (loss) Other income (loss) is summarized in the following table: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) Interest income $ 100 $ 503 $ 645 $ 1,709 Interest expense (1,074) (1,100) (3,214) (1,114) Foreign exchange (losses) / gains (19) (25) (84) 43 Net equity investment loss (2,545) (3,512) (2,545) (11,497) Total other loss $ (3,538) $ (4,134) $ (5,198) $ (10,859) Interest income The decreases in interest income for the three and nine months ended September 30, 2020, compared to the same periods in 2019 were due primarily to a general decline in market interest rates. Interest expense Interest expense for the three and nine months ended September 30, 2020 consisted primarily of non-cash amortization of the liability related to the sale of future royalties, which occurred in July 2019. Foreign exchange gains (losses) In connection with our site consolidation to Warminster, PA, our Canadian dollar denominated expenses and cash balances have decreased significantly now that a majority of our business transactions are based in the United States. We continue to incur expenses and hold some cash balances in Canadian dollars, and as such, will remain subject to risks associated with foreign currency fluctuations. In the future, we expect that the proportion of cash balances and expenses incurred in Canadian dollars, relative to U.S. dollars, will continue to decrease as a result of the site consolidation. Equity investment losses In the second quarter of 2018, together with Roivant, we launched Genevant, a company focused on the discovery, development, and commercialization of a broad range of RNA-based therapeutics enabled by our LNP delivery technologies. On July 31, 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant. We participated in the recapitalization of Genevant with an equity investment of $2.5 million. Following the recapitalization, we own approximately 16% of the common equity of Genevant. In connection with the 27 recapitalization, the three parties entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant. We have a non-voting observer seat on Genevant’s Board of Directors. We determined that this $2.5 million additional investment in Genevant was funding prior losses and recorded the amount as an equity investment loss on the Condensed Consolidated Statements of Operations and Comprehensive Loss during the third quarter of 2020. For the three and nine months ended September 30, 2019, we recorded $3.5 million and $11.5 million of equity investment losses, respectively. The equity investment losses for 2019 reflected our proportionate share of Genevant’s net results on a one-quarter lag basis. Due to our loss of significant influence with respect to Genevant as a result of the recapitalization, we discontinued the use of equity method accounting for our interest in Genevant. Following the recapitalization, we account for our 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 future observable price changes in orderly transactions for identical or a similar Genevant securities. As of September 30, 2020, the carrying value of our investment in Genevant was zero and we owned approximately 16% of the common equity of Genevant. Our entitlement to receive future royalties or sublicensing revenue from Genevant was not impacted by the recapitalization. LIQUIDITY AND CAPITAL RESOURCES The following table summarizes our cash flow activities for the periods indicated: Nine Months Ended September 30, 2020 2019 (in thousands) Net loss $ (46,703) $ (129,069) Non-cash items 10,365 73,410 Net change in operating items (90) (1,996) Net cash used in operating activities (36,428) (57,655) Net cash provided by investing activities 35,067 87,160 Net cash provided by financing activities 66,536 23,564 Effect of foreign exchange rate changes on cash and cash equivalents (56) 71 Increase in cash and cash equivalents 65,119 53,140 Cash and cash equivalents, beginning of period 31,799 36,942 Cash and cash equivalents, end of period $ 96,918 $ 90,082 Since our incorporation, we have financed our operations through the sales of equity, debt, revenues from research and development collaborations and licenses with corporate partners, royalty monetization, interest income on funds available for investment, and government contracts, grants and tax credits. For the nine months ended September 30, 2020, $36.4 million of cash was used in operating activities compared to $57.7 million of cash used in the nine months ended September 30, 2019. The decrease in net cash used in operating activities was related primarily to lower research and development expenses from our decision in October 2019 to discontinue development of AB-506 as well as higher spend on AB-729 during 2019 for preclinical studies and drug product supply in preparation for the Phase 1a/1b clinical trial which commenced in the second quarter of 2019, in addition to the payment of a $5.9 million arbitration award to UBC during the nine months ended September 30, 2019. For the nine months ended September 30, 2020, net cash provided by investing activities was $35.1 million as we purchased additional investments in marketable securities of $28.9 million, while $66.5 million of short-term investments matured. For the nine months ended September 30, 2019, net cash provided by investing activities was $87.2 million as certain short-term investments matured. 28 For the nine months ended September 30, 2020, net cash provided by financing activities was $66.5 million due primarily to proceeds from sales of common shares under our open market sale agreement, as amended, with Jefferies LLC (“Jefferies”). For the nine months ended September 30, 2019, net cash provided by financing activities was $23.6 million due primarily to proceeds from the sale of a portion of our future royalties from sales of ONPATTRO and proceeds from sales of common shares under our open market sale agreement. Sources of Liquidity As of September 30, 2020, we had cash, cash equivalents and investments of $118.3 million. We had no outstanding debt at September 30, 2020. In December 2018, we entered into an Open Market Sale Agreement with Jefferies (the “Sale Agreement”), under which we could issue and sell common shares, from time to time, for an aggregate sales price of up to $50.0 million. In December 2019, we 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 we may sell our common shares, from time to time, for an aggregate sales price of up to $50.0 million, under the Shelf Registration Statement. During July 2020, we fully utilized the remaining availability under the Sale Agreement, as amended by the 2019 Amendment. In August 2020, we entered into a new amendment to the Sale Agreement (the “2020 Amendment”) with Jefferies. Pursuant to the 2020 Amendment, we can issue and sell common shares, from time to time, for an aggregate sales price of up to an additional $75.0 million under the Sale Agreement. For the three and nine months ended September 30, 2020, we issued 13,258,096 and 19,696,361 common shares, respectively, under 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 is approximately $62.3 million available under the Sale Agreement, as amended. In August 2020, we filed a new $200 million shelf registration statement on Form S-3 (File No. 333-248467), which was declared effective by the SEC on October 22, 2020 (the “New Shelf Registration Statement”). We have not yet sold any securities under the New Shelf Registration Statement. Additionally, we have a royalty entitlement on ONPATTRO, a drug developed by Alnylam that incorporates our LNP technology and was approved by the FDA and the EMA during the third quarter of 2018 and was launched immediately upon approval in the US. In July 2019, we sold a portion of this royalty interest 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 such royalty interest on future global net sales of ONPATTRO will revert to us. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and Arbutus is not obligated to reimburse OMERS if they fail to collect any such future royalties. If this royalty entitlement reverts to us, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part. In addition to the royalty from the Alnylam LNP license agreement, we are also receiving a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas. The royalty from Acuitas has been retained by us and was not part of the royalty sale to OMERS. In October 2017, we closed the sale of 500,000 Series A participating convertible preferred shares (the “Preferred Shares”) to Roivant for gross proceeds of $50.0 million. A second tranche of 664,000 Preferred Shares for gross proceeds of $66.4 million closed in January 2018, following receipt of the approval of our shareholders. We are using these proceeds to develop and advance product candidates through clinical trials, as well as for working capital and general corporate purposes. 29 Cash requirements At September 30, 2020, we held an aggregate of $118.3 million in cash, cash equivalents and investments. We believe that our cash, cash equivalents and investments as of September 30, 2020 is sufficient to fund our operations into mid-2022. In the future, substantial additional funds will be required to continue with the active development of our pipeline products and technologies. In particular, our funding needs may vary depending on a number of factors including: • the effects of the COVID-19 pandemic on our business, the medical community and the global economy; • revenue earned from our legacy collaborative partnerships and licensing agreements, including potential royalty payments from Alnylam’s ONPATTRO; • revenue earned from ongoing collaborative partnerships, including milestone and royalty payments; • the extent to which we continue the development of our product candidates, add new product candidates to our pipeline, or form collaborative relationships to advance our product candidates; • delays in the development of our product candidates due to pre-clinical and clinical findings; • our decisions to in-license or acquire additional products, product candidates or technology for development, in particular for our HBV therapeutics programs; • our ability to attract and retain corporate partners, and their effectiveness in carrying out the development and ultimate commercialization of our product candidates; • whether batches of drugs that we manufacture fail to meet specifications resulting in delays and investigational and remanufacturing costs; • the decisions, and the timing of decisions, made by health regulatory agencies regarding our technology and products; • competing technological and market developments; and • costs associated with prosecuting and enforcing our patent claims and other intellectual property rights, including litigation and arbitration arising in the course of our business activities. We intend to seek funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, potential monetization transactions, collaborative or licensing arrangements with pharmaceutical companies and government grants and contracts. There can be no assurance that funding will be available at all or on acceptable terms to permit further development of our research and development programs. Further, the continued spread of COVID-19 has also led to severe disruption and volatility in the global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital markets in the future. If adequate funding is not available, we may be required to delay, reduce or eliminate one or more of our research or development programs or reduce expenses associated with our non-core activities. We may need to obtain funds through arrangements with collaborators or others that may require us to relinquish most or all of our rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise seek if we were better funded. Insufficient financing may also mean failing to prosecute our patents or relinquishing rights to some of our technologies that we would otherwise develop or commercialize. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.