What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-05 · 209 added, 235 removed, 179 unchanged (71% of the section changed)

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.

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, 2020 and our unaudited condensed consolidated financial statements for the three months ended March 31, 2021.

Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles and are presented in U.S.

7 unchanged sentences

• 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”);

2 unchanged sentences

• 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.

• the potential of our drug candidates to improve upon the standard of care and contribute to a curative combination treatment regimen;

• using the results from our HBV studies to adaptively design additional clinical trials to test the efficacy of the combination therapy and the duration of the result in patients;

• the expected timing of and amount for payments related to the Enantigen Therapeutics, Inc.’s transaction and its programs;

• the potential of our product candidates to improve upon the standard of care and contribute to a functional 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;

2 unchanged sentences

• 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;

• the potential of substantially increasing diagnosis and treatment rates for people with chronic HBV through the introduction of an HBV curative regimen with a finite duration;

• expanding our HBV product candidate pipeline through internal development, acquisitions and in-licenses;

• our expectation for additional data from ongoing cohorts of the Phase 1a/1b trial of AB-729 to be available in the second quarter of 2021 (other than initial data from the 90 mg every 12-week dosing interval cohort in HBV DNA negative subjects and initial data from the 90 mg every 8-week dosing interval cohort in HBV DNA positive subjects, which are expected in the second half of 2021);

• 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;

• our intention to initiate two Phase 2 clinical trials with AB-729, some with one or more approved or investigational agents, in the second half of 2021;

• our expectations regarding the anticipated trial design, timing, number of patients and dosing of our Phase 2 clinical trial of Assembly Biosciences, Inc.’s (“Assembly”) investigational HBV core inhibitor candidate, also known as a capsid inhibitor, vebicorvir, in combination with our proprietary GalNAc delivered RNAi therapeutic candidate, AB-729, and standard-of-care nucleos(t)ide reverse transcriptase inhibitor (NrtI) therapy for the treatment of patients with chronic HBV infection;

• 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;

• 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;

• our expectation to obtain initial data from the ongoing Phase 1a/1b clinical trial for AB-836 in the second half of 2021;

• the potential for AB-836 to have increased potency and an enhanced resistance profile, compared to our previous capsid inhibitor candidate, AB-506, and other competitive capsid inhibitors;

• 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;

• the potential for AB-729 to have a dosing schedule as infrequently as every 8 to 12 weeks;

• 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 potential for us to discover and/or develop new molecular entities for treating coronaviruses, including COVID-19;

• the potential for our collaboration with X-Chem, Inc.

(“X-Chem”) and Proteros biostructures GmbH (“Proteros”) to result in the rapid screening of one of the largest small molecule libraries against M pro and the potential for us to progress related inhibitors to clinical candidates;

• the potential for our collaboration with X-Chem, Inc.

(“X-Chem”) and Proteros biostructures GmbH (“Proteros”) to result in the rapid screening of one of the largest small molecule libraries against Mpro and the potential for us to progress related inhibitors to clinical candidates;

• payments from the Gritstone Oncology, Inc.

licensing agreement;

• the potential for royalty payments from the agreement related to Genevant Sciences Ltd.;

• 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;

• having sufficient cash resources to fund our operations through the third quarter of 2022 based on our expectation of a net cash burn between $70 million and $75 million in 2021;

• 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,

12 unchanged sentences

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.

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.

Arbutus Biopharma Corporation (“Arbutus”, the “Company”, “we”, “us”, and “our”) is a clinical-stage, biopharmaceutical company focused primarily on developing a cure for people with chronic hepatitis B virus (“HBV”) infection.

We are advancing multiple product candidates with distinct mechanisms of action and we believe the combination of two or more of these product candidates has the potential to provide a new 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.

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;

• 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.

The core elements of our strategy include:

• Developing a broad portfolio of proprietary therapeutic product candidates that target multiple elements of the HBV viral lifecycle.

Our HBV product pipeline includes RNA interference (“RNAi”) therapeutics, oral capsid inhibitors, oral HBV RNA destabilizer compounds and oral compounds that inhibit PD-L1 with the intention of reawakening patients’ HBV-specific immune response.

We believe that suppressing HBV DNA replication and hepatitis B surface antigen (“HBsAg”) expression as well as reawakening patients’ HBV-specific immune response are the most important elements to achieving a functional cure.

We define a functional cure as unquantifiable plasma HBV DNA and HBsAg levels greater than six months after end of therapy with or without quantifiable anti-HBsAg antibodies.

Our two lead product candidates are AB-729, our proprietary subcutaneously-delivered RNAi product candidate that suppresses HBsAg expression, which is thought to be a key prerequisite to enable reawakening of a patient’s immune system to respond to HBV, and AB-836, our proprietary next-generation oral capsid inhibitor that suppresses HBV DNA replication.

AB-729 is currently in an ongoing Phase 1a/1b clinical trial and a Phase 2 clinical trial in collaboration with Assembly Biosciences, Inc.(“Assembly”).

We have announced positive preliminary results in the Phase 1a/1b clinical trial from several single and multi-dose cohorts of subjects with chronic HBV infection, which have demonstrated that treatment with AB-729 resulted in meaningful declines in HBsAg while being well tolerated with no serious adverse events noted after both single and repeat dosing.

We expect to provide additional data from ongoing cohorts of this Phase 1a/1b clinical trial in the second quarter of 2021, except for initial data from the 90 mg every 12-week dosing interval cohort in HBV DNA negative subjects and initial data from the 90 mg every 8-week dosing interval cohort in HBV DNA positive subjects, which are expected in the second half of 2021.

We initiated a Phase 1a/1b clinical trial for AB-836 in the first quarter of 2021 with initial data anticipated in the second half of 2021.

AB-836 is from a novel chemical series differentiated from competitor compounds and has the potential to provide increased efficacy and an enhanced resistance profile.

Additionally, we are in lead optimization with oral compounds that inhibit PD-L1 with the intention of reawakening patients’ HBV-specific immune response and next-generation oral HBV RNA destabilizer compounds that are designed to destabilize and ultimately degrade HBV RNAs resulting in the reduction of HBsAg.

• Creating combinations of therapeutic product candidates with complementary mechanisms of action designed to provide a functional cure for people with chronic HBV infection.

We believe that our proprietary product candidates AB-729 and AB-836, along with existing approved therapies, may be combined into our first combination therapy for people with chronic HBV infection.

Additionally, through our collaboration with Assembly, we have initiated a Phase 2 proof-of-concept clinical trial with a triple combination of AB-729, our RNAi product candidate, Assembly’s lead HBV core inhibitor (capsid inhibitor) product candidate, vebicorvir (“VBR”), and nucleos(t)ide analog (“NA”) therapy for the treatment of people with chronic HBV infection.

We also intend to initiate two Phase 2 proof-of-concept clinical trials with AB-729 in combination with one or more approved or investigational agents in the second half of 2021 with dosing of AB-729 as infrequently as every 8 or 12 weeks.

• Advancement of an internal research program focused on identifying new small molecule antiviral medicines to treat COVID-19 and future coronavirus outbreaks.

This program is focused on the discovery and development of new molecular entities for treating coronaviruses (including COVID-19) that address specific viral targets including the nsp12 viral polymerase and the nsp5 viral protease.

Our collaboration with X-Chem, Inc.

(“X-Chem”) and Proteros biostructures GmbH (“Proteros”) is expected to allow for the rapid screening of one of the largest small molecule libraries against M pro (an essential protein required for the virus to replicate itself) and use state-of-the-art structure guided methods to rapidly optimize M pro inhibitors, which we could potentially progress to clinical candidates.

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.

Given the biology of HBV, we believe combination therapies are the key to more effective HBV treatment and a potential functional cure.

Our product pipeline includes multiple product candidates that target various steps in the viral lifecycle.

We believe each of these mechanisms, when administered for a finite duration in combination with existing approved therapies, have the potential to improve upon the standard of care and potentially lead to a functional cure.

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.

Our two lead product candidates are AB-729 and AB-836, which are both currently in ongoing Phase 1a/1b clinical trials.

Additionally, through our collaboration with Assembly, we have initiated a Phase 2 proof-of-concept clinical trial with AB-729, VBR, and an NA.

In parallel, we are in lead optimization with oral compounds for our PD-L1 program and next-generation HBV RNA destabilizer program.

At this time, our coronavirus research program is focused on the discovery and development of new molecular entities that address specific viral targets including the nsp12 viral polymerase and the nsp5 viral protease.

We continue to explore expansion of our HBV pipeline through internal discovery and development activities and through potential strategic alliances.

2 unchanged sentences

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.

We are developing RNAi therapeutics that are designed to reduce HBsAg expression and other HBV antigens in people 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.

AB-729 is a subcutaneously-delivered RNAi therapeutic targeted to hepatocytes using our proprietary covalently conjugated GalNAc delivery technology.

AB-729 reduces all HBV antigens and inhibits viral replication.

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 and to determine the most appropriate doses and dosing intervals to take forward into Phase 2 clinical development.

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

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

(N=6) 90 mg Single-Dose

(N=6) 180 mg Single-Dose

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.

Capsid Inhibitors (AB-836)

• In Part 1, three cohorts of healthy volunteers 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, hepatitis B e-antigen (“HBeAg”) positive or negative chronic HBV subjects (n=6) currently taking NA therapy with HBV DNA below the limit of quantitation received single doses (60 mg to 180 mg) of AB-729.

An additional cohort in Part 2 included 90 mg single-dose of AB-729 in HBV DNA positive chronic HBV subjects (n=6).

• In Part 3, chronic HBV subjects, HBV DNA negative first and HBV DNA positive later, receive multiple doses of AB-729 for up to six months.

Upon completion of six months of dosing, so far, all subjects in the 60 mg dose every 4 weeks and 60 mg dose every 8 weeks cohorts have elected the option to reconsent and receive an additional six months of dosing for a total of 48 weeks.

Part 1 of the trial, which dosed healthy volunteers, was completed and supported advancing doses ranging from 60 mg to 180 mg into Part 2.

We expect Part 2, which dosed subjects with chronic HBV infection with single doses of AB-729, to complete its 48 weeks of follow-up period in the second quarter of 2021.

Additionally, several cohorts in Part 3 have received multiple doses of AB-729.

Results to date demonstrate that treatment of AB-729 has been safe and well tolerated.

Efficacy results to date suggest that:

• Single doses of 60 mg, 90 mg and 180 mg resulted in comparable mean HBsAg declines at week 12 followed by a sustained plateau phase (-0.99 log10 IU/mL vs -1.23 log10 IU/mL, vs -1.10 log10 IU/mL, respectively)

• Repeat dosing using the 60 mg dose every 4 weeks resulted in a continuous and robust mean HBsAg decline at week 16 (-1.44 log10 IU/mL, N=7) and continued through week 24 (-1.84 log10 IU/mL, N=7)

• Repeat dosing using the 60 mg dose every 8 weeks resulted in comparable mean HBsAg declines relative to the 60 mg dose every 4 weeks at week 16 (-1.39 log10 IU/mL vs -1.44 log10 IU/mL, p<0.7, respectively)

• In HBV DNA positive HBV subjects, a single 90 mg dose resulted in robust mean declines in HBsAg (-1.02 log10 IU/mL) and HBV DNA (-1.53 log10 IU/mL) at week 12, as well as decreases in HBV RNA and core-related antigen

– Similar mean HBsAg reductions were observed in HBV DNA positive and negative chronic HBV subjects

– These findings support complete target engagement by AB-729

We expect to provide additional data from ongoing cohorts of the Phase 1a/1b clinical trial in the second quarter of 2021, including additional data from the 60 mg multi-dose cohort (4 week and 8 week dosing intervals) and initial data from the 90 mg multi-dose cohort (8 week dosing interval).

We expect initial data from the 90 mg every 12-week dosing interval cohort in HBV DNA negative subjects and initial data from the 90 mg every 8-week dosing interval cohort in HBV DNA positive subjects to be available in the second half of 2021.

Additionally, we intend to advance AB-729 into two Phase 2 proof-of-concept combination clinical trials with one or more approved or investigational agents in the second half of 2021 with dosing of AB-729 as infrequently as every 8 or 12 weeks.

Collaboration with Assembly

In August 2020, we entered into a clinical collaboration agreement with Assembly to evaluate AB-729 in combination with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate vebicorvir (“VBR”) and standard-of-care NA therapy for the treatment of subjects with chronic HBV infection.

Under the terms of the agreement, this trial will be a randomized, multi-center, open-label Phase 2 proof-of-concept clinical trial that will evaluate the safety, pharmacokinetics, and antiviral activity of the triple combination of AB-729, VBR, and an NA compared to the double combinations of VBR with an NA and AB-729 with an NA.

We expect to enroll approximately 60 virologically-suppressed subjects with HBeAg negative chronic HBV infection in the first cohort of this trial.

Patients will be dosed for 48 weeks with AB-729 60 mg subcutaneously every 8 weeks and VBR 300 mg orally once daily, with a 48-week follow-up period.

We and Assembly recently initiated screening for this clinical trial.

We and Assembly will share in the costs of the collaboration.

Under the terms of the collaboration, we and Assembly may also add additional cohorts in the future to evaluate other patient populations and/or combinations.

Except to the extent necessary to carry out Assembly’s responsibilities with respect to the collaboration trial, we have not provided any license grant to Assembly for use of our AB-729 compound.

Oral Capsid Inhibitors (AB-836)

HBV core protein assembles into a capsid structure, which is required for viral replication.

8 unchanged sentences

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 completed CTA/IND-enabling studies for AB-836 in the fourth quarter of 2020 and initiated a Phase 1a/1b clinical trial for AB-836 in the first quarter of 2021 with initial data expected in the second half of 2021.

Oral PD-L1 Inhibitors

PD-L1 inhibitors complement our pipeline of agents and could potentially be an important part of a combination therapy for the treatment of HBV.

Highly functional HBV-specific T cells within our immune system are believed to be required for long-term HBV viral resolution.

However, HBV-specific T cells become functionally defective, and greatly reduced in their frequency during chronic HBV infection.

One approach to boost HBV-specific T cells is to prevent PD-L1 proteins from attaching to and inhibiting the HBV-specific T cells.

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.

Oral HBV RNA Destabilizers

HBV RNA destabilizers are small molecule orally available 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, such as AB-729, with an oral therapy in combination with a capsid inhibitor and an approved NA.

We continue to advance next-generation oral HBV RNA-destabilizers through lead optimization.

COVID-19 Research Efforts

While our core mission is to find a cure for HBV, the magnitude of the coronavirus pandemic is undeniable.

Given our proven expertise in the discovery of new antiviral therapies, we initiated a drug discovery effort for treating coronaviruses, including COVID-19, in 2020.

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.

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

We are also a member of the COVID R&D consortium to address the SARS-CoV-2 pandemic and any future coronavirus outbreaks.

At this time, our COVID-19 research program is focused 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.

COVID-19 Impact

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

4 unchanged sentences

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.

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.

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.

Future disruptions related to the COVID-19 pandemic could negatively impact our plans and timelines through the remainder of 2021 and beyond, including enrolling and monitoring subjects in our clinical trials.

Royalty Entitlements and Collaborations

Collaboration with Assembly

In August 2020, we entered into a clinical collaboration agreement with Assembly to evaluate AB-729 in a Phase 2 proof-of-concept clinical trial in combination with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate VBR and standard-of-care NA therapy for the treatment of patients with chronic HBV infection.

We and Assembly have initiated screening and will share in the costs of the collaboration.

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”).

We have two royalty entitlements to Alnylam Pharmaceutical Inc.’s (“Alnylam”) global net sales of ONPATTRO.

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.

1 unchanged sentence

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.

This royalty interest was sold to the Ontario Municipal Employees Retirement System (“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.

1 unchanged sentence

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.

From the inception of the royalty sale through March 31, 2021, an aggregate of $6.0 million of royalties have been collected by OMERS.

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 Therapeutics, Inc.

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

2 unchanged sentences

(“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.

(“Genevant”), a company focused on the discovery, development, and commercialization of a broad range of RNA-based therapeutics enabled by our LNP and ligand conjugate delivery technologies.

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.

Under the Genevant License, 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 are entitled to receive under the Genevant License, 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 31, 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant.

2 unchanged sentences

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.

As of March 31, 2021, 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.

Moderna Inter Partes Review Petitions

On February 21, 2018 and March 5, 2018, Moderna Therapeutics, Inc.

(“Moderna”) filed petitions requesting the United States Patent and Trademark Office to institute an Inter Partes Review of Arbutus United States Patents 9,404,127 (“the ’127 Patent”) and 9,364,435 (“the ’435 Patent”).

In its petitions, Moderna sought to invalidate all claims of each patent based on Moderna’s allegation that the claims are anticipated and/or obvious.

We filed a response to Moderna’s petitions on June 14, 2018.

On September 12, 2018, the Patent Trial and Appeal Board (the “PTAB”) rendered its decision to institute Inter Partes Review of both the ‘127 Patent and the ‘435 Patent.

The status of these patents is as follows:

with respect to the ‘127 Patent, the PTAB held all claims as invalid as anticipated on September 10, 2019.

However this decision was vacated and sent back (remanded) to the PTAB for a rehearing, pending the Supreme Court’s decision whether to grant certiorari in a different case, United States v.

Athrax”), the holding of which could impact the findings in the ‘127 Patent matter.

The Supreme Court granted certiorari in US v.

Athrax on October 13, 2020 (i.e.

agreed to review the decision appealed from a lower court).

Because the Supreme Court has yet to render its opinion in US v.

Athrax, the ‘127 Patent hearing remains in abeyance, with no decision reached as to the validity of its claims.

With respect to the ‘435 Patent, the PTAB rendered its decision on September 11, 2019, holding certain claims invalid and upholding other claims as valid.

On November 13, 2019, we and Moderna both appealed the decision.

Moderna filed its opening brief on May 4, 2020 and we provided our opening and responsive brief on July 27, 2020.

Moderna subsequently filed its reply and responsive brief on October 5, 2020, and we filed our reply brief on November 9, 2020.

The appeal with respect to the ‘435 Patent is currently awaiting an oral argument date.

On January 9, 2019, Moderna filed an additional petition requesting Inter Partes Review of Arbutus United States Patent 8,058,069 (“the ’069 Patent”).

The PTAB instituted Inter Partes Review of the ‘069 Patent, upholding all claims as valid.

On September 23, 2020, Moderna appealed the ‘069 Inter Partes Review decision to the Federal Circuit Court of Appeals.

Moderna filed its opening brief in that appeal on February 23, 2021, and our response brief is due on May 11, 2021.

Moderna and Merck European Oppositions

On April 5, 2018, Moderna and Merck, Sharp & Dohme Corporation (“Merck”) filed Notices of Opposition to Arbutus’ European patent EP 2279254 (“the ’254 Patent”) with the European Patent Office (“EPO”), requesting that the ‘254 Patent be revoked in its entirety for all contracting states.

We filed a response to Moderna and Merck’s oppositions on September 3, 2018.

A hearing was conducted before the Opposition Division of the EPO on October 10, 2019.

At the conclusion of the hearing, the EPO upheld an auxiliary request adopting the amendment, as put forth by us, of certain claims of the ‘254 Patent.

In February 2020 Moderna and Merck filed Notices of Appeal challenging the EPO’s grant of the auxiliary request.

Merck filed its notice of appeal on February 24, 2020 and Moderna on February 27, 2020.

We filed our response on September 18, 2020.

While we are the patent holder, the ‘127 Patent, the ‘435 Patent, the ‘069 Patent and the ‘254 Patent have been licensed to Genevant and are included in the exclusive rights licensed by us to Genevant under the Genevant License.

Collaboration with X-Chem, Inc.

and Proteros biostructures GmbH

In March 2021, we entered into a discovery research and license agreement with X-Chem and Proteros to focus on the discovery of novel inhibitors targeting the SARS-CoV-2 nsp5 main protease (M pro ).

The agreement is designed to accelerate the development of pan-coronavirus agents to treat COVID-19 and potential future coronavirus outbreaks.

This collaboration brings together our expertise in the discovery and development of antiviral agents with X-Chem’s industry leading DNA-encoded library (DEL) technology and Proteros’ protein sciences, biophysics and structural biology capabilities and provides important synergies to potentially identify safe and effective therapies against coronaviruses including SARS-CoV-2.

The collaboration is expected to allow for the rapid screening of one of the largest small molecule libraries against M pro (an essential protein required for the virus to replicate itself) and the use of state-of-the-art structure guided methods to rapidly optimize M pro inhibitors, which we could potentially progress to clinical candidates.

The agreement provides for payments by the Company to X-Chem and Proteros upon satisfaction of certain development, regulatory and commercial milestones, as well as royalties on sales.

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.

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.

8 unchanged sentences

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

Three Months Ended March 31,

(in thousands)

3 unchanged sentences

Other income (loss) (705) (714)

Loss before income taxes (18,755) (95,159) (46,703) (141,725)

Income tax benefit — 12,656 — 12,656

Net loss (16,381) (13,861)

1 unchanged sentence

Net loss attributable to common shares $ (19,593) $ (16,839)

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 %

Nine Months Ended September 30,

Revenues are summarized in the following table:

Three Months Ended March 31,

2021 % of Total 2020 % of Total

3 unchanged sentences

$ 1,095 52 % $ 753 51 %

Gritstone Oncology, Inc.

— — % 1,789 41 %

Other milestone and royalty payments 59 3 % 82 5 %

4 unchanged sentences

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 2020 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.

Total revenue increased $0.6 million for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to an increase in license royalty revenue from Alnylam and Acuitas due to the growth of Alnylam’s sales of ONPATTRO.

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,

Operating expenses are summarized in the following table:

Three Months Ended March 31,

2021 % of Total 2020 % of Total

5 unchanged sentences

Site consolidation — — % 57 — %

Impairment of intangible assets $ — — % $ 43,836 32 %

Impairment of goodwill $ — — % $ 22,471 17 %

Arbitration $ — — % $ 6,486 5 %

Total operating expenses $ 17,789 100 % $ 14,638 100 %

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.

Research and development expenses consist primarily of personnel expenses, fees paid to clinical research organizations and contract manufacturers, consumables and materials, consulting, and other third party expenses to support our clinical and pre-clinical activities, as well as a portion of stock-based compensation and general overhead costs.

Research and development expenses increased $3.0 million for the three months ended March 31, 2021 compared to the same period in 2020.

The increase was due primarily to higher expenses for our clinical development and discovery programs, including activities under our collaboration with Assembly and internal research efforts to treat COVID-19 and future coronavirus outbreaks, both of which initiated in mid-2020.

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.

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.

General and administrative expenses increased $0.3 million for the three months ended March 31, 2021, as compared to the same period in 2020, due primarily to increased non-cash stock-based compensation expense.

Change in fair value of contingent consideration

2 unchanged sentences

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.

There were no changes to the assumptions related to the contingency during the three months ended March 31, 2021.

Site consolidation

As of September 30, 2020, we have recognized all of the expense related to our site consolidation.

The final portion of expenses associated with our site consolidation and organizational restructuring of our business in Warminster, PA, which was substantially completed in 2018, were fully recognized in 2020.

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

Three Months Ended March 31,

(in thousands)

2 unchanged sentences

Foreign exchange (losses) / gains 28 (18)

Net equity investment loss (2,545) (3,512) (2,545) (11,497)

Total other loss $ (705) $ (714)

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.

The decrease in interest income for the three months ended March 31, 2021 compared to the same period in 2020 was 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.

Interest expense for the three months ended March 31, 2021 consisted primarily of non-cash amortization of discount and issuance costs related to the sale of a portion of our ONPATTRO royalty interest to OMERS 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

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.

We continue to incur expenses and hold some cash balances in Canadian dollars, and as such, we will remain subject to risks associated with foreign currency fluctuations.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes our cash flow activities for the periods indicated:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

3 unchanged sentences

Net cash used in operating activities (17,881) (15,453)

Net cash provided by investing activities 35,067 87,160

Net cash provided by (used in) investing activities 18,221 (2,401)

Net cash provided by financing activities 26,874 12,481

Effect of foreign exchange rate changes on cash and cash equivalents (44) (10)

Increase in cash and cash equivalents 65,119 53,140

Increase (decrease) in cash and cash equivalents 27,170 (5,383)

Cash and cash equivalents, beginning of period 52,251 31,799

1 unchanged sentence

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.

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.

For the three months ended March 31, 2021, $17.9 million of cash was used in operating activities compared to $15.5 million for the three months ended March 31, 2020, an increase of $2.4 million.

The increase was due primarily to a $3.0 million

increase in research and development expenses due to higher expenses for our clinical development and discovery programs, including activities under our collaboration with Assembly and internal research efforts to treat COVID-19 and future coronavirus outbreaks, both of which initiated in mid-2020.

For the three months ended March 31, 2021, net cash provided by investing activities was $18.2 million, consisting primarily of additional investments in marketable securities of $2.0 million, offset by maturities of investments in marketable securities of $20.4 million.

For the three months ended March 31, 2020, net cash used in investing activities was $2.4 million consisting of maturities of $22.0 million and purchases of investments in marketable securities of $24.4 million.

For the three months ended March 31, 2021 and 2020, net cash provided by financing activities was $26.9 million and $12.5 million, respectively, due primarily to proceeds from sales of common shares under our Open Market Sale Agreement, as amended, with Jefferies LLC (“Jefferies”).

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.

As of March 31, 2021, we had cash, cash equivalents and investments of $132.0 million.

We had no outstanding debt as of March 31, 2021.

We have an Open Market Sale Agreement (“Sales Agreement”) with Jefferies dated December 20, 2018, as amended on December 20, 2019 (the “2019 Amended Sale Agreement”), under which we may issue and sell common shares, from time to time, under a shelf registration statement on Form S-3 (File No.

333-235674), filed with the SEC on December 23, 2019 (the “2019 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 2020, we fully utilized the remaining availability under the 2019 Amended Sale Agreement.

In August 2020, we entered into a new amendment (the “2020 Amended Sale Agreement”) with Jefferies whereby we may issue and sell common shares from time to time for an aggregate sales price of up to $75 million under the 2019 Shelf Registration Statement.

On August 28, 2020, we filed a new $200 million shelf registration statement on Form S-3 (File No.

333-248467) with the SEC (the “2020 Shelf Registration Statement”).

On March 4, 2021, we filed another prospectus supplement with the SEC (the “March 2021 Prospectus Supplement”) in connection with the offering of up to an additional $75.0 million of its common shares pursuant to the Sale Agreement, as amended, under the 2020 Shelf Registration Statement.

During the three months ended March 31, 2021, we issued 6,395,780 common shares pursuant to the 2020 Amended Sale Agreement, resulting in net proceeds of approximately $26.4 million.

For the three months ended March 31, 2020, we issued 4,147,081 common shares pursuant to the 2019 Amended Sale Agreement, resulting in net proceeds of approximately $12.3 million.

As of March 31, 2021, there was approximately $14.2 million available under the August 2020 Prospectus Supplement and $75.0 million available under the March 2021 Prospectus Supplement.

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.

4 unchanged sentences

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.

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.

At March 31, 2021, we held an aggregate of $132.0 million in cash, cash equivalents and investments.

We believe that our cash resources as of March 31, 2021 will be sufficient to fund our operations through the third quarter of 2022 based on our expectation of a net cash burn between $70 million and $75 million in 2021.

In the future, substantial additional funds will be required to continue with the active development of our pipeline products and technologies.

3 unchanged sentences

• 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;

• the extent to which we continue the development of our product candidates, add new product candidates to our pipeline, or form collaborative relationships or licensing arrangements 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;

• our decisions to in-license or acquire additional products, product candidates or technology for development;

• our ability to attract and retain development or commercialization partners, and their effectiveness in carrying out the development and ultimate commercialization of one or more of our product candidates;

• whether batches of product candidates that we manufacture fail to meet specifications resulting in clinical trial delays and investigational and remanufacturing costs;

• the decisions, and the timing of decisions, made by health regulatory agencies regarding our technology and product candidates;

• competing products, product candidates and technological and market developments;

• 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.

8 unchanged sentences

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 2. Management’s Discussion and Analysis