Arbutus Biopharma Corp 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ARBUTUS BIOPHARMA CORPORATION Condensed Consolidated Balance Sheets (Unaudited) (In thousands of U.S. Dollars, except share and per share amounts) March 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 79,421 $ 52,251 Investments in marketable securities, current 52,540 71,017 Accounts receivable 1,265 1,312 Prepaid expenses and other current assets 4,115 3,124 Total current assets 137,341 127,704 Property and equipment, net of accumulated depreciation of $ 8,063 (December 31, 2020: $ 7,621 ) 6,584 6,927 Right of use asset 2,315 2,405 Other non-current assets — 44 Total assets $ 146,240 $ 137,080 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued liabilities $ 6,063 $ 8,901 Liability-classified options 198 250 Lease liability, current 432 390 Total current liabilities 6,693 9,541 Liability related to sale of future royalties 19,366 19,554 Contingent consideration 3,555 3,426 Lease liability, non-current 2,477 2,593 Total liabilities 32,091 35,114 Stockholders’ equity Preferred shares Authorized: unlimited number without par value Issued and outstanding: 1,164,000 (December 31, 2020: 1,164,000 ) 152,620 149,408 Common shares Authorized: unlimited number without par value Issued and outstanding: 96,245,371 (December 31, 2020: 89,678,722 ) 1,013,118 985,939 Additional paid-in capital 62,133 60,751 Deficit ( 1,065,554 ) ( 1,045,961 ) Accumulated other comprehensive loss ( 48,168 ) ( 48,171 ) Total stockholders ’ equity 114,149 101,966 Total liabilities and stockholders’ equity $ 146,240 $ 137,080 See accompanying notes to the condensed consolidated financial statements. 1 ARBUTUS BIOPHARMA CORPORATION Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (In thousands of U.S. Dollars, except share and per share amounts) Three Months Ended March 31, 2021 2020 Revenue Collaborations and licenses $ 1,154 $ 835 Non-cash royalty revenue 959 656 Total Revenue 2,113 1,491 Operating expenses Research and development 13,370 10,416 General and administrative 3,847 3,553 Depreciation 443 500 Change in fair value of contingent consideration 129 112 Site consolidation — 57 Total operating expenses 17,789 14,638 Loss from operations ( 15,676 ) ( 13,147 ) Other income (loss) Interest income 39 345 Interest expense ( 772 ) ( 1,041 ) Foreign exchange gain (loss) 28 ( 18 ) Total other loss ( 705 ) ( 714 ) Loss before income taxes ( 16,381 ) ( 13,861 ) Net loss ( 16,381 ) ( 13,861 ) Items applicable to preferred shares: Dividend accretion of convertible preferred shares ( 3,212 ) ( 2,978 ) Net loss attributable to common shares $ ( 19,593 ) $ ( 16,839 ) Loss per share Basic and diluted $ ( 0.21 ) $ ( 0.25 ) Weighted average number of common shares Basic and diluted 93,434,378 67,683,586 Comprehensive income (loss) Unrealized gain on available-for-sale securities $ 3 $ 251 Comprehensive loss $ ( 16,378 ) $ ( 13,610 ) See accompanying notes to the condensed consolidated financial statements. 2 ARBUTUS BIOPHARMA CORPORATION Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) (In thousands of U.S. Dollars, except share and per share amounts) Convertible Preferred Shares Common Shares Number of Shares Share Capital Number of Shares Share Capital Additional Paid-In Capital Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity Balance December 31, 2020 1,164,000 $ 149,408 89,678,722 $ 985,939 $ 60,751 $ ( 1,045,961 ) $ ( 48,171 ) $ 101,966 Accretion of accumulated dividends on Preferred Shares — 3,212 — — — ( 3,212 ) — — Stock-based compensation — — — — 1,647 — — 1,647 Certain fair value adjustments to liability stock option awards — — — — 40 — — 40 Issuance of common shares pursuant to the Open Market Sale Agreement — — 6,395,780 26,419 — — — 26,419 Issuance of common shares pursuant to exercise of options — — 65,952 335 ( 127 ) — — 208 Issuance of common shares pursuant to ESPP — — 104,917 425 ( 178 ) — — 247 Unrealized gain on available-for-sale securities — — — — — — 3 3 Net loss — — — — — ( 16,381 ) — ( 16,381 ) Balance March 31, 2021 1,164,000 $ 152,620 96,245,371 $ 1,013,118 $ 62,133 $ ( 1,065,554 ) $ ( 48,168 ) $ 114,149 Convertible Preferred Shares Common Shares Number of Shares Share Capital Number of Shares Share Capital Additional Paid-In Capital Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity Balance December 31, 2019 1,164,000 137,285 64,780,314 $ 898,535 $ 55,246 $ ( 970,093 ) $ ( 48,229 ) $ 72,744 Accretion of accumulated dividends on Preferred Shares — 2,978 — — — ( 2,978 ) — — Stock-based compensation — — — — 1,460 — — 1,460 Certain fair value adjustments to liability stock option awards — — — — 180 — — 180 Issuance of common shares pursuant to the Open Market Sale Agreement — — 4,147,081 12,315 — — — 12,315 Issuance of common shares pursuant to exercise of options — — 34,000 249 ( 83 ) — — 166 Unrealized gain on available-for-sale securities — — — — — — 252 252 Net loss — — — — — ( 13,861 ) — ( 13,861 ) Balance March 31, 2020 1,164,000 $ 140,263 68,961,395 $ 911,099 $ 56,803 $ ( 986,932 ) $ ( 47,977 ) $ 73,256 See accompanying notes to the condensed consolidated financial statements. 3 ARBUTUS BIOPHARMA CORPORATION Condensed Consolidated Statements of Cash Flow (Unaudited) (In thousands of U.S. Dollars) Three Months Ended March 31, 2021 2020 OPERATING ACTIVITIES Net loss $ ( 16,381 ) $ ( 13,861 ) Non-cash items: Depreciation 443 500 Stock-based compensation expense 1,635 1,445 Unrealized foreign exchange losses (gains) 44 10 Change in fair value of contingent consideration 129 112 Non-cash royalty revenue ( 959 ) ( 656 ) Non-cash interest expense 771 1,039 Net accretion and amortization of investments in marketable securities 159 ( 2 ) Net change in operating items: Accounts receivable 47 132 Prepaid expenses and other assets ( 857 ) ( 439 ) Accounts payable and accrued liabilities ( 2,796 ) ( 3,602 ) Other liabilities ( 116 ) ( 131 ) Net cash used in operating activities ( 17,881 ) ( 15,453 ) INVESTING ACTIVITIES Purchase of investments ( 2,030 ) ( 24,369 ) Disposition of investments 20,350 21,968 Acquisition of property and equipment ( 99 ) — Net cash provided (used) by investing activities 18,221 ( 2,401 ) FINANCING ACTIVITIES Issuance of common shares pursuant to the Open Market Sale agreement 26,419 12,315 Issuance of common shares pursuant to exercise of options 208 166 Issuance of common shares pursuant to ESPP 247 — Net cash provided by financing activities 26,874 12,481 Effect of foreign exchange rate changes on cash and cash equivalents ( 44 ) ( 10 ) Increase (decrease) in cash and cash equivalents 27,170 ( 5,383 ) Cash and cash equivalents, beginning of period 52,251 31,799 Cash and cash equivalents, end of period $ 79,421 $ 26,416 Supplemental cash flow information Preferred shares dividends accrued ( 3,212 ) ( 2,978 ) See accompanying notes to the condensed consolidated financial statements. 4 ARBUTUS BIOPHARMA CORPORATION Notes to Condensed Consolidated Financial Statements (Tabular amounts in thousands of U.S. Dollars, except share and per share amounts) 1. Nature of business and future operations Description of the Business Arbutus Biopharma Corporation (the “Company” or “Arbutus”) is a clinical-stage, biopharmaceutical company primarily focused on developing a cure for people with chronic hepatitis B virus (“HBV”) infection. The Company is advancing multiple product candidates with distinct mechanisms of action that it believes have the potential to provide a new curative regimen for chronic HBV infection. The Company has also initiated a drug discovery and development effort for treating coronaviruses, including COVID-19. The Company’s two lead product candidates are AB-729, the Company’s proprietary subcutaneously-delivered RNA interference (“RNAi”) product candidate that suppresses HBsAg expression, and AB-836, the Company’s 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”). The Company 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. Liquidity At March 31, 2021, the Company had an aggregate of $ 132.0 million in cash, cash equivalents and investments in marketable securities. The Company believes that these cash resources will be sufficient to fund its operations through the third quarter of 2022. The success of the Company is dependent on obtaining the necessary regulatory approvals to bring its products to market and achieve profitable operations. The Company’s research and development activities and the commercialization of its products are dependent on its ability to successfully complete these activities and to obtain adequate financing through a combination of financing activities and operations. It is not possible to predict either the outcome of the Company’s existing or future research and development programs or the Company’s ability to continue to fund these programs in the future. COVID-19 Impact 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, as well as prohibitions in certain countries on enrolling subjects in new clinical trials. Future disruptions related to the COVID-19 pandemic could negatively impact the Company’s plans and timelines for the remainder of 2021 and beyond, including enrolling and monitoring subjects in its clinical trials. 5 2. Significant accounting policies Basis of presentation These unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial statements and, accordingly, do not include all disclosures required for annual financial statements. These statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments and reclassifications necessary to fairly present the Company’s financial position as of March 31, 2021, the Company’s results of operations for the three months ended March 31, 2021 and the Company’s cash flows for the three months ended March 31, 2021. Such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2020, except as described below under Recent Accounting Pronouncements. Principles of consolidation These unaudited condensed consolidated financial statements include the accounts of the Company and its one wholly-owned subsidiary, Arbutus Biopharma Inc. (“Arbutus Inc.”). All intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation. Net loss attributable to common shareholders per share The Company follows the two-class method when computing net loss attributable to common shareholders per share as the Company has issued Series A participating convertible preferred shares (“Preferred Shares”), as further described in note 10. The Company’s Preferred Shares are participating securities, as they entitle the holders to participate in dividends. However, the Company’s Preferred Shares do not require the holders to participate in losses of the Company and accordingly, if the Company reports a net loss attributable to holders of the Company’s common shares, net losses are not allocated to holders of the Preferred Shares. Net loss attributable to common shareholders per share is calculated based on the weighted average number of common shares outstanding. Diluted net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders per share since the effect of the Company’s stock options and convertible preferred stock was anti-dilutive. During the three months ended March 31, 2021 and 2020, potential common shares of 35.0 million and 30.4 million, respectively, consisting of the “if-converted” number of Preferred Shares and outstanding stock options, were excluded from the calculation of net loss per share because their inclusion would be anti-dilutive. Revenue recognition Accounting Standards Codification 606, Revenue From Contracts with Customers (“ASC 606”) requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under a five-step model: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as a performance obligation is satisfied. The Company generates revenue primarily through collaboration agreements and license agreements. Such agreements may require the Company to deliver various rights and/or services, including intellectual property rights or licenses and research and development services. Under such agreements, the Company is generally eligible to receive non-refundable upfront payments, funding for research and development services, milestone payments and royalties. In contracts where the Company has more than one performance obligation to provide its customer with goods or services, each performance obligation is evaluated to determine whether it is distinct based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The consideration under the contract is then allocated between the distinct performance obligations based on their respective relative stand-alone selling prices. The estimated stand-alone selling price of each deliverable reflects the Company’s best estimate of what the selling price would be if the deliverable was 6 regularly sold on a stand-alone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if the selling price on a stand-alone basis is not available. The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services. Consideration associated with at-risk substantive performance milestones, including sales-based milestones, is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur. Sales-based royalties received in connection with licenses of intellectual property are subject to a specific exception in the revenue standards, whereby the consideration is not included in the transaction price and recognized in revenue until the customer’s subsequent sales or usages occur. Segment information The Company operates as a single segment. Recent accounting pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC 326). The guidance is effective for the Company beginning January 1, 2023 and it changes how entities account for credit losses on financial assets and other instruments that are not measured at fair value through net income, including available-for-sale debt securities. The Company is currently evaluating the impact of the new standard on its consolidated financial statements. 3. Fair value measurements The Company measures certain financial instruments and other items at fair value. To determine the fair value, the Company uses the fair value hierarchy for inputs used in measuring fair value that maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use to value an asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs based on assumptions about the factors market participants would use to value an asset or liability. The three levels of inputs that may be used to measure fair value are as follows: • Level 1 inputs are quoted market prices for identical instruments available in active markets. • Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly. If the asset or liability has a contractual term, the input must be observable for substantially the full term. An example includes quoted market prices for similar assets or liabilities in active markets. • Level 3 inputs are unobservable inputs for the asset or liability and will reflect management’s assumptions about market assumptions that would be used to price the asset or liability. Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturity of these financial instruments. To determine the fair value of the contingent consideration (note 8), the Company uses a probability weighted assessment of the likelihood the milestones would be met and the estimated timing of such payments, and then the potential contingent payments were discounted to their present value using a probability adjusted discount rate that reflects the early stage nature of the development program, time to complete the program development, and overall biotech indices. The Company determined the fair value of the contingent consideration was $ 3.6 million as of March 31, 2021 and the increase of $ 0.1 million has been recorded as a component of total operating expenses in the statement of operations and comprehensive loss for the three months ended March 31, 2021. The assumptions used in the discounted cash flow model are level 3 inputs as defined above. The Company assessed the sensitivity of the fair value measurement to changes in these unobservable inputs, and determined that changes within a reasonable range would not result in a materially different assessment of fair value. 7 The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques used to determine such fair value: Level 1 Level 2 Level 3 Total As of March 31, 2021 (in thousands) Assets Cash and cash equivalents $ 79,421 $ — $ — $ 79,421 Short-term investments 52,540 — — 52,540 Total 131,961 — — 131,961 Liabilities Liability-classified options — — 198 198 Contingent consideration — — 3,555 3,555 Total $ — $ — $ 3,753 $ 3,753 Level 1 Level 2 Level 3 Total As of December 31, 2020 (in thousands) Assets Cash and cash equivalents $ 52,251 $ — $ — $ 52,251 Short-term investments 71,017 — — 71,017 Total 123,268 — — 123,268 Liabilities Liability-classified stock option awards — — 250 250 Contingent consideration — — 3,426 3,426 Total $ — $ — $ 3,676 $ 3,676 The following table presents the changes in fair value of the Company’s liability-classified stock option awards: Liability at beginning of the period Fair value of liability-classified options exercised in the period Increase (decrease) in fair value of liability Liability at end of the period (in thousands) Three Months Ended March 31, 2021 $ 250 $ — $ ( 52 ) $ 198 Three Months Ended March 31, 2020 $ 253 $ ( 9 ) $ ( 186 ) $ 58 The following table presents the changes in fair value of the Company’s contingent consideration: Liability at beginning of the period Increase (decrease) in fair value of liability Liability at end of the period (in thousands) Three Months Ended March 31, 2021 $ 3,426 $ 129 $ 3,555 Three Months Ended March 31, 2020 $ 2,953 $ 112 $ 3,065 8 4. Investments in marketable securities Investments in marketable securities consisted of the following: Amortized Cost Gross Unrealized Gain (1) Gross Unrealized Loss (1) Fair Value As of March 31, 2021 (in thousands) Cash equivalents US government money market fund 51,210 — — 51,210 Total $ 51,210 $ — $ — $ 51,210 Investments in marketable securities US government agency bonds $ 4,043 $ 1 $ — $ 4,044 US treasury bills 15,996 3 — 15,999 US government bonds 32,484 13 — 32,497 Total $ 52,523 $ 17 $ — $ 52,540 (1) Gross unrealized gain (loss) is pre-tax and is reported in other comprehensive loss. Amortized Cost Gross Unrealized Gain (1) Gross Unrealized Loss (1) Fair Value As of December 31, 2020 (in thousands) Cash equivalents US government money market fund $ 13,703 $ — $ — $ 13,703 US treasury bills 2,000 — — 2,000 Total $ 15,703 $ — $ — $ 15,703 Investments in marketable securities US government agency bonds $ 11,550 $ 7 $ — $ 11,557 US treasury bills 21,990 2 — 21,992 US government bonds 37,463 6 ( 1 ) 37,468 Total $ 71,003 $ 15 $ ( 1 ) $ 71,017 (1) Gross unrealized gain (loss) is pre-tax and is reported in other comprehensive loss. The contractual term to maturity of the $ 52.5 million of marketable securities held by the Company as of March 31, 2021 is less than one year. As of December 31, 2020, the Company’s $ 71.0 million of marketable securities also had contractual maturities of less than one year. There were no realized gains or losses for the three months ended March 31, 2021 or 2020. 5. Investment in Genevant In April 2018, the Company entered into an agreement with Roivant Sciences Ltd. (“Roivant”), its 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 the Company’s lipid nanoparticle (“LNP”) and ligand conjugate delivery technologies. The Company licensed exclusive rights to its 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 (the “Genevant License”). The Company retained all rights to its LNP and conjugate delivery platforms for HBV. Under the Genevant License, the Company is 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 the Company to Genevant, the Company is 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. 9 On July 31, 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant. In addition, the Company participated in the recapitalization of Genevant with an investment of $ 2.5 million. The Company determined that this $ 2.5 million additional investment in Genevant represented the funding of prior losses and accordingly, the Company recorded the amount as an equity investment loss on the Condensed Consolidated Statements of Operations and Comprehensive Loss in 2020. Following the recapitalization, the Company owned approximately 16 % of the common equity of Genevant. In connection with the recapitalization, Genevant, the Company and Roivant entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant. The Company has a non-voting observer seat on Genevant’s Board of Directors. Due to the Company’s loss of significant influence with respect to Genevant as a result of the recapitalization, the Company discontinued the use of the equity method of accounting for its interest in Genevant. Following the recapitalization, the Company accounts for its interest in Genevant as equity securities without readily determinable fair values. Accordingly, an estimate of the fair value of the securities is based on the original cost less previously recognized equity method losses, less impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or a similar Genevant securities. The Company’s entitlement to receive future royalties or sublicensing revenue under the Genevant License was not impacted by the recapitalization. As of March 31, 2021, the carrying value of the Company’s investment in Genevant was zero and the Company owned approximately 16 % of the common equity of Genevant. 6. Accounts payable and accrued liabilities Accounts payable and accrued liabilities are comprised of the following: March 31, 2021 December 31, 2020 (in thousands) Trade accounts payable $ 355 $ 2,994 Research and development accruals 4,112 1,653 Professional fee accruals 690 679 Payroll accruals 896 3,566 Other accrued liabilities 10 9 Total accounts payable and accrued liabilities $ 6,063 $ 8,901 7. Sale of future royalties On July 2, 2019, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with the Ontario Municipal Employees Retirement System (“OMERS”), pursuant to which the Company sold to OMERS part of its royalty interest on future global net sales of ONPATTRO ® (Patisiran) (“ONPATTRO”), an RNA interference therapeutic currently being sold by Alnylam Pharmaceuticals, Inc. (“Alnylam”). ONPATTRO utilizes the Company’s LNP technology, which was licensed to Alnylam pursuant to the Cross-License Agreement, dated November 12, 2012, by and between the Company and Alnylam (the “LNP License Agreement”). Under the terms of the LNP License Agreement, the Company is entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00 % to 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 such royalty interest on future global net sales of ONPATTRO will revert to the Company. OMERS has assumed the risk of collecting up to $ 30 million of future royalty payments from Alnylam and the Company is not obligated to reimburse OMERS if they fail to collect any such future royalties. The $ 30 million in royalties to be paid to OMERS is accounted for as a liability, with the difference between the liability and the gross proceeds received accounted for as a discount. The discount, as well as $ 1.5 million of transaction costs, will be amortized as interest expense based on the projected balance of the liability as of the beginning of each period. As of March 31, 2021, the Company estimated an effective annual interest rate of approximately 16 %. Over the course of the Agreement, the actual interest rate will be affected by the amount and timing of royalty revenue recognized and changes in the timing of 10 forecasted royalty revenue. On a quarterly basis, the Company will reassess the expected timing of the royalty revenue, recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed. The Company recognizes non-cash royalty revenue related to the sales of ONPATTRO during the term of the Agreement. As royalties are remitted to OMERS from Alnylam, the balance of the recognized liability is effectively repaid over the life of the Agreement. From the inception of the royalty sale through March 31, 2021, the Company has recorded an aggregate of $ 6.0 million of non-cash royalty revenue for royalties earned by OMERS. There are a number of factors that could materially affect the amount and timing of royalty payments from Alnylam, none of which are within the Company’s control. The table below shows the activity related to the net liability for the three months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 (in thousands) Net liability related to sale of future royalties - beginning balance $ 19,554 $ 18,992 Non-cash royalty revenue ( 959 ) ( 656 ) Non-cash interest expense 771 1,039 Net liability related to sale of future royalties - ending balance $ 19,366 $ 19,375 In addition to the royalty from the LNP License Agreement, the Company is also receiving a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas Therapeutics, Inc. (“Acuitas”). The royalty from Acuitas has been retained by the Company and was not part of the royalty sale to OMERS. 8. Contingencies and commitments Arbitration with the University of British Columbia Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the University of British Columbia (“UBC”), as well as by the Company that was subsequently assigned to UBC. These inventions are licensed to the Company by UBC under a license agreement, initially entered into in 1998 and as amended in 2001, 2006 and 2007. The Company has granted sublicenses under the UBC license to certain third parties, including Alnylam. In November 2014, UBC filed a demand for arbitration against the Company which alleged entitlement to unpaid royalties. In August 2019, the arbitrator issued his decision for the second phase of the arbitration, awarding UBC $ 5.9 million, which included interest of approximately $ 2.6 million. The Company paid the $ 5.9 million award to UBC in September 2019 and paid an additional $ 0.2 million award for costs and attorneys’ fees in March 2021, and this matter is now fully resolved. On December 18, 2020, UBC delivered to the Company a notice of arbitration alleging that under the cross license between UBC and Arbutus, it is due royalties of $ 2.0 million plus interest arising from the Company’s sale to OMERS of part of its royalty interest on future global net sales of ONPATTRO, currently being sold by Alnylam. Oral hearings for this matter are currently scheduled to begin on April 25, 2022. The Company does not believe that any royalties are due to UBC and the Company intends to vigorously contest UBC’s allegation. Stock Purchase Agreement with Enantigen In October 2014, Arbutus Inc., the Company’s wholly-owned subsidiary, acquired all of the outstanding shares of Enantigen Therapeutics, Inc. (“Enantigen”) pursuant to a stock purchase agreement. The amount paid to Enantigen’s selling shareholders could be up to an additional $ 102.5 million in sales performance milestones in connection with the sale of the first commercialized product by the Company for the treatment of HBV, regardless of whether such product is based upon assets acquired under this agreement, and a low single-digit royalty on net sales of such first commercialized HBV product, up to a maximum royalty payment of $ 1.0 million that, if paid, would be offset against the Company’s milestone payment obligations. Certain other development milestones related to the acquisition were tied to programs which are no longer under development by the Company, and therefore the contingency related to those development milestones is zero . The contingent consideration is a financial liability and is measured at its fair value at each reporting period, with any changes in fair value from the previous reporting period recorded in the statements of operations and comprehensive loss (see note 3). 11 The fair value of the contingent consideration was $ 3.6 million as of March 31, 2021. 9. Collaborations, contracts and licensing agreements Revenue contracts are described in detail in the Overview section of Part II, Item 8, “Financial Statements and Supplementary Data” in the Company’s 2020 Form 10-K. Assembly Biosciences, Inc. In August 2020, the Company 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. The Company and Assembly will share in the costs of the collaboration. The Company incurred $ 0.8 million of costs related to the collaboration during the three months ended March 31, 2021 and reflected those costs in research and development in the statement of operations and comprehensive loss. Except to the extent necessary to carry out Assembly’s responsibilities with respect to the collaboration trial, the Company has not provided any license grant to Assembly for use of its AB-729 compound. X-Chem and Proteros In March 2021, the Company, X-Chem, Inc. (“X-Chem”) and Proteros biostructures GmbH (“Proteros”) entered into a discovery research and license agreement focused 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 the Company’s 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 the Company 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. Alnylam Pharmaceuticals, Inc. and Acuitas Therapeutics, Inc. The Company has two royalty entitlements to Alnylam’s global net sales of ONPATTRO. In 2012, the Company entered into a license agreement with Alnylam that entitles Alnylam to develop and commercialize products with the Company’s LNP technology. Alnylam’s ONPATTRO, which represents the first approved application of the Company’s LNP technology, was approved by the United States Food and Drug Administration (“FDA”) and the European Medicines Agency (“EMA”) during the third quarter of 2018 and was launched by Alnylam immediately upon approval in the United States. Under the terms of this license agreement, the Company is entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00 % - 2.33 % after offsets, with the highest tier applicable to annual net sales above $ 500 million. This royalty interest was sold to OMERS, effective as of January 1, 2019, for $ 20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $ 30 million in royalties, at which point 100 % of this royalty entitlement on future global net sales of ONPATTRO will revert back to the Company. OMERS has assumed the risk of collecting up to $ 30 million of future royalty payments from Alnylam and the Company is not obligated to reimburse OMERS if they fail to collect any such future royalties. If this royalty entitlement reverts to the Company, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part. The Company also has rights to a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas. This royalty entitlement from Acuitas has been retained by the Company and was not part of the royalty entitlement sale to OMERS. 12 Revenues are summarized in the following table: Three Months Ended March 31, 2021 2020 (in thousands) Revenue from collaborations and licenses Acuitas Therapeutics, Inc. $ 1,095 $ 753 Other milestone and royalty payments 59 82 Non-cash royalty revenue Alnylam Pharmaceuticals, Inc. 959 656 Total revenue $ 2,113 $ 1,491 10. Stockholders’ equity Open Market Sale Agreement The Company has an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) dated December 20, 2018, as amended on December 20, 2019 (the “2019 Amended Sale Agreement”), under which it 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”). In July 2020, the Company fully utilized the remaining availability under the 2019 Amended Sale Agreement. In August 2020, the Company entered into an amendment to the 2019 Amended Sale Agreement (as amended, the “2020 Amended Sale Agreement”) with Jefferies, whereby the Company 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 7, 2020, the Company filed a prospectus supplement with the SEC (the “August 2020 Prospectus Supplement”) under the 2019 Shelf Registration Statement in connection with the offering of up to an additional $ 75 million of its common shares pursuant to the 2020 Amended Sale Agreement. The Company filed a new shelf registration statement on Form S-3 (File No. 333-248467) with the SEC on August 28, 2020 (the “2020 Shelf Registration Statement”). On March 4, 2021, the Company entered into an amendment to the 2020 Amended Sale Agreement with Jefferies to reflect that the Company may issue and sell additional common shares from time to time without a cap on the aggregate sales price (as amended, the “2021 Amended Sale Agreement”). Also, on March 4, 2021, the Company filed a 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 2021 Amended Sale Agreement under the 2020 Shelf Registration Statement. During the three months ended March 31, 2021, the Company 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, the Company 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. 13 Stock-based compensation The table below summarizes information about the Company’s stock based compensation for the three months ended March 31, 2021 and 2020 and the expense recognized in the condensed consolidated statements of operations: Three Months Ended March 31, 2021 2020 (in thousands, except share and per share data) Options granted during period 2,896,550 2,097,237 Weighted average exercise price $ 4.33 $ 3.35 Stock compensation expense Research and development $ 840 $ 853 General and administrative 795 592 Total stock compensation expense $ 1,635 $ 1,445 Series A Preferred Shares On October 2, 2017, the Company announced that it entered into a subscription agreement with Roivant for the sale of Preferred Shares to Roivant for gross proceeds of $ 116.4 million. The Preferred Shares are non-voting and are convertible into common shares at a conversion price of $ 7.13 per share (which represents a 15 % premium to the closing price of $ 6.20 per share). The purchase price for the Preferred Shares plus an amount equal to 8.75 % per annum, compounded annually, will be subject to mandatory conversion into approximately 23 million common shares on October 18, 2021 (subject to limited exceptions in the event of certain fundamental corporate transactions relating to the Company’s capital structure or assets, which would permit earlier conversion at Roivant’s option). Assuming conversion of the Preferred Shares into common shares, based on the number of common shares outstanding on March 31, 2021 Roivant would hold 32 % of the Company’s common shares. Roivant has agreed to a four year lock-up period for this investment and its existing holdings in the Company. Roivant has also agreed to a four year standstill whereby Roivant will not acquire greater than 49.99 % of the Company’s common shares or securities convertible into common shares. Both the lockup and standstill periods expire on October 18, 2021. Following the expiration of the standstill period, Roivant will no longer be contractually prohibited from acquiring control of the Company. The initial investment of $ 50.0 million closed on October 16, 2017, and the remaining amount of $ 66.4 million closed on January 12, 2018 following regulatory and shareholder approvals. The Company records the Preferred Shares wholly as equity with no bifurcation of the conversion feature from the host contract, given that the Preferred Shares cannot be cash settled and the redemption features are within the Company’s control, which include a fixed conversion ratio with predetermined timing and proceeds. The Company accrues for the 8.75 % per annum compounding coupon at each reporting period end date as an increase to preferred share capital, and an increase to deficit (see statement of stockholders’ equity). 11. Related party transactions During the three months ended March 31, 2021 and 2020, Genevant purchased certain administrative services from the Company. Income from these services was less than $ 0.1 million in both periods and is netted against research and development expenses in the condensed consolidated statements of operations. 14