Arbutus Biopharma Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis by our management of our financial position and results of operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 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. dollars. REFERENCES TO ARBUTUS BIOPHARMA CORPORATION Throughout this Quarterly Report on Form 10-Q (“Form 10-Q”) , the “Company,” “Arbutus,” “we,” “us,” and “our,” except where the context requires otherwise, refer to Arbutus Biopharma Corporation and its consolidated subsidiaries, and “our board of directors” refers to the board of directors of Arbutus Biopharma Corporation. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q contains “forward-looking statements” or “forward-looking information” within the meaning of applicable United States and Canadian securities laws (we collectively refer to these items as “forward-looking statements”). Forward-looking statements are generally identifiable by use of the words “believes,” “may,” “plans,” “will,” “anticipates,” “intends,” “budgets,” “could,” “estimates,” “expects,” “forecasts,” “projects” and similar expressions that are not based on historical fact or that are predictions of or indicate future events and trends, and the negative of such expressions. Forward-looking statements in this Form 10-Q, including the documents incorporated by reference, include statements about, among other things: • our strategy, future operations, pre-clinical research, pre-clinical studies, clinical trials, prospects and the plans of management; • the potential impact of the COVID-19 pandemic on our business; • the discovery, development and commercialization of a curative combination regimen for chronic hepatitis B infection, a disease of the liver caused by the hepatitis B virus (“HBV”); • our beliefs and development path and strategy to achieve a curative combination regimen for HBV; • obtaining necessary regulatory approvals; • obtaining adequate financing through a combination of financing activities and operations; • using the results from our HBV studies to adaptively design additional clinical trials to test the efficacy of 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; • developing a suite of products that intervene at different points in the viral life cycle, with the potential to reactivate the host immune system; • using pre-clinical results to adaptively design clinical trials for additional cohorts of patients, testing the combination and the duration of therapy; • selecting combination therapy regimens and treatment durations to conduct Phase 3 clinical trials intended to ultimately support regulatory filings for marketing approval; • 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); 15 • 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 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; • 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; • 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 the third quarter of 2022 based on our expectation of a net cash burn between $70 million and $75 million in 2021; and • obtaining funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, collaborative arrangements with pharmaceutical companies, other non-dilutive commercial arrangements and government grants and contracts, as well as other statements relating to our future operations, financial performance or financial condition, prospects or other future events. Forward-looking statements appear primarily in the sections of this Form 10-Q entitled “Part I, Item 1- Financial Statements (Unaudited),” and “Part I, Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements are based upon current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors that could cause actual results to differ materially and adversely from those expressed or implied by such statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”), and in particular the risks and uncertainties discussed under “Item 1A-Risk Factors” of this Form 10-Q and the Form 10-K. As a result, you should not place undue reliance on forward-looking statements. Additionally, the forward-looking statements contained in this Form 10-Q represent our views only as of the date of this Form 10-Q (or any earlier date indicated in such statement). While we may update certain forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if new information becomes available in the future. However, you are advised to consult any further disclosures we make on related subjects in the periodic and current reports that we file with the Securities and Exchange Commission. The foregoing cautionary statements are intended to qualify all forward-looking statements wherever they may appear in this Form 10-Q. For all forward-looking statements, we claim protection of the safe harbor for the forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 16 This Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. 17 OVERVIEW 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. Strategy 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. 18 Our Product Candidates 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: 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. GalNAc RNAi (AB-729) RNAi therapeutics represent a recent significant advancement in drug development. RNAi therapeutics utilize a natural pathway within cells to silence genes by eliminating the disease-causing proteins that they code for. We are developing RNAi therapeutics that are designed to reduce HBsAg expression and other HBV antigens in 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 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 volunteers were randomized 4:2 to receive single doses (60 mg, 180 mg or 360 mg) of AB-729 or placebo. 19 • 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. 20 Oral Capsid Inhibitors (AB-836) HBV core protein assembles into a capsid structure, which is required for viral replication. The current commercially available therapies (NAs or Peg-IFN) significantly reduce HBV DNA levels in the serum, but HBV replication continues in the liver, thereby enabling HBV infection to persist. More effective therapies for patients require new agents which will further block viral replication. We are developing capsid inhibitors (also known as core protein inhibitors) as oral therapeutics which, in combination with NAs, could further reduce HBV replication. By inhibiting assembly of functional viral capsids, the ability of HBV to replicate is impaired. Capsid inhibitor molecules also inhibit the uncoating step of the viral life cycle and thus reduce the formation of cccDNA, the viral reservoir which resides in the cell nucleus, and which is believed to play a role in viral persistence. Our oral capsid inhibitor discovery effort generated promising next-generation compounds, which led to the nomination of AB-836 in January 2020. AB-836 is a novel chemical series differentiated from competitor compounds with the potential for increased efficacy and an enhanced resistance profile. AB-836 leverages a novel binding site within the core protein dimer-dimer interface, has shown to be active against NA resistant variants and has the potential to address certain known capsid resistant variants. AB-836 is anticipated to be combinable with other mechanisms of action and is also anticipated to be dosed once daily. We 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. 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. Dr. Sofia, who was awarded the Lasker-DeBakey Award for his discovery of sofosbuvir, brings extensive antiviral drug discovery experience to this new program. We 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. 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 21 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. 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. Alnylam’s ONPATTRO, which represents the first approved application of our LNP technology, was approved by the United States Food and Drug Administration (“FDA”) and the European Medicines Agency (“EMA”) during the third quarter of 2018 and was launched by Alnylam immediately upon approval in the United States. Under the terms of this license agreement, we are entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00% - 2.33% after offsets, with the highest tier applicable to annual net sales above $500 million. This royalty interest was sold to 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. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and we are not obligated to reimburse OMERS if they fail to collect any such future royalties. If this royalty entitlement reverts to us, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part. 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. (“Acuitas”). This royalty entitlement from Acuitas has been retained by us and was not part of the royalty entitlement sale to OMERS. Genevant Sciences, Ltd. In April 2018, we entered into an agreement with Roivant Sciences Ltd. (“Roivant”), our largest shareholder, to launch Genevant Sciences Ltd. (“Genevant”), a company focused on the discovery, development, and commercialization of a broad range of RNA-based therapeutics enabled by our 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 (the “Genevant License”). We retained all rights to our LNP and conjugate delivery platforms for HBV. 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. We participated in the recapitalization of Genevant with an equity investment of $2.5 million. In connection with the recapitalization, the three parties entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant. We have a non-voting observer seat on Genevant’s Board of Directors. As of 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. 22 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, Inc. (“US 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 23 preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no significant changes in our critical accounting policies and estimates as discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020. RECENT ACCOUNTING PRONOUNCEMENTS From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. Please refer to note 2 to our condensed consolidated financial statements included in Part I, Item 1, “Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our business. RESULTS OF OPERATIONS The following summarizes the results of our operations for the periods shown: Three Months Ended March 31, 2021 2020 (in thousands) Total revenue $ 2,113 $ 1,491 Operating expenses 17,789 14,638 Loss from operations (15,676) (13,147) Other income (loss) (705) (714) Net loss (16,381) (13,861) Dividend accretion of convertible preferred shares (3,212) (2,978) Net loss attributable to common shares $ (19,593) $ (16,839) Revenue Revenues are summarized in the following table: Three Months Ended March 31, 2021 % of Total 2020 % of Total (in thousands, except percentages) Revenue from collaborations and licenses Acuitas Therapeutics, Inc. $ 1,095 52 % $ 753 51 % Other milestone and royalty payments 59 3 % 82 5 % Non-cash royalty revenue Alnylam Pharmaceuticals, Inc. 959 45 % 656 44 % Total revenue $ 2,113 100 % $ 1,491 100 % Revenue contracts are addressed in detail in the Overview section of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K. 24 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 table: Three Months Ended March 31, 2021 % of Total 2020 % of Total (in thousands, except percentages) Research and development $ 13,370 75 % $ 10,416 71 % General and administrative 3,847 22 % 3,553 24 % Depreciation 443 2 % 500 3 % Change in fair value of contingent consideration 129 1 % 112 1 % Site consolidation — — % 57 — % Total operating expenses $ 17,789 100 % $ 14,638 100 % Research and development 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 $0.3 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 Contingent consideration is a liability we assumed from our acquisition of Arbutus, Inc. in March 2015. In general, as time passes and assuming no changes to the assumptions related to the contingency, the fair value of the contingent consideration increases as the progress of our programs get closer to triggering contingent payments. There were no changes to the assumptions related to the contingency during the three months ended March 31, 2021. 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. 25 Other income (loss) Other income (loss) is summarized in the following table: Three Months Ended March 31, 2021 2020 (in thousands) Interest income $ 39 $ 345 Interest expense (772) (1,041) Foreign exchange (losses) / gains 28 (18) Total other loss $ (705) $ (714) Interest income 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 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, 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: Three Months Ended March 31, 2021 2020 (in thousands) Net loss $ (16,381) $ (13,861) Non-cash items 2,222 2,448 Net change in operating items (3,722) (4,040) Net cash used in operating activities (17,881) (15,453) 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 (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 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 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 26 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 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”). 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. 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 by Alnylam immediately upon approval in the United States. In July 2019, we sold a portion of this royalty interest to OMERS, effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $30 million in royalties, at which point 100% of such royalty interest on future global net sales of ONPATTRO will revert to us. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and Arbutus is not obligated to reimburse OMERS if they fail to collect any such future royalties. If this royalty entitlement reverts to us, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part. In addition to the royalty from the Alnylam LNP license agreement, we are also receiving a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas. The royalty from Acuitas has been retained by us and was not part of the royalty sale to OMERS. 27 Cash requirements 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. In particular, our funding needs may vary depending on a number of factors including: • the effects of the COVID-19 pandemic on our business, the medical community and the global economy; • revenue earned from our legacy collaborative partnerships and licensing agreements, including potential royalty payments from Alnylam’s ONPATTRO; • revenue earned from ongoing collaborative partnerships, including milestone and royalty payments; • the extent to which we continue the development of our product candidates, add new product candidates to our pipeline, or form collaborative relationships 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; • 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; and • costs associated with prosecuting and enforcing our patent claims and other intellectual property rights, including litigation and arbitration arising in the course of our business activities. We intend to seek funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, potential monetization transactions, collaborative or licensing arrangements with pharmaceutical companies, government grants and contracts and other strategic transactions and funding opportunities. There can be no assurance that funding will be available at all or on acceptable terms to permit further development of our research and development programs. Further, the continued spread of COVID-19 has also led to severe disruption and volatility in the global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital markets in the future. If adequate funding is not available, we may be required to delay, reduce or eliminate one or more of our research or development programs or reduce expenses associated with our non-core activities. We may need to obtain funds through arrangements with collaborators or others that may require us to relinquish most or all of our rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise seek if we were better funded. Insufficient financing may also mean failing to prosecute our patents or relinquishing rights to some of our technologies that we would otherwise develop or commercialize. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.