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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 142 added, 161 removed, 312 unchanged (49% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis by our management of our financial position and results of operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2020 and our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2021.

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

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• our strategy, future operations, pre-clinical research, pre-clinical studies, clinical trials, prospects and the plans of management;

• the potential for our product candidates to achieve their desired or anticipated outcomes;

• the expected cost, timing and results of our clinical development plans and clinical trials, including our clinical collaborations with third parties;

• the potential impact of the COVID-19 pandemic on our business and clinical trials;

• 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;

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

• 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 half of 2021 (including 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);

• 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 expectations regarding the anticipated trial design, timing, number of patients and dosing of our Phase 2a 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;

• our expectation to undertake a larger Phase 2b clinical trial to evaluate AB-729 in collaboration with Vaccitech plc (“Vaccitech”);

• our expectation to initiate two Phase 2a proof-of-concept clinical trials of AB-729 with Peg-IFNα-2a and Antios Therapeutics, Inc.’s (“Antios”) ATI-2173 in the second half of 2021;

• our expectation to file a Clinical Trial Application (CTA) for a Phase 2a proof-of-concept clinical trial of AB-729 with Vaccitech’s VTP-300 in the second half of 2021 and to initiate the clinical trial in early 2022;

• 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;

• 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;

• 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,

• the expected return and benefits from strategic alliances, licensing agreements, and research collaborations with third parties;

• the expected timing of returns and benefits from strategic alliances, licensing agreements, and research collaborations with third parties;

• our expectations regarding our technology licensed to third parties;

• our anticipated revenue and expense fluctuation and guidance;

• our expectation of a net cash burn between $70 million and $75 million in 2021;

• our belief that we have sufficient cash resources to fund our operations into the second quarter of 2023,

as well as other statements relating to our future operations, financial performance or financial condition, prospects or other future events.

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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.

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.

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Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

Arbutus Biopharma Corporation (“Arbutus”, the “Company”, “we”, “us”, and “our”) is a clinical-stage, biopharmaceutical company focused primarily on discovering, developing and commercializing 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.

Arbutus Biopharma Corporation (“Arbutus”, the “Company”, “we”, “us”, and “our”) is a clinical-stage, biopharmaceutical company focused primarily on discovering, developing and commercializing a broad portfolio of wholly-owned assets with different mechanisms of action to provide a cure for people with chronic hepatitis B virus (“HBV”) infection.

We are advancing multiple product candidates with distinct mechanisms of action that are designed to suppress viral replication, reduce surface antigen and reawaken the immune system.

We believe this three-prong approach is key to transforming the treatment and developing a potential cure for chronic HBV infection.

Our HBV product pipeline includes RNA interference (RNAi) therapeutics, oral capsid inhibitors, oral compounds that inhibit PD-L1 and oral HBV RNA destabilizers.

In addition, we have an ongoing drug discovery and development program directed to identifying orally active agents for treating coronaviruses (including COVID-19).

The core elements of our strategy include:

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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 2a proof-of-concept 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 half of 2021, including 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.

We are enrolling subjects in a Phase 1a/1b clinical trial for AB-836 with initial data from healthy volunteers and HBV subjects anticipated in the second half of 2021.

AB-729 is currently in an ongoing Phase 1a/1b clinical trial and two Phase 2a proof-of-concept clinical trials in combination with other agents with potentially complementary mechanisms of action.

We have announced positive preliminary results in the Phase 1a/1b clinical trial from several single and multi-dose cohorts of patients 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 are conducting a Phase 1a/1b clinical trial for AB-836 with initial data from healthy subjects and HBV patients anticipated in the fourth quarter 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.

Additionally, we have commenced IND-enabling studies for our PD-L1 program.

We believe this compound has the potential to reawaken patients’ HBV-specific immune response.

In addition, we are in advanced lead optimization with 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.

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To advance our efforts to position AB-729 as a potential cornerstone therapeutic in future HBV combination regimens, we have entered into several clinical collaborations to evaluate AB-729 in combination with other agents with potentially complementary mechanisms of action:

• Through our collaboration with Assembly, we are enrolling subjects in a Phase 2a 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.

• Through our collaboration with Assembly, we are enrolling patients in a Phase 2a 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.

Assembly is conducting this clinical trial and expecting initial data in 2022.

• In July 2021, Arbutus received authorization from the U.S.

Food and Drug Administration to proceed with its Investigational New Drug (IND) application for AB-729 in a Phase 2a proof-of-concept clinical trial to evaluate AB-729 in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in subjects with

chronic HBV infection.

This Phase 2a proof-of-concept clinical trial is expected to initiate in the second half of 2021.

• In July 2021, we entered into a clinical collaboration with Vaccitech to evaluate a triple combination of AB-729 with Vaccitech’s proprietary immunotherapeutic, VTP-300, and standard-of-care NA therapy for the treatment of subjects with chronic HBV infection.

We expect to file a Clinical Trial Application (CTA) in the second half of 2021 and initiate the clinical trial in early 2022.

• In June 2021, we entered into a clinical collaboration with Antios to evaluate a triple combination of AB-729, Antios’ proprietary active site polymerase inhibitor nucleotide (ASPIN), ATI-2173, and Viread (tenofovir disoproxil fumarate), for the treatment of subjects with chronic HBV infection.

This Phase 2a proof-of-concept clinical trial is expected to initiate in the second half of 2021.

We have dosed the first patient in this Phase 2a proof-of-concept clinical trial.

• In July 2021, we entered into a clinical collaboration with Vaccitech to evaluate a triple combination of AB-729 with Vaccitech’s VTP-300, a proprietary T cell stimulating therapeutic vaccine, and standard-of-care NA therapy for the treatment of patients with chronic HBV infection.

We expect to file a Clinical Trial Application (CTA) in the fourth quarter of 2021 and initiate the clinical trial in early 2022.

We expect that the additional cohort with AB-729 will be added to Antios’ ongoing phase 2 clinical trial in the fourth quarter of 2021.

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

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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.

We are progressing lead candidates to nomination.

Our Product Candidates

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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.

• 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, all subjects in the 60 mg dose every 4 weeks and 60 mg dose every 8 weeks cohorts 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.

Part 2 of the trial, which dosed subjects with chronic HBV infection with single doses of AB-729, completed 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.

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

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 are conducting a three-part Phase 1a/1b clinical trial designed to investigate the safety, tolerability, pharmacokinetics, and pharmacodynamics of single- and multi-dose AB-729 in healthy subjects and in chronic HBV patients and to determine the most appropriate doses and dosing intervals to take forward into Phase 2 clinical development.

Part 1 of the trial dosed healthy subjects, and upon completion, supported advancing doses ranging from 60 mg to 180 mg into Part 2.

Part 2 of the trial dosed patients with chronic HBV infection with single doses of AB-729, with all cohorts completing 48 weeks of follow-up in the second quarter of 2021.

Part 3 of the trial is dosing HBV DNA negative and positive patients with multiple doses of AB-729 for 4, 8 or twelve weeks, and is on-going.

Clinical data reported to date show that single and multi-doses of 60mg and 90mg of AB-729 are generally safe and well tolerated up to 48 weeks of dosing.

In June 2021, we presented three posters and a late breaker oral presentation at the 2021 EASL conference highlighting the most recent data from the multi-dose cohorts of this clinical trial.

Repeat dosing of AB-729 resulted in a robust mean HBsAg decline followed by a sustained plateau phase.

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.

Repeat dosing using the 90 mg dose every 8 weeks resulted in comparable mean HBsAg declines relative to the 60 mg dose every 8 weeks.

Additionally, based on 3/5 evaluable subjects, long term dosing of AB-729 demonstrated increased HBV specific immune responses, providing support for combination therapy including immunomodulatory agents.

Repeat dosing of 60mg and 90mg of AB-729 resulted in comparable HBsAg decline profiles with a plateau in response observed around week 20, regardless of dose or dosing interval.

Additionally, based on 3/5 evaluable patients, long term dosing of AB-729 demonstrated increased HBV specific immune responses, providing support for combination therapy including immunomodulatory agents.

Mean (range) change in HBsAg with repeat dosing of AB-729:

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(-0.91 to -2.44)

ⱡ subjects switched to AB-729 60 mg Q12W after Week 20 dose

ⱡ patients switched to AB-729 60 mg Q12W after Week 20 dose

* Data updated since EASL ILC TM presentation

We expect to provide additional data from the ongoing cohorts of this Phase 1a/1b clinical trial in the second half of 2021, including 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.

Additional data from the ongoing cohorts in part 3 of this AB-729 Phase 1a/1b clinical trial will be presented in a poster session at The American Association for the Study of Liver Diseases (AASLD) – The Liver Meeting ® 2021 – The Digital Experience, taking place from November 12-15, 2021.

Key findings from the abstract include:

• AB-729 repeat dosing is generally safe and well tolerated.

• Robust mean declines in HBsAg were sustained with repeat dosing of AB-729, with no meaningful differences observed to date between doses (60 mg or 90 mg) and/or dosing intervals (every 4, 8 or 12 weeks).

• HBsAg suppression at levels <100 IU/mL is maintained in some patients up to 20 weeks following the last dose of AB-729.

The efficacy and safety data for AB-729, derived from up to one year of dosing, support our view that 60 mg every 8 weeks is an appropriate dose to move forward in our upcoming Phase 2a clinical trials.

To advance our efforts to position AB-729 as a potential cornerstone therapeutic in future HBV combination regimens, we are evaluating AB-729 in several Phase 2a proof-of-concept combination clinical trials with other agents with potentially complementary mechanisms of action, including Peg-IFNα-2a and several investigational agents via clinical collaborations with other companies as described below.

Phase 2a proof-of-concept clinical trial to evaluate AB-729 in combination with Peg-IFNα-2a

In July 2021, we received authorization from the U.S.

Food and Drug Administration to proceed with our Investigational New Drug (IND) application for AB-729 in a Phase 2a proof-of-concept clinical trial to evaluate AB-729 in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in patients with chronic HBV infection.

This is a randomized, open label, multicenter Phase 2a trial investigating the safety and antiviral activity of AB-729 in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in patients with CHB.

Pending protocol finalization, the trial is expected to enroll 40 stably NA-suppressed, HBeAg negative, non-cirrhotic CHB patients.

After a 24-week dosing period of AB-729 (60 mg SC every 8 weeks (Q8W)), patients will be randomized into one of 4 groups:

AB-729 + NA + weekly Peg-IFNα-2a for 24 weeks (N = 12)

NA + weekly Peg-IFNα-2a for 24 weeks (N = 12)

AB-729 + NA + weekly Peg-IFNα-2a for 12 weeks (N = 8)

NA + weekly Peg-IFNα-2a for 12 weeks (N = 8)

After completion of the assigned Peg-IFNα-2a treatment period, all patients will remain on NA therapy for the initial 24-week follow up period, and then will discontinue NA treatment if treatment stopping criteria are met.

If patients stop NA therapy, they will enter an intensive follow-up period for 48 weeks.

We have dosed the first patient in this Phase 2a proof-of-concept clinical trial.

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.

We are currently enrolling subjects in a randomized, multi-center, open-label Phase 2a proof-of-concept clinical trial is evaluating 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.

We are enrolling patients in a randomized, multi-center, open-label Phase 2a proof-of-concept clinical trial is evaluating 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 patients 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 will share in the costs of the collaboration.

Assembly is conducting this clinical trial and expecting initial data in 2022.

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.

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Collaboration with Vaccitech plc

In July 2021, we entered into a clinical collaboration agreement with Vaccitech plc (“Vaccitech”) to evaluate the safety, pharmacokinetics, immunogenicity, and antiviral activity of AB-729 followed by Vaccitech’s proprietary immunotherapeutic, VTP-300, in NrtI-suppressed subjects with CHB.

Pending regulatory approval, the trial is expected to enroll 40 NA-suppressed, Hepatitis B e-antigen negative or positive, non-cirrhotic CHB subjects.

Subjects are expected to receive AB-729 + NA for 24 weeks.

At Week 24, subjects will be randomized 1:1 to receive either NA + VTP-300 or NA + VTP-300 sham.

At Week 48, all subjects are expected to be evaluated for eligibility to either discontinue all treatments or remain on their NrtI only.

Subjects are expected to be followed for an additional 48 weeks.

In July 2021, we entered into a clinical collaboration agreement with Vaccitech plc (“Vaccitech”) to evaluate the safety, pharmacokinetics, immunogenicity, and antiviral activity of AB-729 followed by Vaccitech’s VTP-300, a proprietary T cell stimulating therapeutic vaccine, in NrtI-suppressed patients with CHB.

Pending regulatory approval, the trial is expected to enroll 40 NA-suppressed, Hepatitis B e-antigen negative or positive, non-cirrhotic CHB patients.

Patients are expected to receive AB-729 + NA for 24 weeks.

At Week 24, patients will be randomized 1:1 to receive either NA + VTP-300 or NA + VTP-300 sham.

At Week 48, all patients are expected to be evaluated for eligibility to either discontinue all treatments or remain on their NrtI only.

Patients are expected to be followed for an additional 48 weeks.

The Phase 2a proof-of-concept clinical trial will be managed by us, subject to oversight by a joint development committee comprised of representatives from us and Vaccitech.

We and Vaccitech retain full rights to their respective product candidates and will split all costs associated with the clinical trial.

We expect to file a CTA in the second half of 2021 and initiate the clinical trial in early 2022.

We expect to file a CTA in the fourth quarter of 2021 and initiate the clinical trial in early 2022.

Pursuant to the agreement, the parties intend to undertake a larger Phase 2b clinical trial depending on the results of the initial Phase 2a clinical trial.

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In June 2021, we entered into a clinical collaboration agreement with Antios Therapeutics, Inc.

(“Antios”) to evaluate a triple combination of AB-729, Antios’ proprietary active site polymerase inhibitor nucleotide (ASPIN), ATI-2173, and Viread (tenofovir disoproxil fumarate), for the treatment of subjects with chronic HBV infection.

(“Antios”) to evaluate a triple combination of AB-729, Antios’ proprietary active site polymerase inhibitor nucleotide (ASPIN), ATI-2173, and Viread (tenofovir disoproxil fumarate), which is currently approved by the FDA, for the treatment of patients with chronic HBV infection.

ATI-2173, AB-729 and Viread will be evaluated in combination in a single cohort in the ongoing Antios Phase 2a ANTT201 clinical trial.

The multi-center, double-blinded, placebo-controlled, multiple‑dose cohort will evaluate the safety, pharmacokinetics, immunogenicity, and antiviral activity of the combination of ATI-2173, AB-729 and Viread.

This cohort is expected to initiate in the second half of 2021.

This cohort is expected to initiate in the fourth quarter of 2021.

Antios will be responsible for the costs of adding this single cohort to its ongoing clinical trial.

Arbutus will be responsible for the manufacture and supply of AB-729.

Except to the extent necessary to carry out Antios’ responsibilities with

respect to the collaboration trial, we have not provided any license grant to Antios for use of our AB-729 compound.

Phase 2a proof-of-concept clinical trial to evaluate AB-729 in combination with Peg-IFNα-2a

In July 2021,we received authorization from the U.S.

Pending protocol finalization, the trial is expected to enroll 40 stably NA-suppressed, HBeAg negative, non-cirrhotic CHB subjects.

After a 24-week dosing period of AB-729 (60 mg SC every 8 weeks (Q8W)), subjects will be randomized into one of 4 groups:

AB-729 + NA + weekly Peg-IFNα-2a for 24 weeks (N = 12)

NA + weekly Peg-IFNα-2a for 24 weeks (N = 12)

AB-729 + NA + weekly Peg-IFNα-2a for 12 weeks (N = 8)

NA + weekly Peg-IFNα-2a for 12 weeks (N = 8)

After completion of the assigned Peg-IFNα-2a treatment period, all subjects will remain on NA therapy for the initial 24-week follow up period, and then will discontinue NA treatment if treatment stopping criteria are met.

If subjects stop NA therapy, they will enter an intensive follow-up period for 48 weeks.

This Phase 2a proof-of-concept clinical trial is expected to initiate in the second half of 2021.

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

Oral Capsid Inhibitors (AB-836)

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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 from healthy volunteers and HBV subjects expected in the second half of 2021.

We completed CTA/IND-enabling studies for AB-836 in the fourth quarter of 2020 and initiated a double-blind, randomized, placebo-controlled, single and multiple dose Phase 1a/1b clinical trial evaluating the safety, tolerability, and pharmacokinetics and pharmacodynamics of AB-836 in the first quarter of 2021, with initial data from healthy subjects and HBV patients expected in the fourth quarter of 2021.

Oral PD-L1 Inhibitors

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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 PD-L1 compounds have the potential to reawaken patients’ HBV-specific immune response by inhibiting PD-L1 and we recently commenced IND enabling studies for our PD-L1 program.

Oral HBV RNA Destabilizers

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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.

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 are in advanced lead optimization with next-generation oral HBV RNA-destabilizers.

COVID-19 Research Efforts

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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.

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.

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These targets are essential viral proteins which we have experience in targeting.

We are actively screening multiple new oral molecular entities.

We are progressing lead candidates to nomination.

Collaboration with X-Chem, Inc.

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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 collaboration allows 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.

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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.

This virus 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.

A number of countries and other jurisdictions around the world have implemented extreme measures in attempts to slow the spread of the virus.

These measures include the closing of businesses and requiring people to stay in their homes, the latter of which raises uncertainty regarding the ability to travel to hospitals in order to participate in clinical trials.

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

While we have been able to progress with our clinical and pre-clinical activities to date, it is not possible to predict if the COVID-19 pandemic will materially impact our plans and timelines in the future.

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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 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 June 30, 2021, an aggregate of $7.2 million of royalties have been collected by OMERS.

From the inception of the royalty sale through September 30, 2021, an aggregate of $9.0 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.

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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.

In July 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.

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We have a non-voting observer seat on Genevant’s Board of Directors.

As of June 30, 2021, we owned approximately 16% of the common equity of Genevant and the carrying value of our investment in Genevant was zero.

As of September 30, 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.

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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.

The status of these patents, which collectively represent only a fraction of Arbutus’ extensive LNP patent portfolio, is as follows:

with respect to the ‘127 Patent, the PTAB held all claims as invalid on September 10, 2019, by reason of anticipatory prior art.

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

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

Athrex”), 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.

Athrex 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.

Until the Supreme Court rendered its opinion in US v.

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

The Supreme Court decided on the US v.

Athrex case on June 21, 2021, following which the Federal Circuit reinstated the appeal sua sponte, requiring the parties to brief how the case should proceed in light of the Supreme Court’s opinion or for the Appellant to waive the challenge.

Arbutus elected to waive the challenge and proceed with the appeal at the Federal Circuit.

The opening brief was filed on October 25, 2021.

Moderna’s responsive brief is due by January 3, 2022.

No hearing date has been set for this matter.

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.

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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.

An oral hearing on the ‘435 Patent was held on October 7, 2021.

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

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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, Arbutus filed its

responsive brief on May 11, 2021, and Moderna filed its reply brief on July 1, 2021.

A hearing date has not yet been set for this matter.

Moderna filed its opening brief in that appeal on February 23, 2021, Arbutus filed its responsive brief on May 11, 2021, and Moderna filed its reply brief on July 1, 2021.

An oral hearing on the ‘069 Patent was

held on October 7, 2021.

Moderna and Merck European Oppositions

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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.

The date for the oral proceedings has not been set.

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 rights licensed by us to Genevant under the Genevant License.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES

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The following summarizes the results of our operations for the periods shown:

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

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

2021 2020 2021 2020

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Revenues are summarized in the following table:

Three Months Ended June 30,

Three Months Ended September 30,

2021 % of Total 2020 % of Total

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Total revenue $ 3,340 100 % $ 1,523 100 %

Six Months Ended June 30,

Nine Months Ended September 30,

2021 % of Total 2020 % of Total

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Total revenue $ 7,782 100 % $ 4,528 100 %

Total revenue increased $0.8 million and $1.4 million for the three and six months ended June 30, 2021 compared to the same periods 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.

Total revenue increased $1.8 million and $3.3 million, respectively, for the three and nine months ended September 30, 2021 compared to the same periods 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 June 30,

Three Months Ended September 30,

2021 % of Total 2020 % of Total

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Change in fair value of contingent consideration 856 4 % 120 1 %

Site consolidation — — % 7 — %

Total operating expenses $ 21,748 100 % $ 16,740 100 %

Six Months Ended June 30,

Nine Months Ended September 30,

2021 % of Total 2020 % of Total

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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 $4.9 million and $7.9 million for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020.

Research and development expenses increased $4.2 million and $12.1 million for the three and nine months ended September 30, 2021, respectively, compared to the same periods 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.

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General and administrative

General and administrative expenses increased $0.9 million and $1.2 million for the three and six months ended June 30, 2021, respectively, as compared to the same periods in 2020, due primarily to increases in non-cash stock-based compensation expense and professional fees.

General and administrative expenses increased $0.1 million for the three months ended September 30, 2021 as compared to the same period in 2020.

General and administrative expenses increased $1.3 million for the nine months ended September 30, 2021 as compared to the same period in 2020, due primarily to increases in non-cash stock-based compensation expense, professional fees and insurance.

Change in fair value of contingent consideration

Contingent consideration is a liability we assumed from our acquisition of Arbutus, Inc.

in March 2015.

Contingent consideration is a liability related to our acquisition of Enantigen Therapeutics, Inc.

in October 2014.

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 based on certain sales milestones of our first commercial product for chronic HBV.

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Site consolidation

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

Other income (loss)

Other income (loss) is summarized in the following table:

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

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

2021 2020 2021 2020

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Interest income

The decrease in interest income for the three and six months ended June 30, 2021 compared to the same period in 2020 was due primarily to a general decline in market interest rates.

The decrease in interest income for the three and nine months ended September 30, 2021 compared to the same period in 2020 was due primarily to a general decline in market interest rates.

Interest expense

Interest expense for the three and six months ended June 30, 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.

Interest expense for the three and nine months ended September 30, 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)

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Effect of foreign exchange rate changes on cash and cash equivalents — (56)

(Decrease) increase in cash and cash equivalents (21,297) 14,100

Increase in cash and cash equivalents 25,632 65,119

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

Cash and cash equivalents, end of period $ 77,883 $ 96,918

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 six months ended June 30, 2021, $31.9 million of cash was used in operating activities compared to $24.3 million for the six months ended June 30, 2020, an increase of $7.6 million.

Since our incorporation, we have financed our operations through sales of equity, debt, revenues from research and development collaborations and licenses with corporate partners, royalty monetization, interest income on funds available for investment, and government contracts, grants and tax credits.

For the nine months ended September 30, 2021, $47.9 million of cash was used in operating activities compared to $36.4 million for the nine months ended September 30, 2020, an increase of $11.5 million.

The increase was due primarily to a $12.1 million increase in research and development expenses due to higher expenses for our clinical development and discovery programs, including activities under our collaboration with Assembly and internal research efforts to treat COVID-19 and future coronavirus outbreaks, both of which initiated in mid-2020.

For the six months ended June 30, 2021, net cash used in investing activities was $20.5 million, consisting primarily of additional investments in marketable securities of $54.1 million, partially offset by maturities of investments in marketable securities of $34.4 million.

For the six months ended June 30, 2020, net cash provided by investing activities was $21.0 million consisting of maturities of $46.9 million and purchases of investments in marketable securities of $25.9 million.

For the six months ended June 30, 2021 and 2020, net cash provided by financing activities was $31.2 million and $17.4 million, respectively, due primarily to proceeds from sales of common shares under our Open Market Sale Agreement, as amended, with Jefferies LLC (“Jefferies”).

For the nine months ended September 30, 2021, net cash used in investing activities was $4.6 million, consisting primarily of additional investments in marketable securities of $54.2 million, partially offset by maturities of investments in marketable securities of $50.4 million.

For the nine months ended September 30, 2020, net cash provided by investing activities was $35.1 million consisting of maturities of $66.5 million and purchases of investments in marketable securities of $28.9 million.

For the nine months ended September 30, 2021 and 2020, net cash provided by financing activities was $78.1 million and $66.5 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 June 30, 2021, we had cash, cash equivalents and investments of $121.3 million.

We had no outstanding debt as of June 30, 2021.

We have an Open Market Sale Agreement (“Sale 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 six months ended June 30, 2021, we issued 7,845,925 common shares pursuant to the 2020 Amended Sale Agreement, resulting in net proceeds of approximately $30.7 million.

For the six months ended June 30, 2020, we issued 6,438,265 common shares pursuant to the 2019 Amended Sale Agreement, resulting in net proceeds of approximately $17.4 million.

As of June 30, 2021, there was approximately $9.8 million available under the August 2020 Prospectus Supplement and $75.0 million available under the March 2021 Prospectus Supplement.

As of September 30, 2021, we had cash, cash equivalents and investments in marketable securities of $151.9 million.

We had no outstanding debt as of September 30, 2021.

We have an Open Market Sale Agreement with Jefferies LLC (“Jefferies”) dated December 20, 2018, as amended by Amendment No.

1, dated December 20, 2019, Amendment No.

2, dated August 7, 2020 and Amendment No.

3, dated March 4, 2021 (as amended, the “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.

333-248467), filed with the SEC on August 28, 2020 (the “Registration Statement”).

On March 4, 2021, we 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 our common shares pursuant to the Sale Agreement under the Registration Statement.

During the nine months ended September 30, 2021, we issued 19,715,142 common shares pursuant to the Sale Agreement, resulting in net proceeds of approximately $75.4 million.

For the nine months ended September 30, 2020, we issued 19,696,361 common shares pursuant to the Sale Agreement, resulting in net proceeds of approximately $66.1 million.

As of September 30, 2021, there was approximately $38.6 million available under the March 2021 Prospectus Supplement.

On October 8, 2021, we filed a prospectus supplement with the SEC (the “October 2021 Prospectus Supplement”) in connection with the offering of up to an additional $75.0 million of our common shares pursuant to the Sale Agreement under the Registration Statement.

Additionally, we have a royalty entitlement on ONPATTRO, a drug developed by Alnylam that incorporates our LNP technology and was approved by the FDA and the EMA during the third quarter of 2018 and was launched by Alnylam immediately upon approval in the United States.

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Cash requirements

At June 30, 2021, we held an aggregate of $121.3 million in cash, cash equivalents and investments.

We believe that our cash resources as of June 30, 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.

At September 30, 2021, we held an aggregate of $151.9 million in cash, cash equivalents and investments in marketable securities.

We believe that our cash resources as of September 30, 2021 will be sufficient to fund our operations into the second quarter of 2023.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis