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Item 7. Management’s Discussion and Analysis

2022-03-03 compared with 2021-03-04 · 95 added, 106 removed, 139 unchanged (59% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are 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 that we believe have 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.

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, our proprietary subcutaneously-delivered RNAi product candidate that suppresses HBsAg expression, 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 we expect AB-836 to progress into a Phase 1a/1b clinical trial in the first half of 2021.

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.

Arbutus Biopharma Corporation (“Arbutus”, the “Company”, “we”, “us”, and “our”) is a clinical-stage biopharmaceutical company leveraging its extensive virology expertise to develop novel therapeutics that target specific viral diseases.

Our current focus areas include Hepatitis B virus (“HBV”), SARS-CoV-2 and other coronaviruses.

In HBV, we are developing an RNA interference (“RNAi”) therapeutic, oral capsid inhibitor, oral PD-L1 inhibitor, and oral RNA destabilizer that we intend to combine to provide a functional cure for patients with chronic HBV infection (“cHBV”) by suppressing viral replication, reducing surface antigen and reawakening the immune system.

We believe our lead compound, AB-729, is the only RNAi therapeutic with evidence of immune re-awakening, and is currently being evaluated in multiple phase 2 clinical trials.

We have an ongoing drug discovery and development program directed to identifying novel, orally active agents for treating coronaviruses (including SARS-CoV-2).

We are also exploring oncology applications for our internal PD-L1 portfolio.

Our product pipeline consists of the following programs:

AB-729, our proprietary subcutaneously-delivered RNAi therapeutic 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, is currently in one ongoing Phase 1a/1b clinical trial and three Phase 2a proof-of-concept clinical trials in combination with other agents with potentially complementary mechanisms of action.

Preliminary data from the Phase 1a/1b clinical trial has shown that treatment with AB-729 resulted in meaningful declines in HBsAg while being well tolerated with no serious adverse events (“SAEs”) noted after both single and repeat dosing.

Preliminary data also suggests that long-term suppression of HBsAg with AB-729 results in increased HBV-specific immune response.

AB-836, our proprietary next-generation oral capsid inhibitor that suppresses HBV DNA replication, is currently in an ongoing Phase 1a/1b clinical trial where preliminary data from healthy subjects and HBV patients have shown that AB-836 is generally safe and well-tolerated with robust antiviral activity.

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.

AB-101, our oral PD-L1 inhibitor that has the potential to reawaken patients’ HBV-specific immune response by inhibiting PD-L1, is advancing through lead optimization.

We are also exploring potential oncology applications for our internal PD-L1 portfolio.

AB-161, our next-generation oral HBV specific RNA destabilizer, is advancing through lead optimization.

We have conducted extensive non-clinical safety evaluations with AB-161 that gives us confidence in this molecule’s ability to circumvent the peripheral neuropathy findings seen in non-clinical safety studies with our first-generation oral RNA destabilizer, AB-452.

Our coronavirus 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 (nucleos(t)ide).

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.

We continue to monitor the effects of COVID-19, which has caused significant disruptions around the world.

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.

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

Collaborations and Royalty Entitlements

In August 2020, we entered into a clinical collaboration agreement with Assembly Biosciences, Inc.

(“Assembly”) to evaluate AB-729 in combination with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate vebicorvir (“VBR”) and standard-of-care NA therapy for the treatment of patients with chronic HBV infection.

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

Qilu Pharmaceutical Co, Ltd.

In December 2021, we entered into a technology transfer and exclusive license agreement (the “License Agreement”) with Qilu Pharmaceuticals Co., Ltd.

(“Qilu”), pursuant to which we granted Qilu an exclusive (except as to certain retained rights), sublicensable, royalty-bearing license, under certain intellectual property owned by us, to develop, manufacture and commercialize AB-729, including pharmaceutical products that include AB-729, for the treatment or prevention of hepatitis B in China, Hong Kong, Macau and Taiwan (the “Territory”).

In partial consideration for the rights granted by us, Qilu paid us a one-time upfront cash payment of $40 million on January 5, 2022 and agreed to pay us milestone payments totaling up to $245 million, net of withholding taxes, upon the achievement of certain technology transfer, development, regulatory and commercialization milestones.

Qilu also agreed to pay us double digit royalties into the low twenties percent based upon annual net sales of AB-729 in the Territory.

The royalties are payable on a product-by-product and region-by-region basis, subject to certain limitations.

Qilu is responsible for all costs related to developing, obtaining regulatory approval for, and commercializing AB-729 for the treatment or prevention of hepatitis B in the Territory.

Qilu is required to use commercially reasonable efforts to develop, seek

regulatory approval for, and commercialize at least one AB-729 product candidate in the Territory.

A joint development committee will be established between us and Qilu to coordinate and review the development, manufacturing and commercialization plans.

Both parties also agreed to negotiate in good faith the terms and conditions of a supply agreement and

related quality agreement pursuant to which we will manufacture or have manufactured and supply Qilu with all quantities of AB-729 necessary for Qilu to develop and commercialize in the Territory until we have completed manufacturing technology transfer to Qilu and approval of a product manufactured by Qilu, or its designated contract manufacturing organization, by National Medical Products Administration in China for AB-729.

Concurrent with the execution of the License Agreement, we entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Anchor Life Limited, a company established pursuant to the applicable laws and regulations of Hong Kong and an affiliate of Qilu (the “Investor”), pursuant to which the Investor purchased 3,579,952 of our common shares, without par value (the “Common Shares”), at a purchase price of USD $4.19 per share, which was a 15% premium on the thirty-day average closing price of the Common Shares as of the close of trading on December 10, 2021 (the “Share Transaction”).

received $15.0 million of gross proceeds from the Share Transaction on January 6, 2022.

The Common Shares sold to the Investor in the Share Transaction represented approximately 2.5% of the Common Shares outstanding immediately prior to the execution of the Share Purchase Agreement.

Alnylam Pharmaceuticals, Inc.

and Acuitas Therapeutics, Inc

We have a royalty entitlement on ONPATTRO® (Patisiran) (“ONPATTRO”), a drug developed by Alnylam Pharmaceuticals, Inc.

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

Genevant Sciences, Ltd.

As of December 31, 2021, we owned approximately 16% of the common equity of Genevant Sciences Ltd.

(“Genevant”), a company we launched with Roivant Sciences, Ltd.

and to which we licensed exclusive rights to our lipid nanoparticle ("LNP") and ligand conjugate delivery platforms for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties (the “Genevant License”).

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.

and to which we licensed rights to our lipid nanoparticle ("LNP") and ligand conjugate delivery platforms 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, as amended, if a third party sublicensee of intellectual property licensed by Genevant from us commercializes a sublicensed product, we become entitled to receive a specified percentage of certain revenue that may be received by Genevant for such sublicense, including royalties, commercial milestones and other sales-related revenue, or, if less, tiered low single-digit royalties on net sales of the sublicensed product.

The specified percentage is 20% in the case of a mere sublicense (i.e., naked sublicense) by Genevant without additional contribution and 14% in the case of a bona fide collaboration with Genevant.

Refer to “Item 1.

Business.” and Note 9 of the Consolidated Financial Statements for a discussion of our clinical collaborations and other royalty entitlements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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(“Enantigen”) in October 2014, we have obligations to make potential future payments of up to $102.5 million upon the achievement of certain commercial milestones.

The sales milestones are tied to the first commercial sales by us of a product indicated for the treatment of HBV.

The sales milestones are tied to the first commercial sales by us of a product indicated for the treatment of cHBV.

These potential contingent payments are recorded as a liability and remeasured to fair value as of each reporting date.

In assessing the fair value of the liability, significant judgments are required to be made by management to estimate the probability of program success, the timing and extent of future product sales, appropriate discount rates, and other estimates and assumptions that could materially affect the determination of fair value.

These judgments include the use of, but are not limited to:

future forecasts and other macroeconomic indicators that forecast market conditions, the timing and amount of estimated future revenues, market-based discount rates and other market-comparative data.

In order to estimate the probability of program success, we evaluate the status and progress of our relevant programs and consider statistics and probabilities related to other relevant programs’ success rates.

As our relevant programs have advanced in clinical trials, we updated our assumptions related to probability of success in 2021.

For the timing and extent of future product sales, we also consider the status and progress of our relevant programs, future forecasts and other macroeconomic indicators that forecast market conditions.

The discount rate at which we calculate the present value of our potential future liability, is based on consideration of market-comparative data, market-based discount rates, and company-specific risk premiums.

As assumptions related to the probability of program success and timing and amount of potential future product sales are highly uncertain due to the unpredictable nature of product development, we assessed the sensitivity of the fair value measurement to changes in assumptions, and determined that changes within a reasonable range would not result in a materially different assessment of fair value.

RESULTS OF OPERATIONS

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Total revenue $ 10,988 $ 6,914

Impairment of intangible assets — 43,836

Impairment of goodwill — 22,471

Total other operating expenses 64,720 83,605

Total operating expenses 84,510 64,720

Loss from operations (73,522) (57,806)

Other income (loss) (2,725) (5,939)

Loss before income taxes (63,745) (166,379)

Income tax benefit — 12,656

Net loss (76,247) (63,745)

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$ 4,675 42 % $ 3,259 47 %

Gritstone Oncology, Inc.

— — % 1,819 30 %

Acrotech Biopharma, LLC 205 2 % 269 4 %

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Revenue consists mainly of royalties received from other companies for sales of products that utilize our licensed technologies.

Total revenue increased $0.9 million for the year ended December 31, 2020 compared to 2019, primarily due to a $3.1 million increase in license royalty revenue from Alnylam and Acuitas due to the growth of Alnylam’s sales of ONPATTRO.

This increase was partially offset by a $1.8 million decrease in revenue from Gritstone Oncology, Inc.

primarily due to a $1.5 million milestone payment received in 2019.

Total revenue increased $4.1 million for the year ended December 31, 2021 compared to 2020, due to a $4.1 million increase in license royalty revenue from Alnylam and Acuitas due to the growth of Alnylam’s sales of ONPATTRO.

The royalty interest for ONPATTRO from Alnylam was sold to OMERS, effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees.

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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.

During the term of this agreement, we recognize non-cash royalty revenue related

to the sales of ONPATTRO.

During the term of this agreement, we recognize non-cash royalty revenue related to the sales of ONPATTRO.

From the inception of the royalty sale through December 31, 2021, the Company has recorded an aggregate of $11.2 million of non-cash royalty revenue for royalties earned by OMERS.

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General and administrative 17,136 20 % 14,845 23 %

Depreciation 1,978 3 % 2,028 1 %

Change in fair value of contingent consideration 1,872 2 % 473 1 %

Site consolidation — — % 64 — %

Impairment of intangible assets — — % 43,836 29 %

Impairment of goodwill — — % 22,471 15 %

Arbitration — — % 6,266 4 %

Total operating expenses $ 84,510 100 % $ 64,720 100 %

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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 decreased $10.1 million in 2020 compared to 2019 due primarily to the October 2019 decision to discontinue development of AB-506, our prior generation capsid inhibitor product candidate and higher expenses for AB-729 during 2019 for preclinical studies and drug product supply in preparation for our Phase 1a/1b clinical trial which commenced in the second quarter of 2019.

These decreases were partially offset by an increase in expenses associated with development of our lead capsid inhibitor product candidate (AB-836), including preclinical studies and drug product supply in preparation for our Phase 1a/1b clinical trial, which is expected to initiate in the first half of 2021.

Research and development expenses increased $16.2 million in 2021 compared to 2020 due primarily to an increase in expenses related to our ongoing AB-729 clinical trials, including our collaboration with Assembly, an increase in expenses for our ongoing AB-836 Phase 1a/1b clinical trial, and an increase in expenses for our early stage development programs, including our coronavirus program, AB-101 and AB-161.

A significant portion of our research and development expenses are not tracked by project, as they benefit multiple projects or our overall technology platform.

General and administrative

General and administrative expenses decreased $3.0 million in 2020 compared to 2019, due primarily to severance related to the departure of our former President and Chief Executive Officer in June 2019.

In accordance with the terms of his legacy employment agreement, our former President and Chief Executive Officer received $2.3 million of cash severance and we recognized $1.1 million of non-cash stock-based compensation expense for the accelerated vesting of his stock options in 2019.

In addition, legal fees decreased $1.1 million in 2020 compared to 2019 due primarily to the settlement of an arbitration case with the University of British Columbia (“UBC”) in September 2019.

These decreases in general and administrative expenses in 2020 compared to 2019 were partially offset by increases in employee compensation and insurance premiums.

General and administrative expenses increased $2.3 million in 2021 compared to 2020, due primarily to an increase in employee compensation costs, stock-based compensation expense, insurance premiums and professional fees.

Change in fair value of contingent consideration

In October 2014, Arbutus Inc., our wholly-owned subsidiary, acquired all of the outstanding shares of Enantigen pursuant to a stock purchase agreement.

The amount paid to Enantigen’s selling shareholders could be up to an additional $102.5 million in

sales performance milestones in connection with the sale of the first commercialized product by us for the treatment of HBV, regardless of whether such product is based upon assets acquired under this agreement, and a low single-digit royalty on net sales of such first commercialized HBV product, up to a maximum royalty payment of $1.0 million.

The amount paid to Enantigen’s selling shareholders could be up to an additional $102.5 million in sales performance milestones in connection with the sale of the first commercialized product by us for the treatment of HBV, regardless of whether such product is based upon assets acquired under this agreement, and a low single-digit royalty on net sales of such first commercialized HBV product, up to a maximum royalty payment of $1.0 million.

In general, increases in the fair value of the contingent consideration are related to the progress of our programs as they get closer to triggering these contingent payments.

In 2020, the fair value of our contingent consideration liability increased $0.5 million related to the passage of time.

In 2019, the fair value of our contingent consideration liability decreased by $0.2 million after we re-evaluated the timing of the future sales milestones following the discontinuation of the AB-506 program.

In 2021, the fair value of our contingent consideration liability increased $1.9 million, primarily related to the progression of our programs through clinical trials and our assessment of the probability of commercialization.

In 2020, the fair value of our contingent consideration liability increased by $0.5 million, primarily related to the passage of time.

Site consolidation charges

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Total site consolidation expenses were $5.0 million, which was fully recognized as of December 31, 2020.

Impairment of intangible assets and goodwill

In 2019, we recorded a $43.8 million non-cash impairment expense to reduce the carrying value of its in-process research and development (“IPR&D”) intangible assets to zero.

We also recognized a corresponding income tax benefit of $12.7 million in 2019 related to the decrease in our deferred tax liability related to the IPR&D intangible assets.

The impairment was due to a decision to delay indefinitely the further development of our cccDNA program while we focus on our other development programs.

Also during 2019, we recorded a $22.5 million non-cash impairment to reduce the carrying amount of our goodwill asset to zero.

Due to a sustained decrease in our share price in the months leading-up to the assessment, our market capitalization was reduced below the book value of our net assets and we concluded that the fair value of our single reporting unit was below its carrying amount by an amount in excess of the carrying amount of the goodwill asset.

We did not record any impairments during 2020.

In the third quarter of 2019, the arbitrator in the arbitration proceedings between UBC and us issued his decision, awarding UBC approximately $5.9 million, which included interest of approximately $2.6 million.

An award for costs and attorneys’ fees is still to be determined.

We recorded expense of $6.3 million in 2019, consisting of $5.9 million for the award (including interest) and $0.4 million for an estimate of a potential award for costs and attorney’s fees.

This arbitration concerned certain early work on lipid nanoparticle delivery systems and related inventions undertaken by us and assigned to UBC.

These inventions were subsequently licensed back to us by UBC under a license agreement, initially entered into in 1998 and subsequently amended in 2001, 2006 and 2007.

We have granted sublicenses under the UBC license to Alnylam as well as other third parties.

On December 18, 2020, UBC delivered to us a notice of arbitration alleging that under its cross license with us, it is due royalties of $2.0 million plus interest arising from our sale to OMERS of part of our royalty interest on future global net sales of ONPATTRO, currently being sold by Alnylam.

Other income (losses)

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Interest expense

Interest expense increased $1.9 million in 2020 compared to 2019 due primarily to the 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 decreased $1.2 million in 2021 compared to 2020 due primarily to a decrease in the 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.

Equity investment loss

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As of December 31, 2021, the carrying value of our investment in Genevant was zero and we owned approximately 16% of the common equity of Genevant.

The equity investment losses for 2019 reflected our proportionate share of Genevant’s net results under the equity method of accounting on a one-quarter lag basis of $14.9 million and a $7.6 million impairment charge to reduce the carrying value of our investment in Genevant to zero.

The impairment was due to uncertainty surrounding the recovery of the remaining carrying value of our investment in Genevant.

Foreign exchange gains (losses)

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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.

During the year ended December 31, 2020, we recorded foreign exchange losses of $0.1 million.

During the year ended December 31, 2021, we recorded foreign exchange gains of less than $0.1 million.

Income tax benefit

For the year ended December 31, 2019, we recorded an income tax benefit of $12.7 million related to the decrease of our deferred tax liability associated with impairments of our IPR&D intangible assets.

During the year ended December 31, 2020, we recorded foreign exchange losses of $0.1 million.

LIQUIDITY AND CAPITAL RESOURCES

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As of December 31, 2021, we had cash and cash equivalents of $109.3 million and investments in marketable securities of $81.7 million, totaling $191.0 million.

In January 2022, we received a $40 million upfront payment and a $15 million equity investment from Qilu as part of a technology transfer and exclusive licensing agreement to develop and commercialize AB-729 in the Territory.

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

Sources of Liquidity

In December 2018, we entered into an Open Market Sale Agreement (“Sale Agreement”) with Jefferies LLC (“Jefferies”), under which we could issue and sell our common shares, from time to time, for an aggregate sales price of up to $50.0 million.

In December 2019, we entered into an amendment to the Sale Agreement with Jefferies (the “2019 Amendment”) in connection with the filing of a shelf registration statement on Form S-3 (File No.

333-235674), filed with the SEC on December 23, 2019 (the “Shelf Registration Statement”).

The 2019 Amendment revised the original Sale Agreement to reflect that we may sell our common shares, from time to time, for an aggregate sales price of up to $50.0 million, under the Shelf Registration Statement.

During July 2020, we fully utilized the remaining availability under the Sale Agreement, as amended by the 2019 Amendment.

In August 2020, we entered into a new amendment to the Sale Agreement (the “2020 Amendment”) with Jefferies.

Pursuant to the 2020 Amendment, we can issue and sell common shares, from time to time, for an aggregate sales price of up to an additional $75.0 million under the Sale Agreement.

During 2020, we issued 24,728,368 common shares under the Sale Agreement, as amended, resulting in net proceeds of approximately $86.3 million.

From January 1, 2021 through March 3, 2021, we received an additional $24.3 million of net proceeds from the issuance of our common shares under the Sale Agreement, as amended, and as of March 3, 2021 there was approximately $16.4 million available under the Sale Agreement, as amended.

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

333-248467), which was declared effective by the SEC on October 22, 2020 (the “New Shelf Registration Statement”).

As of March 4, 2021, we have not sold any securities under the New Shelf Registration Statement.

Sale Agreement

We have an Open Market Sale Agreement SM with 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 offer and sell common shares, from time to time.

On December 23, 2019, we filed a shelf registration statement on Form S-3 with the SEC (File No.

333-235674) and accompanying base prospectus, declared effective by the SEC on January 10, 2020 (the “January 2020 Registration Statement”), for the offer and sale of up to $150 million of our securities.

On August 28, 2020, we filed a shelf registration statement on Form S-3 with the SEC (File No.

333-248467) and accompanying base prospectus, declared effective by the SEC on October 22, 2020 (the “October 2020 Registration Statement”), for the offer and sale of up to $200 million of our securities.

On March 4, 2021, we filed a prospectus supplement with the SEC in connection with the offering of up to an additional $75.0 million of our common shares pursuant to the Sale Agreement under the October 2020 Registration Statement, which we fully utilized during 2021.

On October 8, 2021, we filed a prospectus supplement with the SEC (the “October 2021 Prospectus Supplement”) for the offer and sale of up to an additional $75.0 million of our common shares pursuant to the Sale Agreement under the October 2020 Registration Statement.

On November 4, 2021, we filed a shelf registration statement on Form S-3 with the SEC (File No.

333-248467) and accompanying base prospectus, declared effective by the SEC on November 18, 2021 (the “November 2021 Registration Statement”), for the offer and sale of up to $250 million of our securities.

During the years ended December 31, 2021 and 2020, we issued 31,571,036 and 24,728,368 common shares, respectively, under the Sale Agreement, as amended, resulting in net proceeds of approximately $134.7 million and $86.3 million, respectively.

Royalty Entitlements

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

In December 2021, we entered into a technology transfer and exclusive licensing agreement with Qilu pursuant to which we granted Qilu an exclusive (with certain exceptions), sublicensable, royalty-bearing license, under certain intellectual property

owned by us, to develop, manufacture and commercialize AB-729 for the treatment or prevention of hepatitis B in the Territory.

In partial consideration for the rights granted by us, Qilu paid us a one-time upfront cash payment of $40 million and made an equity investment of $15.0 million, both received in January 2022, and agreed to pay us milestone payments totaling up to $245 million, net of withholding taxes, upon the achievement of certain technology transfer, development, regulatory and commercialization milestones.

Qilu also agreed to pay us double digit royalties into the low twenties percent based upon annual net sales of AB-729 in the Territory.

Cash requirements

At December 31, 2020 we held an aggregate of $123.3 million in cash, cash equivalents and investments in marketable securities.

From January 1, 2021 through March 3, 2021, we received an additional $24.3 million of net proceeds from the issuance of common shares under the ATM program.

We believe that our cash resources 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.

We believe that our $191.0 million of cash and investments in marketable securities as of December 31, 2021, plus $55.0 million of gross proceeds received in January 2022 from Qilu as part of our technology transfer and licensing agreement, will be sufficient to fund our operations into the second quarter of 2024 based on our expectation of a net cash burn between $90.0 million and $95.0 million in 2022.

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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• revenue earned from ongoing collaborative partnerships, including milestone and royalty payments;

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

• the potential requirement to make milestone payments related to our legacy agreements;

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

• delays in the development of our product candidates due to pre-clinical and clinical findings;

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

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

• whether batches of drugs that we manufacture fail to meet specifications resulting in delays and investigational and remanufacturing costs;

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

• competing technological and market developments;

• costs associated with prosecuting and enforcing and defending our patent claims and other intellectual property rights, including litigation and arbitration arising in the course of our business activities.

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

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

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

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

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

• costs associated with prosecuting and enforcing our patent claims and other intellectual property rights, including litigation and arbitration arising in the course of our business activities.

We intend to seek funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, potential monetization transactions, collaborative or licensing arrangements with pharmaceutical companies and government grants and contracts.

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Net cash used in operating activities $ (67,532) $ (51,441)

Net cash provided by (used in) investing activities (14,909) 28,338

Net cash used in investing activities (12,678) (14,909)

Net cash provided by financing activities 137,236 86,746

Effect of foreign exchange rate changes on cash and cash equivalents 5 56

Increase (decrease) in cash and cash equivalents $ 20,452 $ (5,143)

Increase in cash and cash equivalents $ 57,031 $ 20,452

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

Cash and cash equivalents, end of period $ 109,282 $ 52,251

Net cash used in operating activities in 2020 decreased $19.6 million compared to 2019 due primarily to (i) a decrease in research and development payments of approximately $10.1 million, which was due primarily to the October 2019 decision to

discontinue development of AB-506, our prior generation capsid inhibitor product candidate, and (ii) higher spend on AB-729 during 2019 for preclinical studies and drug product supply in preparation for our Phase 1a/1b clinical trial which commenced in the second quarter of 2019.

The decrease in cash used in operating activities in 2020 compared to 2019 was also due to the payment of a $5.9 million arbitration award to UBC in 2019 and a $2.3 million cash severance payment to our former President and Chief Executive Officer in 2019.

Net cash from investing activities in 2020 decreased by $43.2 million compared to 2019 due primarily to the timing of maturities and acquisitions of investments in marketable securities.

Net cash used in operating activities in 2021 increased $16.1 million compared to 2020 due primarily to an increase in research and development payments of approximately $18.2 million, which was due primarily to an increase in research and development expenses for our clinical development and discovery programs.

Net cash used in investing activities in 2021 decreased by $2.2 million compared to 2020 due primarily to the timing of maturities and acquisitions of investments in marketable securities.

Net cash from financing activities in 2021 increased $50.5 million compared to 2020.

Cash provided by financing activities in 2021 consisted primarily of $134.7 million of proceeds from sales of common shares under the Sale Agreement, as amended.

Cash provided by financing activities in 2019 consisted primarily of $18.5 million of net proceeds from the sale a portion of our future royalties from sales of ONPATTRO and $18.6 million of proceeds from sales of common shares under the Sale Agreement, as amended.

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 are material to investors.

Cash provided by financing activities in 2020 consisted primarily of $86.3 million of proceeds from sales of common shares under the Sale Agreement, as amended.

RECENT ACCOUNTING PRONOUNCEMENTS

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What changed 10-K

Item 7. Management’s Discussion and Analysis