What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-03 compared with 2021-03-04 · 170 added, 184 removed, 648 unchanged (35% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Ernst & Young, LLP, Independent Registered Public Accounting Firm - PCAOB ID:

Consolidated Balance Sheets at December 31, 202 1 and 20 20

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Arbutus Biopharma Corporation (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Arbutus Biopharma Corporation (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

generally accepted accounting principles.

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Property and equipment, net of accumulated depreciation 5,983 6,927

Investments in marketable securities, non-current 35,688 —

Right of use asset 2,092 2,405

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Accounts payable and accrued liabilities $ 10,838 $ 9,151

Liability-classified options 250 253

Lease liability, current 383 390

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Issued and outstanding:

149,408 137,285

0 (December 31, 2020:

Common shares

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General and administrative 17,136 14,845

Depreciation 1,978 2,028

Change in fair value of contingent consideration 1,872 473

Site consolidation — 64

Impairment of intangible assets — 43,836

Impairment of goodwill — 22,471

Arbitration — 6,266

Total operating expenses 84,510 64,720

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Total other 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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Comprehensive income (loss)

Unrealized gain on available-for-sale securities $ 14 $ —

Unrealized (loss) gain on available-for-sale securities $ ( 164 ) $ 14

Currency translation adjustments — 44

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Issuance of common shares pursuant to exercise of options — — 170,040 1,107 ( 658 ) — — 449

Unrealized gain on available-for-sale securities — — — — — — 14 14

Currency translation adjustment — — — — — — 44 44

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Accretion of accumulated dividends on Preferred Shares — 12,139 — — — ( 12,139 ) — —

Conversion of Preferred Shares into Common Shares ( 1,164,000 ) ( 161,547 ) 22,833,922 161,547 — — — —

Stock-based compensation — — — — 6,385 — — 6,385

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Issuance of common shares pursuant to the Open Market Sales Agreement — — 31,571,036 134,665 — — — 134,665

Issuance of common shares pursuant to exercise of ESPP options — — 196,335 817 ( 356 ) — — 461

Issuance of common shares pursuant to exercise of options — — 707,721 3,668 ( 1,558 ) — — 2,110

Unrealized gain on available-for-sale securities 14 14

Currency translation adjustment 44 44

Unrealized loss on available-for-sale securities ( 164 ) ( 164 )

Net loss — — — — — ( 76,247 ) — ( 76,247 )

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Non-cash items:

Deferred income tax benefit — ( 12,661 )

Depreciation 1,753 1,978

Loss on sale of property and equipment — 20

Stock-based compensation expense 6,424 6,161

1 unchanged sentence

Change in fair value of contingent consideration 1,872 473

Impairment of intangible assets — 43,836

Impairment of goodwill — 22,471

Net equity investment loss — 2,545

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Investment in Genevant — ( 2,500 )

Proceeds from sale of property and equipment — 11

Acquisition of property and equipment ( 809 ) ( 229 )

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

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

FINANCING ACTIVITIES

Proceeds from sale of future royalties, net — 18,549

Issuance of common shares pursuant to exercise of options 2,110 449

Issuance of common shares pursuant to exercise of ESPP options 461 —

Issuance of common shares pursuant to the Open Market Sales Agreement 134,665 86,297

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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

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Description of the Business

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

The Company is advancing multiple product candidates with distinct mechanisms of action that it believes have the potential to provide a new curative regimen for chronic HBV infection.

The Company has also initiated a drug discovery and development effort for treating coronaviruses, including COVID-19.

The Company’s two lead product candidates are AB-729, the Company’s proprietary subcutaneously-delivered RNA interference (“RNAi”) product candidate that suppresses HBsAg expression, and AB-836, the Company’s proprietary next-generation oral capsid inhibitor that suppresses HBV DNA replication.

AB-729 is currently in an ongoing Phase 1a/1b clinical trial and the Company expects AB-836 to progress into a Phase 1a/1b clinical trial in the first half of 2021.

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

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

In HBV, the Company is developing an RNA interference (“RNAi”) therapeutic, oral capsid inhibitor, oral PD-L1 inhibitor, and oral RNA destabilizer that it intends 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.

The Company believes its 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.

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

The Company is also exploring oncology applications for its internal PD-L1 portfolio.

At December 31, 2021, the Company had an aggregate of $ 191.0 million in cash, cash equivalents and investments in marketable securities.

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

The Company believes that its cash resources will be sufficient to fund its operations through the third quarter of 2022.

In January 2022, the Company received a $ 40 million upfront payment and a $ 15 million equity investment from Qilu Pharmaceuticals Co., Ltd.

(“Qilu”) as part of a technology transfer and exclusive licensing agreement to develop and commercialize AB-729 in China.

The Company had no outstanding debt as of December 31, 2021.

The Company believes it has sufficient cash resources to fund its operations for at least the next 12 months.

The success of the Company is dependent on obtaining the necessary regulatory approvals to bring its products to market and achieve profitable operations.

The Company’s research and development activities and commercialization of its products are dependent on its ability to successfully complete these activities and to obtain adequate financing through a combination of financing activities and operations.

The Company’s research and development activities and the commercialization of its products are dependent on its ability to successfully complete these activities and to obtain adequate financing through a combination of financing activities and operations.

It is not possible to predict either the outcome of the Company’s existing or future research and development programs or the Company’s ability to continue to fund these programs in the future.

COVID-19 Impact

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

This virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to nearly every country in the world.

The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society.

The impact of the COVID-19 pandemic has been, and will likely continue to be, extensive in many aspects of society.

The pandemic has resulted in and will likely continue to result in significant disruptions to businesses.

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

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

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

Future disruptions related to the COVID-19 pandemic could negatively impact the Company’s plans and timelines in 2021 and beyond, including enrolling and monitoring subjects in its clinical trials.

Measures implemented around the world in attempts to slow the spread of COVID-19 have had, and will likely continue to have, a major impact on clinical development, at least in the near-term, including shortages and delays in the supply chain and prohibitions in certain countries on enrolling patients in new clinical trials.

While the Company has been able to progress with its clinical and pre-clinical activities to date, it is not possible to predict if the COVID-19 pandemic will materially impact the Company’s plans and timelines in the future.

Significant accounting policies

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All intercompany balances and transactions have been eliminated.

Certain prior year amounts have been reclassified to conform to the current year presentation.

In February 2021, Arbutus Biopharma US Holdings, Inc merged into Arbutus Biopharma, Inc.

Certain prior year amounts have been reclassified to conform to the current year presentation, such as the reclassification of depreciation expense to research and development and general and administrative expenses.

In February 2021, Arbutus Biopharma US Holdings, Inc.

merged into Arbutus Biopharma, Inc.

with Arbutus Biopharma, Inc.

continuing its legal existence and Arbutus Biopharma US Holdings, Inc ceasing to exist.

continuing its legal existence and Arbutus Biopharma US Holdings, Inc.

ceasing to exist.

Use of estimates

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Investment in Genevant

As the result of a recapitalization of Genevant Sciences Ltd.

(“Genevant”) in July 2020, Arbutus’ ownership interest in Genevant decreased to approximately 16 %.

As the result of a recapitalization of Genevant in July 2020, Arbutus’ ownership interest in Genevant decreased to approximately 16 %.

Due to Arbutus’ loss of significant influence with respect to Genevant as a result of the recapitalization, Arbutus discontinued the use of the equity method of accounting for its interest in Genevant.

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Following the recapitalization, Arbutus accounts for its interest in Genevant as equity securities without readily determinable fair values.

Accordingly, an estimate of the fair value of the securities is based on the original cost less previously recognized equity method losses, less impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or a similar Genevant securities.

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

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If such a review should indicate that the carrying amount of long-lived assets is not recoverable, then such assets are written down to their fair values.

Revenue recognition

Revenue from collaborations and licenses

The Company generates revenue primarily through collaboration agreements and license agreements.

Such agreements may require the Company to deliver various rights and/or services, including intellectual property rights or licenses and research, development and manufacturing services.

Under such agreements, the Company is generally eligible to receive non-refundable upfront payments, funding for research, development and manufacturing services, milestone payments, and royalties.

The Company’s collaboration agreements fall under the scope of ASC Topic 808, Collaborative Arrangements , (“ASC 808”) when both parties are active participants in the arrangement and are exposed to significant risks and rewards.

For certain arrangements under the scope of ASC 808, the Company analogizes to ASC 606 for some aspects, including for the delivery of a good or service (i.e., a unit of account).

ASC 606, Revenue From Contracts with Customers (“ASC 606”) requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under a five-step model:

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and (v) recognize revenue when or as a performance obligation is satisfied.

The Company generates revenue primarily through collaboration agreements and license agreements.

Such agreements may require the Company to deliver various rights and/or services, including intellectual property rights or licenses and research and development services.

Under such agreements, the Company is generally eligible to receive non-refundable upfront payments, funding for research and development services, milestone payments, and royalties.

In contracts where the Company has more than one performance obligation to provide its customer with goods or services, each performance obligation is evaluated to determine whether it is distinct based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract.

good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract.

The consideration under the contract is then allocated between the distinct performance obligations based on their respective relative stand-alone selling prices.

The estimated stand-alone selling price of each deliverable reflects the Company’s best estimate of what the selling price would be if the deliverable was

regularly sold on a stand-alone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if the selling price on a stand-alone basis is not available.

The estimated stand-alone selling price of each deliverable reflects the Company’s best estimate of what the selling price would be if the deliverable was regularly sold on a stand-alone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if the selling price on a stand-alone basis is not available.

The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services.

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Sales-based royalties received in connection with licenses of intellectual property are subject to a specific exception in the revenue standards, whereby the consideration is not included in the transaction price and recognized in revenue until the customer’s subsequent sales or usages occur.

As of January 1, 2019, the Company adopted FASB’s Accounting Standards Update 2016-02, Leases (ASC 842), which generally requires the recognition of operating and financing lease liabilities with corresponding right-of-use assets on the balance sheet.

The Company adopted the new standard using the modified retrospective basis applied at the effective date of the new standard and elected to utilize a package of practical expedients.

The Company accounts for its leases under ASC 842, Leases , which generally requires the recognition of operating and financing lease liabilities with corresponding right-of-use assets on the balance sheet.

See note 6 for more information.

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Net loss attributable to common shareholders per share

The Company follows the two-class method when computing net loss attributable to common shareholders per share as the Company has issued Series A participating convertible preferred shares (“Preferred Shares”), as further described in note 13, that meet the definition of participating securities.

The Company’s Preferred Shares entitle the holders to participate in dividends but do not require the holders to participate in losses of the Company.

Accordingly, if the Company reports a net loss attributable to holders of the Company’s common shares, net losses are not allocated to holders of the Preferred Shares.

Net loss attributable to common shareholders per share is calculated based on the weighted average number of common shares outstanding.

Diluted net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders per share for the years ended December 31, 2020 and 2019, since the effect of the Company’s stock options and convertible preferred stock is anti-dilutive.

For the year ended December 31, 2020, potential common shares of 10.7 million pertaining to stock options outstanding and approximately 21.1 million pertaining to if-converted preferred shares for a total of approximately 31.8 million shares were excluded from the calculation of net loss attributable to common shareholders, per share because their inclusion would be anti-dilutive.

A total of approximately 28.4 million potential common shares and if-converted preferred shares were excluded from the calculation for the year ended December 31, 2019.

Diluted net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders per share for the years ended December 31, 2021 and 2020, since the effect of including potential common shares would be anti-dilutive.

For the year ended December 31, 2021, potential common shares of 11.4 million pertaining to outstanding stock options were excluded from the calculation of net loss attributable to common shareholders, per share.

A total of approximately 31.8 million outstanding stock options and if-converted Series A participating convertible preferred shares (“Preferred Shares”) were excluded from the calculation for the year ended December 31, 2020.

On October 18, 2021, the Company’s outstanding Preferred Shares were converted into 22,833,922 common shares.

Prior to that date, the Company followed the two-class method when computing net loss attributable to common shareholders per share as the Preferred Shares, as further described in note 12, met the definition of participating securities.

The Company’s Preferred Shares entitled the holders to participate in dividends but did not require the holders to participate in losses of the Company.

Accordingly, net losses attributable to holders of the Company’s common shares were not allocated to holders of the Preferred Shares.

The following table sets out the computation of basic and diluted net loss attributable to common shareholders per share:

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Stock-based compensation

We measure and recognize compensation expense for all share-based compensation arrangements based on estimated fair values.

We use the Black-Scholes option valuation model to estimate the fair value of stock options at the date of grant.

The Company measures and recognizes compensation expense for all share-based compensation arrangements based on estimated fair values.

The Company uses the Black-Scholes option valuation model to estimate the fair value of stock options at the date of grant.

The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of stock options.

For those assumptions, we use historical data and other information to estimate the expected price volatility and risk free interest rate for all awards.

The expected life of stock options granted are estimated to be five years for employees and seven years for directors and executives, based on our historical experience.

For those assumptions, the Company uses historical data and other information to estimate the expected price volatility and risk free interest rate for all awards.

The expected life of stock options granted are estimated to be five years for employees and six years for directors and executives, based on the Company’s historical experience.

Assumptions on the dividend yield are based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.

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Preferred Shares

The Company accounts for Preferred Shares under ASC 480 – Distinguishing Liabilities from Equity (“ASC 480”), which provides guidance for equity instruments with conversion features.

The Company classifies Preferred Shares in its consolidated balance sheet wholly as equity, with no bifurcation of conversion feature from the host contract, given that the Preferred Shares cannot be cash-settled and the redemption features, which include a fixed conversion ratio with predetermined timing and proceeds, are within the Company’s control.

The Company accrues for the 8.75 % per annum compounding accrual at each reporting period end date as an increase to share capital, and an increase to deficit.

The Company accounted for its Preferred Shares under ASC 480 – Distinguishing Liabilities from Equity (“ASC 480”), which provides guidance for equity instruments with conversion features.

The Company classified the Preferred Shares in its consolidated balance sheet wholly as equity, with no bifurcation of conversion feature from the host contract, given that the Preferred Shares could not be cash-settled and the redemption features, which included a fixed conversion ratio with predetermined timing and proceeds, were within the Company’s control.

The Company accrued for the 8.75 % per annum compounding accrual at each reporting period-end date as an increase to share capital, and an increase to deficit.

The Company’s Preferred Shares were converted into 22,833,922 common shares on October 18, 2021.

Segment information

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The following table presents the changes in fair value of the Company’s liability-classified stock option awards:

Liability at beginning of the period Fair value of liability-classified options exercised in the period Increase (decrease) in fair value of liability Liability at end of the period

Liability at beginning of the period Fair value of liability-classified options exercised in the period Decrease in fair value of liability Liability at end of the period

(in thousands)

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The following table presents the changes in fair value of the Company’s contingent consideration:

Liability at beginning of the period Increase (decrease) in fair value of liability Liability at end of the period

Liability at beginning of the period Increase in fair value of liability Liability at end of the period

(in thousands)

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Money market fund $ 62,836 $ — $ — $ 62,836

US government agency bonds — — — —

US treasury bills 2,000 — — 2,000

Total $ 62,836 $ — $ — $ 62,836

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US government agency bonds $ 21,198 $ — $ ( 39 ) $ 21,159

US treasury bills 21,990 2 — 21,992

US government bonds 60,675 — ( 111 ) 60,564

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Money market fund $ 13,703 $ — $ — $ 13,703

US government agency bonds 1,511 — — 1,511

US treasury bills 2,000 — — 2,000

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(“Roivant”), its largest shareholder, to launch Genevant Sciences Ltd.

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

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

(“Genevant”), a company focused on a broad range of RNA-based therapeutics enabled by the Company’s LNP and ligand conjugate delivery technologies.

The Company licensed rights to its LNP and ligand conjugate delivery platforms to Genevant for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties (the “Genevant License”).

The Company retained all rights to its LNP and conjugate delivery platforms for HBV.

Under the Genevant License, the Company is entitled to receive tiered low single-digit royalties on future sales of Genevant products covered by the licensed patents.

If Genevant sub-licenses the intellectual property licensed by the Company to Genevant, the Company is entitled to receive under the Genevant License, upon the commercialization of a product developed by such sub-licensee, the lesser of (i) twenty percent of the revenue received by Genevant for such sublicensing and (ii) tiered low single-digit royalties on product sales by the sublicensee.

On July 23, 2020, the United States Patent and Trademark Office before the Patent Trial and Appeal Board ("PTAB") announced its decision in Moderna Therapeutics, Inc.'s (“Moderna”) challenge of the validity of U.S.

Patent 8,058,069 ("the ‘069 Patent").

In this decision, the PTAB determined no challenged claims were unpatentable.

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

Moderna filed its opening brief in that appeal on February 23, 2021, and the Company’s responsive brief is due on May 4, 2021.

While the Company is the patent holder, this patent has been licensed to Genevant.

The ‘069 Patent was included in the exclusive rights licensed by the Company to Genevant under the Genevant License.

Under the Genevant License, as amended, if a third party sublicensee of intellectual property licensed by Genevant from the Company commercializes a sublicensed product, the Company becomes 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.

Additionally, if Genevant receives proceeds from an action for infringement by any third parties of the Company’s intellectual property licensed to Genevant, the Company would be entitled to receive, after deduction of litigation costs, 20 % of the proceeds received by Genevant or, if less, tiered low single-digit royalties on net sales of the infringing product (inclusive of the proceeds from litigation or settlement, which would be treated as net sales).

On July 31, 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant.

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

During 2019, the Company recorded non-cash equity losses of $ 22.5 million related to Genevant.

Equity losses for 2019 included $ 14.9 million of losses for the Company’s proportionate share of Genevant’s net losses and a $ 7.6 million impairment charge to reduce the carrying value of the Company’s investment in Genevant to zero .

The impairment was due to uncertainty surrounding the recovery of the Company’s remaining carrying value in Genevant.

The Company has two operating leases for office and laboratory space.

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The Company also leases office space located at 626 Jacksonville Rd, Warminster, Pennsylvania under a lease that expires on December 31, 2022, and the Company has an option to extend the lease term to April 30, 2027.

In connection with the Company’s site consolidation in 2018, the Company ceased using its office and laboratory space located in Burnaby, British Columbia, Canada on June 30, 2018.

The Company subleased a portion of the Burnaby facility to various tenants, including Genevant, until the lease expired on July 31, 2019.

The Company recognized the remaining lease payments for the Burnaby facility, less sublease income under contract, in site consolidation expenses in 2018.

The Company adopted ASU No.

2016-02, Leases (Topic 842) on January 1, 2019 using the modified retrospective basis applied at the effective date of the new standard and elected to utilize a package of practical expedients.

The Company accounts for its leases under ASC 842, Leases .

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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Operating lease right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term.

The leases do not provide an implicit rate so in determining the present value of lease payments, the Company utilized its incremental borrowing rate for the

applicable lease, which was 9.0 % for the 701 Veterans Circle lease, 7.6 % for the 626 Jacksonville Rd.

lease and 5.0 % for the Burnaby lease.

The leases do not provide an implicit rate so in determining the present value of lease payments, the Company utilized its incremental borrowing rate for the applicable lease, which was 9.0 % for the 701 Veterans Circle lease and 7.6 % for the 626 Jacksonville Rd.

The Company recognizes lease expense on a straight-line basis over the remaining lease term.

During the year ended December 31, 2020, the Company incurred total operating lease expenses of $ 0.7 million, which included lease expenses associated with fixed lease payments of $ 0.6 million, and variable payments associated with common area maintenance and similar expenses of $ 0.1 million.

For the twelve months ended December 31, 2019, the Company incurred total operating lease expense of $ 1.2 million, which included fixed lease payments of $ 0.9 million, and variable payments of $ 0.3 million.

Sublease income for the Company’s Burnaby site, which closed during that year, was $ 0.2 million for the twelve months ended December 31, 2019.

During each of the years ended December 31, 2021 and 2020, the Company incurred total operating lease expenses of $ 0.7 million, which included lease expenses associated with fixed lease payments of $ 0.6 million, and variable payments associated with common area maintenance and similar expenses of $ 0.1 million.

Weighted average remaining lease term and discount rate were as follows:

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$ 14,548 $ ( 7,621 ) $ 6,927

During 2019, the Company closed its Burnaby facility and the lease expired according to its terms on July 31, 2019.

In connection with the facility closure, the Company disposed of $ 3.4 million of equipment, furniture and leasehold improvements.

Most of the disposed assets were fully depreciated.

The aggregate net book value of the disposed assets was less than $ 0.1 million.

Intangible assets and goodwill

All IPR&D intangible asset balance related to the Company’s cccDNA program.

During 2019, the Company recorded a $ 43.8 million non-cash impairment expense to reduce the carrying value of its IPR&D intangible assets to zero .

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

The impairment was due to a decision to delay indefinitely the further development of the Company’s cccDNA program while the Company focuses on its other development programs.

The Company’s goodwill balance represented the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets in connection with the business combination that formed Arbutus.

During 2019, the Company assessed its changes in circumstances to determine if it was more likely than not that the fair value of its single reporting unit was below its carrying amount.

Due to a sustained decrease in the Company’s share price during that time frame, the Company’s market capitalization was reduced below the book value of its net assets and the Company concluded that the fair value of its single reporting unit was below its carrying amount in excess of the carrying value of goodwill.

As a result, the Company recorded a $ 22.5 million non-cash impairment expense to reduce the carrying value of its goodwill asset to zero in 2019.

Depreciation expense for the years ended December 31, 2021 and 2020 was $ 1.8 million and $ 2.0 million , respectively.

Accounts payable and accrued liabilities

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Professional fee accruals 983 679

Site consolidation accrual — 137

Liability options 26 250

Other accrued liabilities 5 9

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OMERS has assumed the risk of collecting up to $ 30 million of future royalty payments from Alnylam and Arbutus is not obligated to reimburse OMERS if they fail to collect any such future royalties.

From the inception of the royalty sale through December 31, 2021, an aggregate of $ 11.2 million of royalties have been earned by OMERS.

The $ 30 million in royalties to be paid to OMERS is accounted for as a liability, with the difference between the liability and the gross proceeds received accounted for as a discount.

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Net liability related to sale of future royalties - beginning balance $ 19,554 $ 18,992

Initial recognition of liability — 30,000

Debt discount and issuance costs — ( 11,451 )

Non-cash royalty revenue ( 6,108 ) ( 3,395 )

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Arbitration with the University of British Columbia

Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the University of British Columbia (“UBC”), as well as by Arbutus that was subsequently assigned to UBC.

Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the University of British Columbia (“UBC”), as well as by the Company that was subsequently assigned to UBC.

These inventions are licensed to the Company by UBC under a license agreement, initially entered into in 1998 and as amended in 2001, 2006 and 2007.

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In November 2014, UBC filed a demand for arbitration against the Company which alleged entitlement to unpaid royalties.

In August 2019, the arbitrator issued his decision for the second phase of the arbitration, awarding UBC $ 5.9 million, which includes interest of approximately $ 2.6 million.

The Company paid the $ 5.9 million award to UBC in September 2019 and recorded a charge of $ 6.3 million, consisting of $ 5.9 million for the award (including interest) and $ 0.4 million for an estimate of a potential award for costs and attorneys’ fees.

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

In August 2019, the arbitrator issued its decision for the second phase of the arbitration, awarding UBC $ 5.9 million, which included interest of approximately $ 2.6 million.

The Company paid the $ 5.9 million award to UBC in September 2019 and paid an additional $ 0.2 million for costs and attorneys’ fees in March 2021, and this matter is now fully resolved.

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

Oral hearings for this matter are currently scheduled to begin on April 25, 2022.

The Company does not believe that any royalties are due to UBC and the Company intends to vigorously contest UBC’s allegation.

Stock Purchase Agreement with Enantigen

In October 2014, Arbutus Inc., our wholly-owned subsidiary, acquired all of the outstanding shares of Enantigen Therapeutics, Inc.

In October 2014, Arbutus Inc., the Company’s wholly-owned subsidiary, acquired all of the outstanding shares of Enantigen Therapeutics, Inc.

(“Enantigen”) pursuant to a stock purchase agreement.

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The fair value of the contingent consideration was $ 5.3 million as of December 31, 2021.

Collaborations, contracts and licensing agreements

Collaborations and royalty entitlements

Collaborations

Qilu Pharmaceuticals Co, Ltd.

In December 2021, the Company entered into a technology transfer and exclusive licensing agreement (the “License Agreement”) with Qilu, pursuant to which the Company granted Qilu an exclusive (except as to certain retained rights), sublicensable, royalty-bearing license, under certain intellectual property owned by the Company, 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 the Company, Qilu paid the Company a one-time upfront cash payment of $ 40.0 million on January 5, 2022 and agreed to pay the Company 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 the Company 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 the Company 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 the Company 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 the Company has completed manufacturing technology transfer to Qilu and approval of a product manufactured by Qilu, or its designated contract manufacturing organization, by the National Medical Products Administration in China for AB-729.

Concurrent with the execution of the license agreement, the Company 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 the Company’s 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”).

The Company 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.

The License Agreement falls under the scope of ASC Topic 808, Collaborative Arrangements, (“ASC 808”) as both parties are active participants in the arrangement that are exposed to significant risks and rewards.

While this arrangement is in the scope of ASC 808, the Company analogizes to ASC 606 for some aspects of this arrangement, including for the delivery of a good or service (i.e., a unit of account).

Revenue recognized by analogizing to ASC 606 will be recorded as revenue from collaborations and licenses on the consolidated statements of operations as the Company satisfies its performance obligations under the License Agreement which is expected to begin in 2022.

Assembly Biosciences, Inc.

In August 2020, the Company 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 subjects with chronic HBV infection.

The Company and Assembly will share in the costs of the collaboration.

The Company incurred $ 2.6 million and $ 0.2 million of costs related to the collaboration during the years ended December 31, 2021 and 2020, respectively and reflected those costs in research and development in the statements of operations and comprehensive loss.

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

Vaccitech plc

In July 2021, the Company entered into a clinical collaboration agreement with Vaccitech plc (“Vaccitech”) to evaluate AB-729 followed by Vaccitech’s VTP-300, a proprietary T cell stimulating therapeutic vaccine, in NrtI-suppressed patients with cHBV.

The Company is responsible for managing this Phase 2a proof-of-concept clinical trial, subject to oversight by a joint development committee comprised of representatives from the Company and Vaccitech.

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

The Company incurred $ 0.5 million of costs related to the collaboration, net of Vaccitech’s 50 % share, during the year ended December 31, 2021 and reflected those net costs in research and development in the statements of operations and comprehensive loss.

Antios Therapeutics, Inc.

In June 2021, the Company 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), a nucleos(t)ide reverse transcriptase inhibitor which is currently approved by the FDA, for the treatment of patients with cHBV.

Antios is responsible for the costs of adding a single cohort to its clinical trial.

The Company is responsible for the manufacture and supply of AB-729, the cost of which is not material.

and Proteros biostructures GmbH

In March 2021, the Company entered into a discovery research and license agreement with X-Chem, Inc.

(“X-Chem”) and Proteros biostructures GmbH (“Proteros”) to focus on the discovery of novel inhibitors targeting the SARS-CoV-2 nsp5 main protease (M pro ).

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

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

The collaboration 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 the Company could potentially progress to clinical candidates.

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

Through this collaboration, the Company has identified and obtained a worldwide exclusive license to several molecules that inhibit M pro , a validated target for the treatment of COVID-19 and potential future coronavirus outbreaks.

The Company incurred $ 1.9 million of costs related to the collaboration during the year ended December 31, 2021 and reflected those costs in research and development in the statements of operations and comprehensive loss.

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

Royalty Entitlements

Alnylam Pharmaceuticals, Inc.

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The Company has two royalty entitlements to Alnylam’s global net sales of ONPATTRO.

In 2012, the Company entered into a license agreement with Alnylam that entitles Alnylam to develop and commercialize products with the Company’s LNP technology.

Alnylam’s ONPATTRO, which represents the first approved application of the Company’s LNP technology, was approved by the United States Food and Drug Administration (“FDA”) and the European Medicines Agency (“EMA”) during the third quarter of 2018 and was launched by Alnylam immediately upon approval in the United States.

In 2012, the Company entered into a license agreement with Alnylam Pharmaceuticals, Inc.

(“Alnylam”) that entitles Alnylam to develop and commercialize products with the Company’s LNP technology.

Alnylam’s ONPATTRO, which represents the first approved application of the Company’s LNP technology, was launched by Alnylam in 2018.

Under the terms of this license agreement, the Company is entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00 % - 2.33 % after offsets, with the highest tier applicable to annual net sales above $ 500 million.

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If this royalty entitlement reverts to the Company, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part.

From the inception of the royalty sale through December 31, 2021, an aggregate of $ 11.2 million of royalties have been earned by OMERS.

See note 9 for further details.

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Gritstone Oncology, Inc.

On October 16, 2017, the Company entered into a license agreement with Gritstone Oncology, Inc.

(“Gritstone”) that granted them worldwide access to its portfolio of proprietary and clinically validated LNP technology and associated intellectual property to deliver Gritstone’s self-replicating, non-mRNA, RNA-based neoantigen immunotherapy products.

On October 16, 2017, the Company entered into a license agreement with Gritstone that granted them worldwide access to its portfolio of proprietary and clinically validated LNP technology and associated intellectual property to deliver Gritstone’s self-replicating, non-mRNA, RNA-based neoantigen immunotherapy products.

Gritstone paid the Company an upfront payment, and will make payments for achievement of development, regulatory, and commercial milestones and royalties.

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Milestone payments that are not within the control of the Company or the licensee, such as those that require regulatory approvals, are not considered probable of being achieved until those approvals are received.

Acrotech Biopharma LLC and Spectrum Pharmaceuticals, Inc.

The Company did not receive any payments from Gritstone during the years ended December 31, 2021 or 2020.

Acrotech Biopharma LLC

In May 2006, the Company signed a number of agreements with Talon Therapeutics, Inc.

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The acquisitions and license sale did not affect the terms of the license between Talon and the Company.

Revenues are summarized in the following table:

Revenues from the Company’s royalty entitlements are summarized in the following table:

Year ended December 31,

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$ 4,675 $ 3,259

Gritstone Oncology, Inc.

Acrotech Biopharma, LLC 205 269

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Open Market Sale Agreement

In December 2018, the Company entered into an Open Market Sale Agreement (“the Sale Agreement”) with Jefferies LLC

(“Jefferies”), under which it could issue and sell common shares, from time to time, for an aggregate sales price of up to $ 50 million.

In December 2019, the Company 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 the Company could sell its common shares, without par value, from time to time, for an aggregate sales price of up to $ 50 million, under the Shelf Registration Statement.

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

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

Pursuant to the 2020 Amendment, the Company can issue and sell common shares, from time to time, for an aggregate sales price of up to $ 75 million under the Sale Agreement, as amended.

For the year ended December 31, 2020, the Company issued 24,728,368 common shares pursuant to the Sale Agreement, resulting in net proceeds of approximately $ 86.3 million.

From January 1, 2021 through March 3, 2021, the Company received an additional $ 24.3 million of net proceeds from the issuance of 5.8 million common shares under the ATM program.

For the year ended December 31, 2019, the Company issued 9,138,232 common shares pursuant to the Sale Agreement, resulting in net proceeds of approximately $ 19.5 million.

The Company has 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 the Company 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, the Company filed a prospectus supplement with the SEC (the “March 2021 Prospectus Supplement”) in connection with the offering of up to an additional $ 75.0 million of the Company’s common shares pursuant to the Sale Agreement under the Registration Statement, which the Company fully utilized during 2021.

On October 8, 2021, the Company 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 the Company’s common shares pursuant to the Sale Agreement under the Registration Statement.

During the years ended December 31, 2021 and 2020, the Company 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.

As of December 31, 2021, there was approximately $ 52.3 million remaining available under the October 2021 Prospectus Supplement.

Series A Preferred Shares

On October 2, 2017, the Company announced that it entered into a subscription agreement with Roivant for the sale of Preferred Shares to Roivant for gross proceeds of $ 116.4 million.

The Preferred Shares are non-voting and are convertible into common shares at a conversion price of $ 7.13 per share (which represents a 15 % premium to the closing price of $ 6.20 per share).

The purchase price for the Preferred Shares plus an amount equal to 8.75 % per annum, compounded annually, will be subject to mandatory conversion into approximately 23 million common shares on October 18, 2021 (subject to limited exceptions in the event of certain fundamental corporate transactions relating to Arbutus’ capital structure or assets, which would permit earlier conversion at Roivant’s option).

Assuming conversion of the Preferred Shares into common shares, based on the number of common shares outstanding on December 31, 2020 Roivant would hold 33 % of the Company’s common shares.

Roivant has agreed to a four year lock-up period for this investment and its existing holdings in Arbutus.

Roivant has also agreed to a four year standstill whereby Roivant will not acquire greater than 49.99 % of the Company’s common shares or securities convertible into common shares.

The initial investment of $ 50.0 million closed on October 16, 2017, and the remaining amount of $ 66.4 million closed on January 12, 2018 following regulatory and shareholder approvals.

The Company records the Preferred Shares wholly as equity with no bifurcation of conversion feature from the host contract, given that the Preferred Shares cannot be cash settled and the redemption features are within the Company’s control, which include a fixed conversion ratio with predetermined timing and proceeds.

The Company accrues for the 8.75 % per annum compounding coupon at each reporting period end date as an increase to share capital, and an increase to deficit (see statement of stockholder’s equity).

In October 2017, the Company entered into a subscription agreement with Roivant for the sale of Preferred Shares to Roivant for gross proceeds of $ 116.4 million.

The Preferred Shares were non-voting and were convertible into common shares at a conversion price of $ 7.13 per share (which represented a 15 % premium to the closing price of $ 6.20 per share).

The purchase price for the Preferred Shares plus an amount equal to 8.75 % per annum, compounded annually, was subject to mandatory conversion into common shares on October 18, 2021, at which time the Preferred Shares were converted into 22,833,922 common shares and both the lockup and standstill periods that Roivant had previously agreed to expired.

Immediately following the conversion, Roivant owned approximately 27 % of the Company’s outstanding common shares as of December 31, 2021.

The Company recorded the Preferred Shares wholly as equity with no bifurcation of conversion feature from the host contract, given that the Preferred Shares could not be cash settled and the redemption features were within the Company’s control, which included a fixed conversion ratio with predetermined timing and proceeds.

The Company accrued for the 8.75 % per annum compounding coupon at each reporting period end date as an increase to share capital, and an increase to deficit (see statement of stockholder’s equity).

Stock-based compensation

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During the year ended December 31, 2021, the Company had stock options outstanding under the following plans (collectively, the “Plans”):

the 2016 Omnibus Share and Incentive Plan (the “2016 Plan”), the 2011 Omnibus Share Compensation Plan (the “2011 Plan”), the 2019 inducement grant and the OnCore Option Plan.

the 2016 Omnibus Share and Incentive Plan (the “2016 Plan”), the 2011 Omnibus Share Compensation Plan (the “2011 Plan”);

the 2019 inducement grant;

and the OnCore Option Plan.

As of December 31, 2021, the aggregate number of shares authorized for awards under all Plans was 24,790,202 .

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The Company issues new common shares of stock to settle options exercised.

Under the 2016 and 2011 Plans, the Company’s board of directors may grant options, and other types of awards, to employees, directors and consultants of the Company.

The exercise price of the options is determined by the Company’s board of directors but will be at least equal to the closing market price of the common shares on the date of grant or the prior day and the term may not exceed 10 years.

Options granted generally vest over three or four years for employees and for directors’ initial grants, and immediately for directors’ annual grants.

The 2011 Plan expired in June 2021.

Under the 2016 Plan, the Company’s board of directors may grant options, and other types of awards, to employees, directors and consultants of the Company.

The exercise price of the options is determined by the Company’s board of directors but will be at least equal to the closing market price of the common shares on the date of grant and the term may not exceed 10 years.

Options granted generally vest over four years for employees and for directors’ initial grants, and immediately for directors’ annual grants.

In June 2019, the Company provided an inducement grant of 1,112,000 options to its newly hired Chief Executive Officer.

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Options exercised ( 637,721 ) $ 3.13 ( 637,721 ) — $ —

Options forfeit, canceled or expired ( 597,118 ) $ 5.10 ( 313,861 ) ( 283,257 ) $ 2.53

Options forfeited, canceled or expired ( 1,975,031 ) $ 6.54 ( 1,698,338 ) ( 276,693 ) $ 2.84

Options vested — $ — 2,496,021 ( 2,496,021 ) $ 2.88

Balance as of December 31, 2021 11,309,974 $ 4.14 6,544,348 4,765,626 $ 2.71

The intrinsic value of options exercised under the Arbutus Plans during 2020 and 2019 are $ 0.3 million and less than $ 0.1 million, respectively.

The intrinsic value of options exercised under the Arbutus Plans during 2021 and 2020 are $ 0.2 million and $ 0.3 million, respectively.

The following table summarizes additional information related to the Company’s equity-classified stock options, including its performance options, as of December 31, 2021:

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Risk-free interest rate 0.67 % 1.2 %

The Company considers all available information when estimating the fair value of its stock option grants.

Liability-classified stock options under the Arbutus Plans

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Balance as of December 31, 2021 20,000 $ 12.98

The intrinsic value of liability-classified options exercised during 2020 was less than $ 0.1 million.

The following table summarizes additional information related to the Company’s liability-classified stock options as of December 31, 2020:

As of December 31, 2020

Options outstanding and expected to vest

Intrinsic value (in $000s) $ 158

Weighted-average term remaining 0.9 years

All of the outstanding liability-classified options are vested and the intrinsic value of those options exercised during 2021 was less than $ 0.1 million.

The weighted average term remaining for the liability-classified options is 2.1 years as of December 31, 2021 and the fair value was less than $ 0.1 million.

Liability options are re-measured to their fair values at each reporting date, using the Black-Scholes valuation model.

The weighted average Black-Scholes option-pricing assumptions and the resultant fair values as of December 31, 2020 and December 31, 2019, are presented in the following table:

December 31, 2020 December 31, 2019

Stock price $ 3.55 $ 2.78

Expected average option term 0.9 years 1.6 years

Expected volatility 105.66 % 113.1 %

Expected dividends — % — %

Risk-free interest rate 0.11 % 1.59 %

Weighted-average fair value per share $ 1.30 $ 1.11

Total fair value of vested liability-classified options (in $000s) $ 250 $ 253

OnCore Option Plan

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Balance as of December 31, 2021 80,035 80,600 $ 0.56

The intrinsic value of options exercised under the OnCore plan during each of 2020 and 2019 was $ 0.1 million.

The following table summarizes additional information related to the OnCore stock options as of December 31, 2021:

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A total of 1,500,000 common shares were reserved for issuance under the ESPP.

Company employees contribute funds via payroll deductions, which are used to buy Company common shares at a discount of up to 15 % based on the lower of the price at the start of the offering period and at the end of the relevant purchase period within such offering period.

The initial offering period under the ESPP is September 1, 2020 through August 31, 2021 with purchase dates set on February 26, 2021 and August 31, 2021.

All 1,500,000 common shares remained available for future issuance under the ESPP at December 31, 2020.

For the year ended December 31, 2020, the Company recognized $ 0.2 million of stock-based compensation expense related to the ESPP.

The initial offering period under the ESPP was September 1, 2020 through August 31, 2021 with purchase dates set on February 26, 2021 and August 31, 2021, with subsequent offering periods beginning on September 1 and ending on August 31.

A total of 196,335 ESPP shares were issued under the plan and the balance remaining for issuance under the ESPP plan is 1,303,665 at December 31, 2021.

For the years ended December 31, 2021 and 2020, the Company recognized $ 0.3 million and $ 0.2 million, respectively, of stock-based compensation expense related to the ESPP.

The fair value of the right to acquire stock at a discounted price under the ESPP is calculated using the Black-Scholes valuation model and recorded as stock-based compensation.

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Total $ 6,424 $ 6,161

During the year ended December 31, 2019, the Company recognized $ 1.1 million of non-cash stock-based compensation expense for the accelerated vesting stock options, related to the departure of the Company’s former President and Chief Executive Officer in June of 2019.

At December 31, 2020, there remains $ 7.8 million of unearned compensation expense related to unvested equity employee stock options to be recognized as expense over a weighted-average period of approximately 2.3 years .

At December 31, 2021, there remained $ 11.6 million of unearned compensation expense related to unvested equity employee stock options to be recognized as expense over a weighted-average period of approximately 2.7 years .

For the year ended December 31, 2020, the Company recognized $ 0.3 million of performance based stock compensation expense, which is included in the table above.

There was no performance based stock compensation expense in 2021.

The Company is subject to taxation and files income tax returns in Canadian federal and provincial, United States federal and several state jurisdictions.

The United States Internal Revenue service is currently examining the Company’s federal tax return for 2018.

The United States Internal Revenue service is currently examining the Company’s federal tax return for 2018 and the Canada Revenue Agency is currently examining the Company’s Canadian tax returns for 2018 and 2019.

The outcome of tax audits cannot be predicted with certainty, however the Company believes that an adequate provision has been made for any adjustments that may result from the examination.

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Computed taxes (benefits) at Canadian federal and provincial tax rates $ ( 23,864 ) $ ( 17,211 )

Difference due to change in tax rate on opening deferred taxes — 8,356

Adjustment to prior year ( 1,041 ) 390

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Change in valuation allowance - other 15,928 12,033

Federal and Provincial ITCs applied ( 611 ) —

Difference due to income taxed at foreign rates 4,840 3,716

Stock-based compensation 456 450

Impairment of goodwill — 4,719

Income tax expense (recovery) $ — $ —

As of December 31, 2020, the Company has investment tax credits available to reduce Canadian federal income taxes of $ 8.0 million, versus $ 10.0 million as of December 31, 2019, which expire between 2030 and 2037, and provincial income taxes of $ 2.6 million, versus $ 4.5 million as of December 31, 2019, which expire between 2024 and 2027.

In addition, the Company has research and development credits of $ 3.9 million as of December 31, 2020, and $ 3.9 million as of December 31, 2019, which expire between 2031 and 2038 and which can be used to reduce future taxable income in the United States.

As of December 31, 2021, the Company had investment tax credits available to reduce Canadian federal income taxes of $ 7.4 million, versus $ 8.0 million as of December 31, 2020, which expire between 2030 and 2037, and provincial income taxes of $ 2.1 million, versus $ 2.6 million as of December 31, 2020, which expire between 2024 and 2027.

The investment tax credits are accounted for under a flow-through method.

In addition, the Company had research and development credits of $ 3.8 million as of December 31, 2021, and $ 3.9 million as of December 31, 2020, which expire between 2031 and 2038 and which can be used to reduce future taxable income in the United States.

As of December 31, 2021, the Company had scientific research and experimental development expenditures of $ 62.8 million available for indefinite carry-forward, versus the $ 58.6 million it had as of December 31, 2020.

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United States net operating loss carryforwards arising in 2019 and future periods have an indefinite carryforward period.

As of December 31, 2021 and December 31, 2020, the Company had $ 197.8 million and $ 124.6 million, respectively, of total regular net operating losses which can be used to offset future taxable income in the United States.

As a result of ownership changes occurring on October 1, 2014 and March 4, 2015, the Company’s ability to use these losses may be limited.

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Related party transactions

Pursuant to a financing and related subscription agreement, the Company issued Roivant the Preferred Shares in October 2017.

On October 18, 2021, the Preferred Shares were converted into 22,833,922 common shares.

Immediately following the conversion, Roivant owned approximately 27 % of the Company’s outstanding common shares.

See note 12 for further details.

On July 31, 2020, Genevant was recapitalized through an equity investment and conversion of previously issued convertible debt securities held by Roivant.

Arbutus participated in the recapitalization of Genevant with an investment of $ 2.5 million.

Arbutus determined that this $ 2.5 million additional investment in Genevant represented the funding of prior losses and accordingly, the Company recorded the amount as an equity investment loss on the Condensed Consolidated Statements of Operations and Comprehensive Loss in 2020.

Arbutus determined that this $ 2.5 million additional investment in Genevant represented the funding of prior losses and accordingly, the Company recorded the amount as an equity investment loss on the Consolidated Statements of Operations and Comprehensive Loss in 2020.

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

See note 5 for further details.

Genevant purchased certain administrative and transitional services from the Company totaling less than $ 0.1 million and $ 0.1 million during 2020 and 2019, respectively.

During each of the years ended December 31, 2021 and 2020, Genevant purchased certain administrative and transitional services from the Company totaling less than $ 0.1 million.

These services were billed at agreed hourly rates and reflective of market rates for such services and these costs were netted in research and development in the income statement.

In addition, Genevant had a sublease for 17,900 square feet in the Company’s Burnaby facility.

Sublease income, including management fee reimbursements, from Genevant was $ 0.2 million in 2019 the last year under the Burnaby facility lease, which was netted against site consolidation costs in the income statement.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data