What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-04 · 118 added, 106 removed, 425 unchanged (35% of the section changed)

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

You should read the following discussion and analysis by our management of our financial position and results of operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2021 and our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2022.

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

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

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

In HBV, we are developing an RNA interference (“RNAi”) therapeutic, an oral PD-L1 inhibitor, and an oral RNA destabilizer to potentially identify a combination regimen with the aim of providing 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.

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• Developing a broad portfolio of compounds that target cHBV.

Our HBV product pipeline includes a subcutaneously-delivered RNAi therapeutic, an oral capsid inhibitor, an oral HBV RNA destabilizer compound and an oral PD-L1 inhibitor.

Our HBV product pipeline includes a subcutaneously-delivered RNAi therapeutic, an oral HBV RNA destabilizer compound and an oral PD-L1 inhibitor.

We believe that by combining these compounds to suppress HBV DNA replication and hepatitis B surface antigen (“HBsAg”) expression as well as reawaken patients’ HBV-specific immune response, we can address the most important elements to achieving a functional cure.

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

In addition, when AB-729 and NA therapy were discontinued in the first five patients who met stopping criteria and consented, there was no evidence of virologic or clinical relapse in at least 8-24 weeks of follow-up, which may lead to a functional cure.

We anticipate presenting additional long-term off-treatment follow-up data from AB-729-001 at a medical conference later this year.

AB-836, our proprietary next-generation oral capsid inhibitor that suppresses HBV DNA replication, is currently in an ongoing Phase 1a/1b clinical trial (“AB-836-001”).

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.

Preliminary data from HBV patients have shown that AB-836 has robust antiviral activity, however, due to unexpected alanine transaminase (“ALT”) increases seen in some patients on the last day of dosing, we plan to conduct an additional Phase 1 trial in healthy volunteers to determine whether or not these ALT elevations are beneficial or could be the result of liver toxicity.

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 IND-enabling studies that are anticipated to be completed in the second half of 2022.

At the American Association for the Study of Liver Diseases (“AASLD”) Liver Meeting held in November 2022 (the “2022 AASLD Liver Meeting”), we presented additional off-treatment data from Part 3 of the AB-729-001 Phase 1a/1b clinical trial, which included nine patients who had completed 12 to 44 weeks of follow-up after discontinuing their nucleos(t)ide analogue (“NA”) therapy.

Protocol-defined criteria to restart NA therapy was not met by any patient and there was no evidence of clinical or biochemical relapse.

HBsAg levels remained at 1.05 to 2.35 log10 below pre-trial levels in all nine patients, which further supports AB-729’s potential for immunological control.

One patient restarted NA therapy at the investigator’s request after the week 20 visit;

no alanine transaminase (“ALT”) elevation or safety signals were observed.

Eight patients remain off NA therapy and are continuing to be followed for an additional two years to monitor for sustained viral response and potential functional cure.

The new clinical data for AB-729 continues to support its development as a potential cornerstone agent for the treatment of cHBV infection.

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 investigational new drug (“IND”)-enabling studies that are anticipated to be completed in the fourth quarter of 2022.

Preclinical data in an HBV mouse model was presented at the 2022 AASLD Liver Meeting showing that combination treatment with AB-101 and an HBV-targeting GalNAc-siRNA agent resulted in activation and increased frequency of HBV-specific T-cells and greater anti-HBsAg antibody production.

This favorable preclinical profile supports further development of AB-101 as a therapeutic modality for cHBV treatment.

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 IND-enabling studies that are anticipated to be completed in the second half of 2022.

AB-161 is our next-generation oral HBV specific RNA destabilizer.

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.

We recently presented preclinical data at the Discovery on Target Conference showing that AB-161 reduced HBV RNA and HBsAg in multiple preclinical models, with favorable liver centricity and lack of observed peripheral neuropathy.

We are conducting the remaining IND-enabling studies, which are anticipated to be completed in the fourth quarter of 2022.

• Combining therapeutic product candidates with complementary mechanisms of action to find a functional cure for people with cHBV.

We believe that our proprietary product candidates AB-729, AB-836, AB-101 and AB-161, along with existing approved therapies, may provide our first proprietary combination therapy for patients with cHBV.

In-line with our strategy to position AB-729 as a potential cornerstone therapeutic in future HBV combination regimens, and to help guide future development of combination therapies of AB-729 with other compounds from our proprietary HBV portfolio, we are evaluating AB-729 in combination with other agents with potentially complementary mechanisms of action, including the following:

• We are currently enrolling patients with cHBV in a Phase 2a proof-of-concept clinical trial (“AB-729-001”) to evaluate AB-729 in combination with ongoing standard-of-care nucleos(t)ide analogues (“NA”) therapy and short courses of Peg-IFNα-2a, with preliminary data anticipated in the second half of 2022.

We believe that our proprietary product candidates AB-729, AB-101 and AB-161, along with existing approved therapies, may provide our first proprietary combination therapy for patients with cHBV.

with our strategy to position AB-729 as a potential cornerstone therapeutic in future HBV combination regimens, and to help guide future development of combination therapies of AB-729 with other compounds from our proprietary HBV portfolio, we are evaluating AB-729 in combination with other agents with potentially complementary mechanisms of action, including the following:

• Enrollment is ongoing in a Phase 2a proof-of-concept clinical trial (“AB-729-201”) to evaluate AB-729 in combination with ongoing standard-of-care NA therapy and short courses of Peg-IFNα-2a in patients with cHBV, with preliminary data anticipated in the fourth quarter of 2022.

• Through our collaboration with Assembly BioSciences, Inc.

(“Assembly”), enrollment is complete and dosing is continuing in a Phase 2a proof-of-concept clinical trial evaluating a triple combination of AB-729, Assembly’s lead HBV core inhibitor (capsid inhibitor) product candidate, vebicorvir (“VBR”), and NA therapy in patients with cHBV.

(“Assembly”), patients with cHBV were enrolled in a Phase 2a proof-of-concept clinical trial evaluating a triple combination of AB-729, Assembly’s first-generation HBV core inhibitor (capsid inhibitor) product candidate, vebicorvir (“VBR”), and NA therapy.

In July 2022, Assembly announced its plans to discontinue development of VBR.

Despite this, in consultation with Assembly Biosciences, we plan to continue dosing patients in the Phase 2a proof-of-concept clinical trial in order to fully and accurately assess the results.

Preliminary data from the trial is expected in the second half of 2022.

Despite this, in consultation with Assembly, we continued dosing patients in the Phase 2a proof-of-concept clinical trial in order to fully and accurately assess the results.

Preliminary data from sixty-five patients in this clinical trial was presented as a poster presentation at the 2022 AASLD Liver Meeting and showed that adding VBR to AB-729 and NA therapy did not result in greater on-treatment improvements in markers of active HBV infection as compared to AB-729 and NA therapy alone.

The addition of VBR did not negatively impact the reduction of HBsAg in the triple combination arm.

All regimens were safe and well-tolerated in this trial.

Patients are continuing to be followed.

• Through our collaboration with Vaccitech plc (“Vaccitech”), we are enrolling patients in a Phase 2a clinical trial (“AB-729-202”) to evaluate a triple combination of AB-729 with Vaccitech’s VTP-300, a proprietary T cell stimulating therapeutic vaccine, and NA therapy for the treatment of patients with cHBV.

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(“X-Chem”) and Proteros biostructures GmbH (“Proteros”), we have identified and obtained a worldwide exclusive license to several molecules that inhibit the SARS-CoV-2 nsp5 main protease (“Mpro”), a validated target for the treatment of COVID-19 and potential future coronavirus outbreaks.

We expect to nominate a candidate that inhibits Mpro in the second half of 2022 and advance that compound into IND-enabling studies.

We expect to nominate a candidate that inhibits Mpro in the fourth quarter of 2022 and advance that compound into IND-enabling studies.

We are also continuing lead optimization activities for an nsp12 viral polymerase candidate.

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A total of 41 patients were dosed with AB-729 during Parts 2 and 3 of this Phase 1a/1b clinical trial.

In June 2022, we presented a poster at the 2022 European Association for the Study of the Liver (EASL) International Liver Congress™ (ILC) highlighting the most recent data from Part 3 of AB-729-001.

At the 2022 AASLD Liver Meeting, we presented additional off-treatment data from Part 3 of the AB-729-001 Phase 1a/1b clinical trial, which included nine patients who had had previously completed 48 weeks of treatment with AB-729, and 24 weeks later met protocol-defined criteria to also stop NA therapy.

These nine patients had completed 12 to 44 weeks of follow-up after discontinuing their NA therapy and none had met the protocol-defined criteria to restart NA therapy and there was no evidence of clinical or biochemical relapse.

HBsAg levels remained at 1.05 log10 to 2.35 log10 below pre-trial levels in all nine patients.

Three patients experienced transient HBV DNA elevations that spontaneously resolved without intervention, which further supports AB-729’s potential for immunological control.

One patient restarted NA therapy at the investigator’s request after the week 20 visit;

no ALT elevation or safety signals were observed.

Eight patients remain off NA therapy and are continuing to be followed for an additional two years to monitor for sustained viral response and potential functional cure.

There were no adverse events (“AEs”) reported and no ALT elevations observed.

The new clinical data for AB-729 continues to support its development as a potential cornerstone agent for the treatment of cHBV infection.

The mean HBsAg for the five patients at baseline was 2887 IU/mL (range 1392-6765) compared to 69 IU/mL (range 4.58-150.1) at the last visit after discontinuing all treatment.

As of the date of the poster presentation at the 2022 EASL ILC, all five patients remained off all treatment, and all had HBsAg levels below pre-baseline levels.

None of the patients had met clinical or virologic relapse criteria.

There were no adverse events (AEs) reported, no ALT elevations observed, and HBV DNA levels remained either less than the LLOQ (lower limit of quantification) or had transiently risen and subsequently decreased without intervention.

Repeat dosing of 60 mg and 90 mg of AB-729 resulted in robust mean declines in HBsAg in HBeAg positive/negative and HBV DNA positive/negative patients that were sustained up to 48 weeks, with no statistically significant differences observed to date between the 60 mg and 90 mg dose and/or dosing intervals.

Data presented earlier this year at the 2022 European Association for the Study of the Liver (EASL) International Liver Congress™ (ILC) showed that repeat dosing of 60 mg and 90 mg of AB-729 resulted in robust mean declines in HBsAg in

HBeAg positive/negative and HBV DNA positive/negative patients that were sustained up to 48 weeks, with no statistically significant differences observed to date between the 60 mg and 90 mg dose and/or dosing intervals.

The reported data for patients from Cohorts E, F, G, I and J showed:

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The reported data for patients from Cohort K, which included HBeAg positive patients only, showed:

• All seven patients reached HBsAg levels <100 IU/ml during AB-729 treatment or follow-up;

• Two patients reached HBsAg levels <LLOQ at one or more visits;

• The mean (SE) log10 change from baseline in HBeAg at end of treatment was -0.94(0.25) IU/mL.

We anticipate presenting additional long-term off-treatment follow-up data from Part 3 of this clinical trial at a medical conference later this year.

• All patients had HBsAg levels <100 IU/mL during AB-729 treatment or follow-up with two patients reaching HBsAg below levels of quantification on multiple visits;

• All seven patients had residual detectable HBeAg and therefore did not meet the protocol-defined discontinuation criteria for their NA therapy;

• One patient reached HBeAg less than lower levels of quantification intermittently;

• No safety events were noted during the follow-up period.

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

To advance our efforts to position AB-729 as a

potential cornerstone therapeutic in future HBV combination regimens, we are evaluating AB-729 in several Phase 2a proof-of-concept combination clinical trials with other agents with potentially complementary mechanisms of action via clinical collaborations with other companies as described below.

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

Phase 2a proof-of-concept clinical trial to evaluate AB-729 in combination with Peg-IFNα-2a (AB-729-201)

Following FDA authorization in July 2021 to proceed with our Investigational New Drug (IND) application, we initiated AB-729-201, a randomized, open label, multicenter Phase 2a proof-of-concept clinical trial investigating the safety and antiviral activity of AB-729 in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in patients with cHBV.

We are currently enrolling up to 40 stably NA-suppressed, HBeAg negative, non-cirrhotic cHBV patients.

We are evaluating AB-729-201 in a randomized, open label, multicenter Phase 2a proof-of-concept clinical trial investigating the safety and antiviral activity of AB-729 in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in up to 40 stably NA-suppressed, HBeAg negative, non-cirrhotic patients with cHBV.

After 24-weeks of dosing with AB-729 (60 mg every 8 weeks), patients will be randomized into one of four groups to receive either AB-729 plus NA therapy plus Peg-IFNα-2a or NA therapy plus Peg-IFNα-2a for either 24 or 12 weeks.

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

We anticipate preliminary data from the AB-729-201 clinical trial in the second half of 2022.

Enrollment is ongoing in this clinical trial and we anticipate preliminary data in the fourth quarter of 2022.

Collaboration with Assembly

Through a clinical collaboration agreement with Assembly that we entered into in August 2020, Assembly is evaluating AB-729 in combination with its HBV core inhibitor (capsid inhibitor) candidate VBR and standard-of-care NA therapy for the treatment of patients with cHBV.

The randomized, multi-center, open-label Phase 2a proof-of-concept clinical trial was designed to evaluate the safety, pharmacokinetics, and antiviral activity of the triple combination of AB-729, VBR, and an NA compared to the double combinations of VBR with an NA and AB-729 with an NA.

The clinical trial was designed to enroll approximately 60 virologically-suppressed patients with HBeAg negative cHBV in the first cohort of the trial.

Through a clinical collaboration agreement with Assembly that we entered into in August 2020, Assembly is evaluating AB-729 in combination with its first-generation HBV core inhibitor (capsid inhibitor) candidate VBR and standard-of-care NA therapy for the treatment of HBeAg negative patients with cHBV.

The randomized, multi-center, open-label Phase 2a proof-of-concept clinical trial was designed to evaluate the safety, pharmacokinetics, and antiviral activity of the triple combination of AB-729, VBR, and an NA (n=32) compared to the double combinations of VBR with an NA (n=16) and AB-729 with an NA (n=17).

Patients are dosed for 48 weeks with AB-729 (60 mg subcutaneously every 8 weeks) and VBR (300 mg orally once daily), with a 48-week follow-up period.

Both parties will share in the costs of the collaboration.

Both parties share in the costs of the collaboration.

Assembly has completed enrollment in the clinical trial.

In July 2022, Assembly announced its plans to discontinue development of VBR.

Despite this, in consultation with Assembly Biosciences, we plan to continue dosing patients in the Phase 2a proof-of-concept clinical trial in order to fully and accurately assess the results.

Preliminary data from the trial is expected in the second half of 2022.

Despite this, in consultation with Assembly, we continued this Phase 2a proof-of-concept clinical trial in order to fully and accurately assess the results.

Preliminary data from this clinical trial were presented as a poster presentation at the 2022 AASLD Liver Meeting.

The preliminary data indicate that adding VBR to AB-729 and NA therapy does not result in greater on-treatment improvements in markers of active HBV infection as compared to AB-729 and NA therapy alone.

The addition of VBR did not negatively impact the reduction of HBsAg in the triple combination arm.

All regimens were safe and well-tolerated in this trial.

Patients are continuing to be followed.

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

Collaboration with Vaccitech (AB-729-202)

Through a clinical collaboration agreement with Vaccitech that we entered into in July 2021, we are enrolling patients in AB-729-202, a Phase 2a proof-of-concept clinical trial evaluating the safety, antiviral activity and immunogenicity of Vaccitech’s VTP-300, a proprietary T cell stimulating therapeutic vaccine, administered after AB-729 in NrtI-suppressed patients with cHBV.

The trial is designed to enroll 40 NA-suppressed, HBeAg negative or positive, non-cirrhotic cHBV patients.

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At week 48, all patients will be evaluated for eligibility to either discontinue or remain on NA therapy.

This clinical trial will be managed by us, subject to oversight by a joint development committee comprised of representatives from both companies.

This clinical trial is being managed by us, subject to oversight by a joint development committee comprised of representatives from both companies.

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

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Collaboration with Antios

We have terminated our clinical collaboration agreement with Antios that we entered into in June 2021.

We have terminated our clinical collaboration agreement with Antios Therapeutics, Inc.

(“Antios”) that we entered into in June 2021.

Antios completed enrollment in a single cohort of its ongoing Antios Phase 2a ANTT201 clinical trial evaluating its proprietary Active Site Polymerase Inhibitor Nucleotide (ASPIN), ATI-2173, in combination with AB-729 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.

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We were responsible for the manufacture and supply of AB-729.

Except to the extent necessary to carry out Antios’

responsibilities with respect to the collaboration trial, we did not provide any license grant to Antios for use of AB-729.

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

A majority of patients in this cohort were enrolled in Ukraine, which is currently in a state of war, and as a result these patients were lost to follow-up before completing the clinical trial.

Antios recently terminated this clinical trial and we may report partial data on this cohort.

Antios recently terminated this clinical trial.

Oral Capsid Inhibitor (AB-836)

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More effective therapies for patients require new agents which will further block viral replication.

We are developing capsid inhibitors (also known as core protein inhibitors) as oral therapeutics which, in combination with NAs, could further reduce HBV replication.

Oral capsid inhibitors (also known as core protein inhibitors), in combination with NAs, could further reduce HBV replication.

By inhibiting assembly of functional viral capsids, the ability of HBV to replicate is impaired.

Capsid inhibitor molecules also inhibit the uncoating step of the viral life cycle and thus reduce the formation of cccDNA, the viral reservoir which resides in the cell nucleus, and which is believed to play a role in viral persistence.

AB-836 is a capsid inhibitor from a novel chemical series differentiated from competitor compounds with the potential for increased efficacy and an enhanced resistance profile.

AB-836 leverages a novel binding site within the core protein dimer-dimer interface, has shown to be active against NA resistant variants and has the potential to address certain known capsid resistant variants.

AB-836 is anticipated to be combinable with other mechanisms of action and is also anticipated to be dosed once daily.

We enrolled patients in a double-blind, randomized, placebo-controlled Phase 1a/1b clinical trial (“AB-836-001”) designed to evaluate the safety, tolerability, pharmacokinetics and antiviral activity of single and multiple doses of AB-836 in healthy subjects and patients with cHBV.

The trial consists of three parts.

Part 1 evaluated alternating single doses of AB-836 or placebo ranging from 10 mg to 175 mg in a fasted or fed state in healthy subjects.

Part 2 evaluated multiple ascending doses of 50 mg, 100 mg or 150 mg of AB-836 or placebo once daily for 10 days in healthy subjects.

Part 3, which is still on-going, has completed enrollment in HBV DNA positive cHBV patients who are HBeAg positive or negative and received either 50 mg, 100 mg or 200 mg of AB-836 or placebo once daily for 28 days.

In June 2022, we presented a poster at the 2022 EASL ILC highlighting the most recent data from Part 3 of AB-836-001 showing that the 100mg and 200mg doses of AB-836 provided potent inhibition of HBV replication with mean declines in HBV DNA at Day 28 of 3.04 and 3.55 log 10 IU/mL, respectively.

In June 2022, we presented a poster at the 2022 EASL ILC highlighting the most recent data from AB-836-001 showing that the 100mg and 200mg doses of AB-836 provided potent inhibition of HBV replication with mean declines in HBV DNA at Day 28 of 3.04 and 3.55 log 10 IU/mL, respectively.

From a safety standpoint, there were no deaths or SAEs observed.

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There were no other clinically significant lab abnormalities, ECG or vital sign changes observed.

Based on these ALT findings, we plan to conduct an additional Phase 1 trial in healthy volunteers to determine whether or not these ALT elevations are beneficial or could be the result of liver toxicity, before continuing to dose cHBV patients.

We will provide an update with respect to the status and timing of this clinical trial in the second half of 2022.

Based on these ALT findings, an additional arm was added to the AB-836-001 clinical trial to evaluate the safety of dosing AB-836 for a longer period of time to help determine if the previously seen ALT elevations were beneficial or were instead the result of liver toxicity.

In this healthy volunteer arm, two subjects dosed with AB-836 experienced low grade ALT elevations after more than 20 days of dosing, causing us to stop dosing.

Based on these additional safety findings, we decided to discontinue clinical development of AB-836.

Oral PD-L1 Inhibitor (AB-101)

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In June 2022, we presented a poster at the 2022 EASL ILC highlighting data from a study that was designed to assess the preclinical activity of AB-101 and the compound’s ability to reinvigorate patient HBV-specific T-cells.

Studies were conducted

using a transgenic MC38 tumor mouse model and peripheral blood mononuclear cells (PBMCs) from cHBV patients.

Studies were conducted using a transgenic MC38 tumor mouse model and peripheral blood mononuclear cells (PBMCs) from cHBV patients.

The data presented showed that once daily oral administration of AB-101 resulted in profound tumor reduction that was associated with T-cell activation.

In addition, AB-101 activates and reinvigorates HBV-specific T-cells in vitro.

Additionally, preclinical data in an HBV mouse model was presented at the 2022 AASLD Liver Meeting showing that monotherapy with AB-101 reduced PD-L1 in liver immune cells, confirming liver target engagement of the compound.

Combination treatment with AB-101 and an HBV-targeting GalNAc-siRNA agent resulted in activation and increased frequency of HBV-specific T-cells and greater anti-HBsAg antibody production.

This favorable preclinical profile supports further development of AB-101 as a therapeutic modality for cHBV treatment.

We anticipate completing IND-enabling studies for AB-101 in the second half of 2022.

We anticipate completing IND-enabling studies for AB-101 in the fourth quarter of 2022.

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

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We have conducted extensive non-clinical safety evaluations with AB-161 that provide 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.

We anticipate completing IND-enabling studies for AB-161 in the second half of 2022.

We are conducting the remaining IND-enabling studies, which are anticipated to be completed in the fourth quarter of 2022.

COVID-19 Research Efforts

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Through this collaboration, we have 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.

We expect to nominate an M pro product candidate in the second half of 2022 and advance into IND-enabling studies.

We expect to nominate an M pro product candidate in the fourth quarter of 2022 and advance into IND-enabling studies.

We are also continuing lead optimization activities for an Nsp12 viral polymerase candidate.

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

From the inception of the royalty sale through June 30, 2022, an aggregate of $14.2

million of royalties have been collected by OMERS.

From the inception of the royalty sale through September 30, 2022, an aggregate of $16.5 million of royalties have been collected by OMERS.

We also have rights to a second royalty interest ranging from 0.75% to 1.125% on global net sales of ONPATTRO, with 0.75% applying to sales greater than $500 million, originating from a settlement agreement and subsequent license agreement with Acuitas Therapeutics, Inc.

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

As of June 30, 2022, we owned approximately 16% of the common equity of Genevant and the carrying value of our investment in Genevant was zero.

As of September 30, 2022, we owned approximately 16% of the common equity of Genevant and the carrying value of our investment in Genevant was zero.

Our entitlement to receive future royalties or sublicensing revenue from Genevant was not impacted by the recapitalization.

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We filed a response to Moderna’s petitions on June 14, 2018.

On September 12, 2018, the Patent Trial and Appeal Board (the “PTAB”) rendered its decision to institute Inter Partes Review of both the ‘127 Patent and the ‘435 Patent.

September 12, 2018, the Patent Trial and Appeal Board (the “PTAB”) rendered its decision to institute Inter Partes Review of both the ‘127 Patent and the ‘435 Patent.

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

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Moderna’s responsive brief was filed on February 24, 2022 and our reply brief was filed on April 26, 2022.

No hearing date has been set for this matter.

A oral hearing for this matter was held on November 4, 2022.

With respect to the ‘435 Patent, the PTAB rendered its decision on September 11, 2019, holding certain claims invalid and upholding other claims as valid.

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On May 6, 2022, Moderna filed a partial motion to dismiss the claims “relating to Moderna’s sale and provision of COVID-19 vaccine doses to the U.S.

Government.” The motion is now fully briefed.

No oral argument date has been set and no case schedule is yet in place.

Government.” On November 2, 2022, the Court issued an Order denying Moderna’s motion.

Acuitas Declaratory Judgment Lawsuit

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Acuitas also seeks a declaration that each of the listed patents is invalid.

On June 24, 2022, Arbutus and Genevant sought a pre-motion conference concerning their anticipated motion to dismiss all of Acuitas’ claims due to lack of subject matter jurisdiction.

The request for a pre-motion conference was granted, but the case was subsequently re-assigned to a new judge who has not yet set a new pre-motion conference date.

On June 24, 2022, we and Genevant sought a pre-motion conference concerning our anticipated motion to dismiss all of Acuitas’ claims due to lack of subject matter jurisdiction.

The request for a pre-motion conference was granted, but the case was subsequently re-assigned to a new judge who entered an order directing:

(i) Acuitas to inform the court whether it intended to file an amended complaint;

(ii) that Acuitas must file any amended complaint by a certain date;

and (iii) that if Acuitas did not file an amended complaint, we and Genevant must file our motion to dismiss by a certain date.

Acuitas filed its amended complaint on September 6, 2022.

On October 4, 2022, we and Genevant filed our motion to dismiss the Acuitas action for lack of subject matter jurisdiction based on the lack of a case or controversy.

Acuitas’ filed its opposition to the motion to dismiss on November 1, 2022, and we and Genevant intend to file our reply brief on November 16, 2022.

No case schedule is yet in place.

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

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

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

2022 2021 2022 2021

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Revenues are summarized in the following table:

Three Months Ended June 30,

Three Months Ended September 30,

2022 % of Total 2021 % of Total

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Total revenue $ 5,952 100 % $ 3,340 100 %

Six Months Ended June 30,

Nine Months Ended September 30,

2022 % of Total 2021 % of Total

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Total revenue $ 32,774 100 % $ 7,782 100 %

Total revenue increased $11.9 million and $22.4 million for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021, primarily due to license revenue recognized related to our progress towards the satisfaction of our performance obligations with respect to the technology transfer and licensing agreement with Qilu, which closed in January 2022, as well as an increase in license royalty revenue from Alnylam and Acuitas due to the growth of Alnylam’s sales of ONPATTRO.

Total revenue increased $2.6 million and $25.0 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, primarily due to license revenue recognized related to our progress towards the satisfaction of our performance obligations with respect to the technology transfer and licensing agreement with Qilu, which closed in January 2022, as well as an increase in license royalty revenue from Alnylam and Acuitas due to the growth of Alnylam’s sales of ONPATTRO.

Operating expenses

Operating expenses are summarized in the following table:

Three Months Ended June 30,

Three Months Ended September 30,

2022 % of Total 2021 % of Total

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Total operating expenses $ 23,763 100 % $ 21,748 100 %

Six Months Ended June 30,

Nine Months Ended September 30,

2022 % of Total 2021 % of Total

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Research and development expenses consist primarily of personnel expenses, fees paid to clinical research organizations and contract manufacturers, consumables and materials, consulting, and other third party expenses to support our clinical and pre-clinical activities, as well as a portion of stock-based compensation and general overhead costs.

Research and development expenses increased $7.1 million and $11.8 million for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

Research and development expenses increased $3.3 million and $15.2 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

The increase was due primarily to an increase in expenses for our ongoing AB-729 Phase 2a clinical trials, including our collaborations with Assembly and Vaccitech, and an increase in expenses for our early-stage development programs, including AB-101 and AB-161.

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General and administrative

General and administrative expenses increased $0.7 million and $1.7 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021, due primarily to increases in employee compensation costs, professional fees, and non-cash stock based compensation expense.

General and administrative expenses decreased $0.7 million for the three months ended September 30, 2022 as compared to the same period in 2021 due primarily to an award of $0.5 million during the third quarter of 2022 from the arbitrator in the UBC matter for reimbursement of costs and attorneys’ fees.

General and administrative expenses increased $1.0 million for the nine months ended September 30, 2022 as compared to the same period in 2021, due primarily to increases in employee compensation costs and non-cash stock-based compensation expense.

Change in fair value of contingent consideration

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The components of our other income (loss) are summarized in the following table:

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

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

2022 2021 2022 2021

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Interest expense (429) (762) (1,417) (2,297)

Foreign exchange (loss) gain 3 (13) 3 15

Foreign exchange loss (21) (15) (18) —

Total other loss $ 244 $ (750) $ (186) $ (2,200)

Interest income

The increase in interest income for the three and six months ended June 30, 2022 compared to the same periods in 2021 was due primarily to higher interest earned on higher average cash and investment balances.

The increase in interest income for the three and nine months ended September 30, 2022 compared to the same periods in 2021 was due primarily to higher interest earned on higher average cash and investment balances.

Interest expense

Interest expense for both the three and six months ended June 30, 2022 and 2021 consisted primarily of non-cash amortization of discount and issuance costs related to the sale of a portion of our ONPATTRO royalty interest to OMERS in July 2019.

The decrease is related to the declining balance of the unamortized discount and issuance costs.

Interest expense for both the three and nine months ended September 30, 2022 and 2021 consisted primarily of non-cash amortization of discount and issuance costs related to the sale of a portion of our ONPATTRO royalty interest to OMERS in July 2019.

The decreases are related to the declining balance of the unamortized discount and issuance costs.

Foreign exchange gains

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Income Tax Expense

During the six months ended June 30, 2022, we recognized income tax expense of $4.4 million for withholding taxes paid to the Chinese taxing authority by Qilu on our behalf in connection with the upfront license fee Qilu paid us.

During the nine months ended September 30, 2022, we recognized income tax expense of $4.4 million for withholding taxes paid to the Chinese taxing authority by Qilu on our behalf in connection with the upfront license fee Qilu paid us.

LIQUIDITY AND CAPITAL RESOURCES

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Net change in operating items 266 (80)

Net cash provided by (used in) operating activities 326 (31,890)

Net cash used in operating activities (18,366) (47,926)

Net cash used in investing activities (87,624) (4,557)

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Effect of foreign exchange rate changes on cash and cash equivalents (18) —

Decrease in cash and cash equivalents (61,962) (21,297)

(Decrease)/increase in cash and cash equivalents (85,278) 25,632

Cash and cash equivalents, beginning of period 109,282 52,251

1 unchanged sentence

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

For the six months ended June 30, 2022, $0.3 million of cash was provided by operating activities compared to $31.9 million used in operating activities for the six months ended June 30, 2021, an increase of $32.2 million.

The increase was due primarily to a January 2022 upfront cash payment of $40.0 million from Qilu and a $4.0 million premium paid by Qilu as part of their $15.0 million equity investment.

These cash inflows were partially offset by $43.7 million of cash used in operations.

For the six months ended June 30, 2022, net cash used in investing activities was $73.9 million, consisting primarily of additional investments in marketable securities of $84.6 million, partially offset by maturities of investments in marketable securities of $11.0 million.

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

For the six months ended June 30, 2022, net cash provided by financing activities was $11.6 million, which included $11.0 million for the fair value of the shares purchased by Qilu as part of their $15.0 million equity investment.

The remaining $4.0 million was a premium paid by Qilu on the equity investment and was allocated to deferred revenue.

For the six months ended June 30, 2021, net cash provided by financing activities was $31.2 million, which was primarily driven by $30.7 million in proceeds from sales of common shares under our Open Market Sale Agreement, as amended.

For the nine months ended September 30, 2022, $18.4 million of cash was used in operating activities compared to $47.9 million used in operating activities for the nine months ended September 30, 2021, a decrease of $29.6 million.

The decrease was due primarily to a January 2022 upfront cash payment of $40.0 million from Qilu and a $4.0 million premium paid by Qilu as part of their $15.0 million equity investment.

These cash inflows were offset by $62.4 million of cash used in operations.

For the nine months ended September 30, 2022, net cash used in investing activities was $87.6 million, consisting primarily of additional investments in marketable securities of $117.3 million, partially offset by maturities of investments in marketable securities of $30.0 million.

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

For the nine months ended September 30, 2022, net cash provided by financing activities was $20.7 million, which included $11.0 million for the fair value of the shares purchased by Qilu as part of their $15.0 million equity investment, of which the remaining $4.0 million was a premium paid by Qilu on the equity investment and was allocated to deferred revenue.

Also contributing to net cash provided by financing activities was $9.2 million in proceeds from sales of common shares under the Sale Agreement.

For the nine months ended September 30, 2021, net cash provided by financing activities was $78.1 million, which was primarily driven by $75.4 million in proceeds from sales of common shares under the Sale Agreement.

Sources of Liquidity

As of June 30, 2022, we had cash, cash equivalents and investments in marketable securities of $200.6 million.

We had no outstanding debt as of June 30, 2022.

As of September 30, 2022, we had cash, cash equivalents and investments in marketable securities of $190.2 million.

We had no outstanding debt as of September 30, 2022.

Open Market Sale Agreement

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

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

1, dated December 20, 2019, Amendment No.

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On December 23, 2019, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (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 $150.0 million of our securities.

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 $150.0 million of our securities.

The January 2020 Registration Statement also contained a prospectus supplement in connection with the offering of up to $50.0 million of our common shares pursuant to the Sale Agreement.

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(ii) the October 2020 Registration Statement;

and (iii) a shelf registration statement on Form S-3 (File No.

333-260782) that was declared effective by the SEC on November 18, 2021.

During the six months ended June 30, 2022, we issued 69,048 common shares pursuant to the Sale Agreement, as amended, resulting in net proceeds of approximately $0.3 million.

For the six months ended June 30, 2021, we issued 6,395,780 common shares pursuant to the Sale Agreement, resulting in net proceeds of approximately $26.4 million.

As of June 30, 2022, there was approximately $152.0 million available in aggregate under the October 2021 Prospectus Supplement and the March 2022 Prospectus Supplement.

and (iii) the November 2021 Registration Statement.

During the nine months ended September 30, 2022, we issued 3,901,765 common shares pursuant to the Sale Agreement, as amended, resulting in net proceeds of approximately $9.2 million.

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

As of September 30, 2022, there was approximately $142.6 million available in aggregate under the October 2021 Prospectus Supplement and the March 2022 Prospectus Supplement.

Royalty Entitlements

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Cash requirements

We believe that our $200.6 million of cash, cash equivalents and investments in marketable securities as of June 30, 2022 will be sufficient to fund our operations into the second quarter of 2024 based on our expectation of a net cash burn between $90 million and $95 million in 2022.

We believe that our $190.2 million of cash, cash equivalents and investments in marketable securities as of September 30, 2022 will be sufficient to fund our operations into the second quarter of 2024 based on our expectation of a net cash burn between $90 million and $95 million in 2022.

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

23 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis